THE
MATTERHORN
GROWTH
FUND, INC.
Dear Shareholders,
From the vantagepoint of mid-year (and the Fund's fiscal year end), 1998 looks
to be an interesting year for the stock market. Following a cooling off period
in the fourth quarter of 1997, stock indices dominated by large capitalization
stocks resumed their accelerated pace during the first quarter of 1998. The
roaring bull market then slowed during the quarter ended June 30.
Despite low inflation and favorable interest rates providing a positive backdrop
for corporate earnings growth, fears of the overall impact of Asian problems on
the U.S. economy resulted in a cautious retreat for stocks. Sectors most
affected were the basic commodity groups while domestic oriented consumer stocks
and service related companies fared better.
The Matterhorn Growth Fund was up 11.22% for the fiscal year (ended June 30,
1998), as we continued to reduce the Fund's expense ratio and increase its net
assets. We continue to remain confident that the Fund's holdings will prove to
be strong performers for shareholders over the long haul.
The largest industry holdings represented in the Fund's portfolio are banking
and insurance, pharmaceuticals, office equipment and telecommunications --
sectors not overly exposed to Asian economies. We continue to favor financial
and insurance companies given the consolidation activity in these sectors. Some
of our favored holdings in these industry groups include: Firstar Corp., General
Re Corp. and NAC Re Corp. Some other noteworthy stocks within the Fund's
portfolio include: Johnson & Johnson, MediaOne Group, Inc. (formerly, U.S. West
Media Group) and Xerox Corp.
For the balance of the calendar year, we are guardedly optimistic. While
domestic economic indicators maintain favorable postures, the global impact of
Asia has yet to be determined. Our sense is that 1998 may initiate a return to
more normalized long-term rates of return for stocks in general. Selectivity
will be the key to performance.
We appreciate your investment with The Matterhorn Growth Fund, Inc.
Sincerely Yours,
/s/ Gregory A. Church /s/ Sheldon E. Goldberg
Gregory A. Church Sheldon E. Goldberg
President Chairman
The Matterhorn Growth Fund, Inc. Matterhorn Asset Management Corp.
<PAGE>
THE MATTERHORN GROWTH FUND
Comparison of the change in value of a $10,000 investment in the Matterhorn
Growth Fund, Inc. and the Standard & Poors 500 Index
Matterhorn Growth Fund, Inc. S&P 500
---------------------------- -------
9/27/88* 10000 10000
6/30/89 12279.41 11853.43
6/30/90 13799.02 13346.01
6/30/91 14215.69 13835.83
6/30/92 15441.18 15214.34
6/30/93 19901.61 16794.53
6/30/94 21016.54 16561.17
6/30/95 25085.45 20306.79
6/30/96 27996.13 24999.25
6/30/97 30977.27 32995.6
6/30/98 34501.96 42266.46
* Previous periods during which the Fund was advised by another advisor are
not shown.
Past performance is not predictive of future performance.
The S&P 500 Index contains 500 industrial, transportation, utility and financial
companies regarded as generally representative of the U.S. stock market.
<PAGE>
The Matterhorn Growth Fund, Inc.
SCHEDULE OF INVESTMENTS at June 30, 1998
- ------------------------------------------------------------------------------
Shares COMMON STOCKS: 96.6% Market Value
- ------------------------------------------------------------------------------
Auto Related: 1.4%
6,000 Cooper Tire & Rubber.......................... $ 123,750
---------
Banking: 14.2%
3,000 First Chicago NBD Corp........................ 265,875
8,000 Firstar Corp.................................. 304,000
3,000 Fleet Financial Group, Inc.................... 250,500
2,500 Mellon Bank Corp.............................. 174,063
6,000 Summit Bancorp................................ 285,000
---------
1,279,438
---------
Chemicals: 2.2%
8,000 Morton International, Inc..................... 200,000
---------
Containers: 3.2%
6,000 Crown Cork & Seal Co., Inc.................... 285,000
---------
Diversified Operations: 2.6%
3,500 FMC Corp.*.................................... 238,656
---------
Electrical Equipment: 8.0%
4,000 AMP, Inc...................................... 137,500
7,000 Corning, Inc.................................. 243,250
10,000 Thermo Electron Corp.*........................ 341,875
---------
722,625
---------
Household Products: 3.1%
6,000 Kimberly-Clark Corp........................... 275,250
---------
Insurance: 8.5%
6,600 Frontier Insurance Group, Inc................. 148,913
1,400 General Re Corp............................... 354,900
5,000 NAC Re Corp................................... 266,875
---------
770,688
---------
Media and Entertainment: 2.4%
5,000 MediaOne Group, Inc.*......................... 219,687
---------
3
<PAGE>
The Matterhorn Growth Fund, Inc.
SCHEDULE OF INVESTMENTS at June 30, 1998, Continued
- -------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------
Newspapers: 1.9%
3,500 Media General, Class A........................ $ 170,625
---------
Office Equipment: 9.5%
3,500 LSI Logic Corp.*.............................. 80,718
3,000 Motorola Inc.................................. 157,687
7,000 Sun Microsystems, Inc.*....................... 304,063
3,100 Xerox Corp.................................... 315,038
---------
857,506
---------
Oils: 4.3%
3,000 Equitable Resources, Inc...................... 91,500
5,000 Texaco Inc.................................... 298,437
---------
389,937
---------
Pharmaceuticals: 13.3%
6,000 Eli Lilly & Co................................ 396,375
6,000 Johnson & Johnson............................. 442,500
6,000 Smithkline Beecham ADR........................ 363,000
---------
1,201,875
---------
Pollution Control: 2.5%
8,000 U.S. Filter Corp.*............................ 224,500
---------
Railroads: 2.5%
5,000 Union Pacific Corp............................ 220,625
---------
Restaurants: 3.9%
15,000 Wendy's International......................... 352,500
---------
Retail: 1.6%
12,000 Heilig Meyers Co.............................. 147,750
---------
Service Related: 3.0%
8,000 First Data Corp............................... 266,500
---------
4
<PAGE>
The Matterhorn Growth Fund, Inc.
SCHEDULE OF INVESTMENTS at June 30, 1998, Continued
- -------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------
Telecommunication: 8.5%
8,000 Ameritech Corp................................. $ 359,000
10,000 SBC Communications............................. 400,000
137 U.S. West Inc.................................. 6,418
----------
765,418
----------
Total Common Stocks (cost $7,901,339).......... 8,712,330
----------
Principal
Amount REPURCHASE AGREEMENT: 3.8%
- --------------------------------------------------------------------------------
$350,000 Star Bank Repurchase Agreement, 5.2%,
due 7/1/1998, collateralized by $355,000
GNMA, 5.5%, due 5/20/2024 (proceeds $350,050)
(cost $350,000)................................ 350,000
----------
Total Investment in Securities (cost
$8,251,339+): 100.4%........................... 9,062,330
Liabilities in excess of other assets: (0.4)%.. (39,169)
----------
Total Net Assets: 100.0%....................... $9,023,161
==========
*Non-income producing security.
+ At June 30, 1998, the cost of securities for Federal tax purposes was the
same. Unrealized appreciation and depreciation of securities, based on cost for
Federal income tax purposes, were as follows:
Gross unrealized appreciation................. $1,130,218
Gross unrealized depreciation................. (319,227)
----------
Net unrealized appreciation........... $ 810,991
==========
See Notes to Financial Statements.
5
<PAGE>
The Matterhorn Growth Fund, Inc.
STATEMENT OF ASSETS AND LIABILITIES at June 30, 1998
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (identified
cost $8,251,339)........................................ $9,062,330
Cash....................................................... 87
Receivables for dividends and interest..................... 11,496
Prepaid expenses........................................... 5,901
Other assets............................................... 2,131
----------
Total assets .................................. 9,081,945
----------
LIABILITIES
Due to Advisor (Note 3).................................... 7,870
Due to Distributors (Note 3)............................... 1,967
Other accrued expenses..................................... 48,947
----------
Total liabilities.............................. 58,784
----------
NET ASSETS .................................................. $9,023,161
==========
Net asset value, offering and redemption price per share
($9,023,161/1,238,176 shares outstanding;
100,000,000 shares authorized with $.001 par value) ..... $7.29
=====
COMPONENTS OF NET ASSETS
Paid-in capital............................................ $7,177,180
Accumulated net investment loss............................ (120,551)
Accumulated net realized gain on investments............... 1,155,541
Net unrealized appreciation on investments................. 810,991
----------
Net assets .................................... $9,023,161
==========
See notes to Financial Statements.
6
<PAGE>
The Matterhorn Growth Fund, Inc.
STATEMENT OF OPERATIONS - Year Ended June 30, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends............................................ $ 175,415
Interest ............................................ 36,818
---------
Total investment income ....................... 212,233
---------
Expenses
Advisory fees (Note 3)............................... 91,148
Transfer agent fees.................................. 40,901
Administration fee (Note 3).......................... 40,000
Officer's salary..................................... 29,610
12b-1 expense (Note 3)............................... 22,787
Auditing fees........................................ 19,358
Accounting fees...................................... 18,577
Registration fees.................................... 15,984
Reports to shareholders.............................. 13,376
Directors' fees...................................... 11,408
Custody fees......................................... 10,305
Legal fees........................................... 7,985
Insurance............................................ 1,000
Miscellaneous........................................ 10,345
---------
Total expenses................................. 332,784
---------
Net investment loss ......................... (120,551)
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments........................... 1,374,530
Net change in unrealized appreciation of investments....... (278,775)
---------
Net realized and unrealized gain on investments.......... 1,095,755
---------
Net Increase in Net Assets Resulting from Operations .. $ 975,204
=========
See notes to Financial Statements.
7
<PAGE>
The Matterhorn Growth Fund, Inc.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year Year
Ended Ended
June 30, 1998 June 30, 1997
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
<S> <C> <C>
Net investment loss....................................................... $ (120,551) $ (107,624)
Net realized gain on investments ......................................... 1,374,530 271,540
Net change in unrealized appreciation of investments...................... (278,775) 751,797
---------- ----------
Net increase in net assets resulting from operations ............... 975,204 915,713
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gain on investments.......................................... (345,985) (1,051,231)
---------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold................................................. 491,467 889,719
Net asset value of shares issued on reinvestment of distributions......... 320,389 985,471
Cost of shares redeemed................................................... (1,630,737) (1,342,657)
---------- ----------
Net increase (decrease) from capital share transactions ............ (818,881) 532,533
---------- ----------
Total increase (decrease) in net assets ...................... (189,662) 397,015
NET ASSETS
Beginning of year......................................................... 9,212,823 8,815,808
---------- ----------
End of year .............................................................. $9,023,161 $9,212,823
========== ==========
CHANGE IN SHARES
Shares sold .............................................................. 69,763 134,740
Shares issued on reinvestment of distributions............................ 47,819 158,947
Shares redeemed........................................................... (230,954) (201,491)
---------- ----------
Net increase (decrease)................................................... (113,372) 92,196
========== ==========
</TABLE>
See notes to Financial Statements.
8
<PAGE>
The Matterhorn Growth Fund, Inc.
FINANCIAL HIGHLIGHTS - For a capital share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------
1998 1997 1996(a) 1995 1994
---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...................... $ 6.82 $ 7.00 $ 6.88 $ 5.87 $ 7.09
------ ------ ------ ------ ------
Income from investment operations:
Net investment loss ................................. (.11) (.07) (.12) (.17) (.17)
Net realized and unrealized gain on investments...... .85 .74 .85 1.28 .71
------ ------ ------ ------ ------
Total from investment operations........................ .74 .67 .73 1.11 .54
------ ------ ------ ------ ------
Less distributions:
From net realized gains.............................. (.27) (.85) (.61) (.10) (1.76)
------ ------ ------ ------ ------
Total distributions..................................... (.27) (.85) (.61) (.10) (1.76)
------ ------ ------ ------ ------
Net asset value, end of year............................ $ 7.29 $ 6.82 $ 7.00 $ 6.88 $ 5.87
====== ====== ====== ====== ======
Total return ........................................... 11.22% 10.81% 11.60% 19.32% 5.60%
Ratios/supplemental data:
Net assets, end of year (000's omitted)................. $9,023 $9,213 $8,816 $8,993 $8,201
Ratio to average net assets:
Expenses (excluding interest) ....................... 3.65% 4.00% 4.21% 4.62% 4.87%
Interest expense..................................... .00 .00 .02 .56 .14
------ ------ ------ ------ ------
Total expenses, net of reimbursement................. 3.65% 4.00%** 4.23% 5.18% 5.01%
====== ====== ====== ====== ======
Net investment loss.................................. (1.32)% (1.23)% (1.64)% (2.50)% (2.77)%
====== ====== ====== ====== ======
Portfolio turnover rate ................................ 115.28% 137.38% 88.32% 72.11% 160.06%
(B) BANK LOANS
Amount outstanding at end of year (000's omitted)....... $ -- $ -- $ -- $ 366 $ 27
Average amount of bank loans outstanding during
the year (monthly average) (000's omitted)........ $ -- $ -- $ 12 $ 456 $ 44
Average number of shares outstanding during
the year (monthly average) (000's omitted)*....... -- -- 1,306 1,369 1,268
Average amount of debt per share during
the year.......................................... $ -- $ -- $ .01 $ .33 $ .03
</TABLE>
* Based on average month-end shares outstanding.
** In the absence of the expense reimbursement, expenses would have been 4.17%
of average net assets for the year ended June 30, 1997.
(a) On March 15, 1996, the investment adviser changed, and Matterhorn Asset
Management Corporation became the Fund's investment adviser.
See notes to Financial Statements.
9
<PAGE>
The Matterhorn Growth Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Matterhorn Growth Fund, Inc. (the "Fund") is a Maryland corporation
incorporated on May 2, 1980 and is registered under the Investment Company Act
of 1940 as a non-diversified, open-end management investment company. The Fund's
objective is to seek long-term capital appreciation for shareholders.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund. These policies are in conformity with
generally accepted accounting principles.
A. Security Valuation. Investments in securities are valued daily based
upon latest closing market prices for those securities traded on
national securities exchanges, or if there has been no sale that day
at the mean between the last bid and asked prices, and at the closing
bid price for those securities traded in the over-the-counter market.
Short-term investments with less than 60 days to maturity when
acquired by the Fund are valued on an amortized cost basis. All other
securities and assets are valued at fair value, as determined in good
faith by the Board of Directors. There were no such securities
requiring valuation by the Board of Directors held during the year
ended June 30, 1998.
B. Equity Option Contracts. When the Fund writes a call option, the
premiums received are recorded as a liability and marked-to-market
daily to reflect the current value of the option written. If the
written option is not exercised prior to expiration, the premium
received is treated as realized gain. If the written option is
exercised, the premium received is added to the sale proceeds of the
underlying security.
The premium paid by the Fund for the purchase of an option is
included as an investment and is marked-to-market daily to reflect
the current value of the option purchased. If the purchased option is
not exercised prior to expiration, the premium paid is treated as
realized loss. If the Fund exercised a call option, the cost of the
security is increased by the premium paid to buy the call. If the
Fund exercises a put option, it realizes a gain or loss from the sale
of the underlying security and the proceeds from such sale are
decreased by the premium originally paid.
C. Security Transactions and Related Investment Income. Securities
transactions are accounted for on the trade date, and dividend income
is recorded on the ex-dividend date. Interest income is recorded on
the accrual basis. The cost of securities sold is determined on a
first-in, first-out basis for both financial statement and federal
income tax purposes.
It is the Fund's policy to take possession of securities as
collateral under repurchase agreements and to determine, on a daily
basis, that the value of such securities are sufficient to cover the
value of the repurchase agreements.
10
<PAGE>
The Matterhorn Growth Fund, Inc.
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
D. Federal Income Taxes. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
shareholders. Therefore, no provision for federal income tax is
required.
E. Dividends and Distributions to Shareholders. Dividends and
distributions to shareholders are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from
generally accepted accounting principles.
F. Use of Estimates. The preparation of financial statements in
conformity with general accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
A. Investment Advisory Agreements. Pursuant to an Advisory Agreement
with Matterhorn Asset Management Corporation (the "Adviser"), the
Adviser receives a fee, payable monthly, at the annual rate of 1.00%
of the Fund's daily average net assets.
The Fund is responsible for its own operating expenses, as defined.
The Adviser agreed until March 15, 1998, to reimburse the Fund to the
extent that the Fund's operating expenses (excluding interest, taxes,
brokerage commissions and other portfolio transaction expenses,
capital expenditures and extraordinary expenses), exceeded 4% of the
Fund's average net assets. No reimbursement was required for the
year.
B. Distribution Agreements. Bainbridge Securities Inc. ("Bainbridge")
and Cumberland Brokerage Corporation ("Cumberland") act as
co-distributors for shares of the Fund pursuant to a Distribution
Agreement. Bainbridge and Cumberland are affiliates of the Adviser.
C. Distribution Plan. The Fund has adopted a Distribution Plan in
accordance with Rule 12b-1 under the Investment Company Act of 1940.
The Plan provides that the Fund will pay Bainbridge and Cumberland
an aggregate distribution fee, payable monthly, at the annual rate
of 0.25% of the Fund's average daily net assets. The fee is paid to
Bainbridge and Cumberland as compensation for their services
rendered.
D. Administration Agreement. Pursuant to an administration agreement
with Investment Company Administration Corporation ("Administrator"
or "ICAC"), the Fund pays ICAC for its services 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 $40,000.
11
<PAGE>
The Matterhorn Growth Fund, Inc.
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
E. Other. The Fund pays each Director who is not an "interested person"
a $300 attendance fee and any expenses incurred to attend the
meetings. Prior to December 5, 1997, the Fund paid each Director an
attendance for of $250. Total fees paid to Directors for year ended
June 30, 1998 are included in the "Statement of Operations".
Certain officers and Directors of the Fund are also officers and/or
Directors of the Adviser, Administrator and co-distributors.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the year ended June 30, 1998, purchases and sales of securities other
than short-term securities aggregated $9,620,696 and $9,570,231, respectively.
12
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
The Matterhorn Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of The Matterhorn Growth Fund, Inc. as of
June 30, 1998, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Matterhorn Growth Fund, Inc. as of June 30, 1998, the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
MCGLADREY & PULLEN, LLP
New York, New York
July 24, 1998
13
<PAGE>
INVESTMENT ADVISER
Matterhorn Asset Management Corporation
301 Oxford Valley Road, Suite 802B
Yardley, Pennsylvania 19067
CO-DISTRIBUTORS
Bainbridge Securities Inc.
301 Oxford Valley Road, Suite 801B
Yardley, Pennsylvania 19067
Cumberland Brokerage Corporation
614 Landis Avenue
Vineland, New Jersey 08360
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AGENT
American Data Services, Inc.
150 Motor Parkway, Suite 109
Happauge, New York 11788
1-800-637-3901
This report is intended for shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
THE
MATTERHORN
GROWTH
FUND, INC.
Annual Report
June 30, 1998
