MATTHEW 25 FUND, INC.
INDEPENDENT AUDITORS' REPORT
AND
FINANCIAL STATEMENTS
Year Ended December 31, 1999
MATTHEW 25 FUND,INC.
TABLE OF CONTENTS
Page
Number
______
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Statement of Assets and Liabilities 2
Schedule of Investments of Securities 3-4
Statement of Operations 5
Statement of Change in Net Assets 6
Notes to Financial Statements 7-8
Financial Highlights and Related Ratios/Supplemental Data 9
SUPPLEMENTARY INFORMATION
Independent Auditors' Report on Supplementay Information 10
Performance Summary 11
MATHIESON AITKEN JEMISON, LLP
CERTIFIED PUBLIC ACCOUTANTS
16 SENTRY PARK WEST
SUITE 310
BLUE BELL, PA 19422-2240
(215)643-3900
FAX (215)643-4030
E-MAIL [email protected]
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Matthew 25 Fund, Inc.
Jenkintown, Pennsylvania
We have audited the accompanying statement of assets and liabilities of Matthew
25 Fund, Inc., including the schedule of investments in securities as of Decem-
ber, 31 1999, and the related statement of operations for the year then ended,
the statement of changes in net assets, the financial highlights and related
ratios / supplemental data and performance summary for each of the periods indi-
cated. These financial statements, financial highlights and related ratios /
supplemental data and performance summary 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 audit.
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 and financial highlights. Our procedures
included confirmation of securities owned as of December 31, 1999, verified by
examination and by correspondence with brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights and re-
lated ratios/supplemental data and performance summary referred to above present
fairly, in all material respects, the financial position of Matthew 25 Fund,
Inc., as of December 31, 1999, and the results of its operations for the year
then ended, the changes in its net assets and the financial highlights and re-
ratios/supplemental data and performance summary for each of the periods
indicated, in conformity with generally accepted accounting principles.
Mathieson Aitken Jemison, LLP
January 25, 2000
1
MATTHEW 25 FUND,INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS
Investments in securities at value (cost $18,852,520) $ 24,525,181
Cash 858,718
Receivable for dividends 19,030
___________
TOTAL ASSETS $ 25,402,929
LIABILITIES
Accounts payable 1,284
__________
TOTAL LIABILITIES 1,284
NET ASSETS: (Equivalent to $10.547 per share based on
2,408,390 shares of capital stock 100,000,000 shares
authorized, $0.1 par value) $ 25,401,645
============
COMPOSITION OF NET ASSETS
Shares of common stock $ 24,084
Paid-in capital 19,704,900
Net unrealized appreciation of investments 5,672,661
___________
NET ASSETS, DECEMBER 31, 1999 $ 25,401,645
============
See accompanying notes to financial statements.
2
MATTHEW 25 FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
FOR THE YEAR ENDED DECEMBER 31, 1999
Number of Shares Historical Cost Value
________________ _______________ ____________
COMMON STOCKS
Banks & finance, 15.99%
Advanta Corporation Class A 64,000 $ 1,044,375 $ 1,164,000
Advanta Corporation Class B 17,000 235,480 229,500
Commonwealth Bancorp, Inc. 66,000 933,542 1,097,250
Harris Financial 84,500 931,292 633,750
Willow Grove Bancorp, Inc. 105,000 1,068,116 938,438
_______________ ____________
4,212,805 4,062,938
Communications, 10.91%
AT&T Corporation 32,000 774,896 1,626,000
MCI WorldCom, Inc.* 18,000 332,342 954,000
Mediaone Group, Inc.* 2,500 171,606 192,031
_______________ ____________
1,278,844 2,772,031
Entertainment, 3.71%
Walt Disney Co. 32,250 818,092 943,313
_______________ ____________
818,092 943,313
Foreign Insurance, 2.66%
Tokio Marine & Fire
Insurance Co. 11,500 593,616 675,625
_______________ ____________
593,616 675,625
Insurance, 5.41%
MBIA, Inc. 26,000 1,446,009 1,373,125
_______________ ____________
1,446,009 1,373,125
Manufacturing, 19.03%
Intel Corp. 36,500 1,745,534 3,002,125
Lindsay Manufacturing Co. 27,000 409,634 492,750
Polaris Industries, Inc. 36,000 1,248,623 1,305,000
Wm. Wrigley Jr. Co., Class B 400 20,580 33,175
______________ _____________
3,424,371 4,833,050
Mortgage securities, 14.36%
Federal Home Loan 77,500 2,803,461 3,647,343
______________ _____________
2,803,461 3,647,343
Miscellaneous, 4.91%
Berkshire Hathaway, Class A* 17 870,685 953,700
Berkshire Hathaway, Class B* 160 266,745 292,800
______________ _____________
1,137,430 1,246,500
See accompanying notes to financial statements.
4
MATTHEW 25 FUND, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
Number of Shares Historical Cost Value
________________ _______________ ____________
Retail, 4.87%
Home Depot, Inc. 18,000 203,255 1,237,500
_______________ ___________
203,255 1,237,500
Transportation, 7.43%
AMR Corporation* 6,000 401,954 402,000
Kansas City Southern Industries 19,900 988,012 1,485,038
______________ ___________
1,389,966 1,887,038
Utilities, 7.27%
Niagara Mohawk Power Corp.* 132,000 1,544,671 1,846,718
______________ ____________
TOTAL SECURITIES, 97.55% $ 18,852,520 $ 24,525,181
============== ============
* Non-income producing security
See accompanying notes to financial statements.
5
MATTHEW 25 FUND, INC.
STATEMENT OF OPERATIONS
Year Ended December 31,1999
INVESTMENT INCOME
Dividends $220,967
Interest 8,903
________
TOTAL INVESTMENT INCOME 229,870
EXPENSES
Audit 6,100
Bank Fees 250
Directors expenses 10,375
Insurance 11,938
Investment Advisory Fee 234,921
IRA expense 5,650
Legal 2,084
Marketing 330
Miscellaneous expense 47
Office Supplies 1,885
Postage and Printing 4,460
Registration and Filing Fees 6,787
Software 7,132
State and local taxes 1,800
Telephone 972
____________
TOTAL EXPENSES 294,731
Less, expense reduction from investment advisor (7,541)
____________
NET EXPENSES 287,190
____________
INVESTMENT LOSS, NET (57,320)
____________
NET REALIZED GAIN ON SECURITY TRANSACTIONS 198,979
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS 104,032
____________
NET GAIN ON INVESTMENTS 303,011
____________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $245,691
============
See accompanying notes to financial statements.
3
MATTHEW 25 FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Years Ended December 31,1999 and 1998
1999 1998
__________________ __________________
INCREASE IN NET ASSETS FROM OPERATIONS
Investment (loss) income, net $ (57,320) $ (39,335)
Net realized gain on securities
transactions 198,979 456,729
Net change in unrealized appreciation
on investments 104,032 3,477,313
__________________ __________________
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 245,691 3,894,707
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income, net (39,073)
Net realized gain on investments (141,659) (378,321)
Capital share transactions 3,969,893 7,270,981
__________________ ___________________
NET INCREASE IN NET ASSETS 4,073,925 10,748,294
NET ASSETS, BEGINNING OF YEAR 21,327,720 10,579,426
__________________ ___________________
NET ASSETS, END OF YEAR $ 25,401,645 $ 21,327,720
================== ===================
See accompanying notes to financial statements.
6
MATTHEW 25 FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Matthew 25 Fund, Inc.("the Fund") was incorporated on August 28, 1995 and
commenced operations on October 16, 1995. The Fund had no operations
prior to the commencement of operations other than matters relating to
its organization and registration as an open-end, non-diversified manage-
ment investment company under the Investment Company Act of 1940 and its
shares under the Security Act of 1933. The following is a summary of sig
nificant accounting policies consistently followed by the Fund in the
preparation of its financial statements. These policies are in conformity
with generally accepted accounting principles.
SECURITY VALUATIONS
The Fund values investment securities, where market quotations are
available, at market value based on the last recorded sales price as
reported by the principal 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 its shareholders substantially all of
its net investment income, if any, and net realized capital gains,if any,
at year end.
OTHER
The Fund follows industry practice and records security transactions on
the trade date. The specific identification method is used for determin-
ing gains or losses for financial statements and income tax purposes.
Dividend income is recorded on the ex-dividend date and interest income
is recorded on an accrual basis.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses dur-
ing the reporting period. Actual results could differ from those
estimates.
7
MATTHEW 25 FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 INVESTMENT ADVISORY AGREEMENT AND OTHER RELATED TRANSACTIONS
The Fund has an investment advisory agreement with The Matthew 25 Management
Corporation, whereby Matthew 25 Management Corp. 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 Corp. 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 for 1999, as computed pursuant to the investment advisory
agreement, totaled $234,921. The Matthew 25 Management Corp. has agreed to
accept as its 1999 advisory fee the amount it was paid in 1999 totaling
$227,380 and to irrevocably waive any and all rights to the difference between
actual management fees paid and fees per the agreement. The management fee
waived for 1999 was $7,541.
Mr. Mark Mulholland is the sole owner, director and officer of Matthew 25
Management Corporation and is also the president of the Fund.
In addition, Mr. Mulholland is a broker at Boenning and Scattergood, Inc.
During the year ended December 31, 1999, the Fund paid brokerage commission of
$16,302 to Boenning & Scattergood, Inc. of which Mr. Mulholland received
compensation totaling $7,514. Boenning & Scattergood, Inc. is not otherwise
associated with Matthew 25 Fund, Inc. or Matthew 25 Management Corp. and is not
responsible for any of the investment advice rendered to the Fund by Matthew 25
Management Corporation or Mr. Mulholland.
NOTE 3 INVESTMENTS
For the year ended December 31, 1999, purchases and sales of investment
securities other than short-term investments aggregated $7,956,171 and
$4,196,223, respectively. At December 31, 1999, the gross unrealized
appreciation for all securities totaled $6,178,747 and the gross unrealized
depreciation for all securities totaled $506,086 or a net unrealized
appreciation of $5,672,661. The aggregate cost of securities for federal income
tax purposes at December 31, 1999 was $18,852,520.
NOTE 4 CAPITAL SHARE TRANSACTIONS
As of December 31, 1999,there were 100,000,000 shares of $.01 per value capital
stock authorized. The total par value and paid-in capital totaled
$19,728,984.
Transactions in capital stock were as follows for the years ended December 31,
1999 and 1998: 1999 1998
_______________________ _____________________
Shares Amount Shares Amount
__________ __________ __________ ___________
Shares sold 535,502 $5,687,487 818,300 $7,505,090
Shares issued in reinvestment
of dividends 13,595 141,659 39,322 413,745
Shares redeemed (173,281) (1,859,253) (69,823) (647,854)
__________ __________ __________ ___________
Net Increase 375,816 $3,969,893 787,799 $7,270,981
========== ========== ========== ===========
8
MATTHEW 25 FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 DISTRIBUTIONS TO SHAREHOLDERS
On December 30, 1999, a distribution of $.059 per share aggregating
$141,659 was paid to shareholders of record on the date from net
capital gains.
FINANCIAL HIGHLIGHTS AND RELATED RATIOS/SUPPLEMENTAL DATA
For a Share Outstanding throughout each Period Ended:
December 31,1999; 1998, 1997, 1996 and 1995
For the
period from
December 31 10/16/95
_______________________________________ through
1999 1998 1997 1996 12/31/95
__________ _________ ________ ______ ________
Net asset value, $ 10.49 $ 8.50 $ 6.11 $ 5.16 $ 5.00
beginning of period
Income from
investment operations
Net investment income (0.03) (0.02) 0.01 0.01 (0.01)
(loss)
Net gains on
securities both
realized and
unrealized 0.15 2.22 2.41 0.95 0.17
________ _________ _______ ________ __________
Total from investment 10.61 10.70 8.53 6.12 5.16
operations
Less, distributions
Net investment
income (0.02) (0.01) (0.01)
Net realized gains
on investments (0.06) (0.19) (0.02)
_________ _________ _______ ________ __________
Net Asset value,
end of period $ 10.55 10.49 8.50 6.11 5.16
========= ========= ======= ======== ===========
Total return 1.08% 25.93% 39.65% 18.63% 17.43%*
Net assets,
end of period $25,401,645 21,327,720 10,579,426 1,420,910 106,207
Ratio of expenses
to average net assets 1.22% 1.26% 1.26% 1.34% 2.00%*
Ratio of investment
income, net to
average assets (0.24)% (0.25)% 0.31% 0.44% 0.96%*
Portfolio turnover rate 17.88% 30.64% 9.89% 2.52% N/A
*Annualized
N/A- Disclosure not applicable to prior periods.
9
SUPPLEMENTARY INFORMATION
MATHIESON AITKEN JEMISON,LLP
16 Sentry Park West, suite 310
Blue Bell, PA 19422-2240
(215)643-3900
(215)643-4030
E-MAIL [email protected]
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
To the Stockholders and Board of Directors
Matthew 25 Fund, Inc.
Jenkintown, Pennsylvania
Our audits of the preceding basic financial statements were made for the
purpose of forming an opinion on the financial statements taken as a whole.
The supplementary information presented in the following pages is
presented for the purposes of additional analysis and is not a required
part of the basic financial statements. Such information has been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, is fairly stated in all material respects
in relation to the basic financial statements taken as a whole.
Mathieson Aitken Jemison, LLP
January 25, 2000
10
MATTHEW 25 FUND INC.
PERFORMANCE SUMMARY
The graph below represents the changes in value for a $10,000.00 investment
in the Matthew 25 Fund from its inception, October 16,1995, to years ending
1996 through 1999. These changes are then compared to a $10,000.00 investment
in the Value Line Index, which is an index comprising of 1,617 stocks, for the
same period.
Incep. Yr.Ended Yr.Ended Yr.Ended Yr.Ended Yr.Ended
10/16/95 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
Matthew 25 Fund $10,000. $10,320. $12,247. $17,104. $21,539. $21,772.
Value Line Index $10,000. $10,287. $12,322. $15,827. $16,748. $18,517.
_____________________________________________________________________________
Matthew 25 Fund, Inc.
22,000 - . . . . . (*)
- (*)
20,800 - . . . . . .
-
V 19,600 - . . . . . .
- (*)
a 18,400 - . . . . . .
-
l 17,200 - . . . (*) . .
- [*]
u 16,000 - . . . [*] . .
-
e 14,800 - . . . . . .
-
13,600 - . . . . . .
-
12,400 - . . [*] . . .
-
11,200 - . . . . . .
- [*]
10,000 - [*]
_________________________________________________________________
10/16/95 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
Category
(*)Matthew 25 Fund [*]Value Line Index
_____________________________________________________________________________
76 days 1 year 1 year 1 year 1 year Average
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 Annual Rate
________ ________ ________ ________ _______ __________
Matthew 25 Fund 3.20% 18.68% 39.65% 25.93% 1.08% 21.04%
Value Line Index 2.87% 19.78% 28.45% 5.82% 10.56% 16.04%
The accompanying notes are an integral part of these financial statements.
12
