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]
ANNUAL
REPORT
December 31, 1995
[LOGO]
<PAGE>
Mutual Discovery Fund
Yearly Performance
Total Return*
1993 ............................................................. 35.85%
1994 ............................................................. 3.62%
1995 ............................................................. 28.63%
Comparison of Changes in Value of $10,000 Investment in
Mutual Discovery Fund
The S&P 500 and Russell 2000
[The following table was represented by a chart in the printed material]
Mutual Discovery S&P 500 Russell 2000
---------------- ------- ------------
'92 10000 10000 10000
'93 13585 11008 11890
'94 14077 11153 11674
'95 18107 15345 14995
Average Annual Total Return*
- ------------------------------------------
1 Year 2 Year 3 Year
- ------------------------------------------
28.63% 15.45% 21.88%
- ------------------------------------------
- --------------------------------------------------------------------------------
Portfolio manager Michael F. Price has been responsible for the day-to-day
management of the Fund since inception.
* 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.
- --------------------------------------------------------------------------------
<PAGE>
MUTUAL SERIES FUND INC.
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
February 20, 1996
TO THE SHAREHOLDERS OF
MUTUAL DISCOVERY FUND:
Mutual Discovery appreciated 28.6% in 1995 which in absolute terms made
for a very good year. Discovery's cash balances averaged 8% through the period
and stood at 16% at year end. Given the extraordinary gains in broader market
indices such as the S&P 500, the Fund's relative performance certainly lagged,
but that is not unexpected in this kind of market. Our mix of "cheap stocks"
trading at substantial discounts to their net asset value, securities of
companies involved in corporate mergers, acquisitions and spinoffs, as well as
distressed/bankruptcy investments is less linked to the market movements
generally than to the specifics of each particular investment. To put
Discovery's 1995 performance further in perspective, you should note that more
than 40% of the Fund's assets are invested in foreign securities, and those
markets experienced only nominal gains last year. As we do not profess to
predict market movements, we will not sacrifice capital preservation in the hope
for highly speculative capital appreciation. The portfolio is designed for bad
markets as well as good, and we will clearly sacrifice some upside potential in
exchange for downside protection.
One of the highlights for us in 1995 was the investment in Chase Manhattan
Bank. Early in the year our senior banking analyst Ray Garea identified Chase as
a substantially undervalued stock at $35 per share with component parts and
"hidden assets" worth twice the stock price. At the same time several other
financial institutions were demonstrating the viability of monetizing these
kinds of assets through either sales or spinoffs in a tax efficient manner. With
firm conviction in the values and of a way for Chase to achieve them, the Fund
accumulated its position and expressed its views to management over the course
of several months. Although Chase ultimately chose a somewhat different course
than we originally expected in its effort to enhance shareholder values, i.e.
through a merger with Chemical Bank, we have been fully supportive of this
approach and very much like the prospects for the combined Chase-Chemical
entity.
Although the Fund has received considerable media attention from the Chase
investment, it is important to distinguish between the elements of this
investment that are typical for Mutual and those that are quite atypical. As a
cheap stock trading at a large discount to its intrinsic value, Chase was a
"bread and butter" investment for the Fund. What was unusual was the public
persona of this investment and the incorrect perception that the Fund may have
had some interest in taking control of Chase. The vast majority of our work is
completely out of the public eye, and we know that we are investors, not
3
<PAGE>
managers or control players. We have positive, productive relationships with
virtually all managements of companies in which we invest, and we believe that
these managements respect and appreciate our involvement.
A more typical example of Mutual's approach involves US West, a regional
Bell operating company with extensive cable and cellular interests. In 1994,
senior analyst Larry Sondike, who follows telecommunications companies for us,
concluded that the stock market was largely ignoring the high growth, low
current earning cable and cellular businesses. Over a two year period Mutual
accumulated a very significant position in the stock, in the expectation that
over time the market would give due credit to all the parts of US West. We also
expressed our views to management concerning our perception of the values and
various ways to highlight them. In November of 1995, the company announced that
it would distribute to shareholders a separate share of the cable and cellular
interests in an entity now called US West, Inc.-Media Group. The sum of the two
pieces of US West provided close to a 60% return to the company's shareholders
last year. We continue to like US West Media Group and believe the stock has
significant upside from its current trading price of $21 per share.
Discovery's investment in Forvaltnings AB Ratos is indicative of how the
Fund can apply its value philosophy abroad. Ratos is a family controlled holding
company based in Sweden that owns a large portfolio of European equity
securities as well as several operating businesses. We first began purchasing
the stock in 1995 at what we estimated to be a 60% discount to net asset value.
The family has brought in new management to restructure the company by
revitalizing underperforming businesses, taking certain of its wholly owned
businesses public, and actively managing its equity portfolio. All of these
actions are working to close the discount to asset value and to boost
shareholder value.
The growth in our trading and research personnel has provided a full
pipeline of ideas that permits us to manage an increasing pool of assets with
the same discipline and investment philosophy that we have always utilized. One
of our senior analysts, Robert Friedman, recently moved to London, reflecting
our increased focus on Europe. Rob's work is complemented by several analysts
and traders based here who also spend most of their time on overseas
investments. Bull markets do not make it easier for us to find good ideas, but
our research and trading capabilities have never been better.
Additionally, we have significantly increased our shareholder service
personnel as well as the physical space and computer capabilities of our office
facility. We believe that these changes will enable us to serve you better.
Sincerely,
MICHAEL F. PRICE, President
4
<PAGE>
MUTUAL DISCOVERY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
Number Value
of Shares (Note A)
--------- --------
COMMON STOCK & OTHER EQUITY INTERESTS (78.39%)
Aerospace (0.90%)
* Tracor Inc. ........................ 672,100 $ 9,745,450
(A) TransTechnology Corp. .............. 193,300 2,609,550
--------------
12,355,000
--------------
Banking (7.09%)
* Affiliated Community Bancorp, Inc. . 77,000 1,337,875
(A)* American National Bank Corp. ....... 291,000 2,837,250
(A)(R)* Atlantic Bancorp ................... 307,793 3,077,930
(A)* BNH Bancshares, Inc. ............... 1,123,000 2,105,625
Banco Central Hispano-Americano, SA 147,600 2,983,411
(A) Bell Bancorp ....................... 499,300 17,849,975
Benson Financial Corp. ............. 90,000 1,687,500
* Brooklyn Bancorp, Inc. ............. 62,000 2,526,500
* Calumet Bancorp, Inc. .............. 128,000 3,552,000
Center Financial Corp. ............. 110,000 1,925,000
Chase Manhattan Corp. .............. 100,000 6,062,500
Christiania Bank ................... 3,200,000 7,414,413
(A)* Civic BanCorp ...................... 385,866 2,893,995
* Dime Bancorp Inc. .................. 744,133 8,650,546
* Farmers & Mechanics Bank ........... 35,219 774,818
First Defiance Financial Corp. ..... 254,000 2,571,750
* Flushing Financial Corp. ........... 70,000 1,076,250
* Fokus Bank ......................... 670,000 3,611,689
ISB Financial Corp. ................ 290,000 4,350,000
(A) Lafayette American Bancorp, Inc. ... 573,513 5,304,995
(A)* Lafayette American Bancorp, Inc.,
Warrants ........................ 33,422 162,097
Long Island Bancorp, Inc. .......... 40,000 1,055,000
Mahaska Investment Co. ............. 107,000 1,605,000
(A)(R)* Monarch Bancorp .................... 800,000 1,080,000
(A)* Rancho Santa Fe National Bank ...... 347,223 1,388,892
* Riggs National Corp. ............... 20,000 260,000
* Standard Financial, Inc. ........... 11,483 167,939
USBANCORP, Inc. .................... 130,000 4,290,000
* WFS Financial Inc. ................. 232,500 4,533,750
--------------
97,136,700
--------------
Chemicals (1.69%)
(A) Cambrex Corp. ...................... 388,400 16,070,050
First Mississippi Corp. ............ 269,150 7,132,475
--------------
23,202,525
--------------
Communications (0.68%)
* Associated Group Inc., Class A ..... 13,900 262,363
* Associated Group Inc., Class B ..... 36,600 695,400
Granite Broadcasting Corp. ......... 90,000 956,250
Media General Inc., Class A ........ 244,300 7,420,613
--------------
9,334,626
--------------
Computer & Electronic Equipment (0.75%)
(A)* Continental Information
Systems Inc. .................... 419,828 944,613
Linotype-Hell AG ................... 48,900 5,015,821
(A)(R)* MWCR, L.L.C ........................ 4,167,000 4,167,000
* NBS Technologies Inc. .............. 57,900 190,970
--------------
10,318,404
--------------
Conglomerates (5.29%)
Forvaltnings AB Ratos, B Shares .... 948,600 15,750,845
* Griffon Corp. ...................... 315,600 2,840,400
Harcourt General Inc. .............. 106,900 4,476,438
Incentive AB, A Shares ............. 145,900 6,357,872
Incentive AB, B Shares ............. 104,200 4,540,714
Investor AB, A Shares .............. 149,750 4,927,985
Investor AB, B Shares .............. 175,700 5,781,950
Kinnevik AB, A Shares .............. 10,000 309,546
Philips Electronics NV ............. 351,000 12,660,448
Philips Electronics NV, ADR ........ 182,300 6,540,013
Semi-Tech (Global) Ltd. ............ 5,156,705 8,302,745
--------------
72,488,956
--------------
Construction (1.48%)
CalMat Co. ......................... 137,800 2,514,850
(A) Elcor Corp. ........................ 669,200 14,555,100
Lone Star Industries, Inc. ......... 54,226 1,355,650
Republic Gypsum Co. ................ 135,000 1,890,000
--------------
20,315,600
--------------
Consumer Products & Services (6.34%)
BIC SA ............................. 85,300 8,657,781
5
<PAGE>
Number Value
of Shares (Note A)
--------- --------
CarnaudMetalbox Ltd. Asia .......... 334,000 $ 1,334,300
Dial Corp. ......................... 187,100 5,542,838
Jostens, Inc. ...................... 879,800 21,335,150
Pacific Dunlop Ltd. ................ 9,463,600 22,141,631
RJR Nabisco Holdings Corp. ......... 756,100 23,344,588
Rothmans Inc. ...................... 32,300 2,698,868
* U.S. Industries, Inc. .............. 98,900 1,817,288
--------------
86,872,444
--------------
Entertainment & Media (6.29%)
* Alliance Entertainment Corp. ....... 959,000 9,110,500
BHC Communications Inc. ............ 11,300 1,067,850
Comcast Corp., Class A ............. 17,000 299,625
Comcast Corp., Class A,
Special Non-Voting .............. 71,500 1,300,409
* ITT Corp. .......................... 34,500 1,828,500
* Metromedia International
Group Inc. ...................... 500,000 7,000,000
* US West Inc.,-Media Group .......... 1,092,500 20,757,500
(A) Yorkshire-Tyne Tees TV
Holdings, PLC ................... 3,300,000 34,927,916
* Young Broadcasting Inc., Class A ... 351,400 9,927,050
--------------
86,219,350
--------------
Financial Services (2.85%)
BHC Financial, Inc. ................ 156,600 2,818,800
Dean Witter, Discover & Co. ........ 120,000 5,640,000
Eaton Vance Corp. .................. 140,800 3,977,600
Finova Group Inc. .................. 240,300 11,594,475
First USA Inc. ..................... 75,000 3,328,125
(A)* Hamilton Financial Services Corp. .. 459,300 631,538
Lehman Brothers Holdings Inc. ...... 146,200 3,106,750
United Asset Management Corp. ...... 205,700 7,893,737
--------------
38,991,025
--------------
Food & Beverages (6.09%)
Brown-Forman Corp., Class B ........ 161,800 5,905,700
Corby Distilleries Ltd., Class A ... 96,800 3,015,355
Cultor Oy, Series 1 ................ 259,800 10,720,525
Farmer Brothers Co. ................ 39,102 5,337,423
(A) Goodmark Foods, Inc. ............... 580,200 10,298,550
Heineken Holding NV ................ 47,785 7,815,581
Nutricia Verenigde Bedrijven NV .... 74,000 5,973,383
Rieber & Son AS, Class B ........... 688,200 14,101,570
Seagram Company Ltd. ............... 113,900 3,943,787
Societe Sucriere de Pithiviers SA .. 11,568 5,693,818
Van Melle NV ....................... 155,782 10,656,729
--------------
83,462,421
--------------
Healthcare (8.24%)
* Beverly Enterprises, Inc. .......... 156,300 1,660,687
* FHP International Corp. ............ 356,500 10,160,250
Getinge Industrier AB, B Shares .... 1,039,466 47,249,165
* Health Systems International, Inc. . 100,000 3,212,500
* Humana, Inc. ....................... 218,400 5,978,700
Instrumentarium Group, Series A .... 293,400 7,600,514
Instrumentarium Group, Series B .... 348,100 8,937,713
* Laboratory Corp. of America ........ 399,824 3,748,350
* Laboratory Corp. of America,
Warrants ........................ 53,685 36,908
* MDT Corp. .......................... 274,700 1,339,163
Pharmacia & Upjohn Inc. ............ 205,000 7,943,750
* Tenet HealthCare Corp. ............. 725,000 15,043,750
--------------
112,911,450
--------------
Industrial (4.79%)
Bayer AG ........................... 31,800 8,424,346
Bucher Holding AG, Bearer .......... 11,413 6,527,366
ITT Industries Inc. ................ 37,500 900,000
(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 11,479,766
SIG Swiss Industrial Company
Holding Ltd., Bearer ............ 3,925 8,196,924
SIG Swiss Industrial Company
Holding Ltd., Registered ........ 690 699,567
Shaw Industries Ltd., Class A ...... 461,800 4,061,714
Shaw Industries Ltd., Class B ...... 2,200 19,350
* Societe Fonciere Financiere et
de Participations, (FFP) ........ 15,090 492,083
Volvo AB, B Shares ................. 757,500 15,480,323
--------------
65,611,949
--------------
Insurance (6.08%)
Allmerica Property & Casualty
Companies, Inc. ................. 421,800 11,388,600
Financial Security Assurance
Holdings Ltd. ................... 97,500 2,425,313
Home Beneficial Corp., Class B ..... 388,299 9,319,176
6
<PAGE>
Number Value
of Shares (Note A)
--------- --------
Internationale Nederlanden
Groep NV ........................ 90,732 $ 6,048,800
* ITT Hartford Group Inc. ............ 46,500 2,249,438
Koelnische Rueckversicherungs AG ... 16,757 11,419,930
Mid Ocean Ltd. ..................... 155,400 5,769,225
National Security Group, Inc. ...... 47,430 622,519
Old Republic International Corp. ... 285,900 10,149,450
* Provident Companies Inc. ........... 333,100 11,283,763
Reliable Life Insurance Company,
Class A ......................... 12,414 720,012
* 20th Century Industries ............ 46,500 924,188
UNI Storebrand AS .................. 1,989,500 10,975,428
--------------
83,295,842
--------------
Investment Companies (3.50%)
ASEAN Fund ......................... 317,400 5,554,500
Austria Fund, Inc. ................. 185,600 1,554,400
Baker, Fentress & Co. .............. 25,100 420,425
Central European Equity Fund Inc. .. 364,000 5,960,500
G.T. Chile Growth Fund Ltd. ........ 260,000 10,530,000
G.T. Greater Europe Fund Inc. ...... 204,400 2,555,000
* J F Asia Select Ltd. ............... 986,000 1,383,524
New Age Media Fund, Inc. ........... 105,100 1,563,363
New Germany Fund Inc. .............. 932,600 10,841,475
* Oresund Investment AB .............. 361,100 6,782,597
United Corporations Ltd. ........... 33,147 850,328
--------------
47,996,112
--------------
Metals (0.60%)
* Algoma Steel Corp., Ltd. ........... 657,144 2,468,474
* Algoma Steel Corp., Ltd., Units .... 868,859 4,566,070
* Bliss & Laughlin Industries Inc. ... 127,100 1,207,450
--------------
8,241,994
--------------
Natural Resources (4.95%)
(A)* Aviva Petroleum Inc. ............... 860,000 520,140
(A)* Aviva Petroleum Inc.,
Depositary Shares ............... 255,188 1,116,448
* Dual Drilling Co. .................. 422,400 4,804,800
(A)* Dual Invest AS, Class B ............ 749,100 5,431,341
* Energy Ventures, Inc. .............. 206,903 5,224,301
* Mosvold Shipping Ltd. .............. 732,600 554,265
(A)* Pacific Forest Products Ltd. ....... 1,202,000 16,408,729
Penn Virginia Corp. ................ 168,450 5,432,513
* Transocean Drilling AS ............. 1,638,190 28,274,037
--------------
67,766,574
--------------
Printing & Publishing (3.48%)
Aamulehti Yhtymae Oy-II ............ 282,200 5,887,118
De Telegraaf Holding NV ............ 73,000 10,259,950
* Editoriale L'Espresso SpA .......... 2,308,000 3,996,851
Euromoney Publications PLC ......... 460,000 7,404,765
Mirror Group PLC ................... 3,970,000 10,712,624
Shaw Brothers Ltd. ................. 4,704,700 5,171,671
Toronto Sun Publishing Corp. ....... 456,100 4,178,729
--------------
47,611,708
--------------
Real Estate (2.35%)
* Gentra Inc. ........................ 69,500 67,750
(A)(R)* MSCW Investors II, L.L.C ........... 10,438,000 16,187,261
Permian Basin Royalty Trust ........ 191,300 621,725
San Juan Basin Royalty Trust ....... 482,900 3,018,125
* Trizec Corp. Ltd., Class A Warrants 1,131,530 1,177,684
(A)(R)* Value Property Trust ............... 1,101,955 11,122,913
--------------
32,195,458
--------------
Retail (4.10%)
CML Group, Inc. .................... 610,000 3,126,250
Delchamps, Inc. .................... 224,179 4,567,647
* Hills Stores Co. ................... 67,393 665,506
* Home Shopping Network, Inc. ........ 425,000 3,825,000
* Isosceles PLC, Ordinary ............ 643,694 9,982
Melville Corp. ..................... 282,000 8,671,500
Morrison Restaurants Inc. .......... 676,100 9,465,400
Sears PLC .......................... 6,488,000 10,464,062
Sears, Roebuck & Co. ............... 148,100 5,775,900
* Service Merchandise Co., Inc. ...... 1,405,000 7,025,000
Venture Stores, Inc. ............... 668,400 2,255,850
* The Vons Companies, Inc. ........... 9,100 257,075
--------------
56,109,172
--------------
Transportation (0.85%)
* Canadian National Railway Co. ...... 52,500 787,500
Florida East Coast Industries, Inc. 4,000 272,240
(A)* Maratime Investment Fund Ltd. ...... 315,000 3,401,031
(A)* Mols-Linien A/S .................... 170,635 7,205,222
--------------
11,665,993
--------------
TOTAL COMMON STOCK &
OTHER EQUITY INTERESTS .............. 1,074,103,303
--------------
PREFERRED STOCK (2.10%)
* Columbia Gas System, Inc.,
Dividend Enhanced Conv. Stock ... 63,006 2,535,992
7
<PAGE>
Number
of Shares
or Principal Value
Amount (Note A)
------------ --------
* Columbia Gas System, Inc., Pfd. .... 102,878 $ 2,533,371
* Gentra Inc., Priority Pfd. A ....... 15,712 250,475
* Gentra Inc., Pfd. G ................ 139,500 1,444,232
Granite Broadcasting Corp.,
Series A Conv. Pfd. ............. 135,000 7,290,000
* Hills Stores Co., Pfd. ............. 17,136 160,650
* Isosceles PLC, Series A
Preference Shares ............... 1,291,300 20,026
RJR Nabisco Holdings Corp.,
Class C Pfd. .................... 466,000 2,970,750
Wang Laboratories, Inc.,
11.00%, Pfd. .................... 485,721 11,535,872
--------------
28,741,368
--------------
CORPORATE BONDS AND NOTES (2.32%)
Aamulehti Yhtymae Oy,
6.00%, 11/19/98 ............. FIM 367,000 191,404
* Gentra Inc.,
7.50%, 12/31/01 ............. CAD 4,296,500 3,432,539
Kinnevik AB,
10.50%, 7/21/97 ............. SEK 44,283,000 12,310,260
(R) MB Motori, L.L.C.,
Subordinated Note ............... $ 1,819,516 1,819,516
(R) MWCR, L.L.C.,
15.00%, Subordinated Note ....... 2,973,753 2,973,753
Value Property Trust,
11.125%, 9/29/02 ................ 11,131,000 11,131,000
--------------
31,858,472
--------------
BONDS AND NOTES IN REORGANIZATION (1.36%)
* CIS Corp., Bank Claim .............. 1,927,860 578,358
* CIS Corp., Bank Claim,
Class 7 Escrow Receipts ......... 2,126,507 199,892
* CIS Corp., Bank Claim,
Class 9 Escrow Receipts ......... 13,824,792 124,423
* Dow Corning Corp., Bank Debt ...... 3,250,000 2,665,000
* Dow Corning Corp., 8.15%, 10/15/29.. 500,000 416,250
* Dow Corning Corp., 8.55%, 3/01/01 .. 1,905,000 1,619,250
* Dow Corning Corp., 9.375%, 2/01/08 . 100,000 86,500
* Dow Corning Corp., Swap ............ 5,833,334 4,725,001
* Isosceles PLC,
0%/7.00%, 7/05/03 ........... GBP 5,066,811 78,576
* Isosceles PLC, Facility A
Term Loan, 1998 ............. GBP 347,225 309,624
* Isosceles PLC, Facility B
Term Loan, 2001 ............. GBP 1,543,223 1,376,108
* Somerfield Holdings Ltd.,
Facility A Term Loan, 2000 .. GBP 3,375,800 4,528,443
* Somerfield Holdings Ltd.,
Facility B Revolving Credit,
1998 ........................ GBP 1,446,771 1,940,761
--------------
18,648,186
--------------
COMPANIES IN LIQUIDATION (0.05%)
* City Investing Co.,
Liquidating Trust ............... 100,000 93,750
* MBO Properties Inc. ................ 241,144 602,860
--------------
696,610
--------------
UNITED STATES GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS (15.65%)
U.S. Goverment Agency Obligations (0.35%)
Federal National Mortgage Association,
5.76%, 9/03/96 .................. $ 1,500,000 1,504,219
5.31%, 12/11/96 ................. 3,300,000 3,301,031
--------------
4,805,250
--------------
U.S. Goverment Agency Discount Notes (12.64%)
Federal Home Loan Bank System,
5.60%, 1/02/96 .................. 1,000,000 999,844
5.50%, 2/20/96 .................. 2,900,000 2,877,847
5.54%, 2/22/96 .................. 6,000,000 5,951,987
5.51%, 3/18/96 .................. 7,500,000 7,411,290
Federal Home Loan Mortgage Corp..
5.53%, 2/07/96 .................. 2,100,000 2,088,064
5.53%, 2/15/96 .................. 3,800,000 3,773,732
Federal National Mortgage Association,
5.51%, 1/03/96 .................. 400,000 399,878
5.36%, 1/12/96 .................. 700,000 698,854
5.44%, 3/07/96 .................. 2,400,000 2,375,669
5.47%, 3/07/96 .................. 2,200,000 2,177,696
5.44%, 3/08/96 .................. 2,800,000 2,771,182
5.42%, 3/13/96 .................. 6,600,000 6,527,004
5.42%, 3/20/96 .................. 2,900,000 2,864,808
5.44%, 4/22/96 .................. 10,200,000 10,025,468
5.45%, 4/22/96 .................. 4,000,000 3,931,556
5.43%, 5/03/96 .................. 21,000,000 20,612,550
5.36%, 5/08/96 .................. 8,200,000 8,042,560
5.36%, 5/09/96 .................. 6,000,000 5,883,900
8
<PAGE>
Number
of Shares
or Principal Value
Amount (Note A)
------------ --------
5.38%, 5/09/96 .................. $ 3,400,000 $ 3,334,210
5.53%, 5/13/96 .................. 6,000,000 5,880,300
5.39%, 5/17/96 .................. 7,820,000 7,659,299
5.32%, 6/03/96 .................. 6,300,000 6,154,470
5.28%, 6/04/96 .................. 4,000,000 3,908,724
5.19%, 6/10/96 .................. 6,500,000 6,345,930
5.26%, 6/14/96 .................. 10,500,000 10,244,934
5.57%, 6/17/96 .................. 5,200,000 5,071,388
5.29%, 7/01/96 .................. 4,200,000 4,087,675
5.26%, 7/02/96 .................. 1,200,000 1,167,731
5.19%, 7/15/96 .................. 12,000,000 11,655,696
5.57%, 7/15/96 .................. 6,200,000 6,022,110
5.29%, 7/26/96 .................. 1,100,000 1,067,174
5.24%, 8/05/96 .................. 2,000,000 1,936,468
5.58%, 8/09/96 .................. 7,000,000 6,773,536
5.31%, 9/27/96 .................. 2,500,000 2,400,625
--------------
173,124,159
--------------
U.S. Treasury Bills (2.66%)
5.290%, 2/08/96 ................. 4,300,000 4,275,989
5.225%, 3/07/96 ................. 4,000,000 3,964,580
5.440%, 3/07/96 ................. 3,700,000 3,667,236
5.355%, 4/04/96 ................. 4,100,000 4,047,114
5.360%, 4/04/96 ................. 6,000,000 5,922,606
5.340%, 8/22/96 ................. 5,200,000 5,030,662
5.280%, 9/19/96 ................. 3,700,000 3,565,901
5.290%, 9/19/96 ................. 2,400,000 2,313,017
5.335%, 9/19/96 ................. 3,800,000 3,662,277
--------------
36,449,382
--------------
TOTAL INVESTMENTS IN
SECURITIES (99.87%) ..................... $1,368,426,730
--------------
SECURITIES SOLD SHORT (0.17%)
* Louisiana Land & Exploration Co. ...... 53,500 $ 2,293,813
--------------
* 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.
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 ................................................ 55.7%
Sweden ....................................................... 8.7
United Kingdom ............................................... 6.6
Norway ....................................................... 5.4
Netherlands .................................................. 4.4
Canada ....................................................... 3.6
Germany ...................................................... 3.1
Finland ...................................................... 2.4
Switzerland .................................................. 2.0
Italy ........................................................ 1.6
Australia .................................................... 1.6
Hong Kong .................................................... 1.1
France ....................................................... 1.1
Other (individually less than 1%) ............................ 2.7
-----
Total 100.0%
=====
9
<PAGE>
MUTUAL DISCOVERY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments in Securities, at Value
Unaffiliated Issuers (Cost $1,041,666,772) ................................. $1,176,984,159
Controlled Affiliated Issuers (Cost $29,884,830) ........................... 29,498,671
Non Controlled Affiliated Issuers (Cost $133,406,320) ...................... 161,943,900 $1,368,426,730
--------------
Cash ............................................................................................... 669,443
Receivables:
Investment Securities Sold .................................................................... 7,250,172
Capital Stock Subscribed ...................................................................... 5,749,324
Dividends ..................................................................................... 3,106,076
Interest ...................................................................................... 735,623
Deposits with Brokers for Securities Sold Short .................................................... 2,727,276
Other Assets ....................................................................................... 442,839
-------------
TOTAL ASSETS .............................................................................. 1,389,107,483
-------------
LIABILITIES
Payables:
Net Payable for Foreign Currency Exchange Contracts ........................................... 7,168,986
Investment Securities Purchased ............................................................... 6,822,331
Capital Stock Repurchased ..................................................................... 1,435,022
Investment Advisory Fee ....................................................................... 882,935
Accrued Expenses and Other Liabilities ........................................................ 282,956
Securities Sold Short, at Value (Proceeds Receivable $2,175,655) ................................... 2,293,813
-------------
TOTAL LIABILITIES ......................................................................... 18,886,043
-------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK ................................................. $1,370,221,440
==============
NUMBER OF SHARES OUTSTANDING
(Authorized -- 100,000,000 Shares, $.001 Par Value) ........................................... 90,356,946
==============
NET ASSET VALUE PER SHARE
(Offering and Redemption Price Per Share) ..................................................... $ 15.16
==============
COMPOSITION OF NET ASSETS
Paid in Capital .................................................................................... $1,181,143,956
Distributions in Excess of Net Investment Income ................................................... (4,232,205)
Accumulated Net Realized Gain on Investments and Foreign Currency Transactions ..................... 37,098,017
Net Unrealized Appreciation of Investments and Securities Sold Short ............................... 163,350,650
Net Unrealized Depreciation of Foreign Currency Exchange Contracts and Dividends ................... (7,138,978)
-------------
TOTAL NET ASSETS .......................................................................... $1,370,221,440
==============
</TABLE>
See notes to financial statements.
10
<PAGE>
MUTUAL DISCOVERY FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends -- Unaffiliated Issuers
(Net of Foreign Withholding -- $1,009,643) ................................ $15,281,239
Dividends -- Non Controlled Affiliated Issuers
(Net of Foreign Withholding-- $99,212) .................................... 1,983,911
Interest .................................................................... 11,428,704
Other Income ................................................................ 1,037,257
-----------
TOTAL INCOME ..................................................................... $ 29,731,111
Expenses:
Investment Advisory Fee ..................................................... 7,930,967
Shareholder Servicing Costs ................................................. 676,835
Administrative .............................................................. 412,166
Custodian Fees .............................................................. 344,950
Registration and Filing Fees ................................................ 172,984
Legal Fees .................................................................. 143,501
Shareholder Reports ......................................................... 62,167
Auditing Fees ............................................................... 57,321
Insurance ................................................................... 21,191
Directors' Fees and Expenses ................................................ 15,743
Miscellaneous ............................................................... 21,548
-----------
TOTAL EXPENSES ................................................................... 9,859,373
------------
NET INVESTMENT INCOME ................................................... 19,871,738
------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net Realized Gain on Investments and Foreign Currency Transactions
in Unaffiliated Issuers ................................................... 76,414,633
Net Realized Gain on Investments in Non Controlled Affiliated Issuers ....... 6,240,849
Net Realized Gain on Securities Sold Short .................................. 2,185,518
Net Realized Gain on Options Written ........................................ 49,711
Change in Unrealized Appreciation/(Depreciation) of Investments,
Securities Sold Short and Foreign Currency Transactions ................... 129,809,314
------------
NET GAIN ON INVESTMENTS ................................................. 214,700,025
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ....................................... $234,571,763
============
</TABLE>
See notes to financial statements.
11
<PAGE>
MUTUAL DISCOVERY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1994
--------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net Investment Income ....................................................... $ 19,871,738 $ 11,798,727
Net Realized Gain on Investments and Foreign Currency Transactions .......... 84,890,711 41,000,446
Change in Unrealized Appreciation/(Depreciation) of Investments ............. 129,809,314 (34,473,392)
--------------- -------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS ...................................................... 234,571,763 18,325,781
--------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income ....................................................... (11,920,757) (8,661,931)
Net Realized Gain on Investments ............................................ (66,854,127) (43,853,982)
--------------- -------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS .................................... (78,774,884) (52,515,913)
--------------- -------------
CAPITAL STOCK TRANSACTIONS ....................................................... 489,092,918 211,134,601
--------------- -------------
NET INCREASE IN NET ASSETS ....................................................... 644,889,797 176,944,469
NET ASSETS:
Beginning of Year ........................................................... 725,331,643 548,387,174
--------------- -------------
End of Year -- Including Distributions in Excess of Net Investment
Income of $4,232,205 and Undistributed Net Investment Income of
$172,580, respectively .................................................... $ 1,370,221,440 $ 725,331,643
=============== =============
</TABLE>
See notes to financial statements.
12
<PAGE>
MUTUAL DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
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
policies are in conformity with generally accepted accounting principles.
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.
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.
13
<PAGE>
MUTUAL DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
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. Differences in the
recognition or classification of income between the financial statements and tax
earnings and profits which result in temporary over-distributions for financial
statement purposes are classified as distributions in excess of net investment
income or accumulated net realized gains. During the year ended December 31,
1995, permanent book and tax differences of $11,905,201, relating to foreign
currency transactions, was reclassified from distributions in excess of net
investment income to accumulated net realized gains on investments and foreign
currency transactions, and $450,565, relating to passive foreign investment
companies was reclassified from distributions in excess of net investment income
to paid in capital. Net investment income, net realized gain, and net assets
were not affected by this change.
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 year ended December 31, 1995, the Adviser received fees of
$7,930,967 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.
14
<PAGE>
MUTUAL DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
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 year ended
December 31, 1995, the Fund paid brokerage commissions totalling $217,609 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.
NOTE C -- INVESTMENT TRANSACTIONS
Purchases and proceeds from the sale of investment securities (excluding
short-term investments) for the year ended December 31, 1995 aggregated
$902,450,733 and $663,908,748, respectively.
For Federal income tax purposes, the identified cost of investments at
December 31, 1995 was $1,205,094,441. Net unrealized appreciation for all
securities at December 31, 1995, based on Federal income tax cost, amounted to
$163,332,289 consisting of aggregate gross unrealized appreciation of
$203,266,574 and aggregate gross unrealized depreciation of $39,934,285.
Transactions in options written during the year ended December 31, 1995
were as follows:
Principal
Amount or
Number of
Contracts Premium
--------- --------
Options written .............................. 123,000 $ 80,910
Options expired .............................. (44,000) (30,830)
Options terminated in closing transactions ... (43,000) (27,760)
Options exercised ............................ (36,000) (22,320)
-------- --------
Options outstanding at December 31, 1995 ..... -0- -0-
======== ========
NOTE D -- RESTRICTED SECURITIES
A summary of the restricted securities held at December 31, 1995 follows:
<TABLE>
<CAPTION>
Acquisition
Name of Issuer Date Value
- ------------- ---------- -----
<S> <C> <C>
Common Stock & Other Equity Interests
Atlantic Bancorp ................................................... 6/08/95 $ 3,077,930
MB Motori, L.L.C. .................................................. 12/07/94 9,144,410
MSCW Investors II, L.L.C. .......................................... 12/27/95 16,187,261
MWCR, L.L.C. ....................................................... 2/21/95 4,167,000
Monarch Bancorp .................................................... 3/29/95 1,080,000
Value Property Trust ............................................... 12/13/93 11,122,913
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 2,973,753
-------------
Total restricted securities: (Cost $48,043,962) (3.62% of Net Assets) . $ 49,572,783
=============
</TABLE>
15
<PAGE>
MUTUAL DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE E -- INVESTMENT IN AFFILIATES*
<TABLE>
<CAPTION>
Dividend
Balance of Gross Balance of Income
Shares Held Purchases Gross Sales Shares Held Value Jan. 1-
Dec. 31, and and Dec. 31, Dec. 31, Dec. 31,
Name of Issuer: 1994 Additions Reductions 1995 1995 1995
- --------------- --------- ---------- -------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Controlled Affiliates**
MB Motori, L.L.C ...................... 5,230,000 3,914,410 -- 9,144,410 $ 9,144,410 --
MSCW Investors II, L.L.C .............. 0 10,438,000 -- 10,438,000 16,187,261 --
MWCR, L.L.C ........................... 0 4,167,000 -- 4,167,000 4,167,000 --
------------ ----------
Total Controlled Affiliates ....... $ 29,498,671 $ 0
============ ==========
Non Controlled Affiliates
American Healthcorp, Inc. ............. 440,000 -- 440,000 0 *** --
American National Bank Corp. .......... 0 291,000 -- 291,000 $ 2,837,250 --
Atlantic Bancorp ...................... 0 307,793 -- 307,793 3,077,930 --
Aviva Petroleum Inc. .................. 860,000 -- -- 860,000 520,140 --
Aviva Petroleum Inc.,
Depositary Shares ................... 255,188 -- -- 255,188 1,116,448 --
BHC Financial, Inc. ................... 487,100 -- 330,500 156,600 *** $ 42,706
BNH Bancshares, Inc. .................. 0 1,123,000 -- 1,123,000 2,105,625 --
Bell Bancorp .......................... 0 548,200 48,900 499,300 17,849,975 164,460
Bliss & Laughlin Industries Inc. ...... 216,400 -- 89,300 127,100 *** --
Cambrex Corp. ......................... 0 443,700 55,300 388,400 16,070,050 46,370
Civic BanCorp ......................... 385,866 -- -- 385,866 2,893,995 --
Continental Information
Systems Inc. ........................ 0 419,828 -- 419,828 944,613 --
Dual Invest AS, Class A (A) ........... 395,500 -- 395,500 0 *** --
Dual Invest AS, Class B (A) ........... 353,600 395,500 -- 749,100 5,431,341 --
Elcor Corp. ........................... 0 669,200 -- 669,200 14,555,100 40,152
First Keystone Financial Inc. ......... 0 79,500 79,500 0 *** --
Goodmark Foods, Inc. .................. 434,800 145,400 -- 580,200 10,298,550 75,423
Hamilton Financial
Services Corp. ...................... 459,300 -- -- 459,300 631,538 --
Lafayette American
Bancorp, Inc. ....................... 573,513 -- -- 573,513 5,304,995 28,676
Lafayette American
Bancorp, Inc., Warrants ............. 33,422 -- -- 33,422 162,097 --
Maratime Investment
Fund Ltd. ........................... 300,000 15,000 -- 315,000 3,401,031 --
Mols-Linien A/S ....................... 0 170,635 -- 170,635 7,205,222 --
Monarch Bancorp ....................... 0 800,000 -- 800,000 1,080,000 --
Pacific Forest Products Ltd. .......... 0 1,202,000 -- 1,202,000 16,408,729 --
Rancho Santa Fe National Bank ......... 0 347,223 -- 347,223 1,388,892 --
TransTechnology Corp. ................. 279,500 -- 86,200 193,300 2,609,550 68,673
</TABLE>
16
<PAGE>
MUTUAL DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Dividend
Balance of Gross Balance of Income
Shares Held Purchases Gross Sales Shares Held Value Jan. 1-
Dec. 31, and and Dec. 31, Dec. 31, Dec. 31,
Name of Issuer: 1994 Additions Reductions 1995 1995 1995
- --------------- --------- ---------- -------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Non Controlled Affiliates (continued)
Value Property Trust .................. 0 1,101,955 -- 1,101,955 $ 11,122,913 --
Wang Laboratories, Inc.
11.00% Pfd. ......................... 108,943 376,778 -- 485,721 *** $1,120,602
Yorkshire-Tyne Tees TV
Holdings, PLC ....................... 2,425,000 975,000 100,000 3,300,000 34,927,916 396,849
------------ ----------
Total Non Controlled Affiliates $161,943,900 $1,983,911
============ ==========
</TABLE>
* Affilated 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 December 31, 1995 no longer an affiliate.
(A) Name changed from Mosvold Shipping NV.
NOTE F -- FOREIGN CURRENCY EXCHANGE CONTRACTS
At December 31, 1995, 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 31,375,710 $ 23,754,550 2/05/96 $ 23,267,128 $ 487,422
CAD 56,947,820 41,871,470 5/30/96 41,713,108 158,362
CHF 60,418,477 51,115,463 3/07/96 52,697,043 (1,581,580)
DEM 35,477,079 24,580,060 3/15/96 24,759,316 (179,256)
DKK 46,879,540 8,614,395 1/24/96 8,427,639 186,756
ESP 313,952,351 2,515,241 2/16/96 2,568,380 (53,139)
FIM 141,354,346 32,703,917 3/01/96 32,483,491 220,426
FRF 67,863,059 13,938,640 2/28/96 13,844,691 93,949
GBP 53,059,341 82,247,609 2/16/96 82,195,604 52,005
HKD 99,592,972 12,866,010 1/10/96 12,879,330 (13,320)
ITL 5,572,587,857 3,453,299 3/13/96 3,477,542 (24,243)
NLG 51,876,883 32,152,105 3/06/96 32,379,097 (226,992)
NLG 44,196,044 27,495,361 6/17/96 27,732,800 (237,439)
NOK 443,741,089 69,853,130 3/08/96 69,992,728 (139,598)
SEK 437,864,003 60,194,262 2/15/96 65,571,994 (5,377,732)
SEK 57,841,030 8,744,977 4/19/96 8,620,266 124,711
SEK 442,242,294 65,407,874 5/15/96 65,784,941 (377,067)
SGD 1,829,307 1,303,065 2/28/96 1,298,453 4,612
------------ ------------ -----------
$562,811,428 $569,693,551 $(6,882,123)
============ ============ ===========
</TABLE>
17
<PAGE>
MUTUAL DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Net Unrealized
Appreciation/
Contracts to Deliver In Exchange for Settlement Date Value (Depreciation)
-------------------- --------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Purchases
$ 1,045,950 AUD 1,425,000 2/05/96 $ 1,056,730 $ 10,780
24,423,950 CHF 27,821,295 3/07/96 24,265,755 (158,195)
561,635 DEM 803,981 3/15/96 561,095 (540)
1,382,649 DKK 7,600,000 1/24/96 1,366,269 (16,380)
406,229 FIM 1,800,000 3/01/96 413,643 7,414
6,294,256 NOK 40,000,000 3/08/96 6,309,330 15,074
8,625,342 SEK 57,841,030 4/19/96 8,620,266 (5,076)
14,213,166 SEK 94,607,905 5/15/96 14,073,226 (139,940)
----------- ----------- -----------
$56,953,177 $56,666,314 (286,863)
=========== =========== -----------
($7,168,986)
===========
</TABLE>
Currency type abbreviations are explained on page 9.
NOTE G -- CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1995 1994
------------------------------ ------------------------------
Shares Amount Shares Amount
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 37,915,220 $ 564,612,584 25,791,346 $ 349,245,183
Shares issued in reinvestment of dividends 4,881,866 72,917,495 3,863,893 48,936,310
Shares redeemed (10,251,832) (148,437,161) (13,881,531) (187,046,892)
----------- ------------- ----------- -------------
Net Increase 32,545,254 $ 489,092,918 15,773,708 $ 211,134,601
=========== ============= =========== =============
</TABLE>
18
<PAGE>
MUTUAL DISCOVERY FUND
FINANCIAL HIGHLIGHTS
(Selected data for a share of capital stock outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year ................. $12.55 $13.05 $10.00
------ ------ ------
Income from Investment Operations:
Net Investment Income ........................... .17 .15 .10
Net Gain on Securities (realized and unrealized) 3.40 .32 3.48
------ ------ ------
Total from Investment Operations .............. 3.57 .47 3.58
------ ------ ------
Less Distributions:
Dividends (from net investment income) .......... .14 .16 .09
Distributions (from capital gains) .............. .82 .81 .44
------ ------ ------
Total Distributions ........................... .96 .97 .53
------ ------ ------
Net Asset Value, End of Year ....................... $15.16 $12.55 $13.05
====== ====== ======
Total Return* ...................................... 28.63% 3.62% 35.85%
====== ====== ======
Ratios/Supplemental Data:
Net Assets, End of Year (millions) ................. $1,370 $725 $548
Ratio of Expenses to Average Net Assets ............ .99% .99% 1.07%
Ratio of Net Investment Income to Average Net Assets 2.00% 1.64% 1.17%
Portfolio Turnover Rate ............................ 73.23% 72.70% 90.37%
</TABLE>
* 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.
19
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
MUTUAL SERIES FUND INC.
We have audited the accompanying statement of assets and liabilities of
Mutual Discovery Fund, a portfolio of Mutual Series Fund Inc. ("Fund"),
including the schedule of investments, as of December 31, 1995, the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers, or other
appropriate auditing procedures when replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Mutual Discovery Fund, a portfolio of Mutual Series Fund Inc., at December 31,
1995, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 9, 1996
20
<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
