UNITED STATES
Securities and Exchange Commission
Washington, DC. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Post-Effective Amendment No. 1 X
and
THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 2
Matthew 25 Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
605 Cloverly Avenue Jenkintown, PA 19046
(Address of Principal Executive Offices)
215-884-4458
(Registrants Telephone Number)
Mark Mulholland 605 Cloverly Avenue Jenkintown, PA 19046
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Amendment.
No additional shares are being registered at this time.
Cross Reference Sheet
INFORMATION REQUIRED CAPTIONS IN FILING
Part A: IN A PROSPECTUS
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses
Item 3. Condensed Financial Information Condensed Financial Information
Item 4. General Description of Registrant The Fund
Item 5. Management of the Fund Management of the Fund
Item 6. Capital Stock and other Securities Capitalization
Item 7. Purchase of Securities being Offered Purchase of Shares - Reinvestment
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Legal Proceedings Litigation
Part B: STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History The Fund
Item 13. Investment Objectives and Policies Objectives and Policies
Item 14. Management of the Registrant Officers & Directors of the Fund
Item 15. Control Persons & Principal Holders Not Applicable
of Securities
Item 16. Investment Advisory and Other Ser- Investment Adviser
vices
Item 17. Brokerage Allocation Brokerage
Item 18. Capital Stock & Other Securities Capitalization
Item 19. Purchase, Redemption & Pricing of Purchase of Shares
Securities Being Offered
Item 19. Purchase, Redemption & Pricing of Redemption of Shares
Securities Being Offered
Item 19. Purchase, Redemption & Pricing of Pricing of Shares
Securities Being Offered
Item 20. Tax Status Tax Status
Item 21. Underwriters Not Applicable
Item 22. Calculation of Yield Quotations of Not Applicable
Money Market Funds
Item 23. Financial Statements Financial Statements
Part C: OTHER INFORMATION
Item 24. Financial Statements & Exhibits Financial Statements & Exhibits
Item 25. Persons Controlled by/or under Control Persons
Common Control
Item 26. Number of Holders of Securities Number of Shareholders
Item 27. Indemnifications Indemnification
Item 28. Business & Other Connections of Activities of Investment Advisor
Advisor
Item 29 Principal Underwriters Principal Underwriter
Item 30. Location of Accounts & Records Location of Accounts & Records
Item 31. Management Services Not Applicable
Item 32. Undertakings Not Applicable
<PAGE>
MATTHEW 25 FUND, INC.
Jenkintown, PA 19046
215-884-4458
PROSPECTUS JULY 8, 1996
The Fund & Investment Objective
Matthew 25 Fund, Inc. ("the Fund") is an open-end non-diversified management in-
vestment company that seeks capital appreciation through investment in the com-
mon stocks and/or securities convertible into common stocks. Criteria used by
the Adviser will be based on the Business Economics, Management Quality, Finan-
cial Condition and Stock Price of each business. Current income from these in-
vestments will be a subordinate consideration.
Fund Share Purchase
Capital shares of the Fund may only be purchased directly from the Fund at net
asset value as next determined after receipt of order. The Board of Directors
has established $1,000 as the minimum initial purchase and $100 for subsequent
purchases.
Additional Information
This Prospectus, which should be held for future reference, is designed to set
forth concisely the information that you should know before you invest. A
"Statement of Additional Information" containing more information about the Fund
has been filed with the Securities and Exchange Commission. Such Statement is
dated July 8, 1996 and has been incorporated by reference into the Prospectus. A
copy of the Statement may be obtained without charge, by writing to the Fund or
by calling the telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
1
FUND EXPENSES
The following illustrates all expenses and fees that a shareholder of the
Matthew 25 Fund will incur. The expenses and fees set forth below are for the
1995 fiscal year.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
IRA Trustee Fees None
Annualized Fund Operating Expenses:
Management Fees 1.0%
12b-1 Fees None
Other Expenses 1.0%
Total Operating Expenses 2.0%
The following table is given to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear directly and in-
directly. It illustrates the expenses paid on a $1,000 investment over vari-
ous time periods assuming a) 5% annual rate of return and b) redemption at the
end of each time period. This example should not be considered a representa-
tion of past or future expenses or performance. Actual expenses may be greater
or less than those shown.
1 Year 3 Years 5 Years 10 Years
$20 $63 $111 $252
THE FUND
MATTHEW 25 FUND, INC. (also referred to as the "Fund") was incorporated in Penn-
sylvania on August 28, 1995. The Fund's registered office is in Jenkintown, PA:
mail may be addressed to 605 Cloverly Avenue Jenkintown, PA 19046.
OBJECTIVES AND POLICIES
Objective: Matthew 25 Fund, Inc. ("the Fund") is an open-end, non-diversified
management investment company that seeks capital appreciation through investment
in the common stocks and/or securities convertible into common stocks. Crite-
ria used by the Adviser will be based on the Business Economics, Management Qua-
lity, Financial Condition and Stock Price of each business. Current income from
these investments will be a subordinate consideration.
Risks associated with the Fund's performance will be those due to broad market
declines and business risks from difficulties which occur to particular compan-
ies while in the Fund's portfolio. It must be realized, as is true of almost
all securities, there can be no assurance that the Fund will obtain its ongoing
objective of capital appreciation.
Security Selection Criteria: Criteria used by the Adviser in recommeding pur-
chases of securities will be based on the Business Economics, Management Quali-
ty, Financial Condition and Security Price of each business.
2
Portfolio Turnover Policy: The Fund does not propose to purchase securities for
short term trading in the ordinary course of operations. Accordingly, it is ex-
pected that the annual turnover rate will not exceed 50%, wherein turnover is
computed by dividing the lesser of the Fund's total purchases or sales of secu-
rities within the period by the average monthly portfolio value of the Fund dur-
ing such period. There may be times when management deems it advisable to sub-
stantially alter the composition of the portfolio, in which event, the portfolio
turnover rate might substantially exceed 50%; this would only result from spe-
cial circumstances and not from the Fund's normal operations.
Non-diversification Policy: The Fund is classified as being non-diversified
which means that it may invest a relatively high percentage of its assets in the
obligations of a limited number of issues. The Fund, therefore, may be more
susceptible than a more widely diversified fund to any single economic, politi-
cal, or regulatory occurrence. The policy of the Fund, in the hope of achiev-
ing its objective as stated above, is, therefore, one of selective investments
rather than broad diversification. The Fund seeks only enough diversification
for adequate representation among what it considers to be the best performing
securities and to maintain its federal non-taxable status under Sub-Chapter M of
the Internal Revenue Code (see next paragraph).
TAX STATUS
Under provisions of Sub-Chapter M of the Internal Revenue Code of 1954 as amend-
ed, the Fund, by paying out substantially all of its investment income and rea-
lized capital gains, has been and intends to continue to be relieved of federal
income tax on the amounts distributed to shareholders. In order to qualify as
a "regulated investment company" under Sub-Chapter M, at least 90% of the Fund's
income must be derived from dividends, interest and gains from securities trans-
actions, no more than 30% of the Fund's profits may be derived from sales of se-
curities held less than three months, and no more than 50% of the Fund's assets
may be in security holdings that exceed 5% of the total assets of the Fund at
the time of purchase.
Distribution of any net long term capital gains realized by the Fund in 1996
will be taxable to the shareholder as long term capital gains, regardless of the
length of time Fund shares have been held by the investor. All income realized
by the Fund, including short term capital gains, will be taxable to the share-
holder as ordinary income. Dividends from net income will be made annually or
more frequently at the discretion of the Fund's Board of Directors. Dividends
received shortly after purchase of shares by an investor will have the effect of
reducing the per share net asset value of his shares by the amount of such divi-
dends or distributions and, although in effect a return of capital, are subject
to federal income taxes.
The Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gains, distributions and redemptions) paid
to shareholders who have not complied with IRS regulations. In order to avoid
this withholding requirement, you must certify on a W-9 tax form supplied by
the Fund that your Social Security or Taxpayer Identification Number provided is
correct and that you are not currently subject to back-up withholding, or that
you are exempt from back-up withholding.
INVESTMENT RESTRICTIONS
By-laws of the Fund provide the following fundamental investment restrictions;
The Fund may not, except by the approval of a majority of the outstanding
shares; i.e. a) 67% or more of the voting securities present at a duly called
3
meeting, if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy, or b) of more than 50% of the outstanding
voting securities, whichever is less:
(a) Act as underwriter for securities of other issuers except insofar as the
Fund may be deemed an underwriter in selling its own portfolio securities.
(b) Borrow money or purchase securities on margin, but may obtain such short
term credit as may be necessary for clearance of purchases and sales of se-
curities for temporary or emergency purposes in an amount not exceeding 5%
of the value of its total assets.
(c) Sell securities short.
(d) Invest in securities of other investment companies except as part of a mer-
ger, consolidation , or purchase of assets approved by the Fund's share-
holders.
(e) Invest over 25% of its assets at the time of purchase in any one industry.
(f) Make investments in commodities, commodity contracts or real estate although
the Fund may purchase and sell securities of companies which deal in real
estate or interests therein.
(g) Make loans. The purchase of a portion of a readily marketable issue of pub-
licly distributed bonds, debentures or other debt securities will not be
considered the making of a loan.
(h) Acquire more than 10% of the securities of any class of another issuer,
treating all preferred securities of an issuer as a single class and all
debt securities as a single class, or acquire more than 10% of the voting
securities of another issuer.
(i) Invest in companies for the purpose of acquiring control.
(j) The Fund may not purchase or retain securities of any issuer if those offi-
cers and directors of the Fund or its Investment Adviser owning individual-
ly more than 1/2 of 1% of any class of security or collectively own more
than 5% of such class of securities of such issuer.
(k) Pledge, mortgage or hypothecate any of its assets.
(l) Invest in securities which may be subject to registration under the Securi-
ties Act of 1933 prior to sale to the public or which are not at the time of
purchase readily salable.
(m) Invest more than 5% of the total Fund assets, taken at market value at the
time of purchase, in securities of companies with less than three years'
continuous operation, including the operations of any predecessor.
(n) Issue senior securities.
INVESTMENT ADVISER
The Matthew 25 Management Corp. is a Pennsylvania corporation that acts as an
Investment Adviser to the Fund. Mr. Mark Mulholland established the company in
April 1995 and is the sole owner, director and officer of the Investment Adviser
and president of the Fund. He has direct responsibility for day to day manage-
ment of the Fund's protfolio registered with the Securities and Exchange Commis-
sion. Mark Mulholland has a B.A. in Economics from Lafayette College and became
an account executive who started his career with Advest Inc. on February 14,
1983. He moved to Paine Webber Inc. in 1988. He currently has built his prac-
tice to manage over $80,000,000 in assets for about 800 clients. He reached a
threshold where he desired to apply his expertise towards managing a public no-
load mutual fund. He approached the management of the Valley Forge Fund, Inc.
and solicited their support to this end. He wanted a Fund structured essentially
identical to the Valley Forge Fund, Inc. except that he wished to place more em-
phasis in the pursuit of long-term capital gains. The Matthew 25 Fund, Inc. was
formed by Bernard Klawans, for Mark Mulholland. Mr. Klawans used Valley Forge
Fund's Officers, Board of Directors, Investment Adviser, with the intent to have
Mr. Mulholland form his own Investment Adviser concern and select his own Board
of Directors when he was prepared to leave Paine Webber and operate the Fund. On
4
July 8, 1996 the first meeting of shareholders was held to permit Mark Mulhol-
land's Investment Advisory company to begin its duties as Adviser to the Matthew
25 Fund, Inc. and installed a new Board of Directors to oversee operations with
the complete cooperation and support of all Valley Forge Fund associated person-
nel. Mr. Klawans has received $500 for his past services plus support services
through the Fund's first year of operation. The Valley Forge Management Corp.
received its contractural management fee and the Valley Forge Fund Directors,
with the exception of Mr. Klawans, received $99 for each Matthew 25 Fund, Inc.
Directors meeting they attended from either the Matthew 25 Fund or the Matthew
25 Management Corp. There have been no other financial arrangements or benefits
including services and/or "soft dollars" since the start of the filing process
in January 1996.
This new Advisory Agreement will continue on a year to year basis provided that
approval is voted at least annually by specific approval of the Board of Direc-
tors of the Fund or by vote of the holders of a majority of the outstanding vot-
ing securities of the Fund, but, in either event, it must also be approved by a
majority of the directors of the Fund who are neither parties to the agreement
nor interested persons as defined in the Investment Company Act of 1940 at a
meeting called for the purpose of voting on such approval. Under the Agreement,
the Matthew 25 Management Corp., the Adviser, will have full discretion and re-
sponsibility for the investment decisions in the Fund. It will furnish invest-
ment advice to the Officers of the Fund on the basis of a continuous review of
the portfolio and to recommend to the Fund when and to what extent securities
should be purchased or disposed. The Agreement may be terminated at any time,
without the payment of any penalty, by the Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund on not more than 60
days written notice to the Matthew 25 Management Corp. In the event of its as-
signment, the Agreement will terminate automatically. Ultimate decisions as to
the investment policy and as to individual purchases and sales of securities are
made by the Fund's officers and directors. For these services the Fund has a-
greed to pay to Valley Forge Management Corp. a fee of 1% per year on the net
assets of the Fund. All fees are computed on the average daily closing net as-
set value of the Fund and are payable monthly. The fee is higher than the fee
paid by most other funds. Not withstanding, the Investment Adviser would forgo
sufficient fees to hold the total expenses of the Fund to less than 2.0% of the
first 10 million in averaged assets and 1.5% of the next 20 million. These ra-
tios were selected by the Board of Directors because they are believed to meet
the most restrictive state requirements.
Pursuant to its contract with the Fund, the Investment Adviser is required to
render research, statistical, and Advisery services to the Fund; to make speci-
fic recommendations based on the Fund's investment requirements; and to pay the
salaries of those of the Funds employees who may be officers or directors or em-
ployees of the Investment Adviser. Fees, if any, of the custodian, registrar
transfer agents shall be paid by the Fund. The Fund pays all other expenses,
including fees and expenses of directors not affiliated with the Adviser; legal
and accounting fees; interest, taxes and brokerage commissions, recordkeeping
and the expense of operating its offices. The Investment Adviser has paid the
initial organizational costs of the Fund and will reimburse the Fund for any and
all losses incurred because of purchase reneges.
OFFICERS AND DIRECTORS OF THE FUND
Officers and Directors of the Fund, together with their addresses, principal
occupations during the past five years and their ownership of the Fund
are as follows:
5
Principal Occupation Fund Shares Percent
Name Age Past Five Years Owned 6/3/96 of class
Steven D. Buck 36 Partner Stevens & Lee 0 0.00%
Esq. Reading, PA
Dr.Philip J. Cinelli 36 Physician Family Practice 0 0.00%
D.O. Bangor, PA
Samuel B. Clement 38 Stockbroker Legg Mason 0 0.00%
Bryn Mawr, PA
Linda Guendelsberger 36 Partner Fishbein & Co P.C. 0 0.00%
CPA Elkins Park, PA
Mark Mulholland* 36 Stockbroker Paine Webber 42,516.150** 99.78%
Jenkintown, PA
Scott A. Satell 34 Partner BPI 0 0.00%
Manufacture's Rep Bala Cynwyd, PA
* Director of the Fund who would be considered "interested persons" as defined
by the Investment Company Act of 1940. Mark Mulholland will be an interested
person insofar as he is President and owner of the Fund's proposed Investment
Adviser.
** Mark Mulholland owns his stock jointly with his wife Ann Mulholland.
REMUNERATION OF DIRECTORS AND OFFICERS
The Fund does not intend to pay fees to the directors until such time that the
Fund's assets exceed $2,500,000.00, although the Fund will reimburse directors
for their expenses.There has been no payments made to this Board as of the date
of this filing. The previous Directors had received fees totaling $1,881, as of
July 8,1996, of this amount $693 was paid by the Fund and $1,188 was paid by
Matthew 25 Management Corp. The Fund intends to pay Independent Directors $50
plus expenses per meeting, as long as the Fund's Assets exceed the threshold.
Mark Mulholland will receive benefit from the investment advisory fees payable
to Matthew 25 Management Corp. and therefore will not be eligible to receive di-
rectors fees as long as his firm acts as the Investment Adviser.
CAPITALIZATION
Description of Common Stock: The authorized capitalization of the Fund consists
of 1,500,000 shares of common stock of $0.01 par value per share. Each share
has equal dividend, distribution and liquidation rights. There are no conver-
sion or pre-emptive rights applicable to any shares of the Fund. All shares
issued are fully paid and non-accessible.
Voting Rights: Each holder of common stocks has one vote for each share held
and fractional shares will have an equivalent fractional vote. Voting rights
are non-cumulative, which means that the holders of a majority of shares of com-
mon stock can elect all directors of the Fund if they so choose,and the holders
of the remaining shares will not be able to elect any person as a director.
Major Shareholders: Mark and Ann M. Mulholland as of the date of this Prospec-
tus own 99.78 % of the outstanding shares in a Joint Tenancy account.
PURCHASE OF SHARES -REINVESTMENTS
The offering price of the shares offered by the Fund is at the net asset value
per share next determined after receipt of the purchase order by the Fund and is
6
computed in the manner described under the caption "PRICING OF SHARES" in this
Prospectus. The Fund reserves the right at its sole descretion to terminate the
offering of its shares made by this Prospectus at any time and to reject pur-
chase applications when, in the judgment of management such termination or re-
jection is in the best interests of the Fund.
Initial Investments: Initial purchase of shares of the Fund may be made only by
application submitted to the Fund. For the convenience of investors, a Share
Purchase Application form is provided with this Prospectus. The minimum initial
purchase of shares is $1,000 which is due and payable 3 business days after the
purchase date. Less may be accepted under especial circumstances. The Fund
will be initially registered in Pennsylvania and therefore restricted to Penn-
sylvania residents at the time of purchase. There will be no solicitation of
out of the state of Pennsylvania potential shareholders until registration under
the Blue Sky laws of the state of residence have been met.
Subsequent Purchases: Subsequent purchases may be made by mail or by phone and
are due and payable three business days after the purchase date. The minimum is
$100, but less may be accepted under especial circumstances.
Reinvestments: The Fund will automatically retain and reinvest dividends & cap-
ital gains distributions and use same for the purchase of additional shares for
the shareholder at net asset value as of the close of business on the distribu-
tion date. A Shareholder may at any time by letter or forms supplied by the
Fund direct the Fund to pay dividends and/or capital gains distributions, if
any, to such shareholder in cash.
Fractional Shares: Shares will be issued to three decimal places as purchased
from the fund. The fund will maintain an account for each shareholder of shares
for which no certificates have been issued.
RETIREMENT PLANS
Individual Retirement Account: Persons who earn compensation and are not active
participants (and who do not have a spouse who is an active participant) in an
employee maintained retirement plan may establish Individual Retirement Accounts
(IRA) using Fund shares. Annual contributions, limited to the lesser of $2,000
or 100% of compensation, are tax deductible from gross income. This IRA deduc-
tion is also retained for individual taxpayers and married couples with adjusted
gross incomes within certain specified limits. All individuals may make nonde-
ductible IRA contributions to separate accounts to the extent that they are not
eligible for a deductible contribution.
Earnings under the IRA are reinvested and are tax-deferred until withdrawals be-
gin. The maximum annual contribution may be increased to $2,250 if you have a
spouse who earns no compensation during the taxable year. A separate and inde-
pendent Spousal IRA must be maintained.
You may begin to make non-penalty withdrawals as early as age 59 1/2 or as late
as age 70 1/2. In the event of death or disability, withdrawals may be made be-
fore age 59 1/2 without penalty.
7
A Disclosure Statement is required by U.S. Treasury Regulations. This Statement
describes the general provisions of the IRA and is forwarded to all prospective
IRA's. There is no charge to open and maintain a Matthew 25 Fund IRA. This
policy may be changed by the Board of Directors if they deem it to be in the
best interests of all shareholders. All IRA's may be revoked within 7 days of
their establishment with no penalty.
PRICING OF SHARES
The net asset value of the Fund's shares is determined as of the close of busi-
ness of the New York Stock Exchange on each business day of which that Exchange
is open (presently 4:00 p.m.) Monday through Friday exclusive of Washington's
Birthday, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving, Christ-
mas & New Year's Day. The price is determined by dividing the value of its se-
curities, plus any cash and other assets less all liabilities, excluding capital
surplus, by the number of shares outstanding. The market value of securities
listed on a national exchange is determined to be the last recent sales price on
such exchange. Listed securities that have not recently traded and over-the-
counter securities are valued at the last bid price in such market.
Short term paper (debt obligations that mature in less than 60 days) are valued
at amortized cost which approximates market value. Other assets are valued at
fair market value. Other assets are valued at fair value as determined in good
faith by the Board of Directors.
REDEMPTION OF SHARES
The Fund will redeem all or any part of the shares of any shareholder who ten-
ders a request for redemption (if certificates have not been issued) or certifi-
cates with respect to shares for which certificates have been issued. In either
case, proper endorsements guaranteed either by a national bank or a member firm
of the New York Stock Exchange will be required unless the shareholder is known
to management. The redemption price is the net asset value per share next de-
termined after notice is received by the Fund for redemption of shares. The
proceeds received by the shareholder may be more or less than his cost of such
shares, depending upon the net asset value per share at the time of redemption
and the difference should be treated by the shareholder as a capital gain or
loss for federal income tax purposes.
Payment by the Fund will ordinarily be made within three business days after
tender. The Fund may suspend the right of redemption or postpone the date of
payment if: The New York Stock Exchange is closed for other than customary week-
end or holiday closings, or when trading on the New York Stock Exchange is re-
stricted as determined by the Securities and Exchange Commission or when the
Securities and Exchange Commission has determined that an emergency exists, mak-
ing disposal of fund securities or valuation of net assets not reasonably prac-
ticable. The Fund intends to make payments in cash, however, the Fund reserves
the right to make payments in kind.
BROKERAGE
The Fund requires all brokers to effect transactions of portfolio securities in
such a manner as to get prompt execution of the orders at the most favorable
price. The Fund will place all orders for purchases and sales of its portfolio
securities through the Fund's President who is answerable to the Fund's Board of
Directors. In accordance with Rule 17E-1, if the Fund's President is also a reg-
istered representative of a New York Stock Exchange or NASDAQ Member Firm, he
may place orders through his concern at as low commission rates as possible but
8
never to exceed rates that are higher than would be available through any other
national brokerage firm. The Directors will review each transaction when a com-
mission is generated at a brokerage firm which is affiliated with the Fund's
President or Adviser and determine if the commission paid appears reasonable.
In the event that the Board determines that any or all of the commissions paid
are higher than what they determine as reasonable, then the Board will reduce
the fees paid to the Adviser by an amount equal to the commissions deemed un-
reasonable. This review must be done at least quarterly. The Fund's President
may select other brokers who in addition to meeting the primary requirements of
execution and price, have furnished statistical or other factual information and
services, which, in the opinion of management, are helpful or necessary to the
Fund's normal operations. No effort will be made in any given circumstances to
determine the value of these services or the amount they might have reduced Ad-
viser expenses.
Other than as set forth above, the Fund has no fixed policy, formula, method or
criteria which it uses in allocating brokerage business to brokers furnishing
these materials and services. The Board of Directors will evaluate and review
the reasonableness of brokerage commissions paid to brokers not affiliated with
the President or Adviser at least semiannually.
MANAGEMENT OF THE FUND
Shareholders will meet annually to elect all members of the Board of Directors,
select an independent auditor, and vote on any other items deemed pertinent by
the incumbent Board.The Fund intends to hold Annual Meetings within 90 days of
the Fund's Fiscal Year End, December 31st. Actual times and places will be an-
nounced. The Directors are in turn responsible for determining that the Fund
operates in accordance with its stated objectives, policies, and investment re-
strictions. The Board appoints officers to run the Fund and selects an Invest-
ment Adviser to provide investment advice (See Investment Adviser, pg. 4). It
meets four times a year to review Fund progress and status. In addition, a non-
interested Director performs an independent audit whenever requested by the
Board.
CUSTODIAN & TRANSFER AGENT
The Fund acts as its own custodian and transfer agent.
REPORTS TO SHAREHOLDERS
The Fund sends all shareholders annual reports containing certified financial
statements and other periodic reports, at least semiannually, containing unau-
dited financial statements.
AUDITORS
Landsburg, Platt, Reschiatore & Dalton, Certified Public Accountants, Philadel-
phia, PA. have been selected as the independent accountant and auditor of the
Fund. Landsburg, Platt, Reschiatore & Dalton has no direct or indirect financial
interest in the Fund or the Adviser.
LITIGATION
As of the date of this prospectus, there was no pending or threatened litigation
involving the Fund in any capacity whatsoever.
9
ADDITIONAL INFORMATION
This Prospectus omits certain information contained in the registration state-
ment on file with the Securities & Exchange Commission. The registration state-
ment may be inspected without charge at the principal office of the Commission
in Washington, D.C. and copies of all or part thereof may be obtained upon pay-
ment of the fee prescribed by the Commission. Shareholders may also direct in-
quiries to the Fund by phone or at the address given on pg 1 of this Prospectus.
10
SHARE PURCHASE APPLICATION
A) Please fill out one of the following four types of accounts:
1) Individual Accounts ****
______________________ __ ____________________ ______________________
First Name MI Last Name Social Security Number
2) Joint Accounts ****
______________________ __ ____________________ ______________________
First Name MI Last Name Social Security Number
______________________ __ _____________________ _______________________
First Name MI Last Name Social Security Number
3) Custodial Accounts ****
______________________ __ ____________________
Custodian's First Name MI Custodian's Last Name
______________________ __ ____________________ ______________________
Minor's First Name MI Minor's Last Name Minor's
Social Security Number
4) All Other Accounts ****
___________________________________________ __________________________
Name of account. Tax Identification Number
___________________________________________
(Use this second line if you need it)
B) Biographical and other information about the new account:
Full Address:
Number & Street ___________________________________________________
City__________________________ St____ Zip________________________
Citizen of____________________ Home Phone_____________ Bus Phone______________
Dividend Direction: Reinvest all distributions_________ Pay in Cash__________
Signature of Owner, Trustee or Custodian: ___________________________________
Signature of Joint Owner (if joint account): ___________________________________
Please make check payable to: MATTHEW 25 FUND, INC.
Amount of Investment Attached $______________ (Minimum initial purchase $1,000)
All applications are accepted in Pennsylvania and under Pennsylvania laws.
11
FORM W-9
(March 1994)
Department of Treasury
Internal Revenue Service
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER
Name as shown on account (if joint account, give name corresponding to TIN)
_________________________________________________
Street Address
_________________________________________________
City, State & Zip Code
_________________________________________________
Part 1.- Taxpayer Identification Number Part 2. - Backup Withholding
Social Security Number ______________________ Check if you are NOT subject
to backup withholding under
or the provisions of section
3406(a) (1) (C) of the In-
Employer ID Number ______________________ ternal Revenue Code ________
Certification - Under the penality of perjury, I certify that the information
provided on this form is true, correct and complete.
Signature ___________________________________ Date _______________________
12
INVESTMENT ADVISER PROSPECTUS
VALLEY FORGE MANAGEMENT CORP. MATTHEW 25 FUND, INC.
1375 Anthony Wayne Drive PO Box 262
Wayne, Pa. 19087 Wayne, Pa. 19481
610-688-6839
July 8, 1996
TABLE OF CONTENTS
Fund Expenses .................... 2 The Fund seeks capital appreciation
Condensed Financial Information .. 2 through investment in common stocks
The Fund ......................... 2 & securities convertible into com-
Objective & Policies mon stocks in the pursuit of capi-
Objective ...................... 2 tal gains. Current income from in-
Investment Policies ............ 2 vestments is a subordinate consi-
Portfolio Turnover Policy ...... 3 deration.
Nondiversification Policy ...... 3
Tax Status ....................... 3
Investment Restrictions .......... 4
Investment Adviser ............... 4
Officers & Directors of the Fund . 5
Remuneration of Officers/Directors 6
Capitalization
Description of Common Stock .... 6
Voting Rights .................. 6
Purchase of Shares - Reinvestment
Initial Investments ............ 7
Subsequent Purchases ........... 7
Reinvestments .................. 7
Whole Shares ................... 7
Retirement Plans
IRA ............................ 7
Pricing of Shares ................ 8
Redemption of Shares ............. 8
Brokerage ........................ 8
Management of the Fund ........... 9
Custodian & Transfer Agent ....... 9
Reports to Shareholders .......... 9
Auditors ......................... 9
Litigation ....................... 9
Additional Information ...........10
Share Purchase Application ...... 11
W-9 ............................. 12
MATTHEW 25 FUND INC.
605 Cloverly Ave.
JENKINTOWN, PA 19046
215-884-4458
Part B
STATEMENT OF ADDITIONAL INFORMATION
July 8, 1996
This Statement is not a prospectus, but should be read in conjunction with the
Fund's current prospectus dated July 8, 1996. To obtain the Prospectus, please
write the Fund or call either of the telephone numbers that are shown above.
TABLE OF CONTENTS
The Fund ..........................2
Objectives & Policies .............2
Objectives ...................2
Security Selection Criteria ..2
Portfolio Turnover Policy ....2
Nondiversification Policy ....2
Tax Status ........................2
Investment Restrictions ...........3
Investment Adviser ................4
Officers and Directors of the Fund.5
Purchase of Shares - Reinvestment .6
Initial Investments .......6
Subsequent Purchases ......6
Reinvestments .............6
Fractional Shares..........7
Retirement Plans ..................7
IRA .......................7
Redemption of Shares ..............7
Brokerage .........................8
Auditor's Report ..................9
Statement of Assets & Liabilities.10
Schedule of Investments...........10
Statements of Operations..........11
Statement of Changes in Assets....11
Notes to Financial Statements ....12
Financial Highlights & Ratios.....14
1
THE FUND
MATTHEW 25 FUND, INC. (also referred to as the "Fund") was incorporated in Penn-
sylvania on August 28, 1995. The Fund's registered office is in Jenkintown, PA:
mail may be addressed to 605 Cloverly Ave. Jenkintown, PA 19046.
OBJECTIVES AND POLICIES
Objective: Matthew 25 Fund, Inc. ("the Fund") is an open-end, non-diversified
management investment company that seeks capital appreciation through investment
in the common stocks and/or securities convertible into common stocks. Crite-
ria used by the Adviser will be based on the Business Economics, Management Qua-
lity, Financial Condition and Stock Price of each business. Current income from
these investments will be a subordinate consideration.
Risks associated with the Fund's performance will be those due to broad market
declines and business risks from difficulties which occur to particular compan-
ies while in the Fund's portfolio. It must be realized, as is true of almost
all securities, there can be no assurance that the Fund will obtain its ongoing
objective of capital appreciation.
Security Selection Criteria: Criteria used by the Adviser in recommeding pur-
chases of securities will be based on the Business Economics, Management Quali-
ty, Financial Condition and Security Price of each business.
Portfolio Turnover Policy: The Fund does not propose to purchase securities for
short term trading in the ordinary course of operations. Accordingly, it is ex-
pected that the annual turnover rate will not exceed 50%, wherein turnover is
computed by dividing the lesser of the Funds total purchases or sales of securi-
ties within the period of the average monthly portfolio value of the Fund during
such period. There may be times when management deems it advisable to substan-
tially alter the composition of the portfolio, in which event, the portfolio
turnover rate might substantially exceed 50%; this would only result from spe-
cial circumstances and not from the Fund's normal operations.
Non-diversification Policy: The Fund is classified as being non-diversified
which means that it may invest a relatively high percentage of its assets in the
obligations of a limited number of issuers. The Fund, therefore, may be more
susceptible than a more widely diversified fund to any single, economic, politi-
cal, or regulatory occurrence. The policy of the Fund, in the hope of achieving
its objective as stated above, is, therefore, one of selective investments rath-
er than broad diversification. The Fund seeks only enough diversification for
adequate representation among what it considers to be best performing securities
and to maintain its federal non-taxable status under Sub-Chapter M of the Inter-
nal Revenue Code (see next paragraph).
TAX STATUS
Under the provisions of Sub-Chapter M of the Internal Revenue Code of 1954 as
amended, the Fund, intends to pay out substantially all of its investment income
and realized capital gains, and intends to be relieved of federal income tax on
the amounts distributed to shareholders. In order to qualify as a "regulated
investment company" under Sub-Chapter M, at least 90% of the Fund's income must
be derived from dividends, interest, and gains from securities transactions, no
more than 30% of the Fund's profits may be derived from securities held less
than three months, and no more than 50% of the Fund assets may be held in secur-
2
ity holdings that exceed 5% of the total assets of the Fund at time of purchase.
Distribution of any net long term capital gains realized by the fund will be
taxable to the shareholder as long term capital gains, regardless of the length
of time Fund shares have been held by the investor. All income realized by the
Fund including short term capital gains, will be taxable to the shareholder as
ordinary income. Dividends from net income will be made annually or more fre-
quently at the discretion of the Fund's Board of Directors. Dividends received
shortly after purchase of shares by an investor will have the effect of reducing
the per share net asset value of his shares by the amount of such dividends or
distributions and, although in effect a return of capital, are subject to feder-
al income taxes.
The Fund is required by Federal Law to withhold 31% of reportable payments
(which may include dividends, capital gains, distributions and redemption's)
paid to shareholders who have not complied with IRS regulations. In order to
avoid this withholding requirement, you must certify on a W-9 tax form supplied
by the Fund that your Social Security or Taxpayer Identification Number provided
is correct and that your are not subject to back-up withholding, or that you are
exempt from back-up withholding.
INVESTMENT RESTRICTIONS
The by-laws of the Fund provide the following fundamental investment restric-
tions; the Fund may not, except by approval of a majority of outstanding shares;
i.e. (A) 67% or more of the voting securities present at a duly called meeting,
if the holders of more than 50% of the outstanding voting securities are present
or represented by proxy, or (B) of more than 50% of the outstanding voting se-
curities, whichever is less:
(a) Act as underwriter for securities of other issuers except insofar as the
Fund may be deemed an underwriter in disposing of its own portfolio securi-
ties.
(b) Borrow money or purchase securities on margin, but may obtain such short
term credit as may be necessary for clearance of purchases and sales of se-
curities for temporary or emergency purposes in an amount not exceeding 5%
of the value of its total assets.
(c) Sell securities short.
(d) Invest in securities of other investment companies except as part of a mer-
ger, consolidation , or purchase of assets approved by the Fund's share-
holders.
(e) Invest over 25% of its assets at the time of purchase in any one industry.
(f) Make investments in commodities, commodity contracts or real estate although
the Fund may purchase and sell securities of companies which deal in real
estate or interests therein.
(g) Make loans. The purchase of a portion of a readily marketable issue of pub-
licly distributed bonds, debentures or other debt securities will not be
considered the making of a loan.
(h) Acquire more than 10% of the securities of any class of another issuer,
treating all preferred securities of an issuer as a single class and all
debt securities as a single class, or acquire more than 10% of the voting
securities of another issuer.
(i) Invest in companies for the purpose of acquiring control.
(j) The Fund may not purchase or retain securities of any issuer if those offi-
cers and directors of the Fund or its Investment Adviser owning individual-
ly more than 1/2 of 1% of any class of security or collectively own more
than 5% of such class of securities of such issuer.
(k) Pledge, mortgage or hypothecate any of its assets.
(l) Invest in securities which may be subject to registration under the Securi-
3
ties Act of 1933 prior to sale to the public or which are not at the time of
purchase readily salable.
(m) Invest more than 5% of the total Fund assets, taken at market value at the
time of purchase, in securities of companies with less than three years'
continuous operation, including the operations of any predecessor.
(n) Issue senior securities.
INVESTMENT ADVISER
The Matthew 25 Management Corp. is a Pennsylvania corporation that acts as an
Investment Adviser to the Fund. Mr. Mark Mulholland established the company in
April 1995 and is the sole owner, director and officer of the Investment Adviser
and president of the Fund. He has direct responsibility for day to day manage-
ment of the Fund's protfolio registered with the Securities and Exchange Commis-
sion. Mark Mulholland has a B.A. in Economics from Lafayette College and became
an account executive who started his career with Advest Inc. on February 14,
1983. He moved to Paine Webber Inc. in 1988. He currently has built his prac-
tice to manage over $80,000,000 in assets for about 800 clients. He reached a
threshold where he desired to apply his expertise towards managing a public no-
load mutual fund. He approached the management of the Valley Forge Fund, Inc.
and solicited their support to this end. He wanted a Fund structured essentially
identical to the Valley Forge Fund, Inc. except that he wished to place more em-
phasis in the pursuit of long-term capital gains. The Matthew 25 Fund, Inc. was
formed by Bernard Klawans, for Mark Mulholland. Mr. Klawans used Valley Forge
Fund's Officers, Board of Directors, Investment Adviser, with the intent to have
Mr. Mulholland form his own Investment Adviser concern and select his own Board
of Directors when he was prepared to leave Paine Webber and operate the Fund. On
July 8, 1996 the first meeting of shareholders was held to permit Mark Mulhol-
land's Investment Advisory company to begin its duties as Adviser to the Matthew
25 Fund, Inc. and installed a new Board of Directors to oversee operations with
the complete cooperation and support of all Valley Forge Fund associated person-
nel. Mr. Klawans has received $500 for his past services plus support services
through the Fund's first year of operation. The Valley Forge Management Corp.
received its contractural management fee and the Valley Forge Fund Directors,
with the exception of Mr. Klawans, received $99 for each Matthew 25 Fund, Inc.
Directors meeting they attended from either the Matthew 25 Fund or the Matthew
25 Management Corp. There have been no other financial arrangements or benefits
including services and/or "soft dollars" since the start of the filing process
in January 1996.
This new Advisory Agreement will continue on a year to year basis provided that
approval is voted at least annually by specific approval of the Board of Direc-
tors of the Fund or by vote of the holders of a majority of the outstanding vot-
ing securities of the Fund, but, in either event, it must also be approved by a
majority of the directors of the Fund who are neither parties to the agreement
nor interested persons as defined in the Investment Company Act of 1940 at a
meeting called for the purpose of voting on such approval. Under the Agreement,
the Matthew 25 Management Corp., the Adviser, will have full discretion and re-
sponsibility for the investment decisions in the Fund. It will furnish invest-
ment advice to the Officers of the Fund on the basis of a continuous review of
the portfolio and to recommend to the Fund when and to what extent securities
should be purchased or disposed. The Agreement may be terminated at any time,
without the payment of any penalty, by the Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund on not more than 60
days written notice to the Matthew 25 Management Corp. In the event of its as-
signment, the Agreement will terminate automatically. Ultimate decisions as to
the investment policy and as to individual purchases and sales of securities are
made by the Fund's officers and directors. For these services the Fund has a-
greed to pay to Valley Forge Management Corp. a fee of 1% per year on the net
4
assets of the Fund. All fees are computed on the average daily closing net as-
set value of the Fund and are payable monthly. The fee is higher than the fee
paid by most other funds. Not withstanding, the Investment Adviser would forgo
sufficient fees to hold the total expenses of the Fund to less than 2.0% of the
first 10 million in averaged assets and 1.5% of the next 20 million. These ra-
tios were selected by the Board of Directors because they are believed to meet
the most restrictive state requirements.
Pursuant to its contract with the Fund, the Investment Adviser is required to
render research, statistical, and Advisery services to the Fund; to make speci-
fic recommendations based on the Fund's investment requirements; and to pay the
salaries of those of the Funds employees who may be officers or directors or em-
ployees of the Investment Adviser. Fees, if any, of the custodian, registrar
transfer agents shall be paid by the Fund. The Fund pays all other expenses,
including fees and expenses of directors not affiliated with the Adviser; legal
and accounting fees; interest, taxes and brokerage commissions, recordkeeping
and the expense of operating its offices. The Investment Adviser has paid the
initial organizational costs of the Fund and will reimburse the Fund for any and
all losses incurred because of purchase reneges.
OFFICERS AND DIRECTORS OF THE FUND
Officers and Directors of the Fund, together with their addresses, principal
occupations during the past five years and their ownership of the Fund
are as follows:
Principal Occupation Fund Shares Percent
Name Age Past Five Years Owned 6/3/96 of class
Steven D. Buck 36 Partner Stevens & Lee 0 0.00%
Esq. Reading, PA
Dr.Philip J. Cinelli 36 Physician Family Practice 0 0.00%
D.O. Bangor, PA
Samuel B. Clement 38 Stockbroker Legg Mason 0 0.00%
Bryn Mawr, PA
Linda Guendelsberger 36 Partner Fishbein & Co P.C. 0 0.00%
CPA Elkins Park, PA
Mark Mulholland* 36 Stockbroker Paine Webber 42,516.150** 99.78%
Jenkintown, PA
Scott A. Satell 34 Partner BPI 0 0.00%
Manufacture's Rep Bala Cynwyd, PA
* Director of the Fund who would be considered "interested persons" as defined
by the Investment Company Act of 1940. Mark Mulholland will be an interested
person insofar as he is President and owner of the Fund's proposed Investment
Adviser.
** Mark Mulholland owns his stock jointly with his wife Ann Mulholland.
REMUNERATION OF DIRECTORS AND OFFICERS
The Fund does not intend to pay fees to the directors until such time that the
Fund's assets exceed $2,500,000.00, although the Fund will reimburse directors
for their expenses.There has been no payments made to this Board as of the date
of this filing. The previous Directors had received fees totaling $1,881, as of
July 8,1996, of this amount $693 was paid by the Fund and $1,188 was paid by
5
Matthew 25 Management Corp. The Fund intends to pay Independent Directors $50
plus expenses per meeting, as long as the Fund's Assets exceed the threshold.
Mark Mulholland will receive benefit from the investment advisory fees payable
to Matthew 25 Management Corp. and therefore will not be eligible to receive di-
rectors fees as long as his firm acts as the Investment Adviser.
CAPITALIZATION
Description of Common Stock: The authorization capitalization of the Fund con-
sists of 1,500,000 shares of common stock of $.01 par value per share. Each
share has equal dividend, distribution and liquidation rights. There are no
conversion or preemptive rights applicable to any shares of the Fund. All shares
issued are fully paid and non-accessible.
Voting Rights: Each holder of common stocks has one vote for each share held
and fractional shares will have an equivalent fractional vote. Voting rights
are non-cumulative, which means that the holders of a majority of shares of com-
mon stock can elect all directors of the Fund if they so choose,and the holders
of the remaining shares will not be able to elect any person as a director.
Major Shareholders: Mark and Ann M. Mulholland as of the date of this Prospec-
tus own 99.78 % of the outstanding shares in a Joint Tenancy account.
PURCHASE OF SHARES - REINVESTMENTS
The offering price of the shares offered by the Fund is at the net asset value
per share next determined after receipt of the purchase order by the Fund and is
computed in the manner described under the caption "PRICING OF SHARES" in this
Prospectus. The Fund reserves the right at its sole discretion to terminate the
offering of its shares made by this Prospectus at any time and to reject pur-
chase applications when, in the judgment of the management such termination or
rejection is in the best interests of the Fund.
Initial Investments: Initial purchase of shares of the Fund may be made only by
application submitted to the Fund. For the convenience of investors, a Share
Purchase Application form is provided with this Prospectus. The minimum initial
purchase of shares is $1,000 which is due and payable 3 business days after the
purchase date. Less may be accepted under especial circumstances. The Fund
will be initially registered in Pennsylvania and therefore restricted to Penn-
sylvania residents at the time of purchase. There will be no solicitation of
out of the state of Pennsylvania potential shareholders until registration under
the Blue Sky laws of the state of residence have been met.
Subsequent Purchases: Subsequent purchases may be made by mail or by phone and
are due & payable three business days after the purchase date. The minimum here
is $100, but less may be accepted under special circumstances.
Reinvestments: The Fund will automatically retain and reinvest dividends & cap-
ital gains distributions and use same for the purchase of additional shares for
the shareholder at net asset value as of the close of business on the distribu-
tion date. A Shareholder may at any time by letter or forms supplied by the
Fund direct the Fund to pay dividends and/or capital gains distributions, if
any, to such shareholder in cash.
6
Fractional Shares: Shares will be issued to three decimal places as purchased
from the fund. The fund will maintain an account for each shareholder of shares
for which no certificates have been issued.
RETIREMENT PLANS
Individual Retirement Accounts: Persons who earn compensation and are not act-
ive participants nor have a spouse who is an active participant in an employee
maintained retirement plan may establish Individual Retirement Accounts (IRA)
using Fund shares. Annual contributions, limited to the lesser of $2,000.00 or
100% of compensation, are tax deductible from gross income. This IRA deduction
is also retained for individual taxpayers and married couples with adjusted
gross incomes within certain specified limits. All individuals may make nonde-
ductible IRA contributions to separate accounts to the extent that they are not
eligible for a deductible contribution.
Earnings under the IRA are reinvested and are tax-deferred until withdrawals be-
gin. The maximum annual contribution may be increased to $2,250.00 if you have
a spouse who earns no compensation during the taxable year. A separate and in-
dependent Spousal IRA must be maintained.
You may begin to make withdrawals as early as age 59 1/2 or as late as age 70
1/2. In the event of death or disability, or withdrawals may be made before age
59 1/2 without penalty.
A Disclosure Statement is required by U.S. Treasury Regulations. This Statement
describes the general provisions of the IRA and is forwarded to all prospective
IRA's. There is no charge to open and maintain a Matthew 25 Fund IRA. This pol-
icy may be changed by the Board of Directors if they deem it to be in the best
interests of all shareholders. All IRA's may be revoked within 7 days of their
establishment, without penalty.
REDEMPTION OF SHARES
The Fund will redeem all or any part of the shares of any shareholder who ten-
ders a request for redemption when certificates have not been issued. When cer-
tificates have been issued then certificates need to accompany a request for re-
demption. In either case, proper endorsements guaranteed either by a national
bank or member firm of the New York Stock Exchange will be required unless
waived by management.
The redemption price is the net asset value per share next determined after not-
ice is received by the Fund for redemption of shares. The proceeds received by
the shareholder may be more or less than his cost of such shares, depending upon
the net asset value per share at the time of redemption & the difference should
be treated by the shareholder as a capital gain or loss for income tax purposes.
Payment by the Fund will ordinarily be made within seven days after tender. The
Fund may suspend the right of redemption or postpone the date of payment if: The
New York Stock Exchange is closed for other than customary weekend or holiday
closings, or when trading on the New York Stock Exchange is restricted as deter-
mined by the by the Securities and Exchange Commission or when the Securities
And Exchange Commission has determined that an emergency exists, making disposal
of fund securities or valuation of net assets not practicable. The Fund intends
to make payments in cash, to the extent possible, however the Fund reserves the
right to make payments in kind.
7
BROKERAGE
The Fund requires all brokers to effect transactions of portfolio securities in
such a manner as to get prompt execution of the orders at the most favorable
price. The Fund will place all orders for purchases and sales of its portfolio
securities through the Fund's President who is answerable to the Fund's Board of
Directors. In accordance with Rule 17E-1, if the Fund's President is also a reg-
istered representative of a New York Stock Exchange or NASDAQ Member Firm, he
may place orders through his concern at as low commission rates as possible but
never to exceed rates that are higher than would be available through any other
national brokerage firm. The Directors will review each transaction when a com-
mission is generated at a brokerage firm which is affiliated with the Fund's
President or Adviser and determine if the commission paid appears reasonable.
In the event that the Board determines that any or all of the commissions paid
are higher than what they determine as reasonable, then the Board will reduce
the fees paid to the Adviser by an amount equal to the commissions deemed un-
reasonable. This review must be done at least quarterly. The Fund's President
may select other brokers who in addition to meeting the primary requirements of
execution and price, have furnished statistical or other factual information and
services, which, in the opinion of management, are helpful or necessary to the
Fund's normal operations. No effort will be made in any given circumstances to
determine the value of these services or the amount they might have reduced Ad-
viser expenses.
Other than as set forth above, the Fund has no fixed policy, formula, method or
criteria which it uses in allocating brokerage business to brokers furnishing
these materials and services. The Board of Directors will evaluate and review
the reasonableness of brokerage commissions paid to brokers not affiliated with
the President or Adviser at least semiannually.
8
LANDSBURG PLATT RASCHIATORE & DALTON
Certified Public Accountants
117 South 17th Street 13th Floor
Philadelphia, PA 19103
215-561-6633
Fax 215-561-2070
Independent Auditor's Report
To the Shareholers and Board of Directors of Matthew 25 Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Matthew
25 Fund, Inc., including the schedule of investments in securities as of Febru-
ary 5, 1996 and the related statement of operations for the period from January
1, 1996 through February 5, 1996, the statement of changes in net assets and
the financial highlights and related ratios/supplemental data for each of the
periods indicated. These financial statements and financial highlights and re-
lated ratios/supplemental data are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
the financial highlights and related ratios/supplemental data based on our au-
dit.
We conducted our audit 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 the financial highlights
and related ratios/supplemental data are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and dis-
closures in the financial statements. Our procedures included confirmation of
securities owned as of February 5, 1996, by correspondence with the custodian
and brokers. An audit includes assessing the accounting principles used and sig-
nificant estimates made by management, as well as evaluating the overall finan-
cial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements and the financial highlights and re-
lated ratios/supplemental data referred to above present fairly, in all material
respects, the financial position of Matthew 25 Fund, Inc., as of February 5,
1996, the results of its operations from January 1, 1996 through February 5,
1996, the changes in its net assets and the financial highlights and related ra-
tios/supplemental data for each of the periods indicated, in conformity with
generally accepted accounting principles.
Landsburg Platt Reschiatore & Dalton
February 29, 1996
9
MATTHEW 25 FUND, INC. MATTHEW 25 FUND, INC.
Statement of Assets and Liabilities Schedule of Investments in Securities
February 5, 1996 February 5, 1996
ASSETS Number of
------ shares or
Investments in securities, $ 114,528 principal Market
at value (cost $108,382) --------- amount Value
--------- --------
TOTAL ASSETS $ 114,528 COMMON STOCK - 80.54%
--------- ------------
FINANCIAL - 26.18%
LIABILITIES ---------
-----------
Accounts Payable $ 496 Franklin Resources 200 $ 10,600
--------- Harris Savings 1,000 19,250
TOTAL LIABILITIES $ 496 ---------
--------- 29,850
---------
NET ASSETS MANUFACTURERS - 34.24%
---------- -------------
Net assets $ 114,032
(equivalent to $5.28 per ========= Rubbermaid Inc. 800 22,300
share based on 21,585 shares Stride Rite Corp. 2,000 16,750
of capital stock outstanding) ---------
39,050
Composition of net assets: ---------
Shares of common stock 216 MISCELLANEOUS - 20.12%
Paid in capital 107,919 -------------
Accumulated net investment (249)
loss Home Depot Inc. 500 22,938
Net unrealized appreciation 6,149 ---------
of investments -------- TOTAL COMMON STOCKS 91,838
(Cost $85,692) ---------
NET ASSETS 2/5/96 $ 114,032
========= SHORT TERM INVESTMENTS - 19.90%
----------------------
First Montauk 9,403 9,403
Money Market
Royal Bank Gold 13,287 13,287
Money Market ---------
TOTAL SHORT TERM INVESTMENTS
(Cost $22,690) 22,690
---------
TOTAL SECURITIES
(Cost $108,382) $ 114,528
=========
The accompanying notes are an integral part of these financial statements.
10
MATTHEW 25 FUND, INC. MATTHEW 25 FUND, INC.
STATEMENT OF OPERATIONS STATEMENT OF CHANGES IN NET ASSETS
For the period January 1, 1996 Period from
through February 5, 1996 October 26,
1995 ( com-
Period from mencement of
INVESTMENT INCOME: January 1, operations )
- ------------------ 1996 through through De-
February 5, cember 31,
Interest $ 38 1996 1995
Miscellaneous 6 ------------ ------------
------- INCREASE IN
NET ASSETS
Total investment income 44 FROM OPERA-
------- TIONS:
------------
EXPENSES: Investment $ (49) $ (200)
- --------- loss - net
Investment advisor 89 Net realized 0 0
Miscellaneous 4 gain (loss)
------- on securi-
Total Expenses 93 ties trans-
------- actions
Net change 2,738 3,408
Investment loss - net (49) in unreal-
------- ized appre-
Net realized gain (loss) 0 ciation of
on securities transactions investments --------- ---------
Net change in unrealized 2,738 Net Increase 2,689 3,208
appreciation of investments ------- in net as-
sets from
Net gain on investments 2,738 operations --------- ---------
------- Distributions
to sharehold-
ers from
Net increase in net assets $ 2,689 Investment 0 0
resulting from operations ======= income-net
Net realized 0 0
gain on in-
vestments
Capital share 5,136 2,999
transactions --------- ---------
Net increase 7,825 6,207
in net assets --------- ---------
NET ASSETS:
----------
Beginning of 106,207 100,000
period --------- ---------
End of period $ 114,032 $ 106,207
========= =========
The accompanying notes are an integral part of these financial statements.
11
MATTHEW 25 FUND, INC.
Notes to the Statement of Assets and Liabilities
February 5, 1996
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Matthew 25 Fund, Inc. (the "Fund") was incorporated on August 28, 1995 and com-
menced operations on October 26, 1995. The Fund has no operations prior to the
commencement of operations other than matters relating to its organization and
registration as an open-end non-diversified management investment company under
the Investment Company Act of 1940 and its securities under the Securities Act
of 1933, the sale & issuance of 20,000 shares of common stock ("initial shares")
to its initial, joint tenant investors on October 16, 1995. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements. These policies are in conformity
with generally accepted accounting principles. Significant accounting policies
of the Fund are as follows:
Security valuations
The Fund values investment securities, where market quotations are available, at
market value based on the last recorded sales prices as reported by the princi-
pal securities exchange on which the security is traded, or if the security is
not traded on an exchange, market value is based on the latest bid price. Short-
term investments are valued at cost, approximately market value.
Federal income taxes
The Fund's policy is to comply with the requirements of the Internal Revenue
Code that are applicable to regulated investment companies and to distribute
all its taxable income to its shareholders. Therefore, no federal income tax
provision is required.
Distribution to shareholders
The Fund intends to distribute to shareholders substantially all of its net in-
vestment income, if any, and net realized capital gains, if any, at year end.
Organizational costs
Organizational costs were borne by the Fund's Investment Advisor.
Registration fees
Registration fees were borne by the Fund's investment advisor.
Other
The Fund follows industry practice and records security transactions on the
trade date. The specific identification method is used for determining gains or
losses for financial statements and income tax purposes. Dividend income is re-
corded on the ex-dividend date and interest income is recorded on an accrual ba-
sis.
12
NOTE 2 INVESTMENT ADVISORY AGREEMENT AND OTHER RELATED TRANSACTIONS
The Fund has an investment advisory agreement with The Valley Forge Management
Corp., (VFMC), whereby VFMC receives a fee of 1% per year on the net assets of
the Fund. All fees are computed on the average daily closing net asset value of
the Fund and are payable monthly. In accordance with State Regulations, VFMC
has agreed to decrease the investment advisory fee or, if necessary, to reim-
burse the fund if and to the extent that the Fund's aggregate annual operating
expensesexceed specified percentages of the Fund's net assets. The percentages
are 2.0% of the first $10,000,000 and 1.5% of the average net assets in excess
of $10,000,000.
Mr. Bernard Klawans is the sole owner, director and officer of VFMC and is also
president of the Fund.
NOTE 3 INVESTMENTS
For the period from October 26, 1995 (commencement of operations) through Feb-
ruary 5, 1996, purchases and sales of investment securities other than short-
term investments aggregated $85,692 and $-0-, respectively. The gross unreal-
ized appreciation for all securities totaled $6,414 and the gross unrealized
depreciation for all securities totaled $268, or a net unrealized appreciation
of $6,146. The aggregate cost of securities for federal income tax purposes at
February 5, 1996 was $108,382.
NOTE 4 CAPITAL SHARE TRANSACTIONS
As of February 5, 1996 there were 1,500,000 shares of $.01 par value capital
stock authorized and capital paid in aggregated $108,135.
Transactions in capital stock were as follows:
For the period from Oc-
For the period from Jan- tober 26, 1995 (commence-
uary 1, 1996 through Feb- ment of operations )
ruary 5, 1996. through December 31, 1995
Shares Amount Shares Amount
-------- -------- -------- --------
Shares Sold* 995 $ 5,136 590 $ 2,999
Shares issued in rein- 0 0 0 0
vestment of dividends
Shares redeemed 0 0 0 0
-------- -------- -------- --------
Net increase 995 $ 5,136 590 $ 2,999
======== ======== ======== ========
*The Fund sold all shares to initial joint tenant investors as of February 5,
1996.
13
MATTHEW 25 FUND, INC.
FINANCIAL HIGHLIGHTS AND RELATED RATIOS/SUPPLEMENTAL DATA
For a Share Outstanding throughout each Period
For the period from Oc-
For the period from Jan- tober 26, 1995 (commence-
uary 1, 1996 through Feb- ment of operations )
ruary 5, 1996. through December 31, 1995
------------------------ -------------------------
Net asset value, begin- $ 5.16 $ 5.00
ning of period
Income from investment
operations
Net investment income - (.01)
Net gains or (losses) .12 .17
on securities both
realized & unrealized ----------- -----------
Total from investment $ 5.28 $ 5.16
operations
Less distributions
Dividends (from net in- - -
vestment income)
Distributions(from cap- - -
ital gains) ----------- -----------
Net Asset value, end of $ 5.28 $ 5.16
period =========== ===========
Net assets, end of period $ 114,032 $ 106,207
Ratio of expenses to av- 1.04%* 2.00%*
erage net assets
Ratio of net investment .49%* .96%*
income to average net
assets
Portfolio turnover rate 0% 0%
*annualized
The accompanying notes are an integral part of these financial statements.
14
FORM N-1A
PART C - OTHER INFORMATION
Contents Page #
1. Financial Statements & Exhibits 1
2. Control Persons 1
3. Number of Shareholders 1
4. Indemnification 1
5. Activities of Investment Adviser 1
6. Principal Underwriters 1
7. Location of Accounts & Records 2
8. Management Services 2
9. Distribution Expenses 2
10. Undertakings 2
11. Auditor's Consent 3
12. Signatures 4
Exhibits
Articles of Incorporation 3 i
By-Laws 3 ii
Investment Advisery Contract 10 i
Reimbursement Agreements - Officers/Directors 10 ii
Opinion of Counsel Concerning Fund Sscurities 99.1
i
1. a. Financial Statements - Condensed financial information on a per share
basis is presented in Part A for 1995. All other financial statements are
presented in Part B. These include:
Statement of Assets & Liabilities February 5, 1996
Schedule of Investments in Securities February 5, 1996
Statement of Operations February 5, 1996
Statement of Changes in Net Assets December 31, 1995
Statement of Changes in Net Assets February 5, 1996
Notes to Statement of Assets and Liabilities February 5, 1996
A post-effective amendment containing reasonably current financial state-
ments which will not be certified will be filed with the Securities & Ex-
change Commission within 4 to 6 months of the effective date of this fil-
ing.
b. Exhibits
(3.i) Articles of Incorporation
(3.ii) By-Laws
(10.1) Investment Advisery Contract
(10.2) Reimbursement Agreements with Officers and/or Directors
(99.1) Opinion of Counsel Concerning Fund Securities
All exhibits believed to be applicable to the Fund are incorporated by re-
ference to pre-effective amendment no. 1 of the Securities Act of 1933 ex-
cept exhibit 10.1 which is included.
2. Control Persons - Not applicable
3. Number of Shareholders - There are 3 shareholders of the Matthew 25 Fund,
Inc. as of this filing.
4. Indemnification - Insofar as indemnification for liability arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant, the registrant has been advised
that, in the opinion of the Securities and Exchange Commission, such in-
demnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of ex-
penses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceed-
ing) is asserted by such director, officer or controlling person in con-
nection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whe-
ther such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
5. Activities of Investment Adviser - The Matthew 25 Management Corpora-
tion's activity at the present time is performance on its Investment Ad-
visory Contract currently effective with the Matthew 25 Fund, Inc. Mr.
Mark Mulholland, is the sole proprietor of the Investment Adviser. He is
also a Stockbroker with Boenning & Scattergood, Inc.
6. Principal Underwriter - The Fund acts as its own underwriter.
1
7. Location of Accounts & Records - All fund records are held at corporate
headquarters - 605 Cloverly Avenue Jenkintown, PA 19046 - with the excep-
tion of security certifications which are in a safe deposit box at the
Royal Bank of Pennsylvania, DeKalb Pike, King of Prussia, PA.
8. Not applicable
9. Distribution Expenses - The fund currently bears no distribution expenses.
10. Not applicable
2
Landsburg Platt Raschiatore & Dalton
Certified Public Accountants
117 S. 17th St. 13th Fl.
Philadelphia, PA. 19103
215-561-6633
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion by reference to the Pre-effective Amendment #1 on
Form N-1A of Matthew 25 Fund, Inc. of our report dated February 29, 1996 on our
examination of the Financial Statements on such Company. We also consent to the
reference to our firm in such Registration Statement.
Landsburg Platt Raschiatore & Dalton (Signature)
March 6, 1996
3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Invest-
ment Company Act of 1940, the MATTHEW 25 FUND, Inc. certifies that it
meets all of the requirements for effectiveness of this Registration State-
ment and has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
Borough of Jenkintown of the State of Pennsylvania, on the 8th day of July
1996.
MATTHEW 25 FUND, INC.
Mark Mulholland,
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
Mark Mulholland President, CEO and Director 7-8-96
Samuel B. Clement Secretary and Director 7-8-96
Steven D. Buck Director 7-8-96
Dr. Philip J. Cinelli Director 7-8-96
Linda Guendelsberger Director 7-8-96
Scott A. Satell Director 7-8-96
4
Exhibit - 10 i
INVESTMENT ADVISORY CONTRACT
AGREEMENT, made by and between Matthew 25 Fund, Inc., a Pennsylvania Corpora-
tion, (hereinafter called "Fund") and Matthew 25 Management Corporation, a
Pennsylvania Corporation (hereinafter called "Investment Adviser")
WITNESSETH: WHEREAS, Fund engages in the business of investing and reinvesting
its assets and property in various stocks and securities and Investment Adviser
engages in the business of providing investment advisory services.
1. The Fund hereby employs the Investment Adviser, for the period set forth
in Paragraph 6 hereof, and on the terms set forth herein, to render invest-
ment advisory services to the Fund, subject to the supervision and direction
of the Board of Directors of the Fund. The Investment Adviser hereby ac-
cepts such employment and agrees, during such period, to render the services
and assume the obligations herein set forth, for the compensation provided.
The Investment Adviser shall, for all purposes herein, be deemed to be an
independent contractor, and shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent the Fund in any way,
or in any way be deemed an agent of the Fund.
2. As a compensation for the services to be rendered to the Fund by the Invest-
ment Adviser under the provisions of this Agreement, the Fund shall pay to
the Investment Adviser monthly a fee equal to one-twelfth of one percent per
month, (the equivalent of 1% per annum) of the daily average net assets of
the Fund during the month. The first payment of fee hereunder shall be
prorated on a daily basis from the date this Agreement takes effect.
3. It is expressly understood and agreed that the services to be rendered by
the Investment Adviser to the Fund under the provisions of this Agreement
are not to be deemed to be exclusive, and the Investment Adviser shall be
free to render similar or different services to others so long as its abil-
ity to render the services provided for in this Agreement shall not be im-
paired thereby.
4. It is understood and agreed that directors, officers, employees, agents and
shareholders of the Fund may be interested in the Investment Adviser as dir-
ectors, officers, employees, agents and shareholders, and that directors,
officers, employees, agents and shareholders of the Investment Adviser may
be interested in the Fund, as directors, officers, employees, agents and
shareholders or otherwise, and that the investment Adviser, itself, may be
interested in the Fund as a shareholder or otherwise, specifically, it is
understood and agreed that directors, officers, employees, agents and share-
holders of the Investment Adviser may continue as directors, officers, emp-
loyees, agents and shareholders of the Fund; that the Investment Adviser,
its directors, officers, employees, agents and shareholders may engage in
other business, may render investment advisory services to other investment
companies, or to any other corporation, association, firm or individual, may
render underwriting services to the Fund, or to any other investment compa-
ny, corporation, association, form or individual. The Fund shall bear ex-
penses and salaries necessary and incidental to the conduct of its business,
including but not in limitation of the foregoing, the costs incurred in the
maintenance of its own books, records, and procedures; dealing with its own
shareholders; the payment of dividends; transfers of stock (including issu-
ance & redemption of shares); reports and notices to shareholders; expenses
of annual stockholders; meetings; miscellaneous office expenses; brokerage
commissions; taxes; and custodian, legal, accounting and registration fees.
Employees, officers and agents of the Investment Adviser who are, or may in
the future be, directors and/or senior officers of the Fund shall receive no
remuneration from the Fund or acting in such capacities for the Fund. In
the conduct of the respective businesses of the parties hereto and in the
performance of this agreement, the Fund & Investment Adviser may share com-
mon facilities and personnel common to each, with appropriate proration of
expenses.
5. Investment Adviser shall give the Fund the benefit of its best judgment and
efforts in rendering these services, and Fund agrees as an inducement to the
undertaking of these services that Investment Adviser shall not be liable
hereunder for any mistake of judgment or any event whatsoever, provided that
nothing herein shall be deemed to protect, or purport to protect, Investment
Adviser against any liability to Fund or to its security holders to which
Investment Adviser would otherwise be subject by reason of willful misfeas-
ance, bad faith or gross negligence in the performance of duties hereunder,
or by reason of reckless disregard of obligations and duties hereunder.
6. This agreement shall continue in effect until December 31, 1996, and, there-
after, only so long as such continuance is approved at least annually by
votes of the Fund's Board of Directors, cast in person at a meeting called
for the purpose of voting on such approval, including the votes of a majori-
ty of the Directors who are not parties to such agreement or interested per-
sons of any such party. This agreement may be terminated at any time upon
60 days prior written notice, without the payment of any penalty, by the
Fund's Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund. The contract will automatically terminate in the
event of its assignment by the Investment Adviser (within the meaning of the
Investment Company Act of 1940), which shall be deemed to include a transfer
of control of the Investment Adviser. Upon the termination of this agree-
ment, the obligations of all the parties hereunder shall cease and terminate
as of the date of such termination, except for any obligation to respond for
a breach of this Agreement committed prior to such termination and except
for the obligation of the Fund to pay to the Investment Adviser the fee pro-
vided in Paragraph 2 hereof, prorated to the date of termination.
7. This Agreement shall not be assigned by the Fund without prior written con-
sent thereto of the Investment Adviser. This Agreement shall terminate au-
tomatically in the event of its assignment by the Investment Adviser unless
an exemption from such automatic termination is granted by order or rule of
the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties hereto have caused their corporate seals to
be affixed and duly attested and their presence to be signed by their duly
authorized officers this 8th day of December, 1995.
Matthew 25 Fund, Inc. By _____________________________
Mark Mulholland, President
Attest: ________________
Samuel B. Clement
Valley Forge Management Corporation By ____________________________
Mark Mulholland, President
Attest: ________________
Samuel B. Clement
