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 Beacon 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 Beacon 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
BEACON
FUND
[LOGO}
ANNUAL
REPORT
December 31, 1995
[LOGO]
<PAGE>
Mutual Beacon Fund
Yearly Performance
Total Return*
1985** ................................................................ 25.25%
1986 ................................................................ 15.47%
1987 ................................................................ 12.84%
1988 ................................................................ 28.79%
1989 ................................................................ 17.46%
1990 ................................................................ -8.17%
1991 ................................................................ 17.60%
1992 ................................................................ 22.92%
1993 ................................................................ 22.93%
1994 ................................................................ 5.61%
1995 ................................................................ 25.89%
- --------------------------------------------------------------------------------
Comparison of Changes in Value of $10,000 Investment in Mutual Beacon Fund
The S&P 500 and The Lipper Growth and Income Funds Average
[The following table was represented by a graph in the printed materia l.]
Lipper Growth
Mutual Beacon S&P 500 & Income Funds Average
------------- ------- ----------------------
'85 10000 10000 10000
'86 11547 11867 11636
'87 13030 12490 11858
'88 16761 14565 13752
'89 19711 19180 17013
'90 18100 18584 16279
'91 21286 24246 21026
'92 26165 26094 22896
'93 32164 28724 25561
'94 33969 29103 25320
'95 42763 40040 33288
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN*
- --------------------------------------------------------------------------------
1 Year 5 Year 10 Year
- --------------------------------------------------------------------------------
25.89% 18.76% 15.64%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio manager Michael F. Price has been responsible for the day-to-day
management of the Fund for more than five years.
* Total Return and Average Annual Total Return includes changes in share
price and reinvestment of dividends and capital gain distributions.
** Performance from January 9-December 31, 1985. Prior to January 9, 1985,
Beacon was advised by an investment adviser unaffiliated with Heine
Securities Corporation.
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 BEACON FUND:
Mutual Beacon's performance in 1995 was in absolute terms the second best
since Heine Securities became investment adviser to the Fund eleven years ago.
The Fund appreciated 25.9% over the year with cash balances averaging about 21%
of assets. Given the extraordinary gains in broader market indices such as the
S&P 500, our relative performance certainly lagged, but that is not unexpected
in this kind of a 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. 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 largest dollar position ever in a single stock 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
managers or control players. We have positive, productive relationships with
3
<PAGE>
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.
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 BEACON FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
Number Value
of Shares (Note A)
--------- --------
COMMON STOCK & OTHER EQUITY INTERESTS (67.74%)
Aerospace (2.72%)
(A)* Hexcel Corp. ....................... 980,601 $ 9,928,585
* Litton Industries, Inc. ............ 372,500 16,576,250
Lockheed Martin Corp. .............. 299,900 23,692,100
Loral Corp. ........................ 372,500 13,177,187
McDonnell Douglas Corp. ............ 298,000 27,416,000
Teledyne Inc. ...................... 251,700 6,449,812
--------------
97,239,934
--------------
Banking (7.37%)
Banco Central Hispano-
Americano, SA .................... 504,982 10,207,105
Bay View Capital Corp. ............. 128,000 3,648,000
* Brooklyn Bancorp, Inc. ............. 238,000 9,698,500
Center Financial Corp. ............. 273,925 4,793,688
Chase Manhattan Corp. .............. 2,926,300 177,406,938
Chemical Banking Corp. ............. 250,000 14,687,500
* Dime Bancorp Inc. .................. 732,800 8,518,800
Downey Financial Corp. ............. 251,265 5,496,422
* Espirito Santo Financial Holding SA 383,900 4,558,812
First Interstate Bancorp ........... 68,900 9,404,850
Metrobank .......................... 25,600 800,000
Princeton National Bancorp, Inc. ... 120,000 2,070,000
Rochester Community Savings Bank ... 363,700 8,637,875
Wells Fargo & Company .............. 15,700 3,391,200
--------------
263,319,690
--------------
Communications (2.98%)
* Associated Group Inc., Class A ..... 86,375 1,630,328
* Associated Group Inc., Class B ..... 86,375 1,641,125
* Globalstar Telecommunications Ltd. . 272,500 10,082,500
Sprint Corp. ....................... 1,535,300 61,220,087
Telephone & Data Systems, Inc. ..... 810,400 32,010,800
--------------
106,584,840
--------------
Computer & Electronic Equipment (0.19%)
Advanced Micro Devices, Inc. ....... 344,300 5,680,950
* NexGen, Inc. ....................... 88,300 1,125,825
* Unitrode Corp., Warrants ........... 8,148 30,555
--------------
6,837,330
--------------
Conglomerates (5.64%)
Alexander & Baldwin, Inc. .......... 154,800 3,560,400
* Berkshire Hathaway Inc. ............ 305 9,790,500
Forvaltnings AB Ratos, B Shares .... 1,538,100 25,539,084
* Griffon Corp. ...................... 440,000 3,960,000
Harcourt General Inc. .............. 100,900 4,225,187
Incentive AB, A Shares ............. 340,694 14,846,393
Incentive AB, B Shares ............. 344,800 15,025,320
Investor AB, A Shares .............. 576,800 18,981,382
Investor AB, B Shares .............. 961,100 31,627,958
Kinnevik AB, A Shares .............. 40,000 1,238,185
Kinnevik AB, B Shares .............. 337,100 10,510,789
Philips Electronics NV ............. 675,700 24,372,264
Philips Electronics NV, ADR ........ 735,700 26,393,238
Semi-Tech (Global) Ltd. ............ 7,108,358 11,445,077
--------------
201,515,777
--------------
Construction (0.46%)
Lone Star Industries, Inc. ......... 104,768 2,619,200
* Manville Corp. ..................... 549,000 7,205,625
* Manville Corp., Warrants ........... 99,417 385,241
Puerto Rican Cement Co., Inc. ...... 85,000 2,815,625
* USG Corporation .................... 116,800 3,504,000
--------------
16,529,691
--------------
Consumer Products & Services (7.26%)
BIC SA ............................. 192,900 19,578,967
CarnaudMetalbox .................... 326,950 14,926,485
Corning Inc. ....................... 811,100 25,955,200
Dial Corp. ......................... 870,200 25,779,675
* KinderCare Learning Centers, Inc. .. 52,078 657,485
Pacific Dunlop Ltd. ................ 13,762,448 32,199,484
Premark International, Inc. ........ 295,800 14,974,875
RJR Nabisco Holdings Corp. ......... 3,149,585 97,243,437
* Ranger Industries, Inc. ............ 5,059 588
Rothmans Inc. ...................... 57,000 4,762,708
(R)* Sunbeam Corp. ...................... 1,480,670 19,193,185
* U.S. Industries, Inc. .............. 218,200 4,009,425
--------------
259,281,514
--------------
Entertainment & Media (4.14%)
BHC Communications Inc. ............ 44,098 4,167,261
* Cablevision Systems Corp. .......... 108,000 5,859,000
Capital Cities Co./ABC, Inc. ....... 8,400 1,036,350
* Chris Craft Industries, Inc. ....... 170,654 7,380,785
Citicasters Inc. ................... 532,575 12,582,084
5
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Number Value
of Shares (Note A)
--------- --------
Comcast Corp., Class A ............. 55,000 $ 969,375
Comcast Corp., Class A,
Special Non-Voting ................. 211,400 3,844,838
* ITT Corp. .......................... 57,400 3,042,200
* Tele-Communications, Inc.,
Class A - TCI Group .............. 603,000 11,984,625
Todd A.O. Corp., Class A ........... 116,828 905,417
* US West, Inc. - Media Group ........ 4,895,300 93,010,700
* United Television, Inc. ............ 33,000 2,978,250
--------------
147,760,885
--------------
Financial Services (4.65%)
Bear Stearns Companies, Inc. ....... 316,950 6,299,382
Capital One Financial Corp. ........ 678,000 16,187,250
Dean Witter, Discover & Co. ........ 614,000 28,858,000
Finova Group Inc. .................. 698,000 33,678,500
First USA Inc. ..................... 160,700 7,131,062
Fund American Enterprise
Holdings, Inc. ................... 265,111 19,750,770
Lehman Brothers Holdings Inc. ...... 531,300 11,290,125
Liberty Financial Companies Inc. ... 149,844 4,532,781
Salomon Inc. ....................... 250,000 8,875,000
United Asset Management Corp. ...... 772,500 29,644,687
--------------
166,247,557
--------------
Food & Beverages (3.57%)
Brown-Forman Corp., Class A ........ 24,700 923,162
Brown-Forman Corp., Class B ........ 192,700 7,033,550
Cultor Oy, Series 1 ................ 547,900 22,608,835
Dole Food Co., Inc. ................ 130,000 4,550,000
Farmer Brothers Co. ................ 17,586 2,400,489
* FoodBrands America Inc. ............ 142,236 1,706,832
Heineken Holding NV ................ 57,218 9,358,417
Hormel Foods Corp. ................. 281,000 6,919,625
Lindt & Spruengli AG,
Participation Certificate ........ 3,977 5,789,740
Lindt & Spruengli AG, Registered ... 137 2,291,248
Nestle SA, Registered .............. 2,619 2,895,879
Nutricia Verenigde Bedrijven NV .... 230,300 18,590,137
Seaboard Corp. ..................... 4,350 1,169,606
Seagram Company Ltd. ............... 256,600 8,884,775
Societe Sucriere de Pithiviers SA .. 11,670 5,744,023
Van Melle NV ....................... 232,566 15,909,366
Weetabix PLC, Class A .............. 262,105 10,974,764
--------------
127,750,448
--------------
Healthcare (6.96%)
* Beverly Enterprises, Inc. .......... 537,800 5,714,125
Cordis Corp. ....................... 85,500 8,592,750
* FHP International Corp. ............ 1,222,000 34,827,000
Getinge Industrier AB, B Shares .... 825,590 37,527,382
* Health Systems International, Inc. . 379,000 12,175,375
* Humana, Inc. ....................... 899,700 24,629,288
(R)* Kendall International, Inc.,
Residual Ownership Certificates .. 49 758
* Laboratory Corp. of America ........ 900,976 8,446,650
* Laboratory Corp. of America,
Warrants ......................... 177,387 121,954
Mallinckrodt Group Inc. ............ 411,600 14,971,950
* Mid Atlantic Medical Services, Inc. 864,100 20,954,425
(A)* New Dimensions In Medicine, Inc. ... 862,595 3,126,907
* Perrigo Co. ........................ 655,600 7,785,250
Pharmacia & Upjohn Inc. ............ 128,900 4,994,875
* Physician Corp. of America ......... 984,200 16,731,400
* Tenet HealthCare Corp. ............. 2,192,500 45,494,375
* Wellpoint Health Networks Inc. ..... 80,900 2,598,912
--------------
248,693,376
--------------
Industrial (4.31%)
Bayer AG ........................... 50,400 13,351,794
Briggs & Stratton Corp. ............ 435,200 18,876,800
Bucher Holding AG, Bearer .......... 13,433 7,682,652
CBI Industries, Inc. ............... 344,200 11,315,575
* Crown Cork & Seal Inc. ............. 163,600 6,830,300
Greif Brothers Corp. ............... 28,800 774,000
Hayes Wheels International Inc. .... 802,900 20,574,313
ITT Industries Inc. ................ 244,800 5,875,200
(R)* Lancer Industries, Inc., Class B ... 1 5,130
SGS Societe Generale de
Surveillance Holding SA, Class B . 12,691 25,184,047
Smith Investment Co. ............... 7,254 464,256
Volvo AB, B Shares ................. 2,096,900 42,852,394
Vulcan International Corp. ......... 12,584 273,702
--------------
154,060,163
--------------
Insurance (4.10%)
* Alleghany Corp. .................... 40,365 7,992,270
Allmerica Property & Casualty
Companies, Inc. .................. 415,400 11,215,800
Allstate Corp. ..................... 272,752 11,216,926
Argonaut Group, Inc. ............... 44,000 1,430,000
Chubb Corp. ........................ 12,000 1,161,000
Enhance Financial Services
Group, Inc. ...................... 306,000 8,147,250
6
<PAGE>
Number Value
of Shares (Note A)
--------- --------
Financial Security Assurance
Holdings Ltd. .................... 200,200 $ 4,979,975
Home Beneficial Corp., Class B ..... 303,600 7,286,400
* ITT Hartford Group Inc. ............ 297,800 14,406,075
Internationale Nederlanden
Groep NV ......................... 79,474 5,298,267
Kansas City Life Insurance Co. ..... 17,750 931,875
MBIA Inc. .......................... 41,500 3,112,500
Mid Ocean Ltd. ..................... 193,800 7,194,825
(A)* National Security Group, Inc. ...... 174,977 2,296,573
Old Republic International Corp. ... 496,010 17,608,355
* Provident Companies Inc. ........... 179,500 6,080,562
Providian Corp. .................... 328,300 13,378,225
Reliable Life Insurance Company,
Class A .......................... 16,684 967,672
Selective Insurance Group, Inc. .... 52,450 1,861,975
Torchmark Corp. .................... 300,700 13,606,675
* 20th Century Industries ............ 155,200 3,084,600
Unitrin, Inc. ...................... 69,800 3,350,400
--------------
146,608,200
--------------
Metals (0.35%)
* Algoma Steel Corp., Ltd. ........... 649,670 2,440,399
* Algoma Steel Corp., Ltd., Units .... 952,483 5,005,536
ASARCO Inc. ........................ 73,000 2,336,000
* Bayou Steel Corp. .................. 15,700 60,838
Central Steel & Wire Co. ........... 659 373,653
Cyprus Amax Minerals Co. ........... 76,000 1,985,500
Oregon Steel Mills, Inc. ........... 11,900 166,600
--------------
12,368,526
--------------
Natural Resources (1.79%)
Apco Argentina Inc. ................ 81,179 1,339,454
* Crown Central Petroleum Corp.,
Class A .......................... 43,300 638,675
* Crown Central Petroleum Corp.,
Class B .......................... 98,400 1,439,100
Dual Invest AS, Class B ............ 725,200 5,258,054
* Energy Ventures, Inc. .............. 342,300 8,643,075
Fina, Inc. ......................... 42,600 2,151,300
(A)* GulfMark International, Inc. ....... 273,037 6,757,666
Helikopter Service A/S ............. 272,100 3,323,837
Imperial Oil Ltd. .................. 606,100 21,895,362
* Mosvold Shipping Ltd. .............. 682,700 516,512
Royal Dutch Petroleum Co. .......... 31,200 4,403,100
Union Texas Petroleum
Holdings, Inc. ................... 396,300 7,678,313
--------------
64,044,448
--------------
Printing & Publishing (2.91%)
Daily Mail & General Trust PLC,
Class A .......................... 371,200 6,648,843
Daily Mail & General Trust PLC,
Ordinary ......................... 19,000 384,521
De Telegraaf Holding NV ............ 156,625 22,013,215
Dow Jones & Co., Inc. .............. 207,800 8,286,025
Gannett Inc. ....................... 120,100 7,371,137
Houghton Mifflin Co. ............... 219,700 9,447,100
Mirror Group PLC ................... 10,155,000 27,402,191
Shaw Brothers Ltd. ................. 8,516,300 9,361,597
Wallace Computer Services, Inc. .... 238,500 13,028,063
--------------
103,942,692
--------------
Real Estate (3.41%)
* Al-Zar Ltd. ........................ 12 4,200
Alico Inc. ......................... 33,900 889,875
* Cadillac Fairview Corp. ............ 1,023,500 11,065,072
* Cadillac Fairview Corp., Warrants .. 112,599 309,485
* Castle & Cooke Inc. ................ 43,333 725,828
* E & J Properties Ltd., Units ....... 15,000 27,187
Gould Investors L.P. ............... 14,600 452,600
(A)(R)* MB Metropolis, L.L.C ............... 6,651,920 8,215,121
(A)(R)* MSCW Investors III, L.L.C .......... 28,372,000 43,999,326
(A)* Resurgence Properties Inc. ......... 591,900 4,528,035
(A)(R)* Resurgence Properties Inc. ......... 900,000 6,885,000
St. Joe Paper Co. .................. 100,000 5,500,000
(A)(R)* Value Property Trust ............... 3,880,280 39,166,770
--------------
121,768,499
--------------
Retail (3.70%)
American Stores Co. ................ 612,000 16,371,000
CML Group, Inc. .................... 2,333,100 11,957,138
(A)* Caldor Corp. ....................... 903,300 2,935,725
Delchamps, Inc. .................... 66,700 1,359,013
* Hills Stores Co. ................... 227,260 2,244,192
* Isosceles PLC, Ordinary ............ 255,680 3,965
Melville Corp. ..................... 477,000 14,667,750
Morrison Restaurants Inc. .......... 780,300 10,924,200
* Revco D.S., Inc. ................... 100,000 2,825,000
Sears PLC .......................... 18,577,000 29,961,602
Sears, Roebuck & Co. ............... 549,544 21,432,216
* Service Merchandise Co., Inc. ...... 2,180,600 10,903,000
7
<PAGE>
Number
of Shares
or Principal Value
Amount (Note A)
------------ --------
Venture Stores, Inc. ............... 791,500 $ 2,671,312
* The Vons Companies, Inc. ........... 136,600 3,858,950
--------------
132,115,063
--------------
Transportation (1.23%)
Arkansas Best Corp. ................ 304,500 2,397,938
* Canadian National Railway Co. ...... 130,000 1,950,000
Florida East Coast Industries, Inc. 73,300 5,002,725
* Old Dominion Freight Line, Inc. .... 200,000 1,600,000
* Southern Pacific Rail Corp. ........ 861,770 20,682,480
XTRA Corp. ......................... 288,900 12,278,250
--------------
43,911,393
--------------
TOTAL COMMON STOCK &
OTHER EQUITY INTERESTS ........... 2,420,580,026
--------------
PREFERRED STOCK (2.19%)
* Columbia Gas System, Inc.,
Dividend Enhanced Conv. Stock ...... 206,111 8,295,968
* Columbia Gas System, Inc., Pfd. .... 336,541 8,287,322
* FHP International Corp., Series
A Conv. Pfd. ..................... 195,000 5,191,875
* Gentra Inc., Priority Pfd. A ....... 82,528 1,315,633
* Gentra Inc., Pfd. G ................ 79,000 817,880
* Hills Stores Co., Pfd. ............. 48,309 452,897
(R)* Interlake Corp., 9.00%,
Series A3 Conv. Pfd. ............. 400 220,880
* Isosceles PLC, Series A
Preference Shares ................ 512,915 7,954
(R)* Lancer Industries, Inc.,
Series C Pfd. .................... 20,513 1,846,170
Manville Corp., Cum. Pfd. B ........ 58,674 1,474,184
RJR Nabisco Holdings Corp.,
Class C Pfd. ..................... 2,689,000 17,142,375
Ransomes PLC, (pound)8.25 Conv. Pfd. 16,195,000 24,236,192
Teledyne Inc., Series E Pfd. ....... 23,403 336,418
Wang Laboratories, Inc.,
11.00%, Pfd. ..................... 365,120 8,671,600
--------------
78,297,348
--------------
Principal
Amount
------------
CORPORATE BONDS AND NOTES (2.40%)
Cadillac Fairview Corp.,
12.00%, 7/31/05 .............. CAD 133,139 91,241
Confederation Life Insurance U.K ...
Holdings, 8.50%, 12/31/03 GBP ..... 2,250,000 3,454,410
Continental Airlines Inc.,
Lease Claim ...................... $ 3,828,400 3,246,483
* Gentra Inc., 7.50%, 12/31/01 CAD ... 4,734,850 3,782,744
Home Holdings Inc.,
7.75%, 12/15/98 .................. 3,300,000 2,970,000
Home Holdings Inc.,
8.625%, 12/15/03 ................. 5,250,000 4,068,750
Kinnevik AB, 10.50%, 7/21/97 SEK ... 103,389,298 28,741,259
Manville Corp., 9.00%, 12/31/03 .... 92,115 92,115
Value Property Trust,
11.125%, 9/29/02 ................. 39,196,000 39,196,000
--------------
85,643,002
--------------
BONDS AND NOTES IN REORGANIZATION (2.90%)
* Adams County CO, Industrial Dev. ...
Auth., 9.00%, 11/01/96 ............. 1,775,000 181,937
* Ames Department Stores, Inc.,
Trade Claims ..................... 2,581,653 25,816
* Barings BV, 0%, 1/22/01 ............ 8,420,000 842,000
* Barings BV, 0%, 3/12/01 ............ 8,249,000 7,630,325
* Beatrice Foods Inc.,
12.00%, 12/01/01 ................. 5,000 1,500
* Caldor Corp., Trade Claim .......... 8,412,894 5,047,736
* Dow Corning Corp.,
Bank Debt ........................ 2,850,000 2,337,000
* Dow Corning Corp.,
8.15%, 10/15/29 .................. 7,050,000 5,869,125
* Dow Corning Corp.,
9.30%, 1/27/98 ................... 1,835,000 1,573,513
* Dow Corning Corp.,
9.375%, 2/01/08 .................. 790,000 683,350
* Dow Corning Corp., Swap ............ 5,833,333 4,725,000
El Paso Electric Company,
Bank Claim ....................... 1,100,000 1,166,000
El Paso Electric Company,
4.625%, 2/01/92 .................. 1,970,000 2,034,025
El Paso Electric Company,
6.75%, 5/01/98 ................... 1,500,000 1,560,000
El Paso Electric Company,
9.00%, 11/01/04 .................. 970,000 1,033,050
8
<PAGE>
Principal Value
Amount (Note A)
------------ --------
El Paso Electric Company,
11.10%, 12/15/01 ................. $15,750,000 $ 16,852,500
El Paso Electric Company,
11.58%, 12/01/97 ................. 2,000,000 2,160,000
El Paso Electric Company,
12.02%, 12/15/99 ................. 5,250,000 5,663,437
El Paso Electric Company,
12.63%, 12/01/05 ................. 22,500,000 24,525,000
El Paso Electric Company,
13.25%, 5/01/94 .................. 1,140,000 1,265,400
El Paso Funding Corp.,
10.375%, 1/02/11 ................. 1,250,000 850,000
* El Paso TX Housing Finance Corp.,
8.88%, 10/15/96 .................. 27,574,000 2,619,530
* Eli Jacobs, Bank Claim ............. 25,305,909 126,530
* Isosceles PLC,
0%/7.00%, 7/05/03 ............ GBP 2,012,576 31,211
* Isosceles PLC, Facility A
Term Loan, 1998 .............. GBP 137,621 122,718
* Isosceles PLC, Facility B
Term Loan, 2001 .............. GBP 612,980 546,601
* Louisiana Agriculture Finance
Authority, 8.25%, 10/01/96 ....... 950,000 92,625
* Louisiana Housing Finance
Authority, 8.61%, 8/01/96 ........ 987,000 96,232
* Maxicare Health Plans, Inc.,
Bank Note ........................ 68,320 26,508
* Maxwell Communication Corp.
PLC, 5.00%, 6/16/95 .......... CHF 694,575 64,703
* Maxwell Communication Corp.
PLC, 6.00%, 6/15/93 .......... DEM 206,000 12,535
* Maxwell Communication Corp.
PLC, 8.375%, 9/01/93 ......... ECU 520,000 58,138
* Memphis TN Health Facilities,
8.68%, 9/15/96 ................... 8,800,000 858,000
* Metallurg Inc., Bank Claim ......... 6,995,482 4,407,154
* Metallurg Inc., Bank Claim #2 ...... 2,389,204 1,128,899
* Metallurg Inc., Trade Claim ........ 665,812 119,846
* Nebraska Investment Finance
Auth., 8.34%, 11/01/93 ........... 4,660,000 454,350
* Somerfield Holdings Ltd., Facility A
Term Loan, 2000 .............. GBP 1,340,894 1,798,733
* Somerfield Holdings Ltd., Facility B
Revolving Credit, 1998 ....... GBP 574,669 770,885
Number
of Shares
or Principal
Amount
------------
* Southeast Texas Housing Finance
Authority, 8.60% 9/01/96 ......... $ 1,500,000 142,500
Tiphook Finance Corp.,
8.00%, 3/15/00 ................... 4,950,000 3,663,000
Tiphook Finance Corp.,
Lease Claim .................. GBP 357,492 457,379
--------------
103,624,791
--------------
COMPANIES IN LIQUIDATION (0.07%)
* Aerospace Creditors
Liquidating Trust, Certificates of
Beneficial Interest .............. 43,902 150,913
* Americana Hotels & Realty Corp. .... 71,300 231,725
* City Investing Co.,
Liquidating Trust ................ 250,187 234,550
* MBO Properties Inc. ................ 159,135 397,837
* MEI Diversified Inc., Certificates of
Beneficial Interest .............. 13,957,852 1,256,207
* MCorp Financial Trust,
Claim Units ...................... 13,334 184,363
* MCorp Trust, Claim Units ........... 13,327 38,884
(A)* Management Assistance, Inc.,
Liquidating Trust ................ 431,100 175,156
* San Juan Racing Association, Inc. .. 18,800 10,152
--------------
2,679,787
--------------
UNITED STATES GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS (23.55%)
U.S. Government Agency Obligations (0.55%)
Federal National Mortgage Association,
Floating Rate, 2/16/96 ........... $15,000,000 14,994,000
Tennessee Valley Authority,
6.000%, 1/15/97 .................. 4,500,000 4,527,320
--------------
19,521,320
--------------
U.S. Treasury Notes (4.29%)
5.125%, 3/31/96 ................... 20,000,000 20,000,000
6.125%, 7/31/96 ................... 19,300,000 19,402,502
4.375%, 8/15/96 ................... 26,400,000 26,268,000
6.250%, 8/31/96 ................... 26,000,000 26,170,586
6.875%, 10/31/96 ................... 35,500,000 35,976,978
7.250%, 11/30/96 ................... 25,000,000 25,445,300
--------------
153,263,366
--------------
9
<PAGE>
Principal Value
Amount (Note A)
------------ --------
U.S. Government Agency Discount Notes (18.24%)
Federal Home Loan Bank System,
5.600%, 1/02/96 ................... $10,100,000 $10,098,429
6.000%, 1/05/96 ................... 1,300,000 1,299,133
5.600%, 1/08/96 ................... 9,500,000 9,489,656
5.910%, 1/17/96 ................... 2,900,000 2,892,383
5.540%, 2/22/96 ................... 1,800,000 1,785,596
5.420%, 2/29/96 ................... 3,500,000 3,468,910
5.420%, 4/18/96 ................... 14,300,000 14,071,772
5.990%, 4/19/96 ................... 2,700,000 2,656,020
5.850%, 4/29/96 ................... 5,700,000 5,596,368
5.330%, 6/06/96 ................... 3,300,000 3,223,724
Federal Home Loan Mortgage Corp.,
5.550%, 2/02/96 ................... 15,800,000 15,722,053
5.530%, 2/15/96 ................... 600,000 595,852
5.570%, 4/01/96 ................... 8,200,000 8,089,103
5.580%, 5/01/96 ................... 11,500,000 11,291,275
5.725%, 7/25/96 ................... 12,500,000 12,499,725
5.730%, 7/25/96 ................... 12,500,000 12,500,450
6.140%, 8/01/97 ................... 10,000,000 9,994,600
Federal National Mortgage Association,
5.500%, 1/09/96 ................... 1,600,000 1,598,044
5.600%, 1/16/96 ................... 8,800,000 8,779,467
5.600%, 1/18/96 ................... 15,700,000 15,658,482
5.500%, 2/02/96 ................... 3,600,000 3,582,400
5.520%, 2/12/96 ................... 16,400,000 16,294,384
5.530%, 2/13/96 ................... 15,000,000 14,900,921
6.860%, 2/28/96 ................... 10,000,000 10,031,250
5.490%, 3/04/96 ................... 25,100,000 24,865,014
5.440%, 3/08/96 ................... 6,700,000 6,631,044
5.470%, 3/11/96 ................... 6,100,000 6,034,407
5.440%, 3/13/96 ................... 2,100,000 2,076,774
5.420%, 3/20/96 ................... 3,400,000 3,358,741
5.520%, 3/28/96 ................... 3,500,000 3,454,748
5.460%, 4/03/96 ................... 8,600,000 8,477,811
5.350%, 4/04/96 ................... 23,100,000 22,775,491
5.410%, 4/04/96 ................... 9,600,000 9,465,139
5.420%, 4/05/96 ................... 9,600,000 9,465,485
5.420%, 4/09/96 ................... 5,500,000 5,416,813
5.740%, 5/02/96 ................... 7,400,000 7,264,580
5.310%, 5/07/96 ................... 9,400,000 9,220,930
5.400%, 5/09/96 ................... 5,400,000 5,295,510
5.370%, 5/13/96 ................... 22,900,000 22,443,145
5.530%, 5/13/96 ................... 1,400,000 1,372,070
5.580%, 5/13/96 ................... 4,200,000 4,116,210
5.610%, 5/17/96 ................... 9,100,000 8,912,995
5.575%, 5/24/96 ................... 8,800,000 8,609,920
Number
of Shares
or Principal
Amount
------------
5.320%, 6/03/96 ................... $ 22,400,000 21,882,560
5.280%, 6/04/96 ................... 4,700,000 4,592,751
5.830%, 6/06/96 ................... 34,300,000 34,383,212
5.260%, 6/14/96 ................... 27,400,000 26,734,399
5.570%, 6/17/96 ................... 13,900,000 13,556,211
5.570%, 7/15/96 ................... 10,000,000 9,713,080
5.290%, 7/26/96 ................... 6,400,000 6,209,011
5.240%, 8/05/96 ................... 3,600,000 3,485,642
5.580%, 8/09/96 ................... 4,600,000 4,451,181
5.160%, 8/15/96 ................... 2,000,000 1,933,540
5.500%, 8/15/96 ................... 3,800,000 3,673,726
5.220%, 9/03/96 ................... 9,200,000 8,870,576
5.760%, 9/03/96 ................... 4,100,000 4,111,531
5.210%, 9/04/96 ................... 2,100,000 2,024,501
5.170%, 9/05/96 ................... 24,000,000 23,133,648
5.160%, 9/19/96 ................... 1,200,000 1,153,714
5.180%, 10/15/96 ................... 16,000,000 15,321,600
5.190%, 10/21/96 ................... 11,600,000 11,097,917
5.110%, 11/15/96 ................... 50,000,000 47,651,800
5.410%, 12/06/96 ................... 15,000,000 15,009,382
5.310%, 12/11/96 ................... 14,800,000 14,804,625
6.141%, 7/29/97 ................... 12,500,000 12,516,650
--------------
651,688,081
--------------
U.S. Treasury Bills (0.47%)
5.440%, 3/07/96 ................... 4,800,000 4,757,496
5.340%, 4/04/96 ................... 5,900,000 5,823,896
5.355%, 4/04/96 ................... 2,100,000 2,072,912
5.340%, 8/22/96 ................... 4,500,000 4,353,457
--------------
17,007,761
--------------
TOTAL INVESTMENTS IN
SECURITIES (98.85%) .............. $3,532,305,482
==============
SECURITIES SOLD SHORT (0.58%)
* Comerica Inc. ...................... 20,000 $ 802,500
* Disney (Walt) Co. .................. 8,400 495,600
* First Bank System, Inc. ............ 75,200 3,731,800
* Pacific Telesis Group .............. 127,600 4,290,550
* Paine Webber Group Inc. ............ 40,000 800,000
* Rite Aid Corp. ..................... 45,000 1,541,250
* Roadway Services Inc. .............. 51,200 2,502,400
* Union Pacific Resources Group Inc. . 236,200 5,993,575
* United States Cellular Corp. ....... 13,000 438,750
--------------
$ 20,596,425
==============
OPTIONS WRITTEN (0.00%)
* First Bank System, Inc.,
January/50/Put ................... 75 $ 9,844
==============
10
<PAGE>
* 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
NLG -- Dutch guilder
ECU -- European currency unit
FIM -- Finnish markka
FRF -- French franc
DEM -- German Deutsche mark
HKD -- Hong Kong dollar
NOK -- Norwegian krone
ESP -- Spanish peseta
SEK -- Swedish krona
CHF -- Swiss franc
Distribution of investments by country:
As a percentage of total investments in securities
United States ......................... 77.8%
Sweden ................................ 6.4
United Kingdom ........................ 4.6
Netherlands ........................... 3.6
Canada ................................ 1.8
Switzerland ........................... 1.3
France ................................ 1.1
Other (individually less than 1%) ..... 3.4
-----
Total ................................. 100.0%
=====
11
<PAGE>
MUTUAL BEACON FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments in Securities, at Value
Unaffiliated Issuers (Cost $3,002,710,317) ................................. $3,404,290,618
Controlled Affiliated Issuers (Cost $84,530,499) ........................... 91,381,217
Non Controlled Affiliated Issuers (Cost $44,391,942) ....................... 36,633,647 $3,532,305,482
--------------
Cash ............................................................................................. 298,226
Receivables:
Investment Securities Sold .................................................................. 64,047,108
Capital Stock Subscribed .................................................................... 11,835,551
Interest .................................................................................... 6,578,688
Dividends ................................................................................... 6,079,338
Deposits with Brokers for Securities Sold Short .................................................. 18,342,309
--------------
TOTAL ASSETS ............................................................................ 3,639,486,702
--------------
LIABILITIES
Payables:
Investment Securities Purchased ............................................................. 23,928,098
Net Payable for Foreign Currency Exchange Contracts ......................................... 13,469,924
Capital Stock Repurchased ................................................................... 2,889,451
Investment Advisory Fee ..................................................................... 1,737,301
Accrued Expenses and Other Liabilities ...................................................... 3,558,517
Securities Sold Short, at Value (Proceeds Receivable $20,999,768) ................................ 20,596,425
Outstanding Options Written, at Value (Premium Received $9,431) .................................. 9,844
--------------
TOTAL LIABILITIES ....................................................................... 66,189,560
--------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK ............................................... $3,573,297,142
==============
NUMBER OF SHARES OUTSTANDING
(Authorized -- 200,000,000 Shares, $.001 Par Value) ......................................... 99,411,071
==============
NET ASSET VALUE PER SHARE
(Offering and Redemption Price Per Share) ................................................... $ 35.94
==============
COMPOSITION OF NET ASSETS
Paid In Capital .................................................................................. $3,073,700,426
Distributions in Excess of Net Investment Income ................................................. (7,873,167)
Accumulated Net Realized Gain on Investments and Foreign Currency Transactions ................... 119,814,140
Net Unrealized Appreciation of Investments, Securities Sold Short and Options Written ............ 401,075,654
Net Unrealized Depreciation of Foreign Currency Exchange Contracts and Dividends ................. (13,419,911)
--------------
TOTAL NET ASSETS ........................................................................ $3,573,297,142
==============
</TABLE>
See notes to financial statements.
12
<PAGE>
MUTUAL BEACON FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest .................................................................... $57,535,506
Dividends -- Unaffiliated Issuers
(Net of Foreign Withholding - $2,446,921) ................................. 46,689,633
Dividends-- Non Controlled Affiliated Issuers ............................... 310,966
Other Income ................................................................ 2,351,802
-----------
TOTAL INCOME ..................................................................... $106,887,907
Expenses:
Investment Advisory Fee ..................................................... 17,720,127
Shareholder Servicing Costs ................................................. 1,241,813
Administrative .............................................................. 886,843
Custodian Fees .............................................................. 515,786
Registration and Filing Fees ................................................ 479,060
Shareholder Reports ......................................................... 149,415
Legal Fees .................................................................. 133,249
Insurance ................................................................... 70,852
Auditing Fees ............................................................... 67,433
Directors' Fees and Expenses ................................................ 47,558
Miscellaneous ............................................................... 57,991
-----------
TOTAL EXPENSES ................................................................... 21,370,127
------------
NET INVESTMENT INCOME ............................................. 85,517,780
------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net Realized Gain on Investments and Foreign Currency Transactions
in Unaffiliated Issuers ................................................... 278,836,892
Net Realized Loss on Investments in Controlled Affiliated Issuers ........... (20,786)
Net Realized Loss on Investments in Non Controlled Affiliates Issuers ....... (13,852,936)
Net Realized Gain on Securities Sold Short .................................. 8,964,739
Net Realized Gain on Options Written ........................................ 856,364
Change in Unrealized Appreciation/(Depreciation) of Investments,
Securities Sold Short, Options Written and Foreign Currency Transactions .. 297,322,201
------------
NET GAIN ON INVESTMENTS ........................................... 572,106,474
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ....................................... $657,624,254
============
</TABLE>
See notes to financial statements.
13
<PAGE>
MUTUAL BEACON 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 ............................................ $ 85,517,780 $ 31,191,883
Net Realized Gain on Investments and Foreign Currency Transactions 274,784,273 105,262,266
Change in Unrealized Appreciation/(Depreciation) of Investments .. 297,322,201 (72,865,345)
--------------- ---------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS ........................................... 657,624,254 63,588,804
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income ............................................ (77,357,961) (27,257,310)
Net Realized Gain on Investments ................................. (200,919,879) (83,100,954)
--------------- ---------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS .......................... (278,277,840) (110,358,264)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS ............................................ 1,133,497,944 1,044,929,293
--------------- ---------------
NET INCREASE IN NET ASSETS ............................................ 1,512,844,358 998,159,833
NET ASSETS:
Beginning of Year ................................................ 2,060,452,784 1,062,292,951
--------------- ---------------
End of Year -- Including Distributions in Excess of Net Investment
Income of $7,873,167 and Undistributed Net Investment
Income of $1,052,559, respectively ............................. $ 3,573,297,142 $ 2,060,452,784
=============== ===============
</TABLE>
See notes to financial statements.
14
<PAGE>
MUTUAL BEACON FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Mutual Beacon 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 Beacon Fund, Mutual Shares Fund,
Mutual Qualified Fund and Mutual Discovery Fund. Each of these portfolios is
considered to be a separate entity for financial reporting and Federal income
tax purposes. The financial statements and notes include operations with respect
to Mutual Beacon 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.
15
<PAGE>
MUTUAL BEACON 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 $17,085,545, 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. 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
$17,720,127 for investment management and advisory services under the Agreement.
The fee was paid monthly based on average daily net assets at the annual rate of
six-tenths of one percent. Administrative personnel and services were provided
at approximate cost by the Adviser.
Clearwater Securities, Inc. ("Clearwater"), is a registered securities
dealer which is owned by Michael F. Price. Since October 1, 1994, the Fund has
executed certain security transactions with Clearwater. For the year ended
December 31, 1995, the Fund paid brokerage commissions totalling $764,323 to
Clearwater.
16
<PAGE>
MUTUAL BEACON FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
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
$2,547,195,932 and $1,878,256,080, respectively.
For Federal income tax purposes, the identified cost of investments at
December 31, 1995 was $3,132,544,904. Net unrealized appreciation for all
securities at December 31, 1995, based on Federal income tax cost, amounted to
$399,760,578, consisting of aggregate gross unrealized appreciation of
$486,561,174 and aggregate gross unrealized depreciation of $86,800,596.
Transactions in options written during the year ended December 31, 1995
were as follows:
Principal
Amount or
Number of
Contracts Premium
--------- -----------
Options written ................................. 368,176 $ 1,332,857
Options expired ................................. (132,166) (358,296)
Options terminated in closing transactions ...... (131,435) (706,156)
Options exercised ............................... (104,500) (258,974)
-------- -----------
Options outstanding at December 31, 1995 ........ 75 $ 9,431
======== ===========
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
Kendall International, Inc., Residual Ownership Certificates ..... 7/06/92 $ 758
Lancer Industries, Inc., Class B ................................. 8/11/89 5,130
MB Metropolis, L.L.C ............................................. 12/07/94 8,215,121
MSCW Investors III, L.L.C ........................................ 12/27/95 43,999,326
Resurgence Properties Inc. ....................................... 4/05/95 6,885,000
Sunbeam Corp. .................................................... 2/23/90 19,193,185
Value Property Trust ............................................. 12/13/93 39,166,770
Preferred Stock
Interlake Corp., 9.00%, Series A3 Conv. Pfd. ..................... 6/17/92 220,880
Lancer Industries, Inc., Series C Pfd. ........................... 8/11/89 1,846,170
------------
Total restricted securities: (Cost $97,737,105) (3.35% of Net Assets) $119,532,340
============
</TABLE>
17
<PAGE>
MUTUAL BEACON FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE E -- INVESTMENT IN AFFILIATES*
<TABLE>
<CAPTION>
Dividend
Balance of Gross Balance of Income
Shares Gross Sales Shares Value Jan. 1-
Held Dec. 31, Purchases and Held Dec. 31, Dec. 31, Dec. 31,
Name of Issuer: 1994 and Additions Reductions 1995 1995 1995
- --------------- --------- ---------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Controlled Affiliates**
MB Metropolis, L.L.C ..................... 8,343,910 -- 1,691,990 6,651,920 $ 8,215,121 --
MSCW Investors III, L.L.C ................ 0 28,372,000 -- 28,372,000 43,999,326 --
S-O Equities Holding Company ............. 632 -- 632 0 *** --
S-O Equities Holding L.P. ................ 2,500 -- 2,500 0 *** --
Value Property Trust ..................... 0 3,880,280 -- 3,880,280 39,166,770 --
----------- --------
Total Controlled Affiliates $91,381,217 $0
=========== ========
Non Controlled Affiliates
Caldor Corp. ............................. 446,700 456,600 -- 903,300 $2,935,725 --
Fidelity Federal Bank, FSB ............... 4,285,714 -- 4,285,714 0 *** --
GulfMark International, Inc. ............. 273,037 -- -- 273,037 6,757,666 --
Hexcel Corp. ............................. 0 980,601 -- 980,601 9,928,585 --
Lancer Industries, Inc., Class B ......... 1 -- -- 1 *** --
Lancer Industries, Inc.,
Series C Pfd. ......................... 20,513 -- -- 20,513 *** $205,130
Management Assistance, Inc.,
Liquidating Trust ..................... 431,100 -- -- 431,100 175,156 --
National Security Group, Inc. ............ 171,977 3,000 -- 174,977 2,296,573 105,836
New Dimensions in Medicine, Inc. ......... 0 862,595 -- 862,595 3,126,907 --
Resurgence Properties Inc. ............... 591,900 -- -- 591,900 4,528,035 --
Resurgence Properties Inc.
(Restricted) .......................... 0 900,000 -- 900,000 6,885,000 --
----------- --------
Total Non Controlled Affiliates $36,633,647 $310,966
=========== ========
</TABLE>
* Affiliated issuers, as defined in the Investment Company Act of 1940, are
issuers in which the Fund held 5% or more of the outstanding voting
securities.
** Issuers in which the Fund owns 25% or more of the outstanding voting
securities.
*** As of December 31, 1995 no longer an affiliate.
18
<PAGE>
MUTUAL BEACON FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
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 43,139,097 $ 32,548,053 2/05/96 $ 31,990,445 $ 557,608
CAD 47,460,696 35,016,007 5/30/96 34,763,985 252,022
CHF 61,085,336 51,679,641 3/07/96 53,278,678 (1,599,037)
DEM 22,819,406 15,791,977 3/15/96 15,925,575 (133,598)
ESP 1,272,814,803 10,197,202 2/16/96 10,412,638 (215,436)
FIM 117,595,683 26,812,824 3/01/96 27,023,706 (210,882)
FRF 240,243,974 49,344,584 2/28/96 49,011,988 332,596
GBP 90,788,851 140,648,964 2/16/96 140,643,369 5,595
HKD 152,545,104 19,706,206 1/10/96 19,727,082 (20,876)
NLG 92,112,966 57,148,000 3/06/96 57,492,557 (344,557)
NLG 104,531,775 65,031,588 6/17/96 65,593,174 (561,586)
NOK 48,586,490 7,646,840 3/08/96 7,663,705 (16,865)
SEK 976,565,815 135,967,595 2/15/96 146,244,877 (10,277,282)
SEK 133,736,278 19,377,308 4/19/96 19,931,221 (553,913)
SEK 584,158,479 86,408,517 5/15/96 86,895,423 (486,906)
------------ ------------ ------------
$753,325,306 $766,598,423 (13,273,117)
============ ============ ------------
Purchases
$ 2,572,489 CAD 3,500,000 5/30/96 $ 2,563,678 (8,811)
9,636,484 CHF 10,918,331 3/07/96 9,522,976 (113,508)
2,861,710 DEM 4,110,854 3/15/96 2,868,949 7,239
4,623,931 FIM 19,682,690 3/01/96 4,523,119 (100,812)
9,161,390 FRF 45,268,490 2/28/96 9,235,190 73,800
279,613 NLG 449,621 3/06/96 280,632 1,019
3,942,596 NOK 25,000,000 3/08/96 3,943,332 736
14,982,150 SEK 100,606,000 4/19/96 14,993,691 11,541
20,877,374 SEK 139,891,900 5/15/96 20,809,363 (68,011)
------------ ------------ -------------
$ 68,937,737 $ 68,740,930 (196,807)
============ ============ -------------
$ (13,469,924)
=============
</TABLE>
Currency type abbreviations are explained on page 11.
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 ....................................... 39,265,763 $1,353,842,644 38,767,605 $1,260,484,416
Shares issued in reinvestment of dividends ........ 7,089,659 251,570,646 3,229,064 100,384,881
Shares redeemed ................................... (13,339,166) (471,915,346) (9,774,755) (315,940,004)
----------- -------------- ----------- --------------
Net Increase .................................... 33,016,256 $1,133,497,944 32,221,914 $1,044,929,293
=========== ============== ========== ==============
</TABLE>
19
<PAGE>
MUTUAL BEACON FUND
FINANCIAL HIGHLIGHTS
(Selected data for a share of capital stock outstanding throughout each period)
<TABLE>
<CAPTION>
Sept. 1, Year Ended
Year Ended December 31, 1987 to August 31,
----------------------------------------------------------------------- Dec. 31, ---------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ....... $31.03 $31.09 $27.10 $23.36 $20.80 $24.09 $22.85 $19.49 $24.78 $19.27 $15.73
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations:
Net Investment Income ..... .87 .46 .37 .45 .75 1.08 1.12 .77 .22 .37 .28
Net Gains or Losses on
Securities (realized and
unrealized) ............. 7.09 1.28 5.81 4.85 2.88 (3.03) 2.84 4.80 (3.96 6.39 3.51
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations .............. 7.96 1.74 6.18 5.30 3.63 (1.95) 3.96 5.57 (3.74) 6.76 3.79
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends (from net
investment income) ...... .84 .44 .37 .46 .74 1.08 1.17 .80 .51 .31 .25
Distributions (from capital
gains) .................. 2.21 1.36 1.82 1.10 .33 .26 1.55 1.41 1.04 .94 -0-
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions ..... 3.05 1.80 2.19 1.56 1.07 1.34 2.72 2.21 1.55 1.25 .25
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period ............. $35.94 $31.03 $31.09 $27.10 $23.36 $20.80 $24.09 $22.85 $19.49 $24.78 $19.27
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return** .............. 25.89% 5.61% 22.93% 22.92% 17.60% (8.17)% 17.46% 28.79% (15.12)% 37.33% 24.34%%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratios/Supplemental Data:
Net Assets, End of Period
(millions) ................ $3,573 $2,060 $1,062 $534 $398 $388 $409 $214 $131 $159 $65
Ratio of Expenses to Average
Net Assets ................ .72% .75% .73% .81% .85% .85% .67%+ .59%+ .87%* .85% 1.16%
Ratio of Net Investment Income
to Average Net Assets ..... 2.89% 1.96% 1.53% 1.90% 3.07% 4.59% 4.98%+ 3.64%+ 2.86%* 2.50% 2.86%
Portfolio Turnover Rate ..... 73.18% 70.63% 52.88% 57.52% 56.63% 57.74% 67.18% 86.79% 28.07% 73.41% 112.91%
</TABLE>
* Annualized
** Total return includes changes in share price and reinvestment of dividends
and capital gain distributions. The Fund's total return is a historical
measure of past performance and is not intended to indicate future
performance. Investment return and principal value will fluctuate;
therefore the Fund's shares may become worth more or less than their
original cost.
+ 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.
20
<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 Beacon 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 eight years in the period then ended and for the period from
September 1, 1987 to December 31, 1987. 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. The financial highlights of Mutual Beacon Fund for each of
the two years in the period ended August 31, 1987 were audited by other auditors
whose report dated October 5, 1987 expressed an unqualified opinion on those
financial highlights.
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 Beacon 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 eight years in the period then ended, and for the
period from September 1, 1987 to December 31, 1987, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 9, 1996
21
<PAGE>
MUTUAL SERIES FUND INC.
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
1-800-448-3863 201-912-2100
BOARD OF DIRECTORS
Michael F. Price (Chairman)
Edward I. Altman, Ph.D.
Richard L. Chasse, M.D.
Ann Torre Grant
Peter A. Langerman
Bruce A. MacPherson
Barry F. Schwartz
Vaughn R. Sturtevant, M.D.
Robert E. Wade
OFFICERS
Michael F. Price, President
Peter A. Langerman, Exec. Vice President
Jeffrey A. Altman, Vice President
Robert L. Friedman, Vice President
Raymond Garea, Vice President
Lawrence N. Sondike, Vice President
Edward J. Bradley, Treasurer
Stuart C. Pistol, Assistant Treasurer
Liz Cohernour, Gen. Counsel & Secretary
Lily Simo, Assistant Secretary
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Ma. 02116
COUNSEL
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, N.Y. 10022
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Ma. 02110
TRANSFER AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, De. 19809
