MATTHEW 25 FUND, INC.
605 Cloverly Avenue
Jenkintown, PA 19046
215-884-4458
888-M25-FUND
August 10, 1998
Dear Matthew 25 Fund Shareholders,
Your Fund's Rate of Return for the first six months of 1998 was 16.304%. On Au-
gust 4, 1998 the Mutual Fund Scorecard/Growth in the Wall Street Journal ranked
your fund 14th out of 896 Growth Funds for the 52 weeks ending July 30, 1998.
There is an old maxim "No pain, no gain". Well this year I felt the pain at
times, so the gain and the ranking were greatly appreciated.
The portfolio's pain in the spring was due to continued business decline for
Boston Markets, which in turn reduced the price on the Boston Chicken converti-
ble bonds. The tough call was that the market value of all Boston Market's debt
was far below the $1 billion cost of all its restaurants, so the bonds were un-
dervalued. However, my belief was and is that the company will have to file
Chapter 11 in order to restructure all its debt, which if correct would possibly
reduce the bonds in half again. Once I felt strongly on this reorganization
scenario I decided to sell the bonds, which generated a loss for tax purposes.
Boston Market has avoided default and may continue to do so, and yet the bonds
have dropped in half since our sale.
The other discomfort would be Market Maladies, which are general market de-
clines. Whenever a Market Malady comes, the fear is that this time it will
stay. My prescription for these general market declines is to buy as capably
as I can if I am able to find even a few ideas with high profit potential. In
this current decline, which started in mid July, I am finding many such invest
ments; in fact more than I can buy. I believe it is a good time to buy shares
of your Matthew 25 Fund, because it is at a good price, there are many stocks at
attractive values available in the current market, and I feel your portfolio
will participate in the upside. There is more to come from America's businesses.
In the Schedule of Investments in Securities you will see all your stock hold-
ings. During this decline I have bought more Harris Financial, Commonwealth,
TCI Group. Advanta, Tokio Marine, Freddie Mac, Berkshire Hathaway, Eagle Hard-
ware, and Home Depot. Please call me for any questions about your fund's port-
folio. As always, thank you for investing in the Matthew 25 Fund and good for-
tune in the second half of this year.
Thank you,
Mark Mulholland
President
MATTHEW 25 FUND, INC.
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998
ASSETS
Investments in securities at value (cost $10,712,217) $ 15,009,005
Cash 1,175,088
Receivable for dividends 9,369
-----------
Total assets $ 16,193,462
============
LIABILITIES
20,150
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COMMITMENTS & CONTINGENCIES _
NET ASSETS: (Equivalent to $9.885 per share based on
1,636,198 shares of capital stock outstanding.
100,000,000 shares authorized, $.01 par value $ 16,173,312
============
COMPOSITION OF NET ASSETS
Retained Earnings (195,796)
Shares of common stock 16,362
Paid in capital 12,055,958
Net unrealized appreciation of investments 4,296,788
-----------
Net assets, June 30, 1998 $ 16,173,312
============
MATTHEW 25 FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1998
INVESTMENT INCOME:
Dividends $ 58,040
Interest 22,462
----------
Total investment income 80,502
----------
EXPENSES:
Total Expenses 83,980
----------
INVESTMENT INCOME(Loss) - NET: (3,478)
----------
NET REALIZED GAIN(Loss) ON SECURITY TRANSACTIONS: (192,318)
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS: 2,205,471
----------
NET GAIN ON INVESTMENTS: 2,009,675
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS: $1,626,576
THIS IS AN UNAUDITED STATEMENT
The accompanying notes are an integral part of these financial statements.
1
MATTHEW 25 FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
FOR THE PERIOD ENDED JUNE 30, 1998
COMMON STOCKS: - 92.80% Number of Shares Historical Cost Value
Banks - 6.18%
Commonwealth Bancorp. Inc. 16,100 $ 212,278 $ 369,294
Harris Financial 45,400 372,768 998,800
------------- ------------
585,046 1,368,094
Communications - 9.26%
MCI Communications 20,000 722,304 1,161,250
Telecommunications, Inc.
Ser. B, TCI Group 8,000 111,731 336,000
------------- ------------
834,035 1,497,250
Entertainment - 6.50%
Walt Disney Co. 10,000 803,769 1,050,625
------------- ------------
Financial - 2.16%
Advanta 16,000 332,156 349,000
------------- ------------
Foreign Insurance - 4.40%
Tokio Marine & Fire Insurance 14,000 720,784 712,250
------------- ------------
Manufacturing - 15.72%
Intel Corp. 10,900 839,149 807,281
Nike, Inc. Cl. B 19,300 888,563 939,669
UST, Inc. 28,000 839,219 756,000
Wm. Wrigley Jr. Co., Class B 400 20,580 39,200
------------- ------------
2,587,511 2,542,150
Mortgage Securitization - 19.21%
Freddie Mac 66,000 2,134,674 3,106,125
------------- ------------
Mutual Fund Investment Adviser - 5.11%
Franklin Resources Inc. 15,300 521,389 826,200
------------- ------------
Miscellaneous - 5.05%
Berkshire Hathaway 8 310,754 626,440
Berkshire Hathaway, Class B 73 94,978 190,749
------------- ------------
405,732 817,189
Retail - 7.37%
Eagle Hardware 30,000 546,869 693,750
Home Depot, Inc. 6,000 203,255 498,375
------------- ------------
750,124 1,192,125
Utilities - 8.31%
Niagara Mohawk Power Corp. 90,000 937,010 1,344,375
------------- ------------
Total Common Stock $ 10,612,230 $ 14,805,383
------------- ------------
THIS IS AN UNAUDITED STATEMENT
The accompanying notes are an integral part of these financial statements.
2
MATTHEW 25 FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
FOR THE PERIOD ENDED JUNE 30, 1998
Number of Shares Historical Cost Value
CONVERIBLE PREFERRED STOCKS: - 1.26%
TCI Communications 2,500 99,987 203,622
------------- ------------
Total Securities - 92.80% $ 10,712,217 $ 15,009,005
- ---------------- ============= ============
MATTHEW 25 FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED
June 30,1998 December 31, 1997
------------------ ---------------------
INCREASE IN NET ASSETS
FROM OPERATIONS:
- ----------------
Investment income (loss) - net $ (3,478) $ 18,351
Net realized gain(loss) on (192,318) 28,100
securities transactions
Net change in unrealized appreciation
of investments 2,205,471 1,988,041
------------------ ---------------------
Net Increase in net assets from
operations 2,009,675 2,034,492
------------------ ---------------------
Distributions to shareholders from -
Investment income-net (18,375)
Net realized gain on investments (28,100)
Capital share transactions 3,584,211 7,170,499
------------------ ---------------------
Net increase in net assets 5,593,886 9,158,516
------------------ ---------------------
NET ASSETS:
- -----------
Beginning of period 10,579,426 1,420,910
------------------ ---------------------
End of period $ 16,173,312 $ 10,579,426
================== =====================
THIS IS AN UNAUDITED STATEMENT
The accompanying notes are an integral part of these financial statements.
3
MATTHEW 25 FUND, INC.
Notes to the Financial Statements
June 30, 1998
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 following is a summary of significant accounting policies consis-
tently 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.
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 six months
end.
Organizational costs
Organizational costs were borne by the Fund's Investment Adviser.
Registration fees
Initial registration fees were borne by the Fund's Investment Adviser.
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.
Estimates
The preparation of financial statements is in conformity with generally accepted
accounting principles. Management is required to make estimates and assumptions
that affect the reported amount of assets and liabilities. Management is also
required to disclose contingent assets and liabilities at the date of the finan-
cial statements and to report amounts of income and expenses during the report-
ing period. Actual results could differ from those estimates.
THIS IS AN UNAUDITED STATEMENT
The accompanying notes are an integral part of these financial statements.
4
NOTE 2 INVESTMENT ADVISORY AGREEMENT AND OTHER RELATED TRANSACTIONS
The Fund has an investment advisory agreement with The Matthew 25 Management
Corp., (M25M), whereby M25M 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. Matthew 25 Management corporation has agreed
to decrease the investment advisory fee or, if necessary, to reimburse the fund
if and to the extent that the Fund's aggregate annual operating expenses exceed
2.0% of the first $10,000,000 and 1.5% of the next $20,000,000.
The management fee, as of 6/30/98, computed pursuant to the investment advisory
agreement, totaled $67,184. The Matthew 25 Management Corporation has received
$41,000 as of 6/30/98.
Mr. Mark Mulholland is the sole owner, director and officer of M25M and is also
President of the Fund.
In addition Mr. Mulholland is a broker at Boenning and Scattergood, Inc. During
the period ending June 30, 1998, the Fund paid brokerage commission of $11,368
to Boenning & Scattergood, Inc. of which Mr. M. Mulholland received compensation
of approximately $6,252. Boenning & Scattergood, Inc. is not otherwise associ-
ated with Matthew 25 Fund, Inc. or Matthew 25 Management Corporation and is not
responsible for any of the investment advice rendered to the Fund by M25M or Mr.
Mulholland.
NOTE 3 INVESTMENTS
For the six months ended June 30, 1998, purchases and sales of investment secur-
ities other than short-term investments aggregated $4,044,447 and $1,464,614,
respectively. At June 30,1998 the gross unrealized appreciation for all secur-
ities totaled $4,420,409 and the gross unrealized depreciation for all securi-
ties totaled $123,621, or a net unrealized appreciation of $4,296,788. The
aggregate cost of securities for federal income tax purposes at June 30,1998
was $10,712,217.
NOTE 4 CAPITAL SHARE TRANSACTIONS
As of June 30, 1998 there were 100,000,000 shares of $0.01 par value capital
stock authorized, with 1,636,198 shares outstanding, and capital paid in aggre-
gate $12,072,320.
Transactions in capital stock were as follows:
For the six months ended For the year ended
June 30, 1998 December 31, 1996
Shares Amount Shares Amount
Shares Sold 416,330 $ 3,816,896 1,068,986 $ 7,574,046
Shares issued in rein- 5,469 46,474
vestment of dividends
Shares redeemed 24,906 $ 232,686 (62,120) (450,021)
---------- ----------- ---------- ------------
Net increase 391,423 $ 3,584,210 1,012,335 $ 7,170,499
========== =========== ========== ============
THIS IS AN UNAUDITED STATEMENT
The accompanying notes are an integral part of these financial statements.
5
