UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Post-Effective Amendment No. 8 X
and
THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 9
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.
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of rule 485
Cross Reference Sheet
INFORMATION REQUIRED LOCATIONS IN PROSPECTUS
Part A: PROSPECTUS
Item 1. Cover Pages Front and Back .Cover Page and Back Page
Item 2. Summary of Risk/Return: .THE FUND AND ITS INVESTMENT
Investments, Risks and Performance OBJECTIVE
Item 3. Summary of Risk/Return: Fees Table .FUND EXPENSES
Item 4. Investment Objectives, Principal .ADDITIONAL INFORMATION ABOUT
Investment Strategies, and Related INVESTMENT STRATEGIES
Risks
Item 5. Management Discussion of the Fund's .SEE PART B
Performance
Item 6. Management, Organization, .MANAGEMENT
and Capital Structure
Item 7. Shareholder Information .PRICING OF SHARES
Item 8. Distribution Arrangements .NOT APPLICABLE
Item 9. Financial Highlights Information .FINANCIAL HIGHLIGHTS
Part B: STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page and Table of Contents
Item 11. Fund History
Item 12. Description of the Fund and
Its Investments and Its Risks
Item 13. Management of the Fund
Item 14. Control Persons and Principal
Holders of Securities
Item 15. Investment Advisory and Other
Services
Item 16. Brokerage Allocation and
Other Practices
Item 17. Capital Stock & Other Securities
Item 18. Purchase, Redemption & Pricing
of Shares
Item 19. Underwriters Not Applicable
Item 20. Calculation of Performance Data
Item 22. Financial Statements
Part C: OTHER INFORMATION
Item 23. Exhibits
Item 24. Persons Controlled by/or Under
Common Control with the Fund
Item 25. Indemnification Indemnification
Item 26. Business & Other Connections of Activities of Investment Adviser
the Investment Adviser
Item 27. Principal Underwriters Principal Underwriter
Item 28. Location of Accounts & Records Location of Accounts & Records
Item 29. Management Services Not Applicable
Item 30. Undertakings Not Applicable
MATTHEW 25 FUND, INC.
605 Cloverly Avenue
Jenkintown, PA 19046
888-M25-FUND
215-884-4458
PROSPECTUS April 25, 2000
The Fund and Its Investment Objective
Matthew 25 Fund, Inc.("the Fund") is an open-ended, non-diversified, investment
company that seeks long-term capital appreciation through investments in common
stocks and/or securities convertible into common stocks. Income, through
dividends or interest, will be a secondary objective.
It is important to note that the Fund's shares are not guaranteed or insured by
the FDIC or any other agency of the U.S. government. As with any investment in
common stocks, which are subject to wide fluctuations in market value, you could
lose money by investing in the Fund.
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.
TABLE OF CONTENTS PAGE
The Fund and its investment objective 1
The Fund's investment strategy 1
Risks of the Fund 1
Who should invest? 1
Who should not invest? 2
Yearly returns 2
Fund expenses 2
Additional information about investment strategies
and risk considerations 3
Non-diversification policy 3
Additional investment restrictions 4
Management 4
Investment adviser 5
Officers and directors of the Fund 6
Legal proceedings 6
Capitalization 6
Voting rights 7
Pricing of shares 7
Purchase of shares and reinvestment 7
Initial investment 7
Subsequent purchase 7
Reinvestment 7
Fractional shares 7
Individual Retirement Accounts IRA's 8
Pension, Profit-Sharing, 401-k plans 8
Redemption of shares 8
Tax status 9
Portfolio turnover policy 9
Financial highlights 10
Annual and special meetings 10
Reports to shareholders 11
Custodian and transfer agent 11
IRA trustee 11
Independent auditors 11
Application 12
Form W-9 13
THE FUND AND ITS INVESTMENT OBJECTIVE
Matthew 25 Fund, Inc.("the Fund") seeks long-term capital appreciation, through
investments in common stocks and/or securities convertible into common stocks.
Income, through dividends or interest, will be a secondary objective.
THE FUND'S INVESTMENT STRATEGY
The Fund blends Growth and Value Investing in its securities selection process.
The Fund's adviser places great emphasis on valuing a business, which then leads
to calculating a value for the company's securities. This information is then
utilized, when buying or selling stocks, in order to increase the potential
returns or to reduce the risk of price declines of the Fund's investments.
The four categories that the investment adviser evaluates in order to value a
company and its securities, are as follows:
Business Economics (Industry and Business Practices)
Management Abilities
Financial Condition
Stock Price.
The Adviser believes that you make the most money by investing with the
exceptional; accordingly, the adviser's search is for securities possessing the
best combinations of a desirable business, with outstanding management and clean
financials (low debt and sufficient working capital), and a market price that
the adviser deems to be at or below its fair value. It is important to note
that all of these categories change, albeit at different speeds. An attractive
business is created over a long period and when such a business declines it will
usually deteriorate slowly. Outstanding managers can provide many decades of
leadership but may be gone tomorrow. Financial status should only improve over
time with the right management and a good business. The most dynamic factor is
price. The adviser believes that you can overpay, by some margin, for a great
business because time will work in your favor; allowing you to earn high returns
on your purchase as the fair value of your stock grows as the company grows. It
is also the belief of the adviser that even a mediocre business at a cheap
enough price can provide above average returns, although, the adviser does not
like the "buy low and sell high" adage as much as "buy low and let it grow".
The Fund is willing to invest in the securities of companies with small, medium
or large capitalization. In other words, the Fund is open to a large universe
of public companies so that it may find stocks with the exceptional traits that
the Fund desires. Whenever the adviser finds such an investment, the adviser
may purchase this stock or its convertible securities with up to 25% of the
Fund's total assets. The Fund's willingness to place a large percentage of its
assets in a single stock does distinguish it from most other funds.
RISKS OF THE FUND
The Fund's return, as stock prices generally, may fluctuate within a wide range,
so that an investor could lose money. Because the Fund invests a higher
percentage of assets in fewer holdings than the average stock fund does, the
Fund is subject to the risk of a price decline or loss due to a change in value
of one, or a few of its stockholdings. An additional risk will be from the
Fund's investments in small and medium capitalization (cap) stocks. Generally,
these stocks have higher risks of business failure, lesser liquidity and greater
volatility in market price. Due to these factors small and medium cap stocks
have greater possibility of price decline or loss as compared to large cap
stocks. Since the Fund may hold small, medium and large cap stocks it is
riskier than a fund which holds only large cap stocks.
WHO SHOULD INVEST? Investors who are seeking potential long-term appreciation
and are willing to own stocks, in a portfolio, selected and managed by the
Fund's investment adviser. Long-term, as determined by management and the
1
investment adviser, is at least three years.
WHO SHOULD NOT INVEST? Investors not willing to accept the risks of owning
stocks in a managed portfolio. The Fund is not for investors seeking to trade
the stock market for short-term fluctuations.
BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the risks of
investing in the Matthew 25 Fund by showing changes in the Fund's performance
from year to year over a 4-year period and by showing how the Fund's average
and annual returns for one through four years compare to those of a broad-based
securities market index. How the Fund has performed in the past is not
necessarily an indication of how the Fund will perform in the future.
50%
45%
40% 40%
35% XX
30% XX
25% XX 26%
20% 19% XX XX
15% XX XX XX
10% XX XX XX
5% XX XX XX 1%
0% XX XX XX XX
- - 5%
- -10%
1996 1997 1998 1999
During the 4-year period shown in the bar chart the highest return for a quarter
was 22.59% while the worst return for a quarter was -11.67%. These returns
occurred in quarters ending December 31, 1998 and September 30, 1998,
respectively.
Annual Total Returns for Each Year Ending Past 3 Years
Average
12/31/96 12/31/97 12/31/98 12/31/99 Annual Returns
Matthew 25 Fund 18.63% 39.65% 25.93% 1.08% 21.32%
Value Line Index* 19.78% 28.45% 5.82% 10.56% 16.15%
*The Value Line Index is an unmanaged index of 1,617 common stock prices.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) imposed on Reinvested Dividends None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
IRA Trustee Fees** None
2
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Management Fees (before fee waiver)* 1.00%
Distribution [and/or Service](12b-1) Fees None
Other Expenses 0.26%
Total Annual Fund Operating Expenses (before fee waiver)* 1.26%
*
After a fee waiver, the actual Total Annual Fund Operating Expenses were 1.22%.
Matthew 25 Management Corp., the Investment Adviser, voluntarily waived $7,541
of its Management Fees for 1999. Actual Management fees were 0.97%.
**
Each IRA with account value of $5,000 or more will not be charged IRA Trustee
Fees. IRA's with less than $5,000 may be charged $45 annually for IRA Trustee
Fees on the discretion of the Fund's Management or Directors.
Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assures you that your investment has a 5% return each year and
that the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years
$ 128 $ 400 $ 691 $1,523
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES
AND RISK CONSIDERATIONS
There is no guarantee that the adviser's valuations are accurate. Even when a
stock is purchased below its perceived fair value, there may be unforeseen
changes in the business that may lead to a decline in value for the stock.
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 political,
economic, or regulatory occurrence. The policy of the Fund, in the hope of
achieving its objective as stated above, is one of selective investments rather
than broad diversification. The Fund seeks only enough diversification for
adequate representation among what it considers being the most attractive
securities and to maintain its federal non-taxable status under Sub-Chapter M of
the Internal Revenue Code (see Tax Status).
Foreign securities: While the fund normally invests in dometsic companies, it
may also invest in stock of foreign comapnies. The Fund will usually limit its
foreign investments to foreign companies that trade on U.S. exchanges or over
the counter markets. Such companies will comply and register with the U.S.
Securities and Exchange Commission. There still may be less public information
about a foreign company and the adviser may not be able to understand the
company as well as a domestic company due to language and cultural barriers.
Investments may have added risks due to currency rates, expropriation,
confiscating taxes, or political instability.
Defensive positions: Occasionally the Fund may take temporary defensive
positions that would include all types of U.S. government obligations, and money
market funds. Such a strategy would be in response to adverse market conditions
or an inability to find securities that satisfy the adviser's price and quality
3
standards. The Fund may not achieve its investment objective of long-term
capital appreciation, whenever it is holding such defensive positions. Not only
will such investments reduce the appreciation potential of the Fund, it will
also increase the Fund's taxable income. These securities are generally not
subject to credit risk but may be subject to interest rate and time risk.
Medium and long-term bonds that have fixed interest and principal payments
will decline in price if interest rates for the same maturities rise.
The Fund may invest in special situations, such as the fixed income securities
of a company in default. These securities would include secured or unsecured
bonds, and preferred stocks. These defaults occur when a company misses a
payment on its fixed income securities and may be under protection of Chapter 11
bankruptcy proceedings. Such investments, when made, are consistent with the
Fund's goal of long-term capital appreciation, and satisfy the adviser's
criteria of market price sufficiently below estimated fair value. Such
investments should be seen as an equity substitute and not as a standard fixed
income investment, since the bondholders or preferred stockholders may
eventually receive stock in a reorganization. These securities are considered
more risky than investments in companies with higher credit ratings, and may be
less liquid. The adviser will select defaulted stocks and bonds of companies he
believes will survive, and successfully restructure its defaulted securities, so
that the value of these fixed income securities may increase in price as a
result of such restructuring. Further deterioration in the operating business
of the company in default or an incorrect valuation by the adviser may lead to
a loss of money for these special situation investments.
ADDITIONAL 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
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
securities 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
merger, consolidation, or purchase of assets approved by the Fund's
shareholders.
(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 that deal in real
estate or interests therein.
(g) Make loans. The purchase of a portion of a readily marketable issue of
publicly 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
officers and directors of the Fund or its Investment Adviser owning
individually more than 1/2 of 1% of any classes of security or collectively
own more than 5% of such classes of securities of such issuer.
4
(k) Pledge, mortgage or hypothecate any of its assets.
(l) Invest in securities which may be subject to registration under the
Securities 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.
MANAGEMENT
INVESTMENT ADVISER
Matthew 25 Management Corporation
605 Cloverly Avenue
Jenkintown, PA 19046
The Matthew 25 Management Corp. is the Investment Adviser to the Fund and has
continued this service since July 8, 1996. Mr. Mark Mulholland is the sole
owner, director and officer of the Investment Adviser as well as serving as
the president of the Fund. As president of the investment advisor he has direct
responsibility for day-to-day management of the Fund's investment portfolio.
Mark Mulholland has a BA in Economics from Lafayette College. He has worked
as a stockbroker, continuously, since February 14, 1983. Presently, he is a
stockbroker and Senior Vice President with Boenning & Scattergood.
The current advisory agreement will continue on a year to year basis provided
that approval is voted at least annually by the Fund's Board of Directors or by
majority vote of the outstanding voting securities of the Fund, but in either
event, it must also be approved by a majority of the Fund's directors who are
neither parties to the agreement nor interested persons as defined in the
Investment Company Act of 1940. Under the Agreement, the Matthew 25 Management
Corp., the Adviser, will have full discretion and responsibility for the
investment decisions in the Fund. The Agreement may be terminated at any time,
without 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
assignment, the Agreement will terminate automatically. For these services the
Fund has agreed to pay to Matthew 25 Management Corp. a fee of 1% per year on
the average net assets of the Fund. All fees are computed and accrued on the
average daily closing net asset value of the Fund and are payable monthly. The
Investment Adviser would forgo sufficient fees to hold the total expenses of the
Fund to less than 2% of the first $10 million in averaged assets and 1.5% of the
next $20 million.
Pursuant to its contract with the Fund, the investment adviser is required to
pay all costs of travel and materials required in its research; this is in order
that the adviser may fulfill its duty to buy, sell and hold securities, that the
adviser deems to best satisfy the Fund's investment requirements. The adviser
is to pay the salaries of the Fund's officers, directors or employees who are
employees of the investment adviser. The Fund pays the following expenses, if
any:
.directors' fees
.legal
.accounting fees
.interest
.taxes
.brokerage commissions
.bookkeeping and record maintenance
5
.operating its offices
.transfer agent fees
.custodian fees
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 4/06/00 of class
Steven D. Buck* 40 Partner Stevens & Lee 8,704.641 0.35%
Esq. (Director) Reading, PA
Philip J. Cinelli 40 Physician Family Practice 9,359.660 0.38%
D.O. (Director) Bangor, PA
Samuel B. Clement 41 Stockbroker 2,445.459 0.09%
(Director) Securities America
Berwyn, PA
Linda Guendelsberger 40 Partner Fishbein & Co P.C. 7,107.724 0.28%
CPA (Director) Elkins Park, PA
Ann Mulholland 41 Treasurer Matthew 25 Fund 116,333.998 ** 4.73%
CPA Jenkintown, PA
Mark Mulholland* 40 President Matthew 25 Fund 116,333.998 ** 4.73%
(Director) Stockbroker(Boenning &
Scattergood, Paine Webber)
Jenkintown, PA
Scott A. Satell 37 Principal BPI 5,515.414 0.22%
(Director) Bala Cynwyd, PA
* Directors of the Fund who would be considered "interested persons" as defined
by the Investment Company Act of 1940. Mark Mulholland is an interested person
insofar as he is President and owner of the Fund's Investment Adviser. Mr. Buck
is not an independent director as long as he or his law firm provides legal
advice to the Fund for compensation. Fees paid to his firm in 1999 were $1,584.
** Mark & Ann Mulholland own 108,133.035 shares jointly, 1,698.339 in custodial
accounts for their children, 740.010 in Ann's IRA, and 5,762.614 in Mark's IRA.
LEGAL PROCEEDINGS
As of the date of this prospectus, there was no pending or threatened litigation
involving the Fund in any capacity whatsoever.
CAPITALIZATION
Description of Common Stock: The authorized capitalization of the Fund consists
of 100,000,000 shares of common stock. The par value per share is set at $0.01
and each share has equal dividend, distribution and liquidation rights. There
are no conversion or pre-emptive rights applicable to any shares of the Fund.
All shares issued are fully paid and non-accessible.
6
Voting Rights: Each holder of the Fund's common stock 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 common 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.
PRICING OF SHARES
The Net Asset Value of the Fund's shares is determined as of the close of
business of the New York Stock Exchange ("NYSE") for each business day of which
the NYSE is open (presently 4:00 PM Monday through Friday). This, of course, is
exclusive of any and all legal holidays the NYSE so honors by being closed for
the day. The price is determined by dividing the market values of its
securities, plus any cash and other assets, less all liabilities excluding par
and surplus capital, by the number of shares outstanding. The market values,
for securities listed on a national or regional exchange or on the National
Association of Securities Dealers Automated Quotation (NASDAQ) market, are
determined by the closing prices on the securites' primary market. Exchange or
NASDAQ securities that have not recently traded are valued at the last bid price
in the securities' primary market. Short-term paper (debt obligations that
mature in less than a year) are valued at amortized cost that approximates
market value. The Fund may use fair value pricing only when market prices are
unavailable.
PURCHASE OF SHARES AND REINVESTMENTS
The offering price of the shares offered by the Fund is at the Net Asset Value
per share ("NAV") next determined after receipt of the purchase order, by the
Fund. 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
purchase applications when, in the judgment of 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 with a check, money order or transfer wire
made payable to the Matthew 25 Fund. For the convenience of investors, a Share
Purchase Application form is provided with this Prospectus, as well as Form W-9.
A signed Form W-9 is necessary to avoid mandatory withholding of Federal Taxes
from dividends, distributions and redemptions. The minimum initial purchase, of
shares, is $1,000; less may be accepted under especial circumstances. The Fund
is registered in California, New Jersey, New York and Pennsylvania and therefore
is restricted to residents of these states at the time of purchase. There will
be no solicitation of other states' residents as potential shareholders until
registration under the Blue Sky or Notification Laws of such states 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 and
capital gain distributions. Reinvestment, for the shareholder, will be at net
asset value on the close of business on the distribution date. A Shareholder
may at any time, by letter or forms supplied by the Fund, direct the Fund to
pay the dividends and/or capital gains distributions to the shareholder in cash.
Fractional Shares: Shares will be issued up to three decimal places. The fund
will maintain an account for each shareholder, of shares for which certificates
have not been issued.
7
INDIVIDUAL RETIREMENT ACCOUNTS
You may purchase shares for an individual retirement accounts ("IRA") including
Roth IRA's, SEP's, and Simple IRA's. IRA investments are available for the
following:
.Regular contributions
.Rollover of certain employer sponsored pension and profit-sharing plan
distributions.
.Transfers from other IRA's
All assets are automatically invested in Fund shares, including all dividends
and distributions paid on Fund shares within an IRA. There is an annual fee of
$45.00 charged by the IRA Trustee, Delaware Charter Guarantee and Trust Co.
The Fund will pay the annual fee for accounts with a value of at least $5,000.
Accounts below $5,000 in market value may be charged the $45.00 fee. This
will be decided on an annual basis by the Fund's President or Directors. When
the Fund pays the annual fees it will be part of the IRA expenses for the Fund.
If the fees are charged to the IRA owners then the owner will have the option of
paying the fee directly or have the fee charged to their IRA. There is a
closing fee of $60.00 charged by Delaware Charter Guarantee & Trust Co. for the
complete withdrawal of an IRA.
PENSION, PROFIT SHARING AND 401-K PLANS
Purchases of Fund shares through a business' retirement plans are available to
the owners, officers and employees who participate in the retirement plans. The
accounts will be registered under the name and tax identification of the
pension, profit sharing and/or 401K plans.
REDEMPTION OF SHARES
The Fund will redeem all, or any part, of the shares for any shareholder who
tenders a request for redemption, if the shares are held at the Fund. If share
certificates have been issued, then the written notice of redemption must be
accompanied with certificates that have been properly signed. In either
case, proper endorsements guaranteed either by a national bank or a member firm
of the New York Stock Exchange will be required, for withdrawals over $10,000,
unless the shareholder is known by management. The redemption price is the net
asset value per share next determined after the redemption notice is received by
the Fund. 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 four business days after
tender. The Fund may suspend the right of redemption or postpone the date of
payment for the following reasons:
.The New York Stock Exchange is closed for other than customary weekend
or holiday closings.
.Trading on the New York Stock Exchange is restricted as determined by
the Securities and Exchange Commission or other authority.
.The Securities and Exchange Commission or other authority has
determined that an emergency exists making disposal of the fund's
securities or valuation of net assets not practicable.
.Other extraordinary events which may restrict the Fund from selling its
securities or distributing its liquid assets.
The Fund intends to make payments in cash, however, the Fund reserves the right
to make payments in kind.
8
TAX STATUS
Under provisions of the Internal Revenue Code of 1986 as amended, the Fund, by
paying out substantially all of its investment income and realized 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 Internal Revenue Code, at least 90% of the Fund's
income must be derived from dividends, interest and gains from securities
transactions, 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 this year
will be taxable to the shareholder as long-term capital gains, regardless of the
length of time Fund shares have been held. 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
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
dividends 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 tax Form W-9 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.
Portfolio Turnover Policy: The Fund does not propose to purchase securities for
short-term trading in the ordinary course of operations. Accordingly, it is
expected 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
securities within the period by the average monthly portfolio value of the Fund
during such period. There may be times when management deems it advisable to
substantially alter the composition of the portfolio, in which event, the
portfolio turnover rate may substantially exceed 50%; this would only result
from special circumstances and not from the Fund's normal operations.
9
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 4 years plus the 76 days the Fund operated in
1995. Certain information reflects financial results for a single Fund share.
The total returns in the table represent the rate that an investor would have
earned [or lost] on an investment in the Fund (assuming reinvestment of all
dividends & distributions). This Information has been audited by Mathieson
Aiken Jemison, LLP, whose report along with the Fund's financial statements,
are included in [the SAI or Annual Report], which is available upon request.
Period
beginning
December 31, 10/16/95
______________________________________ & ending
1999 1998 1997 1996 12/31/95
Net asset value, beginning
of period $ 10.49 $ 8.50 $ 6.11 $ 5.16 $ 5.00
Income from investment
operations
Net investment income (loss) (0.03) (0.02) 0.01 0.01 (0.01)
Net gains on securities both
realized and unrealized 0.15 2.22 2.41 0.95 0.17
_______ ________ ________ ________ _______
Total from investment
operations 10.61 10.70 8.53 6.12 5.16
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% 3.2%*
Net assets, end of period
(000's Omitted) $ 25,402 $ 21,328 $ 10,579 $ 1,421 $ 106
Ratio of expenses
to average net assets 1.22% 1.26% 1.26% 1.34% 2.00%**
Ratio of net investment
income to average
net assets (0.24)% (0.25)% 0.31% 0.44% 0.96%**
Portfolio turnover rate 17.88% 30.64% 9.89% 2.52% N/A
* Total return is not annualized
** Annualized
N/A - disclosure not applicable to prior period
ANNUAL AND SPECIAL MEETINGS
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. Notification as to the time and place for the annual
meeting will be sent to shareholders. The Directors are in turn responsible for
determining that the Fund operates in accordance with its stated objectives,
policies, and investment restrictions. The Board appoints officers to run the
Fund and selects an Investment Adviser to provide investment advice (See
Investment Adviser). It meets four times a year to review Fund progress and
status. In addition, an independent director performs an independent audit
whenever the board requests one. The board may call a special meeting in order
to allow shareholders to vote upon a pertinent matter.
10
REPORTS TO SHAREHOLDERS
The Fund sends, to all shareholders, annual reports containing audited financial
statements after the end of the fiscal year, December 31st; financial statements
that are not audited are sent after June 30th. The Fund will also send account
statements to each shareholder at least quarterly.
CUSTODIAN & TRANSFER AGENT
The Fund acts as its own custodian and transfer agent.
IRA TRUSTEE
Delaware Charter Guarantee & Trust Co.
P.O. Box 8963
Wilmington, DE 19899
INDEPENDENT AUDITORS
Mathieson Aitken Jemison, LLP
16 Sentry Park West, Suite 310
Blue Bell, PA 19422
MATTHEW 25 FUND SHARE PURCHASE APPLICATION
A) Please fill out one of the following four types of accounts:
1) Individual Accounts and IRA's ****
_________________ __ _______________________ _________________ __________
First Name MI Last Name Social Security # Birth date
2) Joint Accounts ****
_________________ __ _______________________ _________________ __________
First Name MI Last Name Social Security # Birth date
_________________ __ _______________________ _________________ __________
First Name MI Last Name Social Security # Birth date
3) Custodial Accounts ****
______________________ __ ______________________
Custodian's First Name MI Custodian's Last Name
__________________ __ ______________________ _________________ __________
Minor's First Name MI Minor's Last Name Social Security # Birth date
of Minor
4) All Other Accounts ****
______________________________________________________ ____________________
Account Title Tax Identification #
_____________________________________________________________________________
(This line is for Account Title if additional space is necessary.)
B) Biographical and other information about the new account:
Full Address:
Number & Street ____________________________________________________________
City_______________________________ State______ Zip Code__________________
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)
12
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 penalty of perjury, I certify that the information
provided on this form is true, correct and complete.
Signature ___________________________________ Date _______________________
13
PROSPECTUS
MATTHEW 25 FUND INC.
605 Cloverly Ave.
JENKINTOWN, PA 19046
888-M25-FUND
215-884-4458
May 27, 1999
Why You Should Read This Prospectus and How to Obtain Additional Information?
This Prospectus should be held for future reference. It is provided in order
to help you decide if the Fund is the proper investment for you. The risks,
objectives and strategy of the Matthew 25 Fund are explained within this
prospectus. Additional information about the Fund (including the Statement of
Additional Information) can be reviewed and copied at the Commission's Public
Reference Room in Washington, D.C. Information on the operation of the public
reference room may be obtained by calling the Commission at 1-800-SEC-6009.
Reports and other information about the Fund are available on the Commission's
Internet site at http://www.sec.gov and copies of this information may be
obtained, upon payment of a duplicating fee, by writing the Public Reference
Section of the Commission, Washington, D.C. 20549-6009. You may also obtain
additional information about the Fund by calling or writing the Fund at the
address or phone numbers provided at the top of this page.
INVESTMENT ADVISER
MATTHEW 25 MANAGEMENT, CORP.
605 Cloverly Avenue
Jenkintown, PA 19046
888-M25-FUND
215-884-4458
SEC File Number for the Matthew 25 Fund is 811-07471
Part B
STATEMENT OF ADDITIONAL INFORMATION
April 25, 2000
This Statement is not a prospectus, but should be read in conjunction with the
Fund's current prospectus dated April 25, 2000. To obtain the Prospectus,
please write or call the Fund. The address and phone numbers are shown above.
TABLE OF CONTENTS
Fund History.........................................................2
Description of the Fund and Its Investments and Risks................2
Objective...........................................................2
Security Selection Criteria.........................................2
More on Risks of Specific Strategies of the Fund.....................2
(a)U.S. Government and Agency Bonds.................................2
(b)Special Situations...............................................3
(c)Foreign Securities...............................................3
General Risks of the Fund............................................3
Portfolio Turnover Policy...........................................4
Non-diversification Policy..........................................4
Additional Fund Policies.............................................4
Management of the Fund...............................................5
Compensation of Directors and Officers..............................5
Principal Holders of Shares..........................................6
Major Shareholders..................................................6
Management Ownership................................................6
Investment Adviser...................................................6
Advisory Fees.......................................................7
Brokerage............................................................7
Capitalization.......................................................8
Voting Rights.......................................................8
Purchase of Shares and Reinvestment..................................8
Initial Investment..................................................8
Subsequent Purchases................................................9
Reinvestment........................................................9
Fractional Shares...................................................9
Pricing of Shares....................................................9
Tax Status...........................................................9
IRA................................................................10
SEP IRA............................................................10
Roth IRA...........................................................10
Calculation of Performance Data.....................................10
Financial Statements................................................11
1
FUND HISTORY
MATTHEW 25 FUND, INC. (also referred to as the "Fund") was incorporated in
Pennsylvania on August 28, 1995. The initial seed money of $100,000 was
invested by Mark and Ann Mulholland on October 16, 1995. The Fund did not
accept investments from the public until October 1996 and has operated solely as
an Investment Company since inception. The Fund's registered office is in
Jenkintown, Pennsylvania; mail may be addressed as follows:
Matthew 25 Fund, Inc.
605 Cloverly Avenue
Jenkintown, PA 19046.
Mr. Mark Mulholland is president of the Fund. He has direct responsibility for
day to day management of the Fund and continued registration and compliance
with the Securities and Exchange Commission. Mark Mulholland has a BA in
Economics from Lafayette College. After college he became a stockbroker with
Advest Inc. on February 14, 1983. He moved to Paine Webber Inc. in 1988 where
he built his practice to manage over $80,000,000 in assets for about 800
clients. Mr. Mulholland desired to apply his investment expertise toward
managing a public no-load mutual fund, and to that end approached the management
of the Valley Forge Fund for advice and assistance. He desired to manage a fund
with an emphasis on the pursuit of long-term capital gains. With the assistance
of Bernard Klawans of the Valley Forge Fund, Mr. Mulholland formed the Matthew
25 Fund in 1995. The Fund initially used the Valley Forge Fund's Officers,
Board of Directors, Investment Adviser, with the intent to have Mr. Mulholland
utilize his Investment Adviser concern and select his own Board of Directors,
when he was prepared. On July 8, 1996, the first meeting of the Fund's
shareholders was held to permit Matthew 25 Management Corporation to begin its
duties as Adviser to the Matthew 25 Fund, Inc. and to install a new Board of
Directors to oversee operations. This was done with the complete cooperation
and support of all Valley Forge Fund associated personnel. Mr. Klawans and
the Valley Forge Board of Directors were compensated for their services. There
are no other financial arrangements or benefits, including services and/or
"soft dollars", between the Valley Forge Fund and its representatives, and the
Matthew 25 Fund.
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
Objective: Matthew 25 Fund, Inc.("the Fund") is an open-ended, non-diversified,
investment company that seeks long-term capital appreciation, through
investments in common stocks and/or securities convertible into common stocks.
Income, through dividends or interest, will be a secondary objective.
Security Selection Criteria: Criteria used by the Adviser in recommending
purchases of securities will be based on the Business Economics, Management
Quality, Financial Condition and Security Price of each business.
MORE ON RISKS OF SPECIFIC STRATEGIES OF THE FUND:
(a) U.S. Government and Agency Bonds
The adviser does not intend to invest in U.S. government bonds on a regular
basis or for long periods of time. It does wish to have the authority to do so
as a defensive strategy. There may be times when the returns on such bonds may
be more attractive than the returns on money market or other short-term interest
accounts. Also, due to drastic price changes in the stock or bond markets, there
may be times the adviser would feel that the U.S. government or agency bonds
offer a better return potential and/or lower risk scenario than stocks. Besides
increasing the taxable income to the Fund's shareholders, there is historical
evidence that bonds provide lower total returns than stocks over the long-term.
In addition, there have been periods in the past, and very likely will be in the
future, when the U.S. government and its agency's bonds have generated negative
total rates of return. Therefore, in the event that the Fund uses such an
investment strategy, it will likely be used for a short or intermediate period.
2
(b) Special Situation Investments
The Fund may invest in special situations, such as the fixed income securities
of a company in default. These securities would include secured or unsecured
bonds, and preferred stocks. These defaults occur when a company misses a
payment on its fixed income securities and may be under protection of Chapter 11
bankruptcy proceedings. Such investments, when made, are consistent with the
Fund's goal of long-term capital appreciation, and satisfy the adviser's
criteria of market price sufficiently below estimated fair value. Such
investments should be seen as an equity substitute and not as a standard fixed
income investment. These securities are considered more risky than investments
in companies with higher credit ratings, and may be less liquid. The adviser
will select defaulted stocks and bonds of companies he believes will survive,
and successfully restructure its defaulted securities, so that the value of
these fixed income securities may increase in price as a result of such
restructuring. Further deterioration in the operating business of the company
in default or an incorrect valuation by the adviser may lead to a loss of money
for these special situation investments.
The securities of company's in default appear to be very risky, however, its
securities may offer very low long-term price risk, with high reward potential.
An example would be a viable operating company, with too much debt so that it is
forced to file for Chapter 11 Protection in order to restructure its excessive
debt load. Through its research, the adviser feels the debt will only receive 10
cents on the dollar, however, some of its debt, in the form of public bonds,
trades at 2-5 cents on the dollar. Depending on the confidence of its analysis
and its estimation of the length of time for reorganization, the adviser may
wish to invest in the defaulted bonds. Such special situation investments may
have large spreads in the buy and sell price of its securities due to low
liquidity and thus, may be more expensive to trade than a more liquid security.
These investments are made for a specific price target, therefore, if achieved,
will be sold, increasing the portfolio turnover. This turnover may increase the
fund's costs due to the costs of selling, and potential taxes for the Fund's
shareholders. There is greater time risk in these securities because the upside
values are usually limited, to face value or less, therefore the rate of return
declines the longer it takes for restructuring or receipt of back payments.
(c) Foreign securities
The Fund will usually limit its foreign investments to foreign companies that
trade on U.S. exchanges or over the counter markets. Such companies will comply
and register with the U.S. Securities and Exchange Commission. There still may
be less public information about a foreign company and the adviser may not be
able to understand the company as well as a domestic company due to language and
cultural barriers. Investments may have added risks due to currency rates,
expropriation, confiscating taxes, or political instability.
GENERAL RISKS OF THE FUND:
The Fund's return, as stock prices generally, may fluctuate within a wide range,
so that an investor could lose money over a period of time. Since the Fund
invests a higher percentage of assets in fewer holdings than the average stock
fund does, the Fund is subject to the risk of underperformance, due to weakness
in one or a few of its stocks.
Risks associated with the Fund's performance will be those due to broad market
declines and business risks from difficulties which occur to particular
companies 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.
3
Portfolio Turnover Policy: The Fund does not propose to purchase securities for
short-term trading in the ordinary course of operations. Accordingly, it is
expected 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
securities 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
substantially alter the composition of the portfolio, in which event, the
portfolio turnover rate might substantially exceed 50%; this would only result
from special 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,
political, or regulatory occurrence. The policy of the Fund, in the hope of
achieving 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 being the
best performing securities and to maintain its federal non-taxable status under
Sub-Chapter M of the Internal Revenue Code.
ADDITIONAL FUND POLICIES
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
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
securities 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
merger, consolidation, or purchase of assets approved by the Fund's
shareholders.
(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 that deal in real
estate or interests therein.
(g) Make loans. The purchase of a portion of a readily marketable issue of
publicly 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
officers and directors of the Fund or its Investment Adviser owning
individually more than 1/2 of 1% of any classes 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
Securities 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
4
time of purchase, in securities of companies with less than three years'
continuous operation, including the operations of any predecessor.
(n) Issue senior securities.
MANAGEMENT OF THE FUND
Officers and Directors of the Fund: The following list shows the officers and
directors with their ages, addresses, positions at the Fund, principal
occupations during the past five years, and their compensation from the Fund:
Principal Occupation Compensation &
Name Age Past Five Years Director's Fees
Steven D. Buck* 40 Partner Stevens & Lee $ 2,000.00
Esq. (Director) Philadelphia, PA
Philip J. Cinelli 40 Physician Family Practice $ 2,000.00
D.O. (Director) Bangor, PA
Samuel B. Clement 41 Stockbroker Securities America $ 2,000.00
(Director) Berwyn, PA
Stockbroker Legg Mason
Bryn Mawr, PA
Linda Guendelsberger 40 Partner Fishbein & Co P.C. $ 2,000.00
CPA (Director) Elkins Park, PA
Ann Mulholland 41 Treasurer Matthew 25 Fund $ 0.00
CPA Jenkintown, PA
Mark Mulholland* 40 President Matthew 25 Fund $ 0.00
(Director) Stockbroker Boenning&Scattergood
Stockbroker PaineWebber
Jenkintown, PA
Scott A. Satell 37 Principal BPI $ 2,000.00
(Director) Bala Cynwyd, PA
* Directors of the Fund who would be considered "interested persons" as defined
by the Investment Company Act of 1940. Mark Mulholland is an interested person
insofar as he is President and owner of the Fund's Investment Adviser. Mr. Buck
is not an independent director as long as he or his law firm provides legal
advice to the Fund for compensation. Fees paid to his firm in 1999 were $1,584.
COMPENSATION OF DIRECTORS AND OFFICERS
Each director, except Mark Mulholland, was paid $2,000 in shares of the Matthew
25 Fund in 1999. The Fund intends to pay at least $2,000 to the directors in
shares of the Fund in 2000. The exact amount will be determined later. Mark
Mulholland will receive benefit from the investment advisory fees payable to
Matthew 25 Management Corp. and, therefore, will not be eligible to receive
directors' fees or salary as president as long as his firm acts as the
Investment Adviser.
PRINCIPAL HOLDERS OF SECURITIES
Major Shareholders: As of April 6, 2000, shareholders on record who own 5% or
more of the outstanding shares of the Fund are as follows:
Name Address Percentage ownership
Crawford Trust Collegeville, Pennsylvania 7.69%
R. Neff Radnor, Pennsylvania 25.17%
5
Management Ownership: Officers and directors of the Fund and their ownership of
the Fund, as of April 6, 2000, are as follows:
Fund Shares Percent
Name Owned 4/6/00 of class
Steven D. Buck* 8,704.641 0.35%
Esq. (Director)
Philip J. Cinelli 9,359.660 0.38%
D.O. (Director)
Samuel B. Clement 2,445.459 0.09%
(Director)
Linda Guendelsberger 7,107.724 0.28%
CPA (Director)
Ann Mulholland 116,333.998 ** 4.73%
CPA
Mark Mulholland* 116,333.998 ** 4.73%
(Director)
Scott A. Satell 5,515.414 0.22%
(Director)
* Directors of the Fund who would be considered "interested persons" as defined
by the Investment Company Act of 1940. Mark Mulholland is an interested person
insofar as he is President and owner of the Fund's Investment Adviser. Mr. Buck
is not an independent director as long as he or his law firm provide legal
advice to the Fund for compensation. Fees paid to his firm in 1999 were $1,584.
** Mark & Ann Mulholland own 108,133.035 shares jointly, 1,698.339 in custodial
accounts for their children, 740.010 in Ann's IRA, and 5,762.614 in Mark's IRA.
INVESTMENT ADVISER
Matthew 25 Management Corporation
605 Cloverly Avenue
Jenkintown, PA 19046
The Matthew 25 Management Corp. is the Investment Adviser to the Fund and has
continued this service since July 8, 1996. Mr. Mark Mulholland is the sole
owner, director and officer of the Investment Adviser as well as serving as
president of the Fund. As president of the investment advisor he has direct
responsibility for day-to-day management of the Fund's investment portfolio.
The current advisory agreement will continue on a year-to-year basis provided
that approval is voted at least annually by the Fund's Board of Directors or by
majority vote of the outstanding voting securities of the Fund, but in either
event; it must also be approved by a majority of the Fund's directors, who are
neither parties to the agreement, nor interested persons as defined in the
Investment Company Act of 1940. Under the Agreement, the Matthew 25 Management
Corp., the Adviser, will have full discretion and responsibility for the
investment decisions in the Fund. The Agreement may be terminated at any time,
without 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
assignment, the Agreement will terminate automatically. For these services the
6
Fund has agreed to pay to Matthew 25 Management Corp. a fee of 1% per year on
the average net assets of the Fund. All fees are computed and accrued on the
average daily closing net asset value of the Fund and are payable monthly. The
Investment Adviser would forgo sufficient fees to hold the total expenses of the
Fund to less than 2% of the first $10 million in averaged assets and 1.5% of the
next $20 million. The Board of Directors selected these ratios because they are
believed to meet the most restrictive state requirements.
Pursuant to its contract with the Fund, the investment adviser is required to
pay all costs of travel and materials required in its research; this is in order
that the adviser may fulfill its duty to buy, sell and hold securities, that the
adviser deems to best satisfy the Fund's investment requirements. The adviser
is to pay the salaries of the Fund's officers, directors or employees who are
employees of the investment adviser. The Fund pays the following expenses, if
any:
.directors' fees
.legal
.accounting fees
.interest
.taxes
.brokerage commissions
.bookkeeping and record maintenance
.operating its offices
.transfer agent fees
.custodian fees
Advisory Fees: The advisory fees to the current adviser, for the last three
years, are as follows:
YEAR ADVISORY FEE AMOUNT WAIVED NET ADVISORY FEE
1996 $ 3,840 $ 3,840 $ 0
1997 $ 59,845 $ 19,543 $ 40,302
1998 $156,612 $ 9,615 $146,997
1999 $234,921 $ 7,541 $227,380
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
registered 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
commission is generated at a brokerage firm that 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
unreasonable. This review must be done at least quarterly. The Fund's
President may select other brokers whom 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 adviser expenses.
7
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.
Mark Mulholland is a stockbroker with Boenning&Scattergood, Inc. and has been
since July 8, 1996. The following table shows the commissions paid, by the
Fund, to Boenning&Scattergood:
YEAR BOENNING&SCATTERGOOD COMMISSIONS
1996 $ 9,909
1997 $ 20,494
1998 $ 27,520
1999 $ 16,302
CAPITALIZATION
Description of Common Stock: The authorized capitalization of the Fund consists
of 100,000,000 shares of common stock. The par value per share is set at $0.01
and each share has equal dividend, distribution and liquidation rights. There
are no conversion 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 the Fund's common stock 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 common 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.
PURCHASE OF SHARES AND REINVESTMENTS
The offering price of the shares offered by the Fund is at the Net Asset Value
per share ("NAV") next determined after receipt of the purchase order, by the
Fund. 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
purchase applications when, in the judgment of 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 with a check, money order or transfer wire
made payable to the Matthew 25 Fund. For the convenience of investors, a Share
Purchase Application form is provided with this Prospectus, as well as Form W-9.
A signed Form W-9 is necessary to avoid mandatory withholding of Federal Taxes
from dividends, distributions and redemptions. The minimum initial purchase, of
shares, is $1,000; less may be accepted under especial circumstances. The Fund
is registered in California, New Jersey, New York and Pennsylvania and therefore
is restricted to residents of these states at the time of purchase. There will
be no solicitation of other states' residents as potential shareholders until
registration under the Blue Sky or Notification Laws of such states 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 and
capital gain distributions. Reinvestment, for the shareholder, will be at net
asset value on the close of business on the distribution date. A Shareholder
may at any time, by letter or forms supplied by the Fund, direct the Fund to
pay the dividends and/or capital gains distributions to the shareholder in cash.
8
Fractional Shares: Shares will be issued up to three decimal places. The fund
will maintain an account for each shareholder, of shares for which certificates
have not been issued.
PRICING OF SHARES
The Net Asset Value of the Fund's shares is determined as of the close of
business of the New York Stock Exchange ("NYSE") for each business day of which
the NYSE is open (presently 4:00 PM Monday through Friday). This, of course, is
exclusive of any and all legal holidays the NYSE so honors by being closed for
the day. The price is determined by dividing the value of its securities, plus
any cash and other assets, less all liabilities excluding par and surplus
capital, by the number of shares outstanding. The market value, for securities
listed on a national or regional exchange or on the National Association of
Securities Dealers Automated Quotation market(NASDAQ), is determined by its
closing trade price on the securites' primary market. Exchange or NASDAQ
securities that have not recently traded are valued at the last bid price in
the securities' primary market. Short-term paper (debt obligations that mature
in less than a year) are valued at amortized cost that approximates market
value. The Fund may use fair value pricing only when market prices are
unavailable.
TAX STATUS
Under provisions of the Internal Revenue Code of 1986 as amended, the Fund,
by paying out substantially all of its investment income and realized 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 Internal Revenue Code, at least 90% of the Fund's
income must be derived from dividends, interest and gains from securities
transactions 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 this year
will be taxable to the shareholder as long-term capital gains, regardless of the
length of time Fund shares have been held. 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
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
dividends 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 tax Form W-9 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.
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
employer 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
deduction is also retained for individual taxpayers and married couples with
adjusted gross incomes within certain specified limits. All individuals may
make nondeductible IRA contributions to separate accounts to the extent that
they are not eligible for a deductible contribution.
9
Earnings within the IRA are reinvested and are tax-deferred until withdrawals
begin. The maximum annual contribution may be increased to $4,000 if you have
a spouse who earns no compensation during the taxable year. A separate and
independent 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 before age 59 1/2 without penalty.
Simplified Employee Pension: Employers may use the Fund to establish Simplified
Employee Pension (SEP) IRA's for each qualifying employee. Deductible
contributions may be made by the employer through a SEP IRA, which meets the
requirements of section 408(k) of the code. An employer may contribute up to
the lesser of 15% of your calendar year compensation or $22,500.
Roth IRA: Individuals may use the Fund for contributions to a Roth IRA.
Contributions to a Roth IRA are not deductible and are limited to the same
amounts allowable for regular IRA's. In addition there are income limitations
that must be met in order to contribute to a Roth IRA. However, all withdrawals
from a Roth IRA are not included in income if it is a "qualified distribution".
Qualified distributions are to be made no sooner than the fifth tax year after
the year the Roth IRA contribution is made, and the individual must be age 59.5,
or for the events of death, disability or first home purchase (maximum $10,000).
U.S. Treasury Regulations require a Disclosure Statement. This Statement
describes the general provisions of the IRA and is forwarded to all prospective
IRA's. The Fund will pay the setup fees charged by the trustee. There is an
annual fee of $45.00 charged by the IRA Trustee, Delaware Charter Guarantee and
Trust Co. The Fund will pay the annual fee for accounts with a value of at
least $5,000. Accounts below $5,000 in market value may be charged the $45.00
fee. This will be decided on an annual basis by the Fund's President or
Directors. When the Fund pays the annual fees it will be part of the IRA
expenses for the Fund. If the fees are charged to the IRA owners then the owner
will have the option of paying the fee directly or have the fee charged to their
IRA. All IRA's may be revoked within seven days of their establishment with no
penalty. There is a closing fee of $60.00 charged by Delaware Charter Guarantee
and Trust Company for the complete withdrawal of an IRA.
CALCULATION OF PERFORMANCE DATA
The Fund's average annual total returns are calculated using the following
formula: n
P(1+T) =ERV
WHERE:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or
10-year periods at the end of the 1-, 5-, or 10-
year periods (or fractional portion).
MATTHEW 25 FUND, INC.
605 Cloverly Ave.
Jenkintown, PA 19046
1-215-884-4458
1-888-M25-FUND
Dear Shareholders of Matthew 25 Fund, Inc.,
Thank you for reading this letter. Our Matthew 25 Fund's 1999
performance was a disappointment with a modest return of 1.08%. This brings our
average annual rate of return to 21.04%, since our fund's inception. Bernard
Baruch was given the following advice by the great boxer Bob Fitzsimmons, which
Baruch quoted the rest of his life. A fight is never definitely over until one
man is knocked out, "Fitzsimmons said. As long as you ain't that man, you have
a chance." In my research I try very hard to identify the risks of an
investment and to determine a reasonable value of a business and its securities.
This is to avoid a permanent loss of capital, which is the equivalent of being
"knocked out" in capitalism. Although some of our stocks declined in price this
year not one of these stocks should be permanently down. This is because
intrinsic value of these stocks remained stable or in the cases of Berkshire,
Freddie, Niagara, Polaris and Willow Grove (see below) actually increased last
year. In other words, our portfolio was selling at a greater discount to its
intrinsic value at year-end as compared to the previous year. The market will
recognize such improvement sooner or later and if it happens to be later then
the increase should be greater.
But what went wrong last year? The primary effect to our portfolio was
the government instituted interest rate increases and its negative influence on
the market values of our financial stocks. I purchased more of these financial
stocks because the prices were great, rates should eventually decline, and
because of the repeal of the Glass-Steagall Act, which could open mergers
between different financial industries.
The secondary effect was the astonishing performance of internet /
technology stocks. This phenomenon pulled money from the rest of the market as
many investors were seeking "lottery ticket" stocks. (These are the stocks that
with a little money invested you get a chance to become a millionaire.) Our
portfolio has three stocks that I see as beneficiaries of the internet; these
are AT&T, Intel and MCI Worldcom, which represented 23% of our portfolio at
year-end. Other investments that have indirect or secondary internet benefits
are Advanta, AMR, Disney, and Media One. These securities represented an
additional 12% of our portfolio. Only Intel outperformed during the year,
although, I am hopeful that the other stocks will participate in the economics
of the internet.
I am open to stock ideas for companies that have an internet /
technology exposure so please call me with suggestions. As with any stock I
would consider for our fund, the stocks recommended should be earning money and
should grade high on at least two of the four criteria that I use. These
criteria are explained in the following paragraphs.
The Schedule of Investments in Securities, within the financial
statements, will show you the stocks that we own through our fund. It also
shows the value of each stock and the profit or loss of this ownership from
purchase until year-end 1999. What it won't show you is why each stock is in
our fund. In the table below I will grade each company and provide some
insights on its value as an investment. In addition, I have added the stock's
percentage price change for the year. The four categories that I use to
evaluate a company are its Business, Management, Financial Condition, and Price.
The grades are the same as in academia, with an "A" for outstanding, a "B" for
very good, a "C" for average, a "D" for poor, and an "F" for failure. I will
even throw a "+" or "-" in, so as to further confuse you. As the Investment
adviser, my search is for the exceptional business, with outstanding managers,
without too much debt, and available at a good price. The businesses that best
satisfy these elusive criteria are as follows:
1999
Security Price Change Business Management Financial Price
Advanta +38% A A C A
(Advanta made great strides in developing its presence as a national provider
and servicer of sub-prime mortgages and small business credit cards. Advanta
has smart management, who have treated shareholders well. There is credit risk
being in the finance industry, however, its price is undervalued from many
measures, but most importantly it is a cheap growth stock. Ten percent of its
business credit cards were provided over the interenet. I believe this
investment will provide us a high return over the next five years.)
AMR +13% B B B+ A
(AMR is a fine airline that owns 83% of SABRE Group. SABRE will be spun off to
AMR shareholders. My intentions are to keep SABRE which will own 70% of the #1
internet travel business, Travelocity.com and Preview Travel. The separate
pieces should be worth more than the current AMR price and it should give us a
reasonably priced investment in a growing internet operation.)
1999
Security Price Change Business Management Financial Price
Berkshire
Hathaway -20% A A+ A A+
(Berkshire did poorly last year and continues to decline in this year. Still,
this company is run by the best business mind in the country, Warren Buffett.
His strategy, for the past few years, has been the acquisition of whole
companies. I believe this stock is a great buy and will prove to be a great
investment at these current prices.)
Commonwealth
Bancorp +7% B A B B+
(This bank bought back around 23% of its stock in 1999. I don't know of
another bank that has bought back as large a percentage of its stock in the past
three years. It should continue to improve its earnings and value over the next
few years.)
Disney -3% A+ B- B+ C
(Disney should be an outstanding business. It is probably selling below its
breakup value based on today's valuation for media assets. However, despite
management's creative ability, it is poorly run financially. The company is in
too many ventures and needs more focus. Return on capital has declined from
15.3% in 1995 to 5.5% in 1999. If improvement is not seen then I will sell on
price strength.)
Freddie
Mac -27% A+ B B A
(Earnings were up 28% this year, while the stock price declined by a similar
amount. Decline probably due to the Fed's raising of rates. Freddie should do
well when interest rates go lower. This is a unique, growing business at a
great price.)
Harris
Financial -44% C C B A
(Directors show no visible signs of issuing the remaining shares held in the
Mutual Holding company. This would make the bank fully public and allow large
stock buybacks, while management implements its strategy. I believe the mutual
holding structure is continued out of fear of an unfriendly takeover. Probably
will reduce our position.)
1999
Security Price Change Business Management Financial Price
Home
Depot +69% A+ A+ A D
(At around 74 times earnings, this stock is fully priced. Will probably sell
more of our holding. Everything is great except the price, which limits its
upside for next three years.)
Intel +39% A A+ A C
(Price momentum continuing this year with stock up 35% already. Will sell some
shares this year if price remains strong in order to bring position down to 10%
of portfolio.)
Lindsay +23% B A A C
(Lindsay is a maker of farm irrigation equipment. Company ran business
extremely well in difficult year for farm industry. Will add to when business
shows improvement.)
MBIA -19% A B A A+
(Should show good growth in earnings in 2000. Large inside buying by
management. High hopes this could be a big winner over next three years.)
Niagara
Mohawk -14% C C B A+
(Electric Utility business is changing for the better. Takeover and mergers are
increasing. The toughest work for Niagara has been done and now it should just
take time to receive its full value. I am expecting high returns from this
investment over the next three to five years.)
Polaris -7% A A A A
(Polaris is a manufacturer of snow mobiles, watercrafts, ATV's, and motorcycles.
Everything you could ask for in a company. Expect this stock to do very well.)
AT&T +1% B B B B
(Stock is undervalued. Issuing of tracking stocks should help valuation. Huge
bet on cable will make or break company.)
1999
Security Price Change Business Management Financial Price
Tokio Marine & Fire
Insurance -3% B C A A
(Japan Market turned around in 1999, but this stock did not. Selling in this
year.)
MCI
Worldcom +11% B+ A B+ B
(I sold around half of our stock early in 1999 because of its high PE ratio.
Earnings did improve this year and its stock price is lower, therefore, I have
started buying shares again. Growth, which is coming from data and internet
business, needs to be high in order to increase this stock's value.)
Willow Grove
Bancorp -14% C B+ B A
(Willow Grove is a well run mutual holdings savings bank. Forty-five percent of
its stock was sold to depositors in December of 1998. This stock is selling for
1/2 of its book value if it were to sell its remaining shares. Long-term offers
very high return potential. I intend to buy more shares.)
Wrigleys -7% A A A C
(Small holding of class B, high voting, stock. Stock is fully priced.)
Hopefully, these snippets of information about our stocks will help you
better understand our Matthew 25 Fund. I would like to close by telling you
that I am excited and optimistic about this market and our fund. This is a
dichotomous market. On one hand there has never been so many overpriced stocks
with the NASDAQ selling close to a 200 PE ratio (see Barron's 1/3/00), while
the larger part of the market is trading at very good prices with the VALUE
LINE INDEX selling at a 14.5 PE ratio (see Value Line Survey 12/31/99). As
long as I can find attractive businesses selling at great prices then I am
enthused.
Gratefully yours
and very enthused,
Mark Mulholland
President
Matthew 25 Fund, Inc.
INDEPENDENT AUDITORS' REPORT
AND
FINANCIAL STATEMENTS
Year Ended December 31, 1999
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.
3
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.
4
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
FORM N-1A
PART C - OTHER INFORMATION
Item 23. Financial Statements and Exhibits
(a) (1) Articles of Incorporation
(2) Articles of Amendment
(b) By-laws
(c) Instruments Defining Rights of Security Holders - None
(d) Investment Advisory Contracts
(e) Underwriting Contracts - None
(f) Bonus or Profit Sharing Contracts - None
(g) Custodian Contracts - None
(h) Other Material Contracts - None
(i) Legal Opiniion
(j) Other Opinions - None
(k) Omitted Financial Statements - None
(l) Initial Capital Agreements - None
(m) Rule 12b-1 Plan - None
(n) Financial Data Schedule
Item Number Item Description
6-03- Investments - costs $19,711,238
6-04-4 Investments $25,383,899
6-04-6 Receivables $ 19,030
6-04-8 Other assets $ 0
** Balancing amt. to total assets
6-04-9 Total assets $25,402,929
6-04- Accounts payable $ 0
6-04-13 Senior L/T debt
** Balancing amt. to tot. liab.
6-04-14 Total liabilities $ 0
6-04-16 Senior equity securities $ 0
6-04-16 Paid-in-capital common $19,728,984
6-04-16 No. of shares - current 2,408,390
6-04-16 No. of shares - prior 2,032,574
6-04-17(a) Accumulated undistributed net $ 0
** investment income(current)
** over distribution of net
** investment income 0.00%
6-04-17(b) Accumulated undistributed net $ 0
** realized gains (losses)
** over distribution of net
** realized gains 0.00%
6-04-17(c) Accumulated net unrealized $ 5,672,661
** appreciation (depreciation)
6-04-19 Net assets $25,401,645
6-07-1(a) Dividend income $ 220,967
6-07-1(b) Interest income $ 8,903
6-07-1(c) Other income
6-07-02 Expenses - net $ 287,190
6-07-06 Net investment income(loss) $ (57,320)
6-07-7(a) Realized gains(losses) on $ 198,979
** investments
6-07-7(b) Net increase(decrease) in $ 104,032
** appretiation(depreciation)
6-07-09 Net increase(decrease) in $ 245,691
** net assets resulting from
** operations
6-09-2 Net equalization charges
** and credits
1
6-09-3(a) Distributions from net $ 141,659
** investment income
6-09-3(b) Distributions from $ 0
** realized gains
6-09-3(c) Distributions from
** other sources
6-09-4(b) Number of shares sold 535,502
6-09-4(b) Number of shares redeemed 173,281
6-09-4(b) Number of shares issued - 13,595
** reinvestment
6-09-5 Total increase(decrease) 375,816
6-09-7 Accumulated undistributed
** net investment income(prior)
6-09-7(b) Accumulated undistributed
** net realized gains(prior)
** Overdistribution of net
** investment income(prior)
** Overdistribution of net
** realized gains(prior)
Form N-1A
3(a) NAV/share - beginning $ 10.49
3(a) Net investment income/share (.03)
3(a) Net realized & unrealized 0.15
** gain(loss)/share
3(a) Dividends/share - investment income 0
3(a) Distributions/share - realized gains (.06)
3(a) Per share returns of capital
** and other distributions
3(a) NAV/share - ending 10.55
3(a) Ratio of expenses to 1.22%
** average net assets
3(b) Average debt outstanding 0
3(b) Average debt outstanding/share 0%
(o) Rule 18f-3 Plan - None
All exhibits believed to be applicable to the Fund are incorporated by reference
to pre-effective Amendment No. 1 or one of the post-effective amendments of the
Registration Statement Under The Securities Act of 1933 and the Registration
Statement Under The Investment Company Act of 1940.
Item 24. Control Persons.
None.
Item 25. Indemnification.
The registrant provides $1,000,000 of Errors and Ommissions Liability
coverage for the officers and directors of the registrant. 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 indemnification 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 expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection 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 whether such
indemnification by it is against public policy as expressed in the Act
2
and will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser.
Mark Mulholland is the sole officer of the investment adviser. He is
also a Senior Vice President and a Registered Representative
(Stockbroker) for Boenning& Scattergood, Inc. The addresses are as
follows:
Matthew 25 Management Corporation
605 Cloverly Avenue
Jenkintown, PA 19046
Boenning&Scattergood, Inc.
4 Tower Bridge
200 Barr Harbor Drive #300
West Conshohocken, PA 19428
Item 27. Principal Underwriters.
None.
Item 28. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder are maintained in the physical possession of the
registrant at 605 Cloverly Avenue in Jenkintown, PA 19046.
Item 29. Management Services.
None.
Item 30. Undertakings.
None.
MATHIESON AITKEN JEMISON, LLP
Certified Public Accountants
16 Sentry Park West, Suite 310
Blue Bell, PA 19422-2240
(215)643-3900
FAX (215)643-4030
E-MAIL [email protected]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We consent to the inclusion by reference to Post Effective Amendment No. 8 on
form N-1A of Matthew 25 Fund, Inc. of our report dated January 25, 2000 on our
examination of the Financial Statements of such Company. We also consent to the
reference to our firm in such Registration Statement.
Mathieson Aitken Jemison, LLP
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, as of April 15, 1998.
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 4-25-00
Steven D. Buck Director 4-25-00
Philip J. Cinelli Director 4-25-00
Samuel B. Clement Director 4-25-00
Linda Guendelsberger Secretary and Director 4-25-00
Scott A. Satell Director 4-25-00
MATTHEW 25 FUND, INC.
