PROSPECTUS
Dated May 1, 1995
As Supplemented through
January 16, 1996
MUTUAL SERIES FUND INC.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
- --------------------------------------------------------------------------------
Mutual Series Fund Telephone Numbers
1-800-448-FUND Shareholder Services Department
To speak with a shareholder services representative
1-800-858-3013 Automated Telephone Inquiry System
To receive the most recent net asset value, account
balance and distribution information, and to confirm transactions
1-800-553-3014 Prospectus and Other Fund Documents
To request prospectus, applications, annual reports
and retirement account documents
- --------------------------------------------------------------------------------
Mutual Series Fund Inc. (the "Fund") is a no-load, diversified, open-end
management investment company organized as a series fund with four series
currently available, Mutual Shares Fund ("Mutual Shares") originally organized
in 1949, Mutual Qualified Fund ("Qualified") and Mutual Beacon Fund ("Beacon"),
each of which has capital appreciation, which occasionally may be short term, as
its principal investment objective. A secondary objective is income. Mutual
Discovery Fund ("Discovery") has long-term capital appreciation as its objective
which it will seek to achieve by including investments in small capitalization
companies. Each series may invest in the securities of companies involved in
prospective mergers, consolidations, liquidations and reorganizations, or as to
which there exist tender or exchange offers. The series may also invest in other
debt and equity securities including junk bonds. Each series may invest up to
15% of its net assets in illiquid securities; this could result in more risk as
well as higher transaction costs than investing in more liquid assets.
This Prospectus sets forth concisely the information that a prospective
investor should know before investing in any series of the Fund. Please retain
this Prospectus for future reference. A Statement of Additional Information,
dated May 1, 1995, containing additional and more detailed information about the
Fund and its series has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The Statement of Additional Information
and the most recent Annual Report of each series which contains additional
performance information can be obtained without charge by calling the Fund at
1-800-553-3014, or writing to the Fund at its above address, Attention:
Shareholder Services.
If you have any questions after reading the prospectus please call the Fund
at 1-800-448-FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
Investment Adviser
HEINE SECURITIES CORPORATION
<PAGE>
ANNUAL EXPENSE TABLES
Annual Mutual Shares Fund Operating Expenses
(as a percentage of average net assets)
Management Fees ........................................... .60%
Other Expenses ............................................ .12%
----
Total Fund Operating Expenses ............................. .72%
<TABLE>
<CAPTION>
Example 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return before
expenses and (2) redemption at the end of each time
period: $8 $24 $41 $92
-----------------------------------------------
</TABLE>
Annual Mutual Qualified Fund Operating Expenses
(as a percentage of average net assets)
Management Fees ........................................... .60%
Other Expenses ............................................ .13%
----
Total Fund Operating Expenses ............................. .73%
<TABLE>
<CAPTION>
Example 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return before
expenses and (2) redemption at the end of each time
period: $8 $24 $42 $93
-----------------------------------------------
</TABLE>
Annual Mutual Beacon Fund Operating Expenses
(as a percentage of average net assets)
Management Fees ........................................... .60%
Other Expenses ............................................ .15%
----
Total Fund Operating Expenses ............................. .75%
<TABLE>
<CAPTION>
Example 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return before
expenses and (2) redemption at the end of each time
period: $8 $25 $43 $95
-----------------------------------------------
</TABLE>
Annual Mutual Discovery Fund Operating Expenses
(as a percentage of average net assets)
Management Fees .......................................... .80%
Other Expenses ............................................ .19%
----
Total Fund Operating Expenses ............................. .99%
<TABLE>
<CAPTION>
Example 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return before
expenses and (2) redemption at the end of each time
period: $10 $32 $56 $125
-----------------------------------------------
</TABLE>
2
<PAGE>
The purpose of the table on the prior page is to assist an investor in
understanding the various direct and indirect costs and expenses that are borne
by an investor in each of the Fund's series. The table should not be considered
a representation of past or future expenses or return. Actual expenses and
return of each of the Fund's series vary from year to year and may be higher or
lower than those shown. There are presently no sales charges, no deferred sales
charges, no redemption fees (except for bank wire fees of $7 per wire transfer)
and no contingent charges which an investor is required to pay. The Fund does
not contemplate that any such charges will be imposed in the future, but the
Fund, in its discretion, is permitted to assess such charges. The only fees and
expenses presently incurred are the advisory fees paid to Heine Securities
Corporation (the "Adviser") pursuant to an investment advisory agreement with
each series and the expenses of operating the Fund and the series, most of which
are borne by the series pro rata according to each series' total assets, either
directly or through reimbursement of the Adviser for expenses paid by the
Adviser on behalf of the series. The Trustee of Fund sponsored retirement
accounts charges a $9 per account annual maintenance fee for all or any portion
of the year that each retirement account is open.
PERFORMANCE INFORMATION
From time to time the Fund may include in its communications to current or
prospective shareholders figures reflecting total return over various time
periods. "Total return" is the rate of return on an amount invested in one of
the series of the Fund from the beginning until the end of the stated period.
"Average annual total return" is the annual compounded percentage change in the
value of an amount invested in one of the series of the Fund from the beginning
until the end of the stated period. Both rates of return assume the reinvestment
of all dividends and distributions. The Fund does not have a sales load or other
charges paid by all shareholders that affect its calculation of total or average
annual total return.
The Fund's average annual total return for the 1, 5 and 10 year periods
ended December 31, 1994, respectively, are as follows:
1 Year 5 Years 10 Years
------ ------- --------
Mutual Shares .................. 4.53% 10.86% 14.77%
Qualified ...................... 5.73% 11.63% 15.12%
Beacon ......................... 5.61% 11.50% 15.40%*
15.52%*
Discovery ...................... 3.62% 18.65%** N/A
* The average annual total return for the 10 year period ending December 31,
1994, was 15.40%. Prior to January 9, 1985, Beacon was advised by an investment
adviser unaffiliated with Heine Securities Corporation. Since January 9, 1985,
the average annual total return is 15.52%.
** Mutual Discovery Fund commenced operations on December 31, 1992. The average
annual return for the two year period ending December 31, 1994 was 18.65%.
The Fund's total return is a historical measure of past
performance and is not intended to indicate future
performance. Because investment return and principal value
will fluctuate, the Fund's shares may become worth more or
less than their original cost.
3
<PAGE>
CONDENSED FINANCIAL INFORMATION
MUTUAL SHARES FUND
FINANCIAL HIGHLIGHTS
(Selected data for a share of capital stock outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year ...... $80.97 $73.36 $64.49 $56.39 $67.16 $67.77 $57.83 $60.43 $57.57 $50.30
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations:
Net Investment
Income ................. 1.34 1.41 1.55 2.04 3.32 4.03 2.64 2.23 2.43 1.93
Net Gains or Losses on
Securities (realized and
unrealized) .......... 2.28 13.89 12.07 9.69 (9.86) 6.00 14.98 1.78 7.29 11.34
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations ......... 3.62 15.30 13.62 11.73 (6.54) 10.03 17.62 4.01 9.72 13.27
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends (from net
investment income) ... 1.34 1.38 1.59 2.00 3.34 4.09 2.63 2.52 2.34 1.88
Distributions
(from capital gains) . 4.56 6.31 3.16 1.63 .89 6.55 5.05 4.09 4.52 4.12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions .. 5.90 7.69 4.75 3.63 4.23 10.64 7.68 6.61 6.86 6.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Year ............ $78.69 $80.97 $73.36 $64.49 $56.39 $67.16 $67.77 $57.83 $60.43 $57.57
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return* ............ 4.53% 21.00% 21.33% 20.99% (9.82)% 14.93 30.69% 6.34% 16.99% 26.73%
==== ===== ===== ===== ===== ===== ===== ==== ===== =====
Ratios/Supplemental Data
Net Assets,
End of Year (millions) . $3,746 $3,527 $2,913 $2,640 $2,521 $3,403 $2,551 $1,685 $1,403 $1,076
Ratio of Expenses to
Average Net Assets ..... .72% .74% .78% .82% .85% .65%+ .67%+ .69% .70% .67%
Ratio of Net Investment
Income to Average Net
Assets ................. 1.80% 1.90% 2.18% 3.08% 4.88% 5.57%+ 4.16%+ 3.32% 4.07% 4.08%
Portfolio Turnover Rate .. 66.55% 48.78% 41.06% 47.89% 43.41% 71.54% 89.67% 77.72% 122.30% 91.40%
</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.
+ After reduction of expenses by the Investment Adviser. Had the Investment
Adviser not undertaken such action, the ratios of operating expenses and net
investment income would have been .67% and 5.55% in 1989 and .74% and 4.09% in
1988.
4
<PAGE>
CONDENSED FINANCIAL INFORMATION
MUTUAL QUALIFIED FUND
FINANCIAL HIGHLIGHTS
(Selected data for a share of capital stock outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year ...... $27.00 $24.43 $21.18 $18.37 $22.21 $22.71 $19.37 $20.06 $19.15 $16.75
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations:
Net Investment
Income ................. .43 .38 .49 .67 1.22 1.34 .84 .77 .90 .61
Net Gains or Losses on
Securities (realized and
unrealized) .......... 1.10 5.12 4.27 3.18 (3.45) 1.91 4.95 .86 2.42 3.57
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations ......... 1.53 5.50 4.76 3.85 (2.23) 3.25 5.79 1.63 3.32 4.18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends (from net
investment income) ... .43 .37 .49 .67 1.23 1.36 .83 .88 .85 .61
Distributions
(from capital gains) . 1.43 2.56 1.02 .37 .38 2.39 1.62 1.44 1.56 1.17
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions .. 1.86 2.93 1.51 1.04 1.61 3.75 2.45 2.32 2.41 1.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Year ............ $26.67 $27.00 $24.43 $21.18 $18.37 $22.21 $22.71 $19.37 $20.06 $19.15
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return* ............ 5.73% 22.71% 22.70% 21.13% (10.12)% 14.44 30.15% 7.72% 17.51% 25.16%
==== ===== ===== ===== ====== ===== ===== ==== ===== =====
Ratios/Supplemental Data
Net Assets,
End of Year (millions) . $1,792 $1,511 $1,251 $1,110 $1,075 $1,470 $1,094 $686 $561 $432
Ratio of Expenses to
Average Net Assets ..... .73% .78% .82% .87% .89% .70%+ .62%+ .71% .68% .70%
Ratio of Net Investment
Income to Average Net
Assets ................. 1.91% 1.65% 2.10% 3.09% 5.40% 5.61%+ 3.96%+ 3.43% 4.55% 4.27%
Portfolio Turnover Rate .. 67.65% 56.22% 47.39% 51.99% 46.12% 73.41% 85.05% 73.50% 123.50% 95.85%
</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.
+ After reduction of expenses by the Investment Adviser. Had the Investment
Adviser not undertaken such action, the ratios of operating expenses and
net investment income would have been .71% and 5.60% in 1989 and .69% and
3.89% in 1988.
5
<PAGE>
CONDENSED FINANCIAL INFORMATION
MUTUAL BEACON FUND
FINANCIAL HIGHLIGHTS
(Selected data for a share of capital stock outstanding throughout each year)
<TABLE>
<CAPTION>
Sept. 1,
Year Ended December 31, 1987 to Year Ended August 31,
---------------------------------------------------------------- Dec. 31, -----------------------
1994 1993 1992 1991 1990 1989 1988 1987 1987 1986 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period ................. $31.09 $27.10 $23.36 $20.80 $24.09 $22.85 $19.49 $24.78 $19.27 $15.73 $14.20
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations:
Net Investment
Income ............... .46 .37 .45 .75 1.08 1.12 .77 .22 .37 .28 .24
Net Gains or Losses on
Securities (realized
and unrealized) ...... 1.28 5.81 4.85 2.88 (3.03) 2.84 4.80 (3.96) 6.39 3.51 1.29
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations ......... 1.74 6.18 5.30 3.63 (1.95) 3.96 5.57 (3.74) 6.76 3.79 1.53
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends (from net
investment income) ... .44 .37 .46 .74 1.08 1.17 .80 .51 .31 .25 -0-
Distributions (from
capital gains) ....... 1.36 1.82 1.10 .33 .26 1.55 1.41 1.04 .94 -0- -0-
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
Distributions ...... 1.80 2.19 1.56 1.07 1.34 2.72 2.21 1.55 1.25 .25 -0-
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period .......... $31.03 $31.09 $27.10 $23.36 $20.80 $24.09 $22.85 $19.49 $24.78 $19.27 $15.73
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return* ............ 5.61% 22.93% 22.92% 17.60% (8.17)% 17.46% 28.79% (15.12)% 37.33% 24.34% 10.77%
==== ===== ===== ===== ===== ===== ===== ====== ===== ===== =====
Ratios/Supplemental Data
Net Assets, End of
Period (millions) ...... $2,060 $1,062 $534 $398 $388 $409 $214 $131 $159 $65 $9
Ratio of Expenses to
Average Net
Assets ................. .75% .73% .81% .85% .85% .67%+ .59%+ .87%++ .85% 1.16% 1.39%
Ratio of Net Income to
Average Net
Assets ................. 1.96% 1.53% 1.90% 3.07% 4.59% 4.98%+ 3.64%+ 2.86%++ 2.50% 2.86% 1.99%
Portfolio Turnover
Rate ................... 70.63% 52.88% 57.52% 56.63% 57.74% 67.18% 86.79% 28.07% 73.41% 112.91% 71.77%
</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.
+ After reduction of expenses by the Investment Adviser. Had the Investment
Adviser not undertaken such action, the ratios of operating expenses and
net investment income would have been .68% and 4.97% in 1989 and .66% and
3.57% in 1988.
++ Annualized.
On January 9, 1985, Heine Securities Corporation became the Investment Adviser.
Results prior to that date were achieved by a former, unaffiliated investment
adviser.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION
MUTUAL DISCOVERY FUND
FINANCIAL HIGHLIGHTS
(Selected data for a share of capital stock outstanding throughout each year)
Year Ended
----------------
1994 1993
------ ------
Net Asset Value, Beginning of Year ................... $13.05 $10.00
------ ------
Income from Investment Operations:
Net Investment Income ............................... .15 .10
Net Gains on Securities (realized and unrealized) ... .32 3.48
------ ------
Total from Investment Operations ................... .47 3.58
------ ------
Less Distributions:
Dividends (from net investment income) .............. .16 .09
Distributions (from capital gains) .................. .81 .44
------ ------
Total Distributions ................................ .97 .53
------ ------
Net Asset Value, End of Year ......................... $12.55 $13.05
====== ======
Total Return* ........................................ 3.62% 35.85%
==== =====
Ratios/Supplemental Data
Net Assets, End of Year (millions) ................... $725 $548
Ratio of Expenses to Average Net Assets .............. .99% 1.07%
Ratio of Net Investment Income to Average Net Assets . 1.64 1.17%
Portfolio Turnover Rate .............................. 72.70% 90.37%
* 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.
The preceding tables set forth information regarding financial highlights
for each series of the Fund. Prior to February 19, 1988 Mutual Shares, Qualified
and Beacon were separate entities; as series of the Fund they continue their
separate economic identities. Beacon's fiscal year end was changed from August
31 to December 31 in connection with the merger into the Fund. The Adviser was
not retained by Beacon until January 9, 1985 and performance prior to that date
cannot be attributed to the Adviser.
The tables on the preceding pages should be read in conjunction with each
of the Fund's financial statements and related notes included in their Annual
Reports (incorporated by reference into the Statement of Additional Information)
which have been audited by Ernst & Young LLP, the Fund's independent auditors,
since January 1, 1987 for Mutual Shares and Mutual Qualified, since September 1,
1987 for Mutual Beacon and for Mutual Discovery since its inception.
7
<PAGE>
THE FUND
Mutual Series Fund Inc. (the "Fund") is a no-load, diversified, open-end
management investment company registered under the Investment Company Act of
1940 (the "1940 Act") organized as a series fund with four separate series
currently outstanding, each of which is designed to provide investors with
participation in diversified investments under the supervision of experienced
investment counsel. This type of investment company is commonly called a mutual
fund.The Fund was organized as a Maryland corporation on November 12, 1987.
Mutual Shares Corporation, Mutual Qualified Income Fund Inc. and Mutual Beacon
Fund, Inc. (the "predecessor funds" or "Funds") were merged into the Fund on
February 19, 1988 and became Mutual Shares, Qualified and Beacon, respectively.
Discovery was added on December 31, 1992. The Fund may add additional series
from time to time. Each of the series should be perceived as being only a
portion of a balanced investment strategy.
Investment Objectives and Policies
Mutual Shares, Qualified and Beacon each has as its principal objective
capital appreciation, which may occasionally be short term. A secondary
objective is income. Discovery has long-term capital appreciation as its
objective, which it will seek to achieve by including investments in small
capitalization companies. Each series pursues these objectives primarily through
investments in common stock and preferred stock as well as debt securities and
securities convertible into common stock (including convertible preferred and
convertible debt securities). An investor should bear in mind that since every
investment carries risk, the value of the assets of each series of the Fund
fluctuates with changes in the market value of its investments. Therefore, there
is no assurance that the Fund's objectives will be achieved. These objectives
are not fundamental and the Board of Directors of the Fund reserves the right to
change them without shareholder approval, which may result in the Fund having an
investment objective different from that which an investor deemed appropriate at
the time of investment.
The general investment policy of each existing series is to invest in
common stock, preferred stock and corporate debt securities, which may be
convertible into common stock and the other investments described below which,
in the opinion of the series' investment adviser, Heine Securities Corporation
(the "Adviser"), are available at prices less than their intrinsic value. (See
"Non-U.S. Securities," "Repurchase Agreements and Loans of Securities" and
"Hedging.") The Adviser also has no pre-set limits as to the percentage of each
series' portfolio which may be invested in equity securities, debt securities
(including "junk bonds" as described below), or cash equivalents. The Adviser's
opinions are based upon analysis and research, taking into account, among other
factors, the relationship of book value to market value of the securities, cash
flow, and multiples of earnings of comparable securities. These factors are not
applied formulaically, as the Adviser examines each security separately; the
Adviser has no general criteria as to asset size, earnings or industry type
which would make a security unsuitable for purchase by a series. Although the
Fund may invest in securities from any size issuer, Mutual Shares, Qualified and
Beacon will tend to invest in securities of issuers with market capitalizations
in excess of $500 million due to the larger size of these series. Each series
may invest in securities that are traded on U.S. or foreign exchanges, NASDAQ
national market or in the over-the-counter market. The series may invest in any
industry sector although no series will be concentrated in any one industry.
Debt securities in which the Fund invests (such as corporate and U.S. government
bonds, debentures and notes) may or may not be rated by rating agencies such as
Moody's Investors Service, Inc. or Standard & Poor's Corporation, and, if rated,
such rating may range from the very highest to the very lowest, currently C for
Moody's and D for Standard & Poor's. Medium and lower-rated debt securities in
which each series expects to invest are commonly known as "junk bonds." The
series may be subject to investment risks as to these unrated or lower rated
securities that are greater in some respects than the investment risks incurred
by a fund which invests only in securities rated in higher categories. In
8
<PAGE>
addition, the secondary market for such securities may be less liquid and market
quotations less readily available than higher rated securities, thereby
increasing the degree to which judgment plays a role in valuing such securities.
The general policy of each series is to invest in debt instruments, including
junk bonds, for the same reasons underlying investments in equities, i.e.,
whenever such instruments are available, in the Adviser's opinion, at prices
less than their intrinsic value. Consequently, the Adviser's own analysis of a
debt instrument exercises a greater influence over the investment decision than
the stated coupon rate or credit rating. The series have historically invested
in debt instruments issued by reorganizing or restructuring companies, or
companies which recently emerged from, or are facing the prospect of a financial
restructuring. It is under these circumstances, which usually involve unrated or
low rated securities that are often in, or about to default, that the Adviser
identifies securities which are sometimes available at prices which it believes
are less than their intrinsic value. Although such debt securities may pose a
greater risk than higher rated debt securities of loss of principal, the debt
securities of reorganizing or restructuring companies typically rank senior to
the equity securities of such companies. See "Statement of Additional
Information -- Medium and Lower Rated Corporate Debt Securities."
Each series also seeks to invest in the securities of companies involved in
mergers, consolidations, liquidations and reorganizations or as to which there
exist tender or exchange offers, and may participate in such transactions.
Although there are no restrictions limiting the extent to which each series may
invest in such transactions, no series presently anticipates investing more than
50% of its portfolio in such investments. There can be no assurance that any
merger, consolidation, liquidation, reorganization or tender or exchange offer
proposed at the time a series makes its investment will be consummated or will
be consummated on the terms and within the time period contemplated. The series
from time to time may also purchase indebtedness and participations therein,
both secured and unsecured, of debtor companies in reorganization or financial
restructuring ("Indebtedness"). Such Indebtedness may be in the form of loans,
notes, bonds or debentures. Participations normally are made available only on a
nonrecourse basis by financial institutions, such as banks or insurance
companies, or by governmental institutions, such as the Resolution Trust
Corporation or the Federal Deposit Insurance Corporation or the Pension Benefit
Guaranty Corporation. When a series purchases a participation interest it
assumes the credit risk associated with the bank or other financial intermediary
as well as the credit risk associated with the issuer of any underlying debt
instrument. The series may also purchase trade and other claims against, and
other unsecured obligations of, such debtor companies, which generally represent
money due a supplier of goods or services to such company. Some corporate debt
securities, including Indebtedness, purchased by the Fund may have very long
maturities. The length of time remaining until maturity is one factor the
Adviser considers in purchasing a particular Indebtedness. The purchase of
Indebtedness of a troubled company always involves a risk as to the
creditworthiness of the issuer and the possibility that the investment may be
lost. The Adviser believes that the difference between perceived risk and actual
risk creates the opportunity for profit which can be realized through proper
analysis. There are no established markets for some of this Indebtedness and
thus it is less liquid than more heavily traded securities. Indebtedness which
represents indebtedness of the debtor company to a bank are not securities of
the banks issuing or selling them. The series purchase loans from national and
state chartered banks as well as foreign ones. The series normally invest in
senior indebtedness of the debtor companies, although on occasion subordinated
indebtedness may also be acquired. Each series does not invest more than 15% of
its portfolio in assets which are illiquid, including Indebtedness which are not
readily marketable. The series may invest in securities considered illiquid such
as those described above as well as restricted securities not registered under
the Securities Act of 1933, OTC options and securities that are otherwise
considered illiquid as a result of market or other factors. The series may
invest in securities eligible for resale under Rule 144A of the Securities Act
("144A securities"). The Board of Directors of the Fund has adopted procedures
in accordance with Rule 144A whereby specific 144A securities held in the Fund
may be deemed to be liquid. Nevertheless, due to changing market or other
9
<PAGE>
factors 144A securities may be subject to a greater possibility of becoming
illiquid than registered securities. Fund purchases of 144A securities may
increase the level of illiquidy and institutional buyers may become
disinterested in purchasing such securities. The series may also invest in cash
equivalents such as Treasury bills and high quality commercial paper. The series
generally purchases securities for investment purposes and not for the purpose
of influencing or controlling management of the issuer. However, in certain
circumstances when the Adviser perceives that one or more of the series may
benefit, the Fund may itself seek to influence or control management or may
invest in other entities that purchase securities for the purpose of influencing
or controlling management, such as investing in a potential takeover or
leveraged buyout or investing in other entities engaged in such activities. The
series may also invest in distressed first mortgage obligations and other debt
secured by real property and may sell short securities it does not own up to 5%
of its assets. Short sales have risks of loss if the price of the security sold
short increases after the sale, but the series can profit if the price
decreases. The series may also sell securities "short against the box" without
limit. See "Statement of Additional Information -- Short Sales" for further
discussion of these practices.
Discovery expects to invest to a greater degree than the other series in
smaller capitalized companies which may involve greater risks than investing in
securities of larger companies. The smaller companies in which Discovery invests
are often not well known, may often trade at a discount and may not be followed
by institutions.
Each series may invest in common stock, preferred stock and corporate debt
securities in such proportions as the Adviser deems advisable. The Adviser
typically keeps a portion of the assets of each series invested in short-term
debt securities and preferred stocks although it may choose not do so when
circumstances dictate. In addition, while no series may purchase securities of
registered open-end investment companies or affiliated investment companies,
they may invest from time to time in other investment company securities,
subject to the limitation that the series in the aggregate will not purchase
more than 3% of the voting securities of another investment company. In
addition, no series will invest more than 5% of its assets in the securities of
any single investment company and no series will invest more than 10% of its
assets in investment company securities. Investors should recognize that a
series' purchase of the securities of such investment companies results in
layering of expenses such that investors indirectly bear a proportionate share
of the expenses of such investment companies, including operating costs, and
investment advisory and administrative fees.
Non-U.S. Securities
The series may purchase securities of non-U.S. issuers and Discovery
expects that up to approximately 50% of its assets may be so invested.
Investments in securities of non-U.S. issuers involve certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, volatile political and
economic developments, and the possible imposition of exchange controls or other
foreign governmental laws or restrictions. Since each series may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of investments
although the Adviser generally attempts to reduce such risks through hedging
transactions. In addition, with respect to certain countries, there is the
possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries.
There may be less publicly available information about a foreign company
than about a U.S. company. Foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to or as
uniform as those of U.S. companies. Non-U.S. securities markets, while growing
in volume, have, for the most part, substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S. companies. Transaction costs on
non-U.S. securities markets are generally higher than in the U.S. There is
generally less government supervision and regulation of exchanges, brokers and
10
<PAGE>
issuers than there is in the U.S. The Fund might have greater difficulty taking
appropriate legal action with respect to foreign investments in non-U.S. courts
than with respect to domestic issuers in U.S. courts.
Each series of the fund may invest in securities commonly known as
Depository Receipts of non-U.S. issuers which have certain risks, including
trading for a lower price, having less liquidity than their underlying
securities and risks relating to the issuing bank or trust company. Depository
Receipts can be sponsored by the issuing bank or trust company or unsponsored.
Holders of unsponsored Depository Receipts have a greater risk that receipt of
corporate information and proxy disclosure will be untimely, information may be
incomplete and costs may be higher.
Dividend and interest income from non-U.S. securities will generally be
subject to withholding taxes by the country in which the issuer is located,
which may not be recoverable, either directly or indirectly, as a foreign tax
credit or deduction by the Fund or its shareholders. See "Statement of
Additional Information."
Repurchase Agreements and Loans of Securities
Each series may invest up to 10% of its assets in repurchase agreements.
Each series may also loan its portfolio securities in order to realize
additional income. Repurchase and tri-party agreements are generally agreements
under which the series obtains money market instruments subject to resale to the
seller at an agreed upon price and date. Any loans of portfolio securities which
the series may make must be fully collateralized at all times by securities with
a value at least equal to 100% of the current market value of the loaned
securities. The series presently do not anticipate loaning more than 5% of their
respective portfolio securities. There are certain risks associated with such
transactions which are described in the Statement of Additional Information.
Hedging and Income Transactions
The series may utilize various investment strategies as described below to
hedge various market risks (such as interest rates, currency exchange rates, and
broad or specific equity market movements), to manage the effective maturity or
duration of fixed-income securities or for gain. Such strategies are generally
accepted by modern portfolio managers and are regularly utilized by many mutual
funds and other institutional investors. Techniques and instruments may change
over time as new instruments and strategies are developed or regulatory changes
occur and the Fund will describe any such techniques in its registration
statement before using them. In the course of pursuing these investment
strategies, the series may purchase and sell exchange-listed and
over-the-counter put and call options on securities, equity and fixed-income
indices and other financial instruments, purchase and sell financial futures
contracts and options thereon, and enter into various currency transactions such
as currency forward contracts, currency futures contracts, currency swaps or
options on currencies or currency futures (collectively, all of the above are
called "Hedging Transactions"). Hedging Transactions may be used to attempt to
protect against possible changes in the market value of securities held in or to
be purchased for a series' portfolio resulting from securities markets or
currency exchange rate fluctuations, to protect the series' unrealized gains in
the value of its portfolio securities, to facilitate the sale of such securities
for investment purposes, or to establish a position in the derivatives markets
as a temporary substitute for purchasing or selling particular securities. Any
or all of these investment techniques may be used at any time and there is no
particular strategy that dictates the use of one technique rather than another,
as use of any Hedging Transaction is a function of numerous variables including
market conditions. The ability of a series to utilize these Hedging Transactions
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. The Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. No more than 5% of the series' assets will be at risk in such types
of instruments entered into for non-hedging purposes. Hedging Transactions
11
<PAGE>
involving financial futures and options thereon will be purchased, sold or
entered into generally for bona fide hedging, risk management or portfolio
management purposes.
Hedging Transactions, whether entered into as a hedge or for gain, have
risks associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Hedging
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to a series, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments, increase the cost of holding a security and reduce the returns on
securities or cause a series to hold a security it might otherwise sell. The use
of currency transactions can result in a series incurring losses as a result of
a number of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
series might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Hedging Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Hedging
Transactions had not been utilized. The cost of entering into hedging
transactions may also reduce the series' total return to investors.
Fundamental Restrictions
Each series has adopted a number of fundamental investment restrictions,
which may not be changed for a particular series without the approval of that
series' shareholders. These restrictions are set forth in the Statement of
Additional Information. Other than such restrictions, no series has any
investment policies which it considers fundamental.
Among other things, each series may not purchase the securities of any one
issuer, other than the U.S. Government or any of its agencies or
instrumentalities, if immediately after such purchase more than 5% of the value
of its total assets would be invested in such issuer, or such series would own
more than 10% of the outstanding voting securities of such issuer, except that
up to 25% of the value of such series' total assets may be invested without
regard to such 5% and 10% limitations; make loans, except to the extent the
purchase of debt obligations of any type are considered loans and except that
the series may lend portfolio securities to qualified institutional investors in
compliance with requirements established from time to time by the Securities and
Exchange Commission and the securities exchanges on which such securities are
traded; invest more than 25% of the value of its assets in a particular industry
(except that U.S. Government securities are not considered an industry); or
issue securities senior to its stock or borrow money or utilize leverage in
excess of the maximum permitted by the 1940 Act which is currently 331/3% of
total assets (plus 5% for emergency or other short-term purposes). Such
borrowing has special risks. The Fund will not engage in investment transactions
when borrowing exceeds 5% of its assets.
While Mutual Shares, Qualified, Beacon and Discovery have identical basic
investment restrictions, and Mutual Shares, Qualified and Beacon have identical
investment objectives, the Adviser seeks to retain certain historical
12
<PAGE>
differences among the series on an informal basis. Mutual Shares, Qualified and
Beacon have generally invested in larger and medium sized companies with larger
share trading volume. In addition, Beacon has also invested to a greater extent
than Mutual Shares or Qualified in smaller companies. Discovery, in comparison
to the other series, has tended to invest proportionately more of its portfolio
in smaller companies (see "Investment Objectives and Policies") and in foreign
companies (see "Non-U.S. Securities"). Qualified was originally intended for
purchase by pension plans, profit sharing plans and other nontaxpaying entities
and the portfolio was able to have greater flexibility due to reduced concerns
about the tax effects on shareholders. Depending on market conditions, and any
future changes in tax laws, the Adviser expects that it will purchase securities
for Qualified which satisfy such a goal, although currently Qualified operates
in the same fashion as Mutual Shares and Beacon. Allocation of investments among
the series will also depend upon, among other things, the amount of cash in, and
relative size of each series' portfolio. In addition, the factors outlined above
are not mutually exclusive and a particular security may be owned by more than
one of the series.
MANAGEMENT OF THE FUND
The management and affairs of the Fund are supervised by the Fund's Board
of Directors.
The Investment Adviser
Heine Securities Corporation (the "Adviser"), 51 John F. Kennedy Parkway,
Short Hills, New Jersey 07078 serves as each series' investment adviser. The
Adviser manages their investments, provides various administrative services and
supervises their daily business affairs, subject to supervision by the Fund's
Board of Directors. Portfolio Manager Michael F. Price has been responsible for
the day to day management of the Fund for more than five years.
Michael F. Price, President, Chief Operating Officer, Chairman and sole
shareholder of the Adviser, is director and sole shareholder of Clearwater
Securities and is Chairman of the Board and President of the Fund. Mr. Edward J.
Bradley is Treasurer of Clearwater and is Treasurer and Chief Financial and
Accounting Officer of the Adviser and of the Fund. Mr. Peter A. Langerman is a
Research Analyst with the Adviser as well as a Director and Executive Vice
President of the Fund. Ms. Elizabeth N. Cohernour is General Counsel and
Secretary of the Adviser, Clearwater and the Fund. Mr. Eric Le Goff is Vice
President of the Adviser. Messrs. Jeffrey A. Altman, Robert L. Friedman, Raymond
Garea and Lawrence N. Sondike, Research Analysts with the Adviser, are Vice
Presidents of the Fund.
Code of Ethics
The Adviser and the Fund have adopted Codes of Ethics and related internal
procedures (together referred to as the "Code") which govern the personal
investing practices of the Adviser's employees. The Code generally incorporates
the recommendation of the Investment Company Institute contained in the Report
of the Advisory Group on Personal Investing dated May 9, 1994. Specifically,
employees of the Adviser may buy and sell securities for themselves as long as
their trades have been pre-cleared in accordance with the Code. Transactions by
Adviser employees which comply with the substantive and procedural provisions of
the Code are permitted even if the security being purchased is one of limited
availability (such as investments in private placements), and is one in which
any particular series would be financially and legally able to invest.
Investment Advisory Agreements
The Adviser serves as investment adviser to each of Mutual Shares,
Qualified and Beacon pursuant to separate investment advisory agreements which
were approved by the shareholders of each such series at a meeting held on
November 17, 1989. The Board of Directors approved the Advisory Agreement with
Discovery on September 18, 1992. The Advisory Agreement with each series ("the
Advisory Agreements" or the "Advisory Agreement" if individually) are identical
13
<PAGE>
in all material respects, except that under each Advisory Agreement the Adviser
is paid a fee at an annual rate of .60% of the average daily net assets of
Mutual Shares, Qualified and Beacon and .80% of the average daily net assets of
Discovery, which accrues daily and is payable on the first business day of the
next month for the number of days the Advisory Agreement was in effect during
the preceding month. Discovery's advisory fee is higher than that paid by most
investment companies although the Adviser believes it comparable to that paid by
similar funds. In addition, the Advisory Agreements provide that the Adviser is
to be reimbursed on a dollar-for-dollar basis for administrative services as
described below.
The Adviser has complete discretion in the investment and management
(including the voting of securities) of each series' assets in accordance with
their respective investment objectives and policies and subject to general
review and direction by the Board of Directors of the Fund. The Adviser is
responsible for administering or arranging for administration of the Fund's
business affairs and operations, including maintenance of all required records,
employment of sufficient personnel, and maintenance of sufficient equipment and
facilities to perform its obligations under the Advisory Agreements. Under these
Agreements each series acknowledges that the Adviser may and does perform
advisory services for others, that officers and employees of the Adviser act as
broker or dealer for others and invest for their own account and that the Fund
does not expect, subject always to the good faith of the Adviser, to obtain the
benefit of investment opportunities developed by the Adviser, or such officers
and employees, but in which the Adviser does not cause such series to invest.
The Fund on behalf of each series pays for the cost of its operations or
reimburses the Adviser for expenses and costs the Adviser incurs on behalf of
the Fund including organizational costs, compensation of directors who are not
interested persons (as defined in the 1940 Act) of the Adviser, reimbursement of
a pro rata portion of the salaries, bonuses, benefits and other employment costs
of all personnel of the Adviser who spend substantial time on series operations,
and all other costs such as rent for office space, costs of equipment and office
supplies, charges of the independent auditors, of legal counsel, of the transfer
and dividend disbursing agent and of the custodian, preparation and maintenance
of the books and records of the series, all direct and indirect costs, charges
and expenses of acquiring and disposing of portfolio securities (including the
placement of orders therefor), interest (if any) on obligations incurred by the
series, costs of share certificates, membership dues in the Investment Company
Institute or any similar organization, preparation and furnishing reports,
prospectuses, proxy statements and other communications to stockholders,
preparation of amendments to the Fund's registration statements and registration
of shares of the Fund under the federal and state securities laws, miscellaneous
expenses and all taxes and fees to federal, state or other governmental agencies
on account of the registration of securities issued by the Fund, filing of
corporate documents or otherwise associated with Fund business excluding costs
related to research or the provision of investment advice (with certain
exceptions related to soft dollars) and marketing of shares of the series.
Expenses which are not directly attributable in full to a particular series will
generally be allocated pro rata among the series according to their relative net
assets.
The Adviser and its agents, officers and directors are generally
indemnified under these agreements against liabilities and expenses reasonably
incurred in connection with acts taken while acting in the capacities enumerated
in the Agreement, except no indemnity is provided for willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties of a position. Such
indemnification will be made pursuant to procedures which comply with the
requirements of the 1940 Act and applicable state law.
The Advisory Agreements of Mutual Shares, Qualified, Beacon and Discovery
continue in effect until June 30, 1995. The Advisory Agreements may be
terminated at any time, without penalty, by the Fund's Board of Directors, or by
the vote of a majority of the outstanding voting securities of the Fund or by
the Adviser, each on 60 days' written notice to the other. The Advisory
Agreements automatically terminate upon assignment.
The Adviser will reimburse a series for any expenses incurred in excess of
that permitted by the most restrictive jurisdiction in which the Fund is
qualified to sell shares up to the total fee payable to the Adviser as to such
14
<PAGE>
series. Total expenses of each of Mutual Shares, Qualified, Beacon and Discovery
for fiscal 1994 amounted to 0.72%, 0.73%, 0.75% and 0.99%, respectively, of
their average daily net assets during such year.
HOW TO PURCHASE SHARES
Shares of the Fund's existing series are sold in a continuous offering at
the public offering price, which is equal to the net asset value per share of
the series being purchased next determined (see "Net Asset Value") after a
purchase order is received by the Fund or PFPC Inc. ("transfer agent"). For
assistance in completing the application and for additional information about
the shareholder services listed herein, call the Fund at 1-800-448-FUND.
<TABLE>
<CAPTION>
Minimum All Retirement Account
Minimum Initial Subsequent Purchase Minimum Initial
Purchase (for All Accounts) Purchase
-------- ------------------ --------
<S> <C> <C> <C>
Mutual Shares $5,000 $100 $2,000
Qualified $1,000 $50 $1,000
Beacon $5,000 $100 $2,000
Discovery $1,000 $50 $1,000
</TABLE>
In exceptional cases the Fund may, in its sole discretion, waive these
amounts.
All orders for shares of a series which are accepted by the Fund will be
priced at the net asset value per share of that series next computed after
receipt of the order by the Fund's transfer agent, or by the Fund, subject to
collection of funds. In order to receive that day's price an order must be
received and accepted prior to the time that the series' net asset value is
calculated which is the earlier of 4:00 p.m. or the close of the New York Stock
Exchange (the "Exchange") on that day. Placement and acceptance of an order
results in the obligation on the part of an investor to pay for the shares.
Monies used to purchase shares of the Fund must be drawn on U.S. banks and be
payable in U.S. dollars. No third party checks will be accepted by the Fund
except with respect to shareholders who are transferring money to a retirement
account from another retirement account. If for any reason funds for a purchase
are not collectible, the Fund may redeem the shares and hold the investor liable
for any amount by which the purchase price exceeds the net asset value of the
shares redeemed. Shareholders may not receive the proceeds from a redemption of
shares until funds covering such purchases have been collected; however,
shareholders who have existing accounts with a value equal to or greater than
the value of the securities to be redeemed may redeem shares up to the value of
the account at the time the request for redemption is received. Payment made by
certified check or wired funds is considered to be collected upon receipt. (See
"How to Redeem Shares".)
Unless a shareholder includes his taxpayer identification number (social
security number for individuals) on the Fund's Application and certifies that he
is not subject to backup withholding, no new account will be opened. For
existing accounts with no certification the Fund is required to withhold and
remit to the Internal Revenue Service ("IRS") 31% of all taxable distributions
to the shareholder.
The Fund reserves the right, in its sole discretion, to refuse at any time
to accept orders for the purchase of any series (from existing shareholders as
well as new investors) and to suspend the reinvestment of income dividends and
capital gains distributions. Without limiting the foregoing, the Adviser will
consider exercising such refusal right as to a series when it determines that it
cannot effectively invest the available funds on hand in accordance with that
series' investment policies.
Written Subscriptions
Written subscriptions for shares are accepted on any business day at Mutual
Series Fund Inc. All written subscriptions must specify the series to be
purchased, and must be accompanied by payment.
15
<PAGE>
- --------------------------------------------------------------------------------
New account applications should be sent to:
Mutual Series Fund Inc.
c/o PFPC Inc.
P.O. Box 8901
Wilmington, DE 19899-8901.
Existing shareholders should mail additional investments to:
Mutual Series Fund Inc.
c/o PFPC Inc.
P.O. Box 8906
Wilmington, DE 19899-8906.
If an overnight delivery service is used, subscriptions should be sent to:
Mutual Series Fund Inc.
c/o PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809-3710.
Written subscriptions are also accepted at the Fund's offices at 51 John
F. Kennedy Parkway, Short Hills, New Jersey 07078.
- --------------------------------------------------------------------------------
Purchase by Telephone
Purchases, except for retirement accounts, may be made orally by Fund
shareholders who telephone the Fund at 1-800-448-FUND prior to the earlier of
4:00 p.m. or the close of the Exchange. Such orders are accepted or rejected in
the sole discretion of the Adviser. Telephone purchases must be for at least
$1,000 and must be made in an account that has an existing balance equal to at
least one half of the telephone purchase.
- --------------------------------------------------------------------------------
Automated Transfers:
An Automated Transfers application must be completed and effective
prior to making telephone purchases. Please call 1-800-553-3014 for an
application or, complete section 6 of the application attached to this
prospectus.
- --------------------------------------------------------------------------------
All telephone purchases will be processed through the Automated Transfers
process except for certain institutional investors who have established (via the
Fund's recorded telephone line) the ability to wire such purchase payments to
the Fund.
If for any reason funds are not received in a timely manner and the Fund
redeems the shares, the shareholder will be responsible for any amount by which
the purchase price exceeds the net asset value of the shares on the day the
shares are redeemed. As authorized by the shareholder's purchase application,
such amounts will be deducted from the shareholder's account and PFPC Inc. will
redeem a processing fee of $20 for any transfer not honored by your bank. This
feature will only apply to those persons who have completed an application
containing such authorization.
16
<PAGE>
Brokers and Dealers and Plan Administrators
Purchases and redemptions of any series shares may be effected through
registered broker-dealers. There is no sales or service charge imposed by the
Fund as to any series, but such broker-dealers may charge the investor a
transaction fee. Such transaction fees and services may vary among
broker-dealers, and such broker-dealers may impose higher initial or subsequent
investment requirements than those established by the Fund. Services provided by
broker-dealers may include allowing the investor to establish a margin account
and to borrow on the value of the Fund's shares in that account. If a broker
receives an order prior to pricing on a given day, the broker is required to
forward such order to the Fund on that day prior to pricing. A broker's failure
to timely forward an order may give rise to a claim by the investor against the
broker.
Third party plan administrators of tax-qualified retirement plans and other
entities may provide sub-transfer agent services to the Fund. In such cases the
Fund may pay the third party an annual sub transfer agency fee that is not
greater than the Fund otherwise would have paid for such services.
Share Certificates
All accounts will be maintained in book entry form; no share certificate
will be issued unless the shareholder specifically requests such issuance in
writing. Upon written request certificates for any number of full shares, except
for shares held in retirement accounts, will be issued and sent to the
shareholder of record. The shareholder may incur an expense in replacing any
lost share certificates. The Fund recommends that its transfer agent retain all
certificates at no cost to the shareholder.
HOW TO REDEEM SHARES
Shareholders may redeem all or a portion of their shares in a series by
executing and mailing a written request for redemption, as described below.
- --------------------------------------------------------------------------------
The written request for redemption should be mailed to:
Mutual Series Fund Inc.
c/o PFPC Inc.
P.O. Box 8901
Wilmington, DE 19899-8901.
If an overnight delivery service is used, redemption requests should be sent
to:
Mutual Series Fund Inc.
c/o PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809-3710.
- --------------------------------------------------------------------------------
Redemption requests will be executed at the net asset value per share next
computed after receipt of the redemption request, in good order, by the Fund or
by its transfer agent (see "Net Asset Value"). In order to receive that day's
price a redemption request in good order must be received by the earlier of 4:00
p.m. or the close of the Exchange on that day. Payment of monies will be made
within seven days after receipt by the transfer agent of the redemption request
in good order and accompanied by the appropriate documents as described below.
Mailing of the proceeds of a redemption may be delayed up to 15 days from the
17
<PAGE>
day of a purchase to allow the purchase to clear. This potential 15 day delay
applies to payment by personal or bank check. If payment is made by certified
check or wire, proceeds from the redemption request will not be subject to this
potential 15 day delay. If the shareholder has an existing account, the
redemption request will be satisfied up to the value of collected funds in such
account. The Fund reserves the right to redeem shares in kind although it is not
likely to do so. Conditional, ambiguous or vague requests cannot be honored.
If you have completed item 6 on the enclosed application to authorize
automated transfers to your bank account (retirement accounts have separate
form), and if your bank has authorized such transfers, then you can request that
a redemption be automatically deposited into your bank account. Proceeds will be
calculated at the net asset value next computed after receipt of your redemption
request in good order and will be automatically deposited in your bank account
approximately two business days after receipt of your redemption request. To
request an application for automated transfers for a regular account or a
retirement account, call 1-800-553-3014. Automated transfer capabilities
normally become effective twenty business days after the Fund receives the
completed application.
If the account is in the form of a book entry, or if certificates for the
shares to be redeemed have been retained by the transfer agent for safekeeping,
to be in good order the written redemption request must identify the account
from which shares are to be redeemed, the dollar value or number of shares to be
redeemed, the address the redemption should be mailed to, the shareholder's
daytime phone number and the request must be signed exactly as the account is
registered, with the signature(s) thereon guaranteed by a bank, broker-dealer,
credit union, national securities exchange or a savings association. Guarantee
by a notary public is not acceptable. The authorized officer who guarantees the
signature(s) must sign in official capacity to bind the guarantor and the words
"Signature Guaranteed" must appear with the required stamp. The signature
guarantee will generally be waived for redemptions of $25,000 or less provided
payment is made to the holder of record and forwarded to the address of record.
However, a signature guarantee will be required for all redemptions where the
address of record has changed within ten days of the redemption request.
If the certificates for the shares to be redeemed are held by any one other
than the transfer agent, to be in good order the redemption request must be
accompanied by such stock certificates, properly endorsed for transfer, or if
not so endorsed, by the stock certificates and appropriate properly endorsed
stock powers, and, in either case, the signatures must be guaranteed in proper
form by a bank, broker dealer, credit union, national securities exchange or a
savings association.
Certain accounts, such as corporate accounts, trust accounts and custodial
accounts, generally require additional documentation in addition to the written
request. Certain institutional accounts may be eligible for redemption
procedures other than as described above. Contact the Fund at 1-800-448-FUND for
the specific documentation required for your account.
If the owner of any IRS recognized retirement account who is at least 591/2
years old wants to redeem shares from the account, the written redemption
request must state the account owner's birthdate. If the owner of any IRS
recognized retirement account who is less than 591/2 years old wants to redeem
shares from the account, the written redemption request must state: 1) that the
owner is aware of the tax consequences and penalties that may be associated with
the redemption and 2) whether or not the 10% tax is to be withheld on the
redemption. The signature on the letter of instruction must be guaranteed in the
same manner as described above.
If a redemption request is sent to the Fund's office, rather than to the
transfer agent's office, the request will be promptly forwarded by the Fund to
the transfer agent. If the Fund has not collected payment on the purchase of
shares which are to be redeemed, no redemption payment will be made until the
purchase has cleared.
The transfer agent will charge a nominal fee, currently approximately $7,
for the wiring of funds. Additionally, your bank may charge you for accepting
the wire transfer. The Fund should be contacted at 1-800-448-FUND for additional
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information on how to wire funds. If a shareholder requests delivery of a
redemption check via overnight delivery service, the transfer agent will charge
a nominal fee, currently approximately $15, for the overnight delivery service.
The net asset value of shares, on redemption, may be more or less than the
investor's cost, depending upon the market value of the series' securities at
the time of redemption. Redemptions of the predecessor funds always were made in
cash and the Fund intends to continue this policy as to the series.
The Fund reserves the right, upon 30 days' prior notice, to redeem shares
in any account if the total value of the shares in the account is less than a
specified minimum (currently $300, or $100 for IRA accounts), which minimum may
be lowered from time to time by the Board of Directors but will not be raised.
An account will be subject to involuntary redemption if the account value
becomes less than the specified minimum because of a stockholder redemption and
not from market action. The Fund further reserves the right upon 30 days prior
notice and Board approval to redeem the account of any shareholder who has
failed to furnish a certified social security or tax identification number to
the Fund.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Mutual Series Fund Inc.
c/o PFPC Inc.
P.O. Box 8901
Wilmington, DE 19899-8901.
- --------------------------------------------------------------------------------
A. Reinvestment of Distributions. Shareholders may elect to (a) have all capital
gain distributions and income dividends on a series' shares held by them
automatically reinvested in additional shares of the series, or (b) have all
capital gain distributions automatically reinvested, but receive all income
dividends in cash, or (c) receive all capital gains distributions and income
dividends in cash. Unless an election is made, dividends and distributions will
be automatically reinvested in additional shares or fractions thereof of the
same series by the transfer agent at the net asset value in effect at the close
of the New York Stock Exchange on the date of distribution. If one of the cash
options above is selected, money can be automatically transferred to the
shareholder's bank account on the payable date by completing an Automated
Transfers application. Please call 1-800-532-3014 for an application or complete
item 6 on the application attached to this prospectus.
B. Automatic Investment Plan. The Automatic Investing Plan permits an investor
to automatically purchase shares of the Fund on a monthly basis through an
arrangement with the investor's bank and the transfer agent. The transfer agent
will arrange for a predetermined amount of money, selected by the investor (the
minimum per month for Mutual Shares and Beacon is $100 and is $50 for Qualified
and Discovery), to be deducted on or about the 15th of the month from the
investor's bank account to purchase shares of the designated series. The
investor will receive a confirmation from the transfer agent and his bank
account will reflect the amount charged. An investor may utilize this service by
completing an Automated Transfers application with the transfer agent. Please
call 1-800-553-3014 to request an application. The investor's bank must be a
member of Automated Clearing House (ACH). The Automatic Investment Plan normally
becomes effective 20 business days after the application is received.
C. Individual Retirement Account Plan. All persons eligible may establish an
Individual Retirement Account ("IRA") to invest in the Fund. Mutual Shares and
Beacon require a $2,000 minimum initial deposit to an IRA. Qualified and
Discovery have a minimum initial deposit of $1,000. All dividends and
distributions on shares held in IRAs are reinvested in additional shares of the
Fund and are not taxed until withdrawn. Please call the Fund at 1-800-553-3014
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for an IRA application. Please consult your tax advisor regarding the tax
treatment of IRAs under the Internal Revenue Code of 1986 as amended (the
"Code").
D. Qualified Retirement Plans. The Fund offers four qualified retirement plans:
the Simplified Standardized Profit Sharing Plan, the Simplified Standardized
Money Purchase Plan, the Standardized Profit Sharing Plan and the Standardized
Money Purchase Plan. For copies of the plan documents, plan administrators guide
and summary plan description booklets call 1-800-533-3014. PNC Bank acts as
trustee/custodian, but neither PNC Bank nor the Fund administers the qualified
retirement plans and therefore no assurance can be given that a particular
qualified retirement plan is properly administered. Please consult your employer
or tax advisor if you have any questions.
E. SEP-IRA. Eligible individuals may establish a SEP-IRA with their employers.
An application form may be obtained from the Fund by calling 1-800-553-3014. If
the SEP-IRA is properly established and administered by the employer,
contributions will be tax deductible and income and capital gain will be tax
deferred. PNC Bank acts as trustee/custodian, but neither PNC Bank nor the Fund
administers the SEP-IRA and therefore no assurance can be given that a
particular SEP-IRA is properly administered. Please consult your employer or tax
advisor if you have any questions.
F. Section 403(b)(7) Retirement Plan. Persons who are full or part-time
employees of non-profit tax-exempt organizations or public educational
organizations, such as hospitals, educational institutions, and other religious,
charitable, scientific or literary organizations, are eligible to establish a
retirement plan under Section 403(b)(7) of the Code. An investor's employer may
make direct contributions to the investor's 403(b)(7) Plan account or
contributions may be made pursuant to the investor's agreement to take a
reduction in salary or to forego an increase in salary. Such contributions will
be excluded from the investor's gross income for Federal income tax purposes up
to specified limits provided they do not exceed the investor's "excludable
amount" for the taxable year.
Shareholders may call the Fund at 1-800-553-3014 to request an application
and a model 403(b)(7) Plan. The 403(b)(7) Plan was submitted to the IRS National
Office on behalf of a participant and it ruled to the effect that (i) amounts
contributed by an employer (whether or not under a salary reduction agreement)
will be excludible from the participant's gross income to the extent of his
"exclusion allowance" (as defined in Section 403(b) of the Code) and (ii) the
dividends and other income and gains on such account will be tax-exempt until
distribution to the participant and/or his beneficiary. While this ruling may
not be used as precedent by other participants, it indicates that the form of
the 403(b)(7) Plan satisfies the requirements of Section 403(b) of the Code.
Participants who desire the assurance of a favorable ruling should similarly
file a request for a ruling.
G. Systematic Withdrawal Plan. A shareholder owning or purchasing Fund shares
with a current account value of at least $10,000 may open a Systematic
Withdrawal Plan (a "Plan") under which a specified dollar amount (not less than
$50) will be paid to the shareholder from the shareholder's Fund account on a
monthly, quarterly or annual basis on or about the 25th day of that month.
Systematic Withdrawal Plan payments can be made automatically into the
shareholder's bank account by completing an Automated Transfers application.
Please call 1-800-553-3014 for an application, and specify if you want an
automated transfer application for a regular or retirement account. A
shareholder may open a Systematic Withdrawal Plan by filing with the transfer
agent an application, together with any certificates for series shares held by
the shareholder. Please call the Fund at 1-800-553-3014 to request a Systematic
Withdrawal Plan application. The Plan will normally become active within 20
business days after the application is received. Systematic withdrawals are
expected to result in a decrease in aggregate value of the investment.
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H. Fees. As of January 1996 PNC Bank has agreed to waive its annual maintenance
fee (for all or any portion of a year) of $9 per shareholder account for IRA,
Qualified Retirement Plan, SEP-IRA and 403(b)(7) Plans. When it is collected
this fee is paid to PNC Bank. The fee and its waiver are subject to adjustment
by PNC Bank as trustee/custodian for the Plans.
I. Transfer of Shares. A shareholder may transfer shares of any series to
another person by writing to the Fund's transfer agent. The shareholder should
clearly identify the series, the account and the number of shares to be
transferred, and include the signature of all registered owners, and all stock
certificates, if any, which are the subject of transfer. The signature on the
letter of instructions, the stock certificates or any stock power must be
guaranteed in the same manner as described under "How to Redeem Shares." As in
the case of redemptions, the written request must be received in good order
before any transfer can be made.
NET ASSET VALUE
For purposes of pricing purchases and redemptions, the net asset value of
each series of the Fund is separately determined by State Street Bank and Trust
Company, the Fund's custodian ("State Street") as of the earlier of 4:00 p.m. or
the close of regular trading on the New York Stock Exchange on each day that the
Exchange is open for business but in no event less often than once each week.
Net asset value per share of each series of the Fund is calculated by adding the
value of all securities and other assets of such series, subtracting all of the
liabilities of such series and dividing the remainder by the number of shares of
such series outstanding at the time the determination is made.
Securities, including options, and futures traded on an exchange or on
NASDAQ or in the over the counter market are valued at the last reported sales
price on the day of valuation, but if there are no sales on that day, or if the
Adviser determines that the last sale fails to reflect the current market value,
such securities are valued at the mean between the closing bid and asked prices.
Other securities and assets, including restricted and illiquid securities, are
valued at their fair value as determined in good faith under procedures
determined by the Board of Directors. To the extent consistent with the
foregoing fair value standard, securities which are traded for which market
quotations are not readily available are valued at the mean of the bid and asked
prices quoted to the Fund by the principal market makers of such security. All
foreign securities are valued on the date net asset value is calculated as of
the close of each country's respective exchanges. Foreign currencies are priced
at New York market closing prices. Temporary investments in short-term debt
securities are valued at market, or at amortized cost, which approximates market
value.
The net asset value per share of each series appears daily in the The Wall
Street Journal and other newspapers. Shareholders may also call the Fund's
Automated Telephone Inquiry System at 1-800-858-3013 to receive the most recent
net asset value information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each series of the Fund intends to qualify for treatment under Subchapter M
of the Code. Since each series intends to continue to so qualify and to
distribute all of its net investment income and capital gain to shareholders at
least annually, it is expected that each series will not be required to pay any
Federal income taxes. Shareholders generally will have to pay Federal income
taxes on the dividends and distributions they receive from a series and on gains
realized upon redemption of their shares.
Following each calendar year, each shareholder will receive information for
tax purposes on the dividends and capital gain distributions received during the
previous year. The Fund may make distributions from net investment income or
capital gain and may also make distributions in kind. Dividends from net
investment income and any net short-term capital gain will be taxable as
ordinary income whether received in cash or in kind. Any distributions
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designated as realized net capital gain (the excess of net long-term capital
gain over net short-term capital loss) will be taxable as long-term capital
gain, regardless of the holding period of the shareholder's shares of such
series. All or a portion of any dividends paid by the Fund to corporate
shareholders may, under certain circumstances, be eligible for the dividends
received deduction. Credit for foreign taxes paid by the Fund have generally not
been available to shareholders.
Dividends or distributions have the effect of reducing the per share value
of shares owned by the shareholder by the per share amount of the dividends or
distributions. Furthermore, such dividends and distributions paid shortly after
the purchase of shares by an investor, although in effect a return of capital,
are subject to income taxes. The Board presently intends to declare such
dividends and distributions from net investment income semi-annually.
The IRS requires backup withholding of Federal income tax of 31% of the
gross amount of dividends, capital gain distributions, and redemption proceeds
paid or credited to shareholders who do not furnish a valid social security or
taxpayer identification number. Shareholders using the Fund as a medium for tax
qualified retirement plans may be subject to a 20% mandatory withholding upon
withdrawal under certain circumstances.
Redemptions of shares of a series will be taxable transactions for Federal
income tax purposes. Generally, gain or loss will be recognized in an amount
equal to the difference between the shareholder's basis in his shares and the
amount received. Assuming that such shares are held as a capital asset, such
gain or loss will be a capital gain or loss and will be a long-term capital gain
or loss if the shareholder has held his shares for a period of more than one
year. If a shareholder redeems shares of any series at a loss and makes an
additional investment in the same series 30 days before or after such
redemption, the loss may be disallowed under the wash sale rules.
The foregoing summary of Federal income tax consequences is included herein
for general informational purposes only. It does not address the tax
consequences to all investors and does not address the tax consequences under
state, local, foreign and other tax laws. Prospective investors are urged to
consult their own tax advisors with respect to the tax consequences of an
investment in a series of the Fund.
FUND OPERATIONS
Portfolio Transactions
The Adviser effects portfolio transactions through brokers and dealers who
in its judgment will provide the Fund with the best combination of price
(including brokerage commissions, if any) and execution. The Adviser may also
give consideration to research services in its selection of brokers and may
cause the series to pay higher commissions than might be charged by some other
broker who does not furnish research services if the Adviser determines in good
faith that the commissions being paid are reasonable in relation to the value of
the brokerage and research services provided. Research services provided by
brokers who execute Fund portfolio brokerage transactions for a series may be
utilized by the Adviser for the benefit of the other series or clients advised
by it, just as research services provided by brokers who execute brokerage
transactions for such other series (or clients) advised by the Adviser may be
utilized for the benefit of the other series (and clients). The Adviser does not
know of any way of determining the value of brokerage and research services
provided by such brokers, except to the extent such services have a determined
market value. To the extent such services are used by the Adviser in advising
the Fund, they tend to reduce the Adviser's expenses. The Adviser may
occasionally also take into account sale of Fund shares when allocating
brokerage.
The Adviser generally effects transactions in exchange traded securities
through members of the exchange although it may also effect such transactions
privately or in the so-called "third market." Transactions in over-the-counter
securities will be executed on a principal basis with market makers unless, in
the judgment of the Adviser, the best combination of price and execution is
available by other arrangements including dealing with a market maker on an
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agency basis and paying a brokerage commission. Transactions in unregistered
securities are effectuated with broker-dealers on a principal or agency basis or
directly with the issuers or holders of such securities.
The Adviser will effect portfolio transactions for a series through a
broker which is an affiliated person of the Fund or the Adviser only if in the
Adviser's judgment such broker is able to obtain the best combination of price
and execution. Currently the only broker affiliated with the Fund or the Adviser
is Clearwater Securities Inc. ("Clearwater"). Although an affiliated broker such
as Clearwater is entitled to and is paid a commission for executing brokerage
transactions for the Fund, Clearwater does not act as a principal for its own
account in any portfolio transactions with the Fund.
The Adviser makes its portfolio decisions for each series based on its
judgment as to the best interests of such series, taking into account factors
such as relative size, cash position, investment restrictions and tax
consequences to the client. Securities considered for purchase or sale by a
series are often also appropriate for purchase or sale by the other series
advised by the Adviser. When more than one of such series is purchasing or
selling the same securities at or about the same time, the transactions are
averaged as to price.
The 1994 portfolio turnover rate for Mutual Shares, Qualified, Beacon and
Discovery was 66.55%, 67.65%, 70.63% and 72.70%, respectively.
SHARES OF THE FUND
The Fund has an authorized capital of 700 million shares of stock, par
value $.001 per share, 200 million of which have been allocated to the Mutual
Shares Fund, 200 million of which have been allocated to the Mutual Qualified
Fund, 200 million of which have been allocated to the Mutual Beacon Fund and 100
million of which have been allocated to Mutual Discovery Fund. Pursuant to
Maryland law and the Fund's charter, the Board of Directors may increase the
authorized capital and reclassify unissued shares of any class (series) to
create additional classes of stock with specified rights, preferences and
limitations. Each share is entitled to one vote per share on all matters subject
to shareholder vote. Shares of all classes vote together as a single class
except that where a matter being voted on affects only a particular class it
will be voted on only by that class and where a matter affects a particular
class differently from other classes, that class will vote separately on such
matter. The Fund is not required to hold annual meetings and does not expect to
hold meetings of shareholders as long as two-thirds of the directors then in
office have been elected by the shareholders. Section 16(c) of the 1940 Act
provides certain rights to shareholders which the Fund will honor regarding the
ability to call meetings of shareholders and to communicate with shareholders.
If less than a majority of the directors have been elected by shareholders, a
meeting of shareholders will be held within sixty days to fill any existing
vacancies. Directors may be removed only for cause by a vote of sixty-seven
percent of the outstanding shares of the Fund. A meeting of shareholders shall
be called if the record holders of ten percent of the shares of the Fund so
request in writing. Each share is entitled to participate equally in dividends
and distributions declared by the Directors with respect to shares of the same
class, and in the net distributable assets allocated to such class on
liquidation. When issued, the shares are fully paid and nonassessable, and have
no preemptive, conversion or exchange rights. Shareholders are entitled to
require the Fund to redeem their shares. The shares are transferable without
restriction.
COUNSEL AND INDEPENDENT AUDITORS
Skadden, Arps, Slate, Meagher and Flom, New York, New York are counsel to
the Fund. Wolf, Block, Schorr and Solis-Cohen of Philadelphia, Pennsylvania are
special counsel to the directors who are not interested persons of the Adviser
or the Fund. Miles & Stockbridge, Baltimore, Maryland are special counsel to the
Fund and pass upon the legality of the shares. Ernst & Young LLP, Boston,
Massachusetts, are the independent auditors of the Fund.
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ADDITIONAL INFORMATION
Custodian, Transfer and Dividend Disbursing Agent. State Street Bank and
Trust Company, Atlantic Division, 225 Franklin Street, Boston, MA 02110 is the
principal custodian for the assets of all the series of the Fund. The transfer
and dividend disbursing agent of the Fund is PFPC Inc., 400 Bellevue Parkway,
Wilmington, Delaware 19809-3710. PNC Bank, Wilmington, Delaware acts as the
trustee/custodian for all Fund sponsored retirement accounts.
Shareholder Inquiries. Shareholder inquiries should be directed to the Fund
at the telephone number or address set forth on the cover page of this
Prospectus.
Reports. The Fund will issue to its shareholders semiannual reports
containing unaudited financial statements and annual reports containing
financial statements examined by auditors which have been approved by the
shareholders.
Information. This Prospectus does not contain all the information included
in the Registration Statement filed with the Securities and Exchange Commission
under the Securities Act of 1933 with respect to the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The Registration
Statement including the exhibits filed therewith may be examined at the office
of the Securities and Exchange Commission in Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract
or other document referred to are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part, each such statement being qualified in all respects by such reference.
24
