PROSPECTUS
March 15, 1996
THE MATTERHORN GROWTH FUND, INC.
301 Oxford Valley Road, Suite 802B, Yardley, PA. 19067
(Toll Free - 1-800-637-3901)
Price Quote Information
1-800-543-2875
A NO-LOAD FUND
Matterhorn Growth Fund, Inc. ("Fund") seeks long-term capital appreciation
for shareholders through investment in the securities, principally common
stocks, of a relatively few companies.
The Fund's expense ratio for the previous fiscal year is higher than that
realized by most investment companies. Shareholders should carefully consider
the effects of the Fund's expense ratio on an investment in Fund shares (see
"Summary of Expenses," page 3).
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know prior to investing. Investors are advised to
read this Prospectus and retain it for future reference. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information dated March 15, 1996 and is available
without charge upon request to the Fund at the address or telephone numbers
shown above. The Statement of Additional Information is hereby incorporated by
reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF EXPENSES.................................................... 3
FINANCIAL HIGHLIGHTS................................................... 4
THE MATTERHORN GROWTH FUND, INC........................................ 5
INVESTMENT OBJECTIVE AND POLICIES...................................... 5
RISK FACTORS........................................................... 5
Equity Securities ............................................... 5
Non-Diversified Status........................................... 6
Leverage......................................................... 6
Foreign Securities .............................................. 7
Over-the-Counter Securities ..................................... 7
Convertible Debentures and Warrants.............................. 7
"Restricted Securities" and Illiquid Assets...................... 7
Options.......................................................... 8
MANAGEMENT OF THE FUND................................................. 8
Investment Adviser............................................... 8
Administrator ................................................... 9
Co-Distributors.................................................. 9
Distribution Plan................................................ 10
PURCHASE OF SHARES..................................................... 10
By Mail.......................................................... 10
By Bank Wire..................................................... 11
Through Broker-Dealers........................................... 11
General.......................................................... 11
REDEMPTION OF SHARES................................................... 11
Redemptions by Mail.............................................. 11
Redemptions by Telephone, Telegram or Overseas Cable............. 12
General.......................................................... 12
SHAREHOLDER SERVICES................................................... 13
Transfer of Shares............................................... 13
Check-A-Matic Plan............................................... 13
Systematic Withdrawal Program.................................... 13
OPERATION OF THE FUND.................................................. 14
Net Asset Value.................................................. 14
Dividends, Distributions and Taxes............................... 14
Brokerage........................................................ 15
ADDITIONAL INFORMATION................................................. 15
Transfer and Shareholder Service Agent........................... 15
Custodian........................................................ 15
Accountants...................................................... 15
Reports.......................................................... 16
Retirement Plans................................................. 16
Capital Stock ................................................... 16
Performance Information ......................................... 16
Additional Information .......................................... 16
<PAGE>
SUMMARY OF EXPENSES
The following information is based on the expenses of the Fund for its
fiscal year ended June 30, 1995, restated to reflect the Fund's current expense
arrangement (see "Management of the Fund -- Expenses," page 8).
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of the offering price).......................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of the offering price).......................... None
Deferred Sales Load................................................ None
Redemption Fees.................................................... None
Annual Fund Operating Expenses
(as a percentage of average net assets)*
Management Fees.................................................... 1.00%
12b-1 Fees......................................................... 0.25%
Other Expenses..................................................... 2.75%
----
Total Fund Operating Expenses...................................... 4.00%
====
* Actual Total Fund Operating Expenses were 5.18% for the fiscal year
ended June 30, 1995. However, as of the date of this Prospectus the Fund
entered into certain new administrative agreements, as well as a new
investment advisory agreement which requires its investment adviser to
limit future annual Fund operating expenses, for the two-year period ended
March 15, 1998, to 4.0% of the Fund's average annual net assets. (See
"Management of the Fund," page 8.) The Fund estimates that actual total
Fund operating expenses will be 5% for the fiscal year ended June 30,
1996, and no greater than 4% for the fiscal year ended June 30, 1997.
Example
1 year 3 years 5 years 10 years
You would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return and
(2) redemption at the end of each
time period, or alternatively, no
redemption: $40 $122 $205 $421
This table is provided to assist the investor in understanding the various
costs and expenses that an investor in the Fund would bear, directly or
indirectly. The example given above should not be considered as a
representation of past or future expenses. Actual expenses may be greater
or less than those shown above. Similarly, the annual rate of return
assumed in the example is not an estimate or guarantee of future
investment performance.
FINANCIAL HIGHLIGHTS
The following financial highlights have been audited by McGladrey & Pullen,
LLP, independent accountants to the Fund, whose report thereon was unqualified.
The information should be read in conjunction with the financial statements and
notes thereto, which appear in the Fund's annual report to shareholders
incorporated by reference in the Fund's Statement of Additional Information.
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------------------------------------------------
1995 1994 1993* 1992* 1991* 1990* 1989* 1988*+ 1987+ 1986+
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share operating
performance (for a
share outstanding
throughout the year)
Net asset value,
beginning of year $ 5.87 $ 7.09 $ 6.30 $ 5.80 $ 5.63 $ 5.01 $ 4.09 $ 7.21 $ 6.42 $ 4.38
-------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (.17) (.17) (.04) (.07) (.06) (.02) (.10) (.26) (.73) (.52)
Net realized and unrealized
gain (loss) on investments 1.28 .71 1.77 .57 .23 .64 1.02 (2.86) 1.52 2.56
--------------------------------------------------------------------------------------
Total from investment
operations 1.11 .54 1.73 .50 .17 .62 .92 (3.12) .79 2.04
--------------------------------------------------------------------------------------
Less distributions:
Distribution from net
realized gains (.10) (1.76) (.94) -- -- -- -- -- -- --
--------------------------------------------------------------------------------------
Total distributions (.10) (1.76) (.94) -- -- -- -- -- -- --
--------------------------------------------------------------------------------------
Net asset value, end of year $ 6.88 $ 5.87 $ 7.09 $ 6.30 $ 5.80 $ 5.63 $ 5.01 $ 4.09 $ 7.21 $ 6.42
======================================================================================
Total return 19.32% 5.60% 28.89% 8.62% 3.02% 12.38% 22.49% (43.27%) 12.31% 46.58%
Ratios/supplemental data:
Net Assets, end of year
(000 omitted) $8,993 $8,201 $8,048 $4,430 $4,122 $4,407 $4,341 $4,128 $12,089 $12,883
Ratios to average net assets:
Expenses (excluding interest) 4.62% 4.87% 4.27% 5.17% 4.42% 4.17% 4.19% 3.39% 2.46% 2.41%
Interest expense .56 .14 .12 .16 -- .11 .49 2.49 2.89 3.70
--------------------------------------------------------------------------------------
Total expenses 5.18% 5.01% 4.39% 5.33% 4.42% 4.28% 4.68% 5.88% 5.35% 6.11%
======================================================================================
Net investment loss (2.50) (2.77) (.62) (1.11) (1.19) (.44) (2.13) (5.23) (4.88) (5.16)
======================================================================================
Portfolio turnover rate 72.11% 160.06% 167.27% 135.89% 87.02% 234.84% 237.54% 81.16% 97.67% 82.17%
======================================================================================
BANK LOANS
Amount outstanding at
end of year (000) $ 366 $ 27 $ -- $ -- $ -- $ -- $ 344 $ -- $5,902 $6,047
Average amount of bank loans
outstanding during the year
(monthly average) (000) $ 456 $ 44 $ 49 $ 54 $ -- $ 59 $ 153 $1,835 $4,769 $4,483
Average number of shares
outstanding during the year
(monthly average) (000) 1,369 1,268 773 662 758 853 912 1,215 1,842 2,198
Average amount of debt per
share during the year $ 0.33 $ 0.03 $ 0.06 $ 0.08 $ 0.00 $ 0.07 $ 0.17 $ 1.51 $ 2.59 $ 2.04
* Based on average month-end shares outstanding.
+ On September 27, 1988, the investment advisor changed, and MDB Asset
Management Corp. became the Fund's investment advisor.
</TABLE>
<PAGE>
THE MATTERHORN GROWTH FUND, INC.
The Fund is an open-end, non-diversified, management investment company,
incorporated on May 2, 1980 in the State of Maryland, and was formerly known as
The 44 Wall Street Equity Fund, Inc. The Fund's offices are located at 301
Oxford Valley Road, Suite 802B, Yardley, Pennsylvania 19067.
As an investment company, the Fund invests the monies received from the
sale of its stock in other securities. As an open-end investment company, the
Fund will pay any investor net asset value for the investor's shares upon demand
for redemption of such shares (see "REDEMPTION OF SHARES," page 11).
The Fund invests primarily in common stocks of U.S. corporations and in
securities having investment characteristics similar to common stocks (i.e.,
warrants and convertible debentures). However, the Fund may also engage in
transactions in exchange listed securities options and may invest up to 10% of
its assets in the securities of issuers domiciled in foreign countries.
INVESTMENT OBJECTIVE AND POLICIES
The sole objective of the Fund is to achieve capital appreciation through
investment in the securities of relatively few companies, which will be selected
for potential long-term performance. The generation of current income is not a
primary criterion for selecting portfolio investments. While the Fund will seek
to invest in the securities of companies undervalued by the marketplace, the
Fund nevertheless intends to invest in companies with assets which its
investment advisor, Matterhorn Asset Management Corporation ("Asset
Management"), deems sufficiently valuable to support the Fund's investment.
The Fund intends to be fully invested in common stocks and other
securities having investment characteristics similar to common stocks (i.e.,
warrants and convertible debentures). The Fund may for defensive purposes from
time to time, when Asset Management determines that market conditions warrant,
temporarily invest an unlimited portion of its assets in U.S. Government
securities, repurchase agreements collateralized by U.S. Government securities,
or high grade commercial paper (rated either A-1 by Standard & Poor's
Corporation or Prime-1 by Moody's Investors Service, Inc.). At such times as the
Fund assumes a defensive posture which prompts the Fund to invest a substantial
portion of its assets in the interest bearing instruments described above, the
Fund will not then be pursuing its primary method for seeking its investment
objective of capital appreciation.
RISK FACTORS
The Fund has certain features involving risk, which may be viewed as being
more speculative than features found in other investment companies, and there
can be no assurance that the Fund will achieve its investment objective. Except
when described herein as a "fundamental policy", the policies so described are
not fundamental policies and may be changed at any time without shareholder
vote. For a list of certain of the Fund's fundamental policies see the Fund's
Statement of Additional Information under the caption "Investment Limitations."
Equity Securities
Like all equity securities, the value of the common stocks purchased by
the Fund will vary from time to time based on a variety of factors, including
general market and economic conditions as well as the earnings and prospects of
the issuers. In addition, the Fund has no restriction on the market
capitalization (the market value of the outstanding stock) of any issuer in
which it invests. Accordingly, the Fund's portfolio investments may include the
common stocks of large, established companies with market capitalizations in
excess of $1 billion, as well as smaller companies with market capitalizations
as low as [$100] million. Smaller companies often have limited product lines,
markets or financial resources, and may be dependent upon one or few key persons
for management. The securities of such companies may be subject to more volatile
market movements than securities of larger, more established companies, both
because the securities typically are traded in lower volume and because the
issuers typically are more subject to changes in earnings and prospects. To the
extent that the Fund's portfolio is invested in smaller capitalization
companies, its net asset value per share can be expected to experience
above-average fluctuations.
Non-Diversified Status
The Fund is a non-diversified investment company. This means that the Fund
is not restricted by the provisions of the Investment Company Act of 1940 with
respect to the diversification of its investments. As a matter of fundamental
policy, however, as to 50% of the Fund's total assets the Fund will not invest
in individual companies in which the Fund has invested 5% in value of its assets
or has acquired more than 10% of the outstanding voting securities of such
company, measured at the time of each such investment. In addition, it generally
will be the Fund's intention to adhere to the diversification requirements of
the Internal Revenue Code applicable to regulated investment companies (see
"Dividends, Distributions and Taxes," page 14). This means that the limitations
described in this paragraph would be applicable and calculated at the close of
each fiscal quarter. Moreover, no more than 25% of the Fund's total assets may
be invested in the securities of any one issuer, or two or more issuers which
are engaged in similar or related trades or businesses.
As a matter of investment strategy, the Fund will not purchase the
securities of any issuer as to which the Fund has invested 10% in value of its
assets or has acquired more than 10% of the outstanding voting securities of
such company, measured at the time of each such investment.
Because the Fund's "non-diversified status" permits the investment of a
greater portion of the Fund's assets in the securities of individual companies
than would be permissible under a "diversified status", the Fund's
"non-diversified status" is considered to subject the Fund to a greater degree
of risk than a "diversified" investment company. The Fund reserves the right to
operate as a diversified investment company if such a course appears desirable
in the opinion of management, in which event 75% in value of the Fund's total
assets would have to be invested in companies in which the Fund had not invested
5% or more in value of its assets and in which the Fund did not own 10% or more
of the company's outstanding voting securities. Once diversified as a result of
a change in policy, the Fund may not thereafter resume nondiversified operations
without approval by the holders of a majority of its shares.
Leverage
The Fund may leverage by borrowing from banks and investing the borrowed
funds, but does not currently intend to do so. To the extent that borrowed money
is utilized, the Fund's net asset value per share will tend to appreciate or
depreciate more rapidly than would otherwise be the case.
Pursuant to the provisions of the Investment Company Act of 1940, the Fund
may borrow only from banks, and only if immediately after such borrowing the
value of the assets of the Fund (including the amount borrowed), less its
liabilities (not including any borrowings), is at least three times the amount
of its borrowing. The amount of any borrowing would also be limited by the
applicable regulations of the Federal Reserve Board. If, due to market
fluctuations or other reasons, the value of the Fund's assets, computed as
provided above, becomes at any time less than three times the amount of its
outstanding bank debt, the Fund, within three days (not including Sundays and
holidays), would be required to reduce its bank debt to the extent necessary to
meet the required 300% net asset coverage.
The Fund had a revolving credit agreement with its former custodian bank
under which the Fund can make borrowings. The maximum month-end and the average
borrowings outstanding during the fiscal year ended June 30, 1995 were
approximately $1,152,000 and $456,000, respectively.
Foreign Securities
Investments will be made primarily in securities of companies domiciled in
the United States, but the Fund has authority to make investments in securities
of issuers domiciled in any foreign country. Such securities involve risks that
are different from those of domestic issuers, including possibly different or
adverse political and economic developments and consequences, and also involve
such other considerations as the then current exchange rate if such issuer pays
interest or dividends in a foreign currency. Not more than 10% in value of the
Fund's investments may be made in the securities of issuers domiciled in foreign
countries, and such investments only will consist of foreign securities either
listed on a U.S. securities exchange or traded in the U.S. over-the-counter
market. (For further information on foreign securities, see the Fund's Statement
of Additional Information under the caption "Investment Objective and
Policies.")
Over-the-Counter Securities
The Fund may invest in over-the-counter securities, as well as in
securities listed on a national securities exchange. Over-the-counter securities
may not be traded every day or in the volume typical of securities trading on a
national securities exchange. As a result, disposition by the Fund of portfolio
securities to meet shareholder redemptions or for other purposes may require the
Fund to sell such securities at a discount from market prices, to sell during
periods when such disposition is not otherwise desirable, or to make many small
sales over a lengthy period of time.
Convertible Debentures and Warrants
The Fund may invest in convertible debentures and warrants. Convertible
debentures are interest-bearing securities which may be converted into shares of
the issuer's common stock at the option of the holder. Convertible debentures
generally pay interest and provide for participation in the appreciation of the
underlying common stock, but at a lower level of risk because the yield is
higher and the security is senior to common stock. The value of a convertible
security is a function of its "investment value" (determined by its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege) and its "conversion value" (the
security's worth, at market value, if converted into the underlying common
stock). The credit standing of the issuer and other factors may also affect the
investment value of a convertible security. Like other debt securities, the
market value of convertible debentures tends to vary inversely with the level of
interest rates. A convertible security may be subject to redemption at the
option of the issuer at a fixed price and, if it is called for redemption, the
Fund will be required to permit the issuer to redeem the security, convert it
into the underlying common stock, or sell it to a third party.
The Fund may invest up to 5% of its assets in warrants, which may be
exercised to acquire a predetermined number of shares of the issuer's common
stock at the option of the holder during a specified time period and at a
specified price. However, not more than 2% of the Fund's net assets may be
invested in warrants not listed on a national securities exchange. (For further
information on warrants, see the Fund's Statement of Additional Information
under the caption "Investment Objective and Policies.")
"Restricted Securities" and Illiquid Assets
The Fund has authority to invest up to 5% of its net assets in illiquid
assets. Illiquid assets consist of assets which are not readily marketable, and
may include (i) repurchase agreements, the maturity of which exceeds seven days,
(ii) securities as to which no "bid" has been made or as to which trading has
been suspended, (iii) securities which may require registration under the
Securities Act of 1933 prior to sale to the public (i.e., "restricted
securities") and (iv) securities of unseasoned issuers (for this purpose, an
unseasoned issuer is an entity which has been in operation for less than three
years, including all predecessors). Illiquid assets, if acquired, will be valued
at fair value as determined in good faith by the Board of Directors of the Fund.
(For further information on restricted securities, see the Fund's Statement of
Additional Information under the caption "Investment Objective and Policies.")
Options
The Fund may engage in transactions in exchange listed stock options. A
stock option is a right to buy or sell a particular stock at a certain price for
a limited period of time. Options consist of puts, calls or combinations
thereof. A call option gives the purchaser the right, but not the obligation, to
buy from the seller (or "writer") during the term of the option a designated
security at an agreed upon price. Conversely, a put gives the purchaser the
right, but not the obligation, to sell the designated security to the seller of
the option at an agreed upon ("exercise") price. The Fund may purchase or write
options, limited to "covered" put and call options. The writer of the option
must own the underlying security (or have segregated assets sufficient to
purchase the underlying security) in order for the Fund to write the applicable
option contract.
Some of the strategies employed with options may be considered to be
speculative. One type of transaction which is inherently speculative is the
purchase of calls. With the purchase of a call, the Fund could lose, and would
be "at risk" for, the amount of the premium paid for the call if the underlying
security does not rise above the "exercise" price during the life of the call.
Accordingly, the Fund will follow the practice of limiting the net "at risk"
amounts with respect to the purchase of puts or calls to 10% of the Fund's net
assets, determined on the date of purchase.
The use of certain strategies involving options may tend to limit any
potential gain which might result from an increase in the value of any such
position. The ability of the Fund to utilize these strategies successfully will
depend upon the ability of the Fund's investment adviser to forecast pertinent
market movements, which cannot be assured.
MANAGEMENT OF THE FUND
Investment Adviser
Pursuant to an investment advisory agreement dated March 15, 1996, which
was initially approved by the Fund's Board of Directors on November 29, 1995,
Asset Management renders investment advice to and provides supervisory
management services for the Fund, subject to the control and overall supervisory
authority of the Fund's Board of Directors. Asset Management is a New York
corporation formed in March 1988, and is owned by Sheldon E. Goldberg and
Gregory Church. Mr. Goldberg is the chairman and Mr. Church is the President of
Asset Management. Mr. Church is the President, Secretary and a director of the
Fund. Asset Management is registered as an investment adviser under the
Investment Advisers Act of 1940.
Mark D. Beckerman has served as the Portfolio Manager of the Fund since
September 1988. From September 1988 to March 1996, he was the President and sole
shareholder of Asset Management. Since the acquisition of Asset Management by
Messrs. Goldberg and Church in March 1996, he has been employed as Portfolio
Manager by Asset Management.
Asset Management provides the Fund with advice and recommendations with
respect to investments, investment policies, the purchase and sale of portfolio
securities and management of the cash balances of and credit extended to the
Fund. For its services, Asset Management is compensated at the annual rate of 1%
of the value of the Fund's average daily net assets, payable monthly. The rate
of compensation remains constant whether or not there are fluctuations in the
Fund's net assets. Such annual rate is higher than the rate paid by most
registered investment companies, but is similar to the rate contracted for by
other mutual funds with comparable investment policies.
Except as described below, the Fund will pay all of its expenses,
including commissions, interest, taxes, legal and accounting fees, fees of
custodians, transfer agents, registrars and dividend disbursing agents,
registration and filing fees, the cost of stock certificates, costs in
connection with annual or special meetings of shareholders (including the
preparation and distribution of proxy soliciting materials), fees and expenses
of Fund directors who are not "interested persons" (as defined in the Investment
Company Act of 1940) of Asset Management, office space, office furnishings,
office supplies and office equipment, including telephone service, insurance
premiums, printing costs (which do not include printed material sent to persons
who are not shareholders), 12b-1 fees, travel expenses, salaries and related
compensation of any non-officer employees, postage, association dues and
extraordinary and non-recurring expenses.
Pursuant to its investment advisory agreement with the Fund, Asset
Management has agreed until March 15, 1998 to limit the Fund's annual operating
expenses (excluding interest, taxes, brokerage commissions and other portfolio
transaction expenses, capital expenditures and extraordinary expenses) to 4% of
the Fund's average annual net assets. Asset Management will reimburse the Fund
for expenses in excess of this limitation. In addition, Asset Management will be
obligated to reimburse the Fund if Fund expenses exceed those set forth in any
statutory or regulatory formula prescribed by any state in which Fund shares are
registered. Because Fund shares currently are not registered in any state which
requires the Fund to be reimbursed for such excess expenses, it is not expected
that Asset Management will be required to reimburse the Fund under this
provision.
For the fiscal year ended June 30, 1995, Fund expenses (including interest
expense and the 1% management fee) were 5.18% of the Fund's average daily net
assets. The expense limitation provision, described above, was not in effect
during fiscal 1995.
Administrator
Investment Company Administration Corporation, a Delaware corporation, is
the Administrator of the Fund. Pursuant to an administration agreement with the
Fund, and subject to the supervision of the Board of Directors of the Fund, the
Administrator supervises the overall administration of the Fund. Its
responsibilities include preparing and filing all documents required for
compliance by the Fund with applicable laws and regulations, arranging for the
maintenance of books and records of the Fund and supervision of other
organizations that provide services to the Fund. Certain officers of the Fund
are also provided by the Administrator. For the services it provides to the
Fund, the Administrator receives a monthly fee at the annual rate of 0.10% of
the Fund's average daily net assets, subject to a minimum annual fee of $45,000
the first year and $40,000 thereafter.
Co-Distributors
Cumberland Brokerage Corporation ("Cumberland") and Bainbridge & Co.
("Bainbridge") act as co-distributors for shares of the Fund. Both Cumberland
and Bainbridge are registered with the Securities and Exchange Commission as
broker-dealers under the Securities Exchange Act of 1934. Cumberland is a New
Jersey corporation controlled by Sheldon E. Goldberg (an officer and shareholder
of Asset Management) and his wife. Bainbridge is a Pennsylvania corporation
controlled by Gregory Church (an officer and director of the Fund and Asset
Management) and his wife.
Cumberland and Bainbridge act as co-distributors for shares of the Fund
pursuant to a distribution agreement dated March 15, 1996, which was initially
approved by Fund's Board of Directors on November 29, 1995. Fund shares are sold
to the public at net asset value, without any sales charge or commission.
Cumberland and Bainbridge pay the cost of sales material, including the cost of
printing prospectuses other than those used to register Fund shares or otherwise
comply with Federal or state law or sent to existing shareholders.
Distribution Plan
Rule 12b-1 (the "Rule") under the Investment Copy Act of 1940 permits an
investment company such as the Fund to use its assets to pay the expenses of
distributing its shares if it complies with the various conditions of the Rule.
In accordance with the Rule, the Fund has adopted a Distribution Plan which,
among other things, permits the Fund to pay Cumberland and Bainbridge, the
co-distributors of Fund shares, a monthly distribution fee out of the Fund's net
assets, which may be spent on any activities or expenses primarily intended to
result in the sale of Fund shares. Under the Distribution Plan, the Fund will
pay Cumberland and Bainbridge an aggregate distribution fee which is accrued
daily and paid monthly at the rate of .25% per year of the Fund's average daily
net assets. The Distribution Plan is a "compensation" plan, which means that the
distribution fees paid by the Fund are intended to compensate Cumberland and
Bainbridge for services rendered, even if the amounts paid exceed their actual
expenses (in which case Cumberland and Bainbridge would realize a profit). The
Distribution Plan provides for quarterly written reports to the Board of
Directors of expenditures pursuant to the Distribution Plan, including the
purposes of such expenditures.
The Board of Directors, including a majority of the directors who are not
"interested persons" of the Fund (as defined in the Investment Copy Act of 1940)
and who have no direct or indirect financial interest in the operation of the
Distribution Plan, adopted the Distribution Plan on November 29, 1995 after
determining that there is a reasonable likelihood that the Plan is in the best
interests of and will benefit Fund shareholders. Any change in the Distribution
Plan that would materially increase the distribution costs requires shareholder
approval; otherwise, the Distribution Plan may be amended by the directors.
The Distribution Plan may be terminated by the vote of a majority of the
directors who are not "interested persons" of the Fund or by the vote of a
majority of the outstanding shares of the Fund. The Distribution Plan will
continue in effect so long as within each one-year period such continuance is
specifically approved by the vote of a majority of the directors (which also
must include a majority of the directors who are not "interested persons" of the
Fund).
PURCHASE OF SHARES
By Mail
Shares of the Fund initially may be purchased by sending a check ($1,000
minimum) together with the completed application form to the Fund, c/o American
Data Services, Inc., P.O. Box 1122, Cincinnati, Ohio 45264-1122. Subsequent
investments may be made by mailing a check ($100 or more) together with the
detachable stub from the Transaction Advice (see "General," page 11). Mail
orders without payment enclosed will not be accepted. Third-party checks will
not be accepted for payment of purchase orders.
By Bank Wire
Shares of the Fund may be purchased by bank wire. Investors establishing
new accounts, prior to sending the bank wire, should telephone American Data
Services, Inc. at 1-800-637-3901 in order to obtain an account number. The wire
order must contain registration instructions (i.e., full names of all investors,
address, social security number or other taxpayer identification number and
account number for new accounts, or only the account number for existing
accounts. The name of the Fund must appear on the wire for proper credit. The
investor must have the bank wire order transmitted to Star Bank, N.A.
Cinti/Trust, ABA #0420-0001-3, Attn: Matterhorn Growth Fund, Inc., DDA
#483897641, Account Name ________________________, Shareholder Account
No._________________. Wire orders received by American Data Services, Inc. will
be executed at the Fund's net asset value per share as next determined after
receipt of the wired funds. Banks may charge fees for wiring funds.
Through Broker-Dealers
Investors may, if they so desire, purchase Fund shares through registered
broker-dealers. Such broker-dealers may make a reasonable charge to the investor
for their services. Such fees and services may vary among broker-dealers, and
such broker-dealers may impose higher initial or subsequent investment
requirements than those established by the Fund. Services provided by
broker-dealers may include the ability to establish a margin account and to
borrow on the value of the Fund shares in that account. Broker-dealers are
responsible for forwarding payment promptly to American Data Services, Inc.
General
Purchase orders received, either by the Fund's transfer agent or the
investor's broker-dealer, prior to the close of trading business on the New York
Stock Exchange (currently 4:00 P.M., Eastern time) on a given day will be
executed at the net asset value per share computed as of the close of business
on that day.
Conditional purchase orders will not be accepted. All checks should be
made payable to the Fund and should be drawn on a U.S. bank. Checks drawn on a
foreign bank will not be accepted unless provision is made for payment through a
U.S. bank in U.S. dollars. If payment for any purchase order is not received as
specified herein, or if the investor's check is not honored upon presentment,
the order is subject to cancellation, and the purchaser's existing account with
the Fund immediately will be charged for any loss incurred. The Fund reserves
the right to accept orders at its office, to waive the minimum and maximum
limitations for purchase orders, to reject any order in whole or in part, to
suspend or modify the continuous offering of its shares without prior notice.
Although telephone service is provided, investors should be aware that telephone
lines are not available at all times, and usually are busy shortly prior to 4:00
P.M., Eastern time. Therefore, investors are urged to place wire orders as early
in the day as possible.
Each investor will be sent a Transaction Advice by the Fund's transfer
agent in lieu of a certificate, reflecting full and fractional shares, unless a
certificate is specifically requested in writing by all registered owners. It is
recommended to all shareholders that a certificate not be requested unless
needed for a specific purpose. This eliminates the trouble and expense of
safeguarding the stock certificate and the cost of a lost instrument bond in the
event of loss or destruction and is a condition to the election of telephone
service.
REDEMPTION OF SHARES
Redemptions by Mail
Shares of the Fund may be redeemed by an investor by mail by writing
directly to the transfer agent, American Data Services, Inc., 24 West Carver
Street, 2nd Floor, Huntington, New York 11743, and enclosing a duly endorsed
share certificate, if issued. There are no special forms for redemption.
However, a written request for redemption must be signed by all owners, with all
such signatures guaranteed, as described below. In the case of shares held by a
corporation, the redemption request must be signed in the name of the
corporation by an officer whose title must be stated, and a by-law provision or
resolution of the Board of Directors, recently certified, authorizing the
officer to so act must be furnished. In the case of a trust or partnership, the
signature must be that of a trustee or partner in whose name the account is
registered, and must include the title of the person signing. If the trustee's
or partner's name is not registered on the account, a recently certified copy of
the trust instrument or partnership agreement must be furnished to the Fund's
transfer agent. Investors can obtain a signature guarantee from most banks,
credit unions or savings associations, or from brokerdealers, national
securities exchanges, registered securities associations or clearing agencies
deemed to be eligible guarantor institutions. A notary public is not acceptable.
Shareholders residing abroad may obtain a signature verification from any U.S.
Consulate under official seal.
Redemptions by Telephone, Telegram or Overseas Cable
Shares of the Fund may be redeemed by an investor by calling American Data
Services, Inc., the Fund's transfer agent, at 1-800-637-3901, or by sending a
telegram or overseas cable to American Data Services, Inc., 24 West Carver
Street, 2nd Floor, Huntington, New York 11743. In order to utilize the procedure
for redemption by telephone, telegram or overseas cable, a shareholder
previously must have elected this option in writing, the shareholder account
previously must have been opened by and be reflected as such in the computer
records of the Fund's transfer agent, the shares being redeemed must be held by
the transfer agent and the redemption proceeds must be transmitted directly to
the shareholder's predesignated account at a domestic bank (see "General," page
12). The Fund's transfer agent will not be liable for acting upon any
instruction it reasonably believes to be genuine and in accordance with the
procedures described herein. Nevertheless, the Fund and/or the transfer agent
may be liable for losses resulting from unauthorized or fraudulent telephone
transactions in the event these procedures are not followed.
A shareholder may elect at any time to use the telephone redemption
service, which includes redemptions by telegram or overseas cable. Such election
may be made on the initial application form or on other forms prescribed by the
Fund. Any changes or exceptions to the original election must be made in
writing, with signatures guaranteed, and will be effective upon receipt by the
transfer agent. When utilizing the telephone redemption service, the shareholder
must give the full name, number of shares to be redeemed (if less than all
remaining shares) and account number, or the redemption request will not be
processed. For a redemption by overseas cable, you must also include the Fund
name. Redemptions by telegram or overseas cable will not become effective until
the writing constituting the telegram or overseas cable is received by the
Fund's transfer agent.
The Fund reserves the right to change or discontinue without prior notice
the procedures for or availability of telephone service for redemption requests.
Although telephone service is provided, investors should be aware that telephone
lines are not available at all times, usually are busy shortly prior to 4:00
P.M., Eastern time and may not be available during periods of severe market or
economic conditions. Therefore, investors are urged to place telephone orders as
early in the day as possible.
General
The redemption price for shares upon written request, telegram, overseas
cable or telephone redemption will be the net asset value per share as next
determined after receipt of such request in good order by the Fund's transfer
agent (see "Net Asset Value," page 14). The proceeds of all redemptions will be
mailed or wired, as elected by the shareholder, on the next business day after
redemption if being transmitted to the investor's account at the broker-dealer
through which the Fund shares were purchased, or on the third business day after
the redemption if being transmitted otherwise. However, redemption proceeds will
not be transmitted until the investor's check for the purchase of Fund shares
has cleared, which may take up to 15 days from the time the check is received.
Where a shareholder simultaneously redeems shares for which payment has been
made and shares for which the shareholder's check has not cleared, the
shareholder authorizes the Fund to delay transmittal of that portion of the
redemption proceeds equal to the amount of the check which has not then cleared
until the shareholder's check has cleared, but such portion of the redemption
proceeds will be transmitted promptly after such clearance. Where a shareholder
has elected to have the redemption proceeds transmitted directly to the
shareholder's predesignated account at a domestic bank, the proceeds will be
wired if the account is at a commercial bank and will be sent by mail if the
account is at a savings bank or if the proceeds are less than $1,000. The Fund's
transfer agent will not honor any redemption request that contains a restriction
as to the time, date or share price at which the redemption is to be effective.
The right of redemption may be suspended or the payment date postponed
during any period when: (a) the New York Stock Exchange is closed for other than
customary weekend and holiday closings; (b) trading on the New York Stock
Exchange is restricted, as determined by the Securities and Exchange Commission;
(c) an emergency as defined by rules of the Securities and Exchange Commission
exists; or (d) the Commission has, by order, permitted such suspension. In case
of suspension of the right of redemption, the shareholder may withdraw the
request for redemption or the shareholder will receive payment of the net asset
value next determined after the suspension has been terminated.
The Fund has the right to involuntarily redeem after written notice the
shares of an investor, the aggregate value of whose shares is less than $500 due
to redemptions. Notice of redemption will be given by first class mail to the
investor at the address on the Fund's records. The notice will fix a date of not
less than 30 days in advance of the date on which it was mailed, and the shares
will be redeemed at net asset value as of the close of business on that date,
unless before then the investor purchases sufficient additional shares. A check
for the proceeds of redemption, which may be less or more than the purchase
price of the shares, will be mailed to the investor at the address of record.
SHAREHOLDER SERVICES
Transfer of Shares
To transfer Fund shares from an existing account, a letter requesting the
transfer signed by each registered owner must be sent directly to the Fund's
transfer agent, American Data Services, Inc., 24 West Carver Street, 2nd Floor,
Huntington, New York 11743. The letter should give the full name, address and
social security number (or taxpayer identification number) of the transferee. A
stock power signed by each registered owner, with signatures guaranteed, must
accompany the letter. A notary public is not an acceptable guarantor. A new
application completed in its entirety and signed by the new owner also is
required. Application forms may be obtained by calling the Fund at
1-800-637-3901 (toll-free).
Check-A-Matic Plan
For the convenience of shareholders, the Fund offers a preauthorized check
service under which a check is automatically drawn on the shareholder's personal
checking account each month for a predetermined amount (but not less than $100),
as if the shareholder had written it himself. Upon receipt of the check, the
Fund automatically invests the money in additional shares of the Fund at the
current offering price. There is no charge by the Fund for this service.
Shareholders may terminate their participation by notifying the Transfer Agent
in writing.
Systematic Withdrawal Program
As another convenience, the Fund offers a Systematic Withdrawal Program
whereby shareholders may request that a check drawn in a predetermined amount be
sent to them each month or calendar quarter. A shareholder's account must have
Fund shares with a value of at least $10,000 in order to start a Systematic
Withdrawal Program, and the minimum amount that may be withdrawn each month or
quarter under the Systematic Withdrawal Program is $100. This Program may be
terminated or modified by a shareholder or the Fund at any time without charge
or penalty.
A withdrawal under the Systematic Withdrawal Program involves a redemption
of shares, and may result in a gain or loss for federal income tax purposes. In
addition, if the amount withdrawn exceed the dividends credited to the
shareholder's account, the account ultimately may be depleted.
OPERATION OF THE FUND
Net Asset Value
The net asset value of the Fund's shares will be determined as of the
close of trading on the New York Stock Exchange (which currently is 4:00 P.M.,
Eastern time) on each day on which the New York Stock Exchange is open for
trading and on which there is a sufficient degree of trading in the Fund's
portfolio of investments that such net asset value might be materially affected
by the changes in the underlying values of such portfolio securities. Net asset
value per share will be computed by dividing the market value of all securities
and other assets, less liabilities, by the number of the Fund's outstanding
shares. Such determination is made by valuing portfolio securities listed or
traded on a national securities exchange on which the security is primarily
traded at the last sale price, or if there has been no sale that day, at the
mean between the last bid and asked prices. Securities traded in the
over-the-counter market are valued at their last bid price, and all other
portfolio securities and assets, including restricted securities, will be valued
at fair value as determined in good faith by or under the direction of the Board
of Directors.
Dividends, Distributions and Taxes
The policy of the Fund is to distribute at least annually substantially
all of its net ordinary income and net realized capital gains, if any. In so
doing, the Fund intends to comply with Subchapter M of the Internal Revenue
Code, which relieves complying investment companies which distribute
substantially all of their net income from Federal income tax on the amount
distributed. The Fund qualified as a regulated investment company during the
year ended June 30, 1995, and it intends to so qualify in future years if it is
in the best interests of Fund shareholders to do so.
It is the present policy of the Fund to declare and pay annually net
ordinary income as dividends and to declare and distribute annually all net
capital gains realized in excess of all then available capital loss
carryforwards. These dividends and distributions are payable in Fund shares,
although shareholders may elect to receive such dividends and distributions in
cash upon written request to the Fund, which request must be received by the
Fund prior to the close of business on or before the record date for payment of
the particular dividend or distribution. Checks issued pursuant to a
shareholder's request for payment in cash of a dividend or distribution are sent
by first class mail to the shareholder's address as reflected in the transfer
agent's records. If any such check is returned to the Fund, it automatically
will be deemed to be a request by the shareholder to reinvest those proceeds and
all future dividends and distributions in Fund shares unless and until the
shareholder subsequently elects in writing to be paid in cash. All dividends and
distributions are taxable to the shareholder whether received in cash or in Fund
shares. Reinvestment in Fund shares of the dividend or distribution will be made
on the payable date.
Distributions of dividends and short-term capital gains are taxable to a
shareholder as ordinary income. The dividends (but not the capital gains)
qualify for the 70% dividends received deduction for corporations, unless they
are derived from interest or other non-dividend income or dividends from foreign
corporations.
In January of the year after the distribution, the Fund will send
shareholders a Form 1099, notifying shareholders of the status of each
distribution for Federal income tax purposes.
In the event a shareholder fails to furnish a taxpayer identification
number and to certify to the accuracy thereof, or the Internal Revenue Service
notifies the Fund that a shareholder's taxpayer identification number is
incorrect or that withholding is otherwise required, the Fund will commence
withholding on such shareholder's account. Once withholding is established, all
withheld amounts will be paid to the Internal Revenue Service, from whom such
shareholder should seek any refund. If withholding is commenced with respect to
any shareholder account, the shareholder should consult with the shareholder's
attorney or tax adviser or contact the Internal Revenue Service directly. In
addition, the IRS levies a fine for each incorrect or uncertified taxpayer
identification number. Any such fine levied against the Fund will be assessed
against the shareholder account responsible therefore.
Any dividend or distribution declared shortly after an investor has
purchased Fund shares will have the effect of reducing the net asset value of
the investor's shares by the amount of the dividend or distribution. Such a
dividend or distribution, although in a sense a return of capital, is subject to
taxation, as described above.
Brokerage
Decisions to buy and sell securities on behalf of the Fund are made by
Asset Management. The commission rate on all exchange orders is subject to
negotiation, and Asset Management will be responsible for negotiating such
commission rates on behalf of the Fund. In selecting brokers or dealers to
execute portfolio transactions for the Fund, an attempt will be made to
negotiate the best commission rate among those brokers or dealers who in the
opinion of Asset Management can obtain best price and execution for the Fund.
Subject to the foregoing, in the allocation of portfolio brokerage business,
Asset Management may consider the extent to which brokers sell Fund shares. In
addition, as authorized by Section 28(e) of the Securities Exchange Act of 1934,
Asset Management also may consider research and brokerage services provided by
brokers, and is authorized to cause the Fund to pay to a broker a commission
rate or amount in excess of the rate or amount another broker would have charged
for effecting that transaction if Asset Management determines in good faith that
such rate or amount of commission is reasonable in relation to the value of the
research and brokerage services provided. Research services include investment
recommendations, statistical research and other services, including economic and
market information. Such research and brokerage services are considered to be in
addition to and not in lieu of the services required to be performed by Asset
Management under its contract with the Fund. Research services furnished by
brokers and dealers through whom the Fund effects securities transactions may be
used by Asset Management in servicing all of the accounts of Asset Management,
just as any research services provided by such brokers and dealers with respect
to securities transactions for such other accounts may be used by Asset
Management in servicing the Fund. Section 17(e) of the Investment Copy Act of
1940 limits to "the usual and customary broker's commission" the amount which
can be paid by the Fund to affiliated persons acting as broker in connection
with transactions effected on a securities exchange.
Transactions in a security traded over-the-counter normally will be
made through a principal market maker for such security unless, taking into
consideration all factors, including the size of the transaction, a more
favorable result is obtainable elsewhere. The Fund will not engage in any
transaction in which Asset Management, Cumberland or Bainbridge would be a
principal. Cumberland and Bainbridge have advised the Fund that they will not
receive reciprocal brokerage business as a result of brokerage business placed
or principal transactions made by the Fund with others.
ADDITIONAL INFORMATION
Transfer and Shareholder Service Agent. American Data Services, Inc., 24 West
Carver Street, 2nd Floor, Huntington, New York 11743 acts as shareholder
servicing and transfer agent for the Fund. Questions concerning shareholder
accounts should be directed to The Matterhorn Growth Fund, Inc., c/o American
Data Services, Inc., 24 West Carver Street, 2nd Floor, Huntington, New York
11743, or call 1-800-637-3901. Telephone requests for information of a
confidential nature will be answered by letter to the shareholder's address of
record. Procedural inquiries will be answered immediately.
Custodian. Star Bank, Post Office Box 1118, Cincinnati, Ohio 45201 serves as
custodian of the Fund's cash and securities.
Accountants. McGladrey & Pullen, LLP will serve as the independent certified
public accountants for the Fund and will examine and report on the Fund's
financial condition.
Reports. Each shareholder will receive semi-annual and annual financial reports
of the Fund. Annual financial reports will be audited.
Retirement Plans. The Fund has available for investors a prototype retirement
plan, a prototype Individual Retirement Account ("IRA") and a tax sheltered
retirement plan in accordance with Section 403(b) of the Internal Revenue Code
for employees of public school systems and certain other charitable
organizations. For further information or application forms for these retirement
plans, please write or call the Fund at the address or telephone numbers shown
on the cover page.
Capital Stock. The authorized capital of the Fund consists of 100,000,000 shares
of common stock, par value $.001 each. Currently, all Fund shares are of the
same class with equal voting rights. The Board of Directors has the authority to
issue additional classes of shares if deemed desirable. Fund shares have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of directors can elect all of the directors
if they choose to do so, and in such event the holders of the remaining shares
so voting will not be able to elect any directors. Shares of the Fund have equal
rights with respect to dividends, assets and liquidation. Shares are fully paid
and nonassessable when issued, are transferable without restriction, and have no
preemptive or conversion rights.
As a Maryland corporation, the Fund is not required to hold annual
meetings of shareholders except when required by the Investment Company Act of
1940. The Fund has undertaken that, (i) if requested to do so by the holders of
at least 10% of the Fund's then outstanding shares, it will call a meeting of
shareholders for the purpose of voting upon the removal of any director, and
(ii) it will assist in the communication with Fund shareholders, to the extent
required by Section 16(c) of the Investment Company Act of 1940.
Performance Information. From time to time the Fund may advertise its total
return. These figures are based on historical earnings and are not intended to
indicate future performance. Total return shows how much an investment in the
Fund would have increased (or decreased) over a specified period of time (i.e.,
one, five or ten years or since the inception of the Fund) assuming that all
distributions and dividends by the Fund to investors of the Fund were reinvested
on the reinvestment dates during the period. Total return does not take into
account any federal or state income taxes which may be payable by the investor.
The Fund also may include comparative performance information in advertising or
marketing Fund shares. Such performance information may include data from Lipper
Analytical Services, Inc., other industry publications, business periodicals,
rating services and market indices.
Additional Information. This Prospectus, including the Statement of Additional
Information which has been incorporated by reference herein, does not contain
all the information set forth in the Registration Statement filed by the Fund
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended. Copies of the Fund's Registration Statement may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
office of the Commission in Washington, D.C.
No dealer, salesman, or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer contained in this Prospectus, and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund. This Prospectus does not constitute an
offering in any state or jurisdiction in which such offering may not lawfully be
made.
<PAGE>
INVESTMENT ADVISER
Matterhorn Asset Management Corporation
301 Oxford Valley Road, Suite 802B
Yardley, Pennsylvania 19067
CO-DISTRIBUTORS
Bainbridge & Co.
301 Oxford Valley Road, Suite 801B
Yardley, Pennsylvania 19067
Cumberland Brokerage Corporation
614 Landis Avenue
Vineland, New Jersey 08360
CUSTODIAN
Star Bank
Post Office, Box 1118
Cincinnati, Ohio 45201
TRANSFER AGENT
American Data Services, Inc.
24 West Carver Street, 2nd Floor
Huntington, New York. 11743
1-800-637-3901
AUDITORS
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017
[LOGO]
Prospectus
March 15, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
March 15, 1996
MATTERHORN GROWTH FUND, INC.
301 Oxford Valley Road, Yardley, Pennsylvania 19067
(Toll Free - 1-800-637-3901)
Price Quote Information
1-800-453-2875
Matterhorn Growth Fund, Inc. ("Fund") seeks long-term capital
appreciation for shareholders through investment in the securities, principally
common stocks, of relatively few companies.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. RATHER, IT SHOULD
BE READ IN CONJUNCTION WITH THE FUND'S PROSPECTUS DATED MARCH 15, 1996, A COPY
OF WHICH MAY BE OBTAINED FROM THE FUND AT THE ADDRESS AND THE TELEPHONE NUMBERS
SHOWN ABOVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES CONTAIN INFORMATION
WHICH MAY BE OF INTEREST TO INVESTORS.
B-1
<PAGE>
SUMMARY
Matterhorn Growth Fund, Inc. (the "Fund") was organized as a Maryland
corporation on May 2, 1980. From its inception to March 14, 1996, the Fund was
known as The 44 Wall Street Equity Fund, Inc.
The Fund is an open-end, non-diversified investment company which seeks
long-term capital appreciation for its shareholders through investment in the
securities (principally common stocks, but also may include warrants and
convertible debentures) of a relatively few companies. The Fund may engage in
transactions in exchange listed options, may obtain leverage by borrowing from
banks, and may invest up to 5% of its assets in warrants (up to 2% of the net
assets in unlisted warrants).
Fund shares may be purchased by mail through its transfer agent,
American Data Systems, Inc. at the address listed on the back cover page, or by
telephone (toll-free 1-800-637-3901), telegram or overseas cable (see "PURCHASE
OF SHARES," page __). There is no sales charge or commission, and Fund shares
are sold at net asset value. Shares are redeemable by mail or by telephone at
their net asset value, as next determined after receipt of a redemption request.
The minimum initial investment is $1,000, and subsequent investments may be made
at any time in amounts of $100 or more.
The Fund has available for its investors the following specialized
accounts: a Check-A-Matic Plan, retirement plans and a Systematic Withdrawal
Program. (See "SPECIAL ACCOUNTS," page B-16).
The Fund has certain features involving greater risk, which may be
viewed as being more speculative, than features found in other investment
companies. Such features include the Fund's non-diversified status (see
"Investment Objectives and Policies," page B-3), the Fund's ability to utilize
leverage (see "Leverage," page B-10) and the Fund's ability to invest in
exchange listed options, warrants, foreign securities, securities of unseasoned
issuers and "restricted" securities (see "Investment Objectives and Policies,"
page B-3).
The Fund relies on the investment advice of Matterhorn Asset Management
Corporation ("Asset Management"), which receives for its services a monthly fee
equal to the annual rate of 1% of the Fund's average net assets. While such
annual rate of compensation is higher than the average rate paid by most
registered investment companies, the Fund believes that the rate is comparable
to that charged to investment companies which also seek to achieve their
investment objective by employing those investment techniques utilized by the
Fund. All Fund expenses are payable by the Fund, except that until March 15,
1998 Asset Management is required to reimburse the Fund for expenses in excess
of 4% of average daily net assets. Expenses
B-2
<PAGE>
payable by the Fund include legal and accounting fees, custodial and transfer
agency fees, registration and filing fees, brokerage commissions, interest,
taxes, office facilities, 12b-1 fees, travel, printing, postage, clerical and
administrative salaries and expenses of an extraordinary and nonrecurring
nature.
The Fund has relied upon the investment advice of Asset Management
since September 1988. From September 1988 to March 1996, Asset Management was
wholly owned by Mark D. Beckerman, its then President and Portfolio Manager. In
March 1996, ownership of Asset management was transferred to Sheldon E. Goldberg
and Gregory Church. Mr. Beckerman continues to serve as the Fund's Portfolio
Manager pursuant to a five-year employment agreement.
The Fund's financial statements for the fiscal year ended June 30, 1995
are incorporated by reference to the Fund's 1995 Annual Report to Shareholders.
A copy of the Fund's Annual Report can be obtained at no charge by calling the
toll free number on page 1 or writing the Fund at its address on page 1.
INVESTMENT OBJECTIVE AND POLICIES
---------------------------------
The Fund's sole objective is to achieve capital appreciation through
investment in the securities of relatively few companies, which will be selected
for potential long-term performance. The Fund intends to be fully invested in
common stocks and other securities having investment characteristics similar to
common stocks (i.e., warrants and convertible debentures). The Fund may invest
in privately offered and over-the-counter securities as well as in securities
listed on a national securities exchange. Asset Management will utilize
research, financial analysis and other tools of business evaluation for
selecting companies and industries with above average performance or prospects.
While the rate of portfolio turnover will not be a limiting factor when
portfolio changes are deemed appropriate, given the Fund's investment objective,
its annual portfolio turnover rate generally should not exceed 100%. For fiscal
years 1993, 1994 and 1995, the Fund's annual portfolio turnover rates were
167.3%, 160.1% and 72.1%, respectively. Portfolio turnover rates exceeding 100%,
as occurred in fiscal 1993 and 1994, tend to increase the amount of brokerage
commissions paid, and in the future could adversely impact upon the Fund's
ability to meet one of the requirements for qualifying as a regulated investment
company under the Internal Revenue Code, which is that gains realized on
securities held for less than three months must be limited to 30% of the Fund's
gross income.
B-3
<PAGE>
Warrants
- --------
The Fund may invest up to 5% of its assets in warrants. Such warrants
may be unlisted (over-the-counter) or listed on a national securities exchange.
Warrants convey no rights to dividends, ownership or voting rights but only an
option to purchase equity securities of the issuer at a fixed price for a fixed
period of time. If such securities appreciate, the warrants may be exercised or
sold at a gain, but a loss will be incurred if such securities decrease in value
or the term of the warrant expires before it is exercised. Thus, warrants are
considered speculative.
Defensive Investments
- ---------------------
The Fund may invest for defensive purposes in U.S. Government
securities, repurchase agreements collateralized by U.S. Government securities,
or high grade commercial paper.
Securities issued or guaranteed by the U.S. Government or its agencies
and instrumentalities in which the Fund may invest include U.S. Treasury
securities, which differ only in their interest rates, maturities and times of
issuance. Treasury bills have initial maturities of one year or less; Treasury
notes have initial maturities of one to ten years; and Treasury bonds generally
have initial maturities of more than ten years. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, for example,
Government National Mortgage Association ("GNMA") pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, by the right of the issuer to borrow money
from the Treasury; others, such as those issued by the Federal National Mortgage
Association, by the discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by the credit of the
agency or instrumentality. While the U.S. Government provides financial support
to U.S. Government-sponsored agencies and instrumentalities, no assurance can be
given that it will always do so, since it is not so obligated by law. The Fund
will invest in securities issued or guaranteed by U.S. Government agencies and
instrumentalities only when Asset Management is satisfied that the credit risk
with respect to the issuer is minimal.
In a repurchase agreement, the Fund purchases securities and the seller
agrees to repurchase them from the Fund at a mutually agreed-upon time and
price. The period of maturity is usually overnight or a few days, although it
may extend over a number of months. The resale price is in excess of the
purchase price, reflecting an agreed-upon rate of return effective for the
period of time the Fund's money is invested in the security. The Fund's
repurchase agreements will at all times be fully collateralized in an
B-4
<PAGE>
amount at least equal to [102%] of the purchase price, including accrued
interest earned on the underlying securities. The instruments held as collateral
are valued daily and, if the value of the instruments declines, the Fund will
require additional collateral. If the seller defaults and the value of the
collateral securing the repurchase agreement declines, the Fund may incur a
loss. If bankruptcy proceedings are commenced with respect to the seller,
realization upon the collateral by the Fund may be delayed or limited. The Fund
will only enter into repurchase agreements involving securities in which it
could otherwise invest and with selected financial institutions and brokers and
dealers which meet certain creditworthiness and other criteria.
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs.
Non-Liquid Assets
- -----------------
The Fund has authority to invest up to 5% of its net assets in
non-liquid assets. Investments in unseasoned issuers are subject to a greater
degree of risk than investment in seasoned issuers, because of the lack of
earnings or operating histories. The restrictions upon the disposition of
"restricted" securities may adversely affect their liquidity and marketability.
Non-liquid assets, if acquired, will be valued at fair value as determined in
good faith by the Board of Directors of the Fund, and the value of "restricted"
securities may be less than the market value of unrestricted securities of the
same type.
Foreign Securities
- ------------------
Investments will be made primarily in securities of companies domiciled
in the United States. Although the Fund has authority to make investments in
securities of issuers domiciled in any foreign country, the Fund currently
intends to exercise such authority only as to foreign issuers whose securities
are traded in the U.S. securities markets through dollar-denominated American
Depository Receipts ("ADRs"). ADRs are certificates issued by an American bank
to evidence ownership of original foreign shares. The original foreign stock
certificate is deposited with a foreign branch or correspondent bank of the
issuing American bank. ADRs are considered to be "sponsored" when the foreign
issuer has designated a single U.S. financial institution to act as the transfer
agent for that ADR. Unsponsored ADRs are organized independently and without the
cooperation of the foreign issuer of the underlying securities; as a result,
available information regarding the issuer may not be as current as for
sponsored ADRs, and the prices of unsponsored ADRs may be more volatile than if
they were sponsored by the issuers of the underlying securities.
B-5
<PAGE>
The securities of foreign issuers involve risks that are different from
those of domestic issuers, including possibly different or adverse political and
economic developments, possible imposition of governmental restrictions and
possible curtailment of dividends or principal, subject to currency blockage, at
the source, and also involve such other considerations as the then current
exchange rate if such issuer does not pay interest or dividends, as the case may
be, in U.S. dollars. In addition, it may be more difficult to obtain and enforce
a judgment against a foreign issuer, there may be less publicly available
information about the foreign issuer and foreign issuers generally are not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to domestic issuers.
Not more than 10% in value of the Fund's investments may be made in the
securities of issuers domiciled in foreign countries.
Securities Options
- ------------------
The Fund has authority to engage in transactions in exchange listed
securities options, as such transactions are currently defined and may be
defined in the future, and not just the particular types of options transactions
which are described herein merely by way of example. Listed options are issued
by the Options Clearing Corporation (the "OCC"), which guarantees the
performance of the obligations of the parties to such options.
Among the reasons why the Fund may purchase a call option is to achieve
a greater amount of leverage than would otherwise be possible by buying the
underlying stock. This is so because only the amount of the "premium" need be
paid when purchasing a call, rather than the full purchase price for the
underlying stock. On the other hand, one reason why the Fund may engage in the
selling (or "writing") of call options is to earn the premium income. The risk
to the Fund in the purchase of calls is the loss of the premium paid if the
price of the security has not risen during the term of the option. The risk to
the Fund for writing calls is that the Fund could lose any price appreciation on
the securities upon which calls have been written when those calls are exercised
by the purchasers.
The Fund will only write "covered calls." This means that the Fund must
own the underlying security in order for the Fund to write the applicable
options contract, or must have the absolute right to acquire the underlying
security without additional cash consideration (or, if additional cash
consideration is required, cash or cash equivalents in such amount are held in a
segregated account by the Fund's Custodian).
Another strategy involving options which the Fund may use is the
purchase of put options. The principal reason why the Fund may purchase puts
would be to reduce the risk in any investment position taken by the Fund in any
security. This strategy would allow the Fund
B-6
<PAGE>
to continue holding a particular security for any anticipated further price
appreciation and at the same time would protect the Fund from any decline in the
value of the security. However, such a strategy would effectively increase the
cost of a security by the cost of the option and thereby reduce the return, if
any, on that security.
In addition to purchasing puts, the Fund also may write covered puts. A
put option is "covered" if the Fund holds cash or liquid high-grade debt
securities in a segregated account with its Custodian in an amount sufficient to
acquire the security, or holds a put option on the same security with the same
or a greater exercise price (or with a lesser price and with the balance
maintained as cash or liquid high grade debt securities). The principal reason
for the Fund to write a put would be to earn the premium income thereon. The
Fund has not written any puts since the inception of its authority to engage in
transactions in exchange listed securities options.
The Fund may also engage in options transactions in various
combinations, two of which are known as "spreads" and "straddles". A spread
involves the simultaneous buying and writing of the same type of option (whether
a put or a call) on the same underlying stock, with the options having different
exercise prices or different exercise dates, or both. A straddle involves the
simultaneous buying (or writing, as the case may be) of a put and a call on the
same underlying security, usually for different exercise prices. The risks of
straddle writing are greatest where the underlying stock has a high degree of
price volatility.
A separate and additional risk to the Fund with respect to engaging in
options transactions may be that the Fund will not be able to close out its
position in a particular option if and when the Fund desires to do so. The Fund
closes out an option which it has purchased by selling an option of the same
series as the option previously purchased, and closes out an option which it has
written by buying an option of the same series as the option previously written.
The Fund's ability to close out its position as a purchaser of an exchange
listed option would be dependent upon the existence of a liquid secondary market
on option exchanges (i.e., the CBOE, the American, Pacific and Philadelphia
Stock Exchanges). Among the possible reasons for the absence of a liquid
secondary market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations of an exchange; (v) inadequacy of the
facilities of an exchange or the OCC to handle current trading volume; or (vi) a
decision by one or more of the exchanges to discontinue the trading of options,
in which event the secondary market on the exchange would cease to exist,
although outstanding options on that exchange that had been listed by the OCC
B-7
<PAGE>
as a result of trades on that exchange would generally continue to be
exercisable in accordance with their terms.
Some of the strategies employed with options may be considered to be
speculative. One type of transaction which is inherently speculative is the
purchase of calls. With the purchase of a call, the Fund is considered to be "at
risk" for the amount of the premium paid for the call if the underlying security
does not rise above the "exercise" price during the life of the call.
Accordingly, the Fund will follow the practice of limiting the net "at risk"
amounts with respect to the purchase of puts or calls to 10% of the Fund's net
assets, determined on the date of purchase.
On the other hand, certain strategies involving options are deemed to
be conservative and may tend to minimize the risk of loss due to a decline in
the value of the underlying security position. At the same time, the use of
these strategies may also tend to limit any potential gain which might result
from an increase in the value of any such position. The ability of the Fund to
utilize this strategy successfully will depend upon Asset Management's ability
to forecast pertinent market movements, which cannot be assured.
Investment Limitations
- ----------------------
Except as described below, the Fund's policies are not fundamental
policies and may be changed at any time without shareholder vote.
The Fund has adopted the following limitations, which cannot be changed
without approval of the holders of a majority of its shares. The term "majority"
means the lesser of (1) 67% of the Fund's shares present at a meeting if the
holders of more than 50% of the outstanding shares are present in person or by
proxy, or (2) more than 50% of the Fund's outstanding shares. These limitations
provide that the Fund shall not:
1. Invest in companies for the purpose of exercising management or
control or invest more than 25% of its assets in a particular industry;
2. Purchase (i) the securities of any unseasoned issuer if by reason
thereof and immediately after making such purchase the value of the Fund's
aggregate investments in the securities of all such unseasoned issuers shall
equal or exceed 5% of the Fund's total assets (for this purpose an unseasoned
issuer shall be deemed to be an entity which has been in operation for less than
three years, including all predecessors), or the equity securities of any issuer
which are not readily marketable, (ii) repurchase agreements, the maturity of
which exceeds seven days, and the aggregate of which repurchase agreements
exceeds 5% of the Fund's total assets, or (iii) "restricted" securities, except
that the Fund may invest no more than 5% of the
B-8
<PAGE>
value of its assets (at the time of investment) in portfolio securities under
circumstances in which the Fund might not be free to sell such securities
without being deemed an underwriter for purposes of the Securities Act of 1933
and without registration of such securities under such Act, in which case the
Fund might be obliged to pay all or part of the expenses of such registration;
3. Invest in commodities, commodity contracts or real estate, except
that the Fund may invest in securities of real estate trusts or companies;
4. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may purchase marketable securities of
any issuer engaged in oil, gas or other mineral exploration or development
programs;
5. Make loans, except by the purchase of bonds or other obligations of
types commonly sold privately to financial institutions (also see 2) (the
purchase of a portion of an issue of publicly distributed bonds, debentures or
other obligations is not considered the making of a loan);
6. Borrow money, except from banks in an amount which will not cause
the Fund's net assets (including the amount borrowed) to be less than 300% of
such borrowed amount;
7. Make short sales (but if securities, such as warrants or convertible
debentures, are being tendered for conversion, the Fund may sell the securities
to be acquired, provided that upon receipt such securities are used to close the
sale);
8. Purchase or retain securities of an issuer if the officers and
directors of the Fund or Asset Management owning individually more than 1/2 of
1% of the securities of such issuer together own more than 5% of the securities
of such issuer;
9. Purchase the securities of any other investment company, except as
part of a merger, consolidation or acquisition;
10. With respect to 50% of the value of its assets, invest more than 5%
of the value of its assets in any one issuer, excluding United States Government
securities, or purchase more than 10% of the outstanding securities of any one
issuer. With respect to the other 50% of the value of its assets, the Fund will
not invest more than 25% of its assets in the securities of any one issuer or
any two or more issuers which pursuant to regulations under the Internal Revenue
Code may be deemed to be controlled by the Fund and engaged in the same or
related trades or businesses; and
11. Write, purchase or sell puts, calls or combinations thereof (this
restriction does not refer to warrants), except for
B-9
<PAGE>
puts, calls or combinations thereof listed on any national securities exchange.
Leverage
- --------
The Fund may leverage by borrowing from banks and investing the
borrowed fund, but does not currently intend to do so.
To the extent that borrowed money is utilized and the amount borrowed
is substantial, the Fund's net asset value per share may tend to appreciate or
depreciate more rapidly than would otherwise be the case. This is the
speculative factor known as "leverage". Interest on borrowed money would be an
expense of the Fund which it would not otherwise incur, so that the Fund's net
investment income could expect to be adversely impacted during periods when the
Fund's borrowings are substantial.
The Fund may not pledge more than 75% of its assets as security for
money borrowed.
MANAGEMENT OF THE FUND
----------------------
Investment Advisor
- ------------------
Asset Management was organized in 1988 to act as investment adviser to
the Fund. Its sole client is the Fund. The amount of the advisory fee paid by
the Fund to Asset Management for the years ended June 30, 1993, 1994 and 1995
was $50,109, $87,235 and $82,466 respectively.
The Fund's investment advisory agreement with Asset Management provides
that Asset Management will not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the matters to which
the agreement relates, except for losses resulting from willful misfeasance, bad
faith, or gross negligence in the performance of Asset Management's duties on
behalf of the Fund or from reckless disregard by Asset Management of its duties
under the agreement. The agreement provides that it will terminate in the event
of its assignment (as such term is defined in the Investment Company Act of
1940). The agreement may be terminated by the Board of Directors of the Fund or
vote of a majority of the outstanding voting securities of the Fund (as defined
in the 1940 Act) or Asset Management, upon 60 days' written notice, without
payment of any penalty. The agreement will continue in effect after March 15,
B-10
<PAGE>
1998, only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act of 1940.
Sheldon E. Goldberg and Gregory A. Church own in equal proportions an
aggregate of 76% of the outstanding shares of Asset Management. They acquired
their ownership pursuant to a Stock Purchase Agreement dated as of November 10,
1995 with Mark D. Beckerman, the prior owner of all of the outstanding shares of
Asset Management. The Stock Purchase Agreement was consummated on March 15,
1996, following Fund shareholder approval of the advisory agreement between
Asset Management and the Fund under Asset Management's new ownership structure.
Upon the consummation of the Stock Purchase Agreement, wherein Messrs. Goldberg
and Church acquired 100% of the outstanding shares of Asset Management from Mr.
Beckerman, Messrs. Goldberg and Church sold 24% of such shares to eight
individual investors. Messrs. Goldberg and Church have entered into a voting
agreement which requires them to vote jointly all shares of Asset Management
held by them.
In consideration for the transfer to Messrs. Goldberg and Church of
100% of the outstanding shares of Asset Management, Mr. Beckerman received a
five-year employment agreement with Asset Management, pursuant to which Mr.
Beckerman will continue to serve as the Portfolio Manager for the Fund. Under
the employment agreement, Asset Management will pay Mr. Beckerman annual
compensation equal to 0.75% of the first $15 million of average daily net assets
of the Fund. This amount may be proportionally reduced by the amount of any
reduction in the management fee received by Asset Management from the Fund as a
result of Asset Management's obligation to limit Fund expenses to 4% of average
daily net assets. In addition, Mr. Beckerman has an option entitling him to
acquire a 10% interest in each class of outstanding shares of Asset Management
during the fifth year of the employment agreement. Alternatively, Mr. Beckerman
may collect from Asset Management $150,000 in five equal installments beginning
on June 30, 2001. These amount are payable to Mr. Beckerman unless he is
terminated "for cause" or he voluntarily resigns as Portfolio Manager, and are
not obligations of the Fund.
Administrator
- -------------
The Administrator of the Fund is Investment Company Administration
Corporation, 2025 East Financial Way, Suite 101, Glendora, CA 91741.
Pursuant to an administration agreement with the Fund, the
Administrator is responsible for performing all administrative services required
for the daily business operations of the Fund, subject to the supervision of the
Board of Directors of the Fund. The Administrator has no supervisory
responsibility over the investment operations of the Fund. The management or
administrative services of
B-11
<PAGE>
the Administrator for the Fund are not exclusive under the terms of the
administration agreement and the Administrator is free to, and does, render
management and administrative services to others.
In connection with its management of the corporate affairs of the Fund,
the Administrator pays the salaries and expenses of all its personnel and pays
all expenses incurred in connection with managing the ordinary course of the
business of the Fund, other than expenses assumed by the Fund as described
below.
Under the terms of the Administration Agreement, the Fund is
responsible for the payment of the following expenses: (a) the fees and expenses
incurred by the Fund in connection with the management of the investment and
reinvestment of its assets, (b) the fees and expenses of Directors and officers
of the Fund who are not affiliated with the Administrator, Asset Management or
the co-distributors, (c) out-of-pocket travel expenses for the officers and
Directors of the Fund and other expenses of Board of Director meetings, (d) the
fees and certain expenses of the Custodian, (e) the fees and expenses of the
Transfer and Dividend Disbursing Agent that relate to the maintenance of each
shareholder account, (f) the charges and expenses of the Fund's legal counsel
and independent accountants, (g) brokerage commissions and any issue or transfer
taxes chargeable to the Fund in connection with securities transactions, (h) all
taxes and corporate fees payable by the Fund to federal, state and other
governmental agencies, (i) the fees of any trade association of which the Fund
may be a member, (j) the cost of maintaining the Fund's existence, (k) taxes and
interest, (l) the cost of fidelity and liability insurance, (m) the fees and
expenses involved in registering and maintaining the registration of the Fund
and of its shares with the Commission and registering the Fund as a broker or
dealer and qualifying their shares under state securities laws, including the
preparation and printing of the Fund's registration statement, prospectuses and
statements of additional information, (n) allocable communication expenses with
respect to investor services and all expenses of shareholders' and Board of
Directors' meetings and of preparing, printing and mailing prospectuses and
reports to shareholders, (o) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the business of
the Fund, and (p) expenses assumed by the Fund pursuant to any plan of
distribution adopted in conformity with Rule 12b-1 under the Investment Company
Act.
The administration agreement provides that the Administrator will not
be liable for any error of judgment or for any loss suffered by the Fund in
connection with the matters to which the administration agreement relates,
except a loss resulting from the Administrator's willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties. The administration
agreement will terminate automatically if assigned, and may be terminated
without penalty by either the Administrator or the Fund (by the Board of
Directors of the
B-12
<PAGE>
Fund or vote of a majority of the outstanding voting securities of the Fund, as
defined in the Investment Company Act of 1940), upon 60 days' written notice.
The administration agreement will continue in effect only so long as such
continuance is specifically approved at least annually in conformity with the
Investment Company Act of 1940.
Directors and Officers of the Fund
- ----------------------------------
The following persons are directors and officers of the Fund:
*GREGORY A. CHURCH, President, Secretary and Director, 301 Oxford
Valley Road, Yardley, Pennsylvania 19067. President, Church Capital Management,
Inc. and G. A. Church & Company (registered investment advisers) since June
1987; Chairman, Bainbridge & Co. (registered broker-dealer) since October 1994.
R. BARRY BORDEN, Director, P.O. Box 677, Bala Cynwyd, PA. 19004.
President, LMA Group, Inc. (general management consulting) since April 1990.
KEVIN M. COVERT, Director, 76 Euclid Avenue, Haddonfield, New Jersey
08083. Shareholder, Kulzer & DiPadova, P.A. (law firm) since 1984.
DOMINICK A. CRUCIANI, JR., M.D., Director, 1360 Wyoming Avenue,
Scranton, Pa. 18503. Physician since 1958. A director of Cumberland Growth Fund,
Inc. from October 1989 to September 1992.
GERALD PRINTZ, Director, 4450 Hickory Ridge Road, Jackson, MS 39211.
President, AMSADOR, Ltd. (computer security and disaster recovery planning
consultant), since March 1994; consultant, IBM, 1988 to February 1994.
Attendance fees of $250 per meeting have been authorized for those
directors who are not "interested persons" (as such term is defined in the
Investment Company Act of 1940) of Asset Management, Cumberland or Bainbridge.
Set forth below is the compensation in tabular form of the individuals
who were directors of the Fund prior to March 15, 1996.
- -------------
*Mr. Church is an "interested persons" of the Fund, as defined in the
Investment Company Act of 1940.
B-13
<PAGE>
<TABLE>
COMPENSATION TABLE
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Total
Person, Compensation Retirement Annual Compensation
Position from Benefits Benefits from
Registrant Accrued as Upon Registrant
Part of Fund Retirement and Fund
Expenses Complex**
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert $ 750 0 0 $ 1,500
Gruber
(Director)
Andrew D. $ 750 0 0 $ 1,500
Sherman
(Director)
Myer M. $ 750 0 0 $ 1,500
Alperin
(Director)
Dominick A. $ 750 0 0 $ 1,500
Cruciani
(Director)
</TABLE>
- -------------------
** From June 1994 to February 1996, Asset Management acted as the investment
adviser for Progressive Portfolios Series ("PPS"), a registered investment
company. PPS was liquidated in February 1996.
CO-DISTRIBUTORS
---------------
Distribution Agreement
- ----------------------
Pursuant to their distribution agreements with the Fund, each of the
co-distributors has agreed to use its best efforts to effect sales of shares of
the Fund, but is not obligated to sell any specified number of shares. The
distribution agreement contains provisions with respect to renewal and
termination similar to those in the investment advisory agreement discussed
above. Pursuant to the distribution agreement, the Fund has agreed to indemnify
the co-distributors to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933.
- -----------------
** From June 1994 to February 1996, Asset Management acted as the investment
advisor for Progressive Portfolios Series ("PPS"), a registered investment
company. PPS was liquidated in February 1996.
B-14
<PAGE>
Distribution Plan
- -----------------
Under a Distribution Plan for the Fund adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940 and the distribution agreements, each
co-distributor incurs the expense of distributing shares of the Fund. The
Distribution Plan provides for compensation to each of the co-distributors for
the services it provides, and the costs and expenses it incurs, related to
marketing shares of the Fund. The co-distributor is paid for: (a) expenses
incurred in connection with advertising and marketing shares of the Fund,
including but not limited to any advertising by radio, television, newspapers,
magazines, brochures, sales literature, telemarketing or direct mail
solicitations; (b) periodic payments of fees or commissions for distribution
assistance made to one or more securities brokers, dealers or other industry
professionals such as investment advisers, accountants, estate planning firms
and the co-distributor itself in respect of the average daily value of shares
owned by clients of such service organizations, and (c) expenses incurred in
preparing, printing and distributing the Fund's prospectuses and statements of
additional information.
Brokerage
- ---------
The aggregate brokerage commissions paid by the Fund during the fiscal
years ended June 30, 1993, 1994 and 1995 were $26,476, $ 45,780 and $ 22,640,
respectively, of which $25,332 (95.68%), $ 44,432 (97.06%) and $22,292 (98.46%),
respectively, was paid to firms which provided research or other services to
Asset Management.
Rule 17e-1 under the 1940 Act provides that a commission, fee or other
remuneration does not exceed the usual and customary broker's commission if it
is "reasonable and fair compared to the commission, fee or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time...." Rule 17e-1 also requires the Board of Directors
of the Fund, including a majority of the directors who are not "interested
persons" (as defined in the 1940 Act) of the Fund, of Asset Management, of
Cumberland or of Bainbridge, to adopt procedures reasonably designed to provide
that the commissions paid are consistent with the above standard, to assure that
the procedures continue to be appropriate, and to determine at least quarterly
that the transactions have been effected in compliance with those procedures.
During the fiscal year ended June 30, 1995, gross commissions aggregating $5,617
were paid to Beckerman and Company, Inc., a broker-dealer which previously was
an affiliated entity of the Fund; these transactions represented 24.81% of the
aggregate dollar amount of the Fund's commission transactions for such year.
B-15
<PAGE>
With respect to purchase orders for Fund shares which are paid for by
check, if the check is not honored upon presentment, the purchase order is
subject to cancellation, and the purchaser's account with the Fund immediately
is charged for any loss incurred. In the event the shareholder's account balance
is insufficient to cover the loss, Cumberland or Bainbridge is required
immediately to reimburse the Fund for the difference; conversely, if the
cancellation results in a gain, Cumberland or Bainbridge will be entitled to
such gain, as they shall determine.
SPECIAL ACCOUNTS
----------------
Check-A-Matic
- -------------
The Automatic Accumulation Plan is a convenient method for purchasing
shares ($1,000 minimum and $100 each subsequent investment) on a regular basis
without the need to write and mail a check each time. Upon completion of the
form which pertains to the Check-A-Matic Plan, the investor designates
Cumberland or Bainbridge, through their agent, American Data Services, Inc., by
pre-authorized checks, to charge the regular bank account of the shareholder on
a specific date in each month or quarter to provide automatic additions at net
asset value to the account of such shareholder. The Check-A-Matic Plan may be
changed or cancelled at any time upon receipt by the Fund's transfer agent of
written instructions or an amended application from the shareholder, with
signatures guaranteed. It will be terminated automatically whenever a check is
returned as being uncollected for any reason.
Self-Employed Retirement Plan ("Keogh")
Individual Retirement Accounts ("IRA")
Tax Sheltered Retirement Plan ("403(b)")
- ----------------------------------------
For those self-employed individuals who wish to purchase shares of the
Fund in connection with a retirement plan, the Fund has available a prototype
Retirement Plan and Custodial Agreement. Alternatively, self-employed
individuals may establish their own retirement plan and invest in shares of the
Fund. Fund shares may also be purchased through an Individual Retirement Account
("IRA") established under the Employee Retirement Income Security Act of 1974
("ERISA"). ERISA also permits employees of public school systems and employees
of certain other charitable organizations to enter into tax sheltered plans in
accordance with Section 403(b) of the Internal Revenue Code. Share purchases
under retirement plans, IRA accounts and 403(b) accounts are made at net asset
value per share. Star Bank serves as the custodian under such retirement plans.
Accumulated contributions in existing retirement plans may be transferred to the
Fund's retirement plans with the necessary letters of transmittal. The minimum
initial investment for all Fund retirement programs is $1,000 and $100 for
subsequent investments. Except for "roll-overs",
B-16
<PAGE>
payment must accompany the establishment of the plan and the purchase of Fund
shares thereunder. All share redemptions under these plans will be made at net
asset value. For further information concerning the Fund's retirement plans,
including the fees of the custodian, write or telephone the Fund.
Because adoption of these retirement plans may involve important tax
considerations or consequences, including the imposition of a tax penalty for
early withdrawals, consultation with an attorney or qualified tax adviser
regarding the retirement plan is recommended.
Systematic Withdrawal Program
- ------------------------------
An Automatic Cash Withdrawal Plan (the "Withdrawal Plan") is available
to any investor who purchases a minimum of $10,000 of Fund shares or who has
acquired Fund shares which have attained a total net asset value of $10,000.
Upon adoption of the Withdrawal Plan and surrender of the investor's stock
certificates, if any, an account will be set up and maintained in the investor's
name. American Data Systems, Inc. will liquidate a sufficient number of shares
on the 26th calendar day of the month preceding such monthly or quarterly
distribution to provide for periodic payments to the investor of $25 or any
multiple of $5 above that amount. If the 26th calendar day is not a business
day, the shares will be liquidated on the next business day. The plan will be
continued until the investor's shares have been fully liquidated, either the
Fund or American Data Systems, Inc. gives written notice of termination, or the
investor requests that the plan be terminated. The investor may request at any
time that payments be changed from monthly to quarterly, or from quarterly to
monthly, or have payments increased or decreased to $25 or any multiple of $5
above that amount. The investor also may request that a specified amount be
liquidated or that the Withdrawal Plan be terminated and the remaining shares be
delivered to the investor.
All dividends and distributions declared on shares held in the
Withdrawal Plan account are reinvested at net asset value, and additional shares
so acquired are added to the share balance in the account. To the extent that
withdrawals exceed income, such excess represents a return of principal.
TAXES
-----
The Fund intends to comply with Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), if it is in the best interests of Fund
shareholders to do so, which relieves complying investment companies which
distribute substantially all of their net income of Federal income tax on the
amount distributed. For its taxable year ended June 30, 1995, the Fund qualified
for treatment as a regulated investment company under Subchapter M.
B-17
<PAGE>
As a regulated investment company, the Fund will not be liable for
federal income tax on its income and gains provided it distributes all of its
income and gains currently. Qualification as a regulated investment company
under the Code requires, among other things, that the Fund (a) derive at least
90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of securities or
foreign currencies, or other income (including, but not limited to, gains from
options), derived with respect to its business of investing in such securities;
(b) derive less than 30% of its gross income from the sale or other disposition
of stock, securities, options, and certain other investments held less than
three months; (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities and securities of other
regulated investment companies, and other securities (for purposes of this
calculation generally limited, in respect of any one issuer, to an amount not
greater than 5% of the market value of the Fund's assets and 10% of the
outstanding voting securities of such issuer) and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government or foreign government securities or the securities of other
regulated investment companies), or two or more issuers which the Fund controls
and which are determined to be engaged in the same or similar trades or
businesses; and (d) distribute at least 90% of its investment company taxable
income (which includes dividends, interest, and net short-term capital gains in
excess of net long-term capital losses each taxable year).
The Fund generally will be subject to a nondeductible excise tax of 4%
to the extent that it does not meet certain minimum distribution requirements as
of the end of each calendar year. To avoid the tax, the Fund must distribute
during each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income and net capital gain (not taking into account any capital gains
or losses as an exception) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (and adjusted for certain ordinary
losses) for the twelve month period ending on October 31 of the calendar year,
and (3) all ordinary income and capital gains for previous years that were not
distributed during such years. A distribution will be treated as paid on
December 31 of the calendar year if it is declared by the Fund in October,
November, or December of that year to shareholders of record on a date in such a
month and paid by the Fund during January of the following year. Such
distributions will be taxable to shareholders (other than those not subject to
federal income tax) in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
Dividends paid by the Fund from ordinary income, and distributions of
the Fund's net realized short-term capital gains, are taxable to its
shareholders as ordinary income. Distributions to
B-18
<PAGE>
corporate shareholders will be eligible for the 70% dividends received deduction
to the extent that the income of the Fund is derived from dividends on common or
preferred stock of domestic corporations. Dividend income earned by the Fund
will be eligible for the dividends received deduction only if the Fund has
satisfied a 46-day holding period requirement with respect to the underlying
portfolio security (91 days in the case of dividends derived from preferred
stock). In addition, a corporate shareholder must have held its shares in the
Fund for not less than 46 days (91 days in the case of dividends derived from
preferred stock) in order to claim the dividend received deduction. Not later
than 60 days after the end of its taxable year, the Fund will send to its
shareholders a written notice designating the amount of any distributions made
during such year which may be taken into account by its shareholders for
purposes of such deduction provisions of the Code. Net capital gain
distributions are not eligible for the dividends received deduction.
Under the Code, any distributions designated as being made from net
capital gains are taxable to the Fund's shareholders as long-term capital gains,
regardless of the holding period of such shareholders. Such distributions of net
capital gains will be designated by the Fund as a capital gains distribution in
a written notice to its shareholders which accompanies the distribution payment.
Any loss on the sale of shares held for less than six months will be treated as
a long-term capital loss for federal tax purposes to the extent a shareholder
receives net capital gain distributions on such shares. The maximum federal
income tax rate applicable to long-term capital gains is currently 28% for
individual shareholders and 35% for corporate shareholders. Dividends and
distributions are taxable as such whether received in cash or reinvested in
additional shares of a Portfolio.
Any loss realized on a sale, redemption or exchange of shares of the
Fund by a shareholder will be disallowed to the extent the shares are replaced
within a 61-day period (beginning 30 days before the disposition of shares).
Shares purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
Special Tax Considerations
- --------------------------
The options contracts used by the Fund are "section 1256 contracts."
Any gains or losses on section 1256 contracts are generally credited 60%
long-term and 40% short-term capital gains or losses ("60/40") although gains
and losses from hedging transactions may be treated as ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and, for purposes of the 4% excise tax, on certain other dates as prescribed
under the Code) are "marked to market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as ordinary or 60/40 gain or loss, depending on the circumstances.
B-19
<PAGE>
Generally, the hedging transactions and certain other transactions in
options undertaken by the Fund may result in "straddles" for U.S. federal income
tax purposes. The straddle rules may affect the character of gains (or losses)
realized by the Fund. In addition, losses realized by the Fund on positions that
are part of a straddle may be deferred under the straddle rules, rather than
being taken into account in calculating the taxable income for the taxable year
in which such losses are realized. Because only a few regulations implementing
the straddle rules have been promulgated, the tax consequences of transactions
in options, futures and forward contracts to the Portfolio are not entirely
clear. The transactions may increase the amount of short-term capital gain
realized by the Portfolio which is taxed as ordinary income when distributed to
shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions. Because applications of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the recognition of
gains or losses from the affected straddle positions, the amount which must be
distributed to the shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The 30% limit on gains from the disposition of certain options
contracts held less than three months and the qualifying income and
diversification requirements applicable to the Funds' assets may limit the
extent to which the Fund will be able to engage in option transactions.
The Fund may be required to withhold for U.S. federal income taxes 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal tax liability.
The Fund may also be subject to state or local taxes in certain other
states where it is deemed to be doing business. Further, in those states which
have income tax laws, the tax treatment
B-20
<PAGE>
of the Fund and of the shareholders of the Fund with respect to distributions by
the Fund may differ from federal tax treatment. Distributions to shareholders
may be subject to additional state and local taxes. Shareholders should consult
their own tax advisers regarding specific questions as to federal, state or
local taxes.
PERFORMANCE INFORMATION
-----------------------
The Fund may from time to time advertise total return, compare Fund
performance to various indices, and publish rankings of the Fund prepared by
various ranking services. Any performance information should be considered in
light of the Fund's investment objective and policies, characteristics and
quality of the its portfolio, and the market conditions during the given time
period, and should not be considered to be representative of what may be
achieved in the future.
Total Return
- ------------
The total return for the Fund is computed by assuming a hypothetical
initial payment of $1,000. It is assumed that all investments are made at net
asset value and that all of the dividends and distributions by the Fund over the
relevant time periods are invested at net asset value. It is then assumed that,
at the end of each period, the entire amount is redeemed without regard to any
redemption fees or costs. The average annual total return is then determined by
calculating the annual rate required for the initial payment to grow to the
amount which would have been received upon redemption. Total return does not
take into account any federal or state income taxes.
Total return is computed according to 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 at the end
of the period (or fractional portion
thereof) of a hypothetical $1,000
payment made at the beginning of the
period.
Total returns for the Fund for the periods indicated are set forth
below: one year ended December 29, 1995 - 25.28%; five year ended December 29,
1995 - 15.70%; ten year inception to December 29, 1995 - 13.54%
Comparison to Indices and Rankings
- ----------------------------------
B-21
<PAGE>
Performance information for the Fund may be compared to various
unmanaged indices, such as the Standard & Poor's 500 Stock Price Index, the Dow
Jones Industrial Average, and indices prepared by Lipper Analytical Services.
Unmanaged indices generally do not reflect deductions for administrative and
management costs and expenses.
Performance rankings are prepared by a number of mutual fund ranking
entities that are independent of the Fund and its affiliates. These entities
categorize and rank funds by various criteria, including fund type, performance
over a given period of years, total return, standardized yield, variations in
sales charges and risk/reward considerations.
B-22
<PAGE>
INVESTMENT ADVISER TRANSFER AGENT
Matterhorn Asset Management Corporation American Data Services, Inc.
301 Oxford Valley Road 24 West Carver Street, 2nd Floor
Yardley, Pennsylvania 19067 Huntington, New York 11743
1-800-637-3901
CO-DISTRIBUTORS
Cumberland Brokerage Corporation Bainbridge & Company
614 Landis Avenue 301 Oxford Valley Road, Suite 801-B
Vineland, New Jersey 08360 Yardley, Pennsylvania 19067
CUSTODIAN AUDITORS
Star Bank McGladrey & Pullen, LLP
Post Office Box 1118 555 Fifth Avenue
Cincinnati, Ohio 45201 New York, New York 10017
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TABLE OF CONTENTS
Page
SUMMARY...................................................................
INVESTMENT OBJECTIVE AND POLICIES.........................................
Warrants.........................................................
Defensive Investments............................................
Non-Liquid Assets................................................
Foreign Securities...............................................
Securities Options...............................................
Investment Limitations...........................................
Leverage.........................................................
MANAGEMENT OF THE FUND....................................................
Investment Advisor...............................................
Administrator....................................................
Directors and Officers of the Fund...............................
CO-DISTRIBUTORS...........................................................
Distribution Agreement...........................................
Distribution Plan................................................
Brokerage........................................................
SPECIAL ACCOUNTS..........................................................
Check-A-Matic Plan...............................................
Self-Employed Retirement Plan ...................................
Tax Sheltered Retirement Plan ("403(b)").........................
B-23
<PAGE>
TAXES.....................................................................
Special Tax Considerations.......................................
PERFORMANCE INFORMATION...................................................
Total Return.....................................................
Comparison to Indices and Rankings...............................
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No dealer, salesman, or other person has been authorized to give any
information or to make any representations other than those contained in the
Prospectus in connection with the offer contained in the Prospectus, and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund. The Prospectus does not constitute an
offering in any state or jurisdiction in which such offering may not lawfully be
made.
-Back Cover-
B-24
<PAGE>
THE MATTERHORN GROWTH FUND, INC.
Supplement to Prospectus dated March 15, 1996
The disclosure under the caption "Purchase of Shares" and "Redemption of Shares"
in the Fund's prospectus dated March 15, 1996 is supplemented by the following
information.
Until April 14, 1996, The Bank of New York, 48 Wall Street, New York, NY 10015
is the Custodian of the Fund's assets and DST Systems, Inc., P.O. Box 419953,
Kansas City, MO, 64141-6953 is the Fund's Transfer and Shareholder Service
Agent. On April 15, 1996, the Custodian will be Star Bank, N.A. and the Transfer
and Shareholder Service Agent will be American Data Services, Inc.
Prior to April 15, 1996, shareholders should direct correspondence and inquires
as follow:
INVESTMENTS
BY MAIL: Initial and subsequent investments should be sent to The Matterhorn
Growth Fund, Inc., c/o DST Systems, Inc., P.O. Box 419953, Kansas City, Missouri
64141-6953.
BY WIRE: Investors establishing new accounts should telephone DST Systems, Inc.
at 1-800-637-3901 prior to sending the bank wire. Wire order should be
transmitted to:
United Missouri Bank of Kansas City, N.A.
10th & Grand
Kansas City, Missouri 64106
Routing # 1010-0069-5
Purchase Account No. 987037-104-9
The Matterhorn Growth Fund, Inc.
Account name
Shareholder account number
REDEMPTIONS:
BY MAIL: Written request for redemption, with signatures guaranteed, should be
mailed to The Matterhorn Growth Fund, Inc., c/o DST Systems, Inc., P.O. Box
419953, Kansas City, Missouri 64141-6953.
TELEPHONE REDEMPTION: If you have completed the telephone redemption service,
which includes redemptions by telegram and overseas cable, on the Fund's account
application you may redeem shares by calling DST Systems, Inc.
at 1-800-637-3901.