Registration No. 2-67610
File No. 811-03054
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 20 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 20 [X]
THE MATTERHORN GROWTH FUND, INC.
(Exact name of registrant as specified in charter)
301 Oxford Valley Road, Suite 802B
Yardley, Pennsylvania 19067
(Address of principal executive offices)
Telephone number (including area code): (215) 321-7110
GREGORY A. CHURCH, PRESIDENT
301 Oxford Valley Road, Suite 802B
Yardley, Pennsylvania 19067
(Name and address of agent for service of process)
Copies to:
MICHAEL GLAZER, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER, LLP
555 South Flower Street, 23rd Floor
Los Angeles, California 90071
It is proposed that this filing will become effective (check
appropriate box):
|_| Immediately upon filing pursuant to paragraph (b)
|X| On November 1, 1998 pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2)
|_| On (date) pursuant to paragraph (a) of Rule 485
|_| This post-effective amendment designated a new effective
date for a previously filed post- effective amendment.
Title of Securities being Registered: Shares of Common Stock.
<PAGE>
THE MATTERHORN GROWTH FUND INC.
Cross Reference Sheet Showing the Location
in the Prospectus of the Information
Required by the Item of Form N-1A
Registration Statement Caption or Location
Item and Caption in the Prospectus
- ---------------- -----------------
Item 1 - Cover Page Front Cover Page
Item 2 - Synopsis SUMMARY OF EXPENSES
Item 3 - Condensed Financial Information FINANCIAL HIGHLIGHTS
Item 4 - General Description of Registrant MATTERHORN GROWTH FUND,
INC.; INVESTMENT
OBJECTIVES AND POLICIES
Item 5 - Management of the Fund MANAGEMENT OF THE FUND;
Back Cover Page; and
incorporated by reference
to the Annual Report to
Shareholders
Item 5A - Management's Discussion of (Incorporated by reference
Fund Performance to the Annual Report to
Shareholders)
Item 6 - Capital Stock and Other ADDITIONAL INFORMATION;
Securities OPERATION OF THE FUND
Item 7 - Purchase of Securities Being Offered MANAGEMENT OF THE FUND;
OPERATION OF THE FUND
Item 8 - Redemption or Repurchase REDEMPTION OF SHARES;
OPERATION OF THE FUND
Item 9 - Pending Legal Proceedings Not Applicable
<PAGE>
Cross Reference Sheet Showing the Location
in the Statement of Additional Information of the Information
Required by the Item of Form N-1A
Caption or Location in
Registration Statement the Statement of
Item and Caption Additional Information
- ---------------- ----------------------
Item 10 - Cover Page Cover Page
Item 11 - Table of Contents Table of Contents
Item 12 - General Information and History Cover Page and ADDITIONAL
INFORMATION
Item 13 - Investment Objectives Cover Page and ADDITIONAL
INFORMATION
Item 14 - Management of the Registrant MANAGEMENT OF THE FUND
Item 15 - Control Persons and Principal MANAGEMENT OF THE FUND and
Holders of Securities ADDITIONAL INFORMATION
Item 16 - Investment Advisory and Other MANAGEMENT OF THE FUND,
Services THE FUND'S ADMINISTRATOR,
THE FUND'S DISTRIBUTOR and
TRANSFER AGENT AND CUSTODIAN
Item 17 - Brokerage Allocation MANAGEMENT OF THE FUND
Item 18 - Capital Stock and Other Securities ADDITIONAL INFORMATION
Item 19 - Purchase, Redemption and Pricing SHARE PURCHASES
of Securities Being Offered AND REDEMPTIONS and HOW NET
ASSET VALUE IS DETERMINED
Item 20 - Tax Status DIVIDENDS, DISTRIBUTIONS
AND TAXES
Item 21 - Underwriters THE FUND'S DISTRIBUTORS
Item 22 - Calculation of Performance Data HOW FUND PERFORMANCE IS
DETERMINED
Item 23 - Financial Statements Not Applicable
Cross Reference Sheet Showing the Location
in Part C of the Information
Required by the Item of Form N-1A
All information required to be shown in Part C can be located in Part C of the
Registration Statement.
<PAGE>
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PART A
PROSPECTUS
The Matterhorn Growth Fund, Inc.
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<PAGE>
THE MATTERHORN GROWTH FUND, INC.
301 Oxford Valley Road, Suite 802B, Yardley, PA. 19067
(Toll Free - 1-800-637-3901)
A NO-LOAD FUND
The Matterhorn Growth Fund, Inc. (the "Fund") seeks long-term capital
appreciation for shareholders through investment in the securities, principally
common stocks, of companies in which the earnings and stock prices are expected
by the Fund's investment adviser to grow faster than the average rate of
companies in the Standard & Poor's 500 Stock Price Index.
The Fund's expense ratio for the previous fiscal year was 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 November 1, 1998 and
is available without charge upon request to the Fund at the address or telephone
number shown above. The SEC maintains an internet site (http://www.sec.gov) that
contains the Statement of Additional Information, other material incorporated by
reference and other information about companies that filed electronically with
the SEC. The Statement of Additional Information is hereby incorporated by
reference into this Prospectus.
SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE NOT FEDERALLY INSURED
BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. INVESTMENT IN A FUND INVOLVES INVESTMENT RISK,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus
November 1, 1998
<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 6
Non-Diversified Status 6
Leverage 7
Foreign Securities 7
Over-the-Counter Securities 7
Convertible Debentures and Warrants 8
"Restricted Securities" and Illiquid Assets 8
Options 8
MANAGEMENT OF THE FUND 9
Investment Adviser 9
Administrator 10
Co-Distributors 10
Distribution Plan 10
PURCHASE OF SHARES 11
By Mail 11
By Bank Wire 11
Through Broker-Dealers 12
General 12
REDEMPTION OF SHARES 13
Redemptions by Mail 13
Redemptions by Telephone, Telegram or
Overseas Cable 13
General 14
SHAREHOLDER SERVICES 15
Transfer of Shares 15
Check-A-Matic Plan 16
Systematic Withdrawal Program 16
OPERATION OF THE FUND 16
Net Asset Value 16
Dividends, Distributions and Taxes 17
Brokerage 18
ADDITIONAL INFORMATION 18
Transfer and Shareholder Service Agent 18
Custodian 19
Accountants 19
Reports 19
Retirement Plans 19
Capital Stock 19
Performance Information 20
Additional Information 20
<PAGE>
SUMMARY OF EXPENSES
The following information is based on the expenses of the Fund for its
fiscal year ended June 30, 1998.
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 2.40%
Total Fund Operating Expenses 3.65%
*Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the rules of the National Association of
Securities Dealers. For more information on 12b-1 fees, see "Distribution Plan"
on page 11.
Example
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:
1 year 3 years 5 years 10 years
$37 $112 $189 $391
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.
3
<PAGE>
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. Further information about the Fund's performance is included in its
annual report which may be obtained without charge by writing to the address or
calling the telephone number on the Prospectus cover page.
<TABLE>
<CAPTION>
Years Ended June 30,
1998 1997 1996+ 1995 1994 1993* 1992* 1991* 1990* 1989*
<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 $ 6.82 $ 7.00 $ 6.88 $ 5.87 $ 7.09 $ 6.30 $ 5.80 $ 5.63 $ 5.01 $ 4.09
Income from investment ------- ------- ------ ------ ------- ------- ------- ------- ------- -------
operations:
Net investment loss (.11) (.07) (.12) (.17) (.17) (.04) (.07) (.06) (.02) (.10)
Net realized and unrealized
gain (loss)
on investments .85 .74 .85 1.28 .71 1.77 .57 .23 .64 1.02
------- ------- ------ ------ ------- ------- ------- ------- ------- -------
Total from investment
operations .74 .67 .73 1.11 .54 1.73 .50 .17 .62 .92
------- ------- ------ ------ ------- ------- ------- ------- ------- -------
Less distributions:
Distribution from net
realized gains (.27) (.85) (.61) (.10) (1.76) (.94) -- -- -- --
------- ------- ------ ------ ------- ------- ------- ------- ------- -------
Total distributions (.27) (.85) (.61) (.10) (1.76) (.94) -- -- -- --
------- ------- ------ ------ ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 7.29 $ 6.82 $ 7.00 $ 6.88 $ 5.87 $ 7.09 $ 6.30 $ 5.80 $ 5.63 $ 5.01
======= ======= ====== ====== ======= ======= ======= ======= ======= =======
Total return 11.22% 10.81% 11.60% 19.32% 5.60% 28.89% 8.62% 3.02% 12.38% 22.49%
Ratios/supplemental data:
Net Assets, end of year
(000's omitted) $ 9,023 $ 9,213 $8,816 $8,993 $ 8,201 $ 8,048 $ 4,430 $ 4,122 $ 4,407 $ 4,341
Ratios to average net assets:
Expenses (excluding interest) 3.65% 4.00% 4.21% 4.62% 4.87% 4.27% 5.17% 4.42% 4.17% 4.19%
Interest expense .00% .00% .02% .56% .14% .12% .16% -- % .11% .49%
------- ------- ------ ------ ------- ------- ------- ------- ------- -------
Total expenses, net of
reimbursement 3.65% 4.00%++ 4.23% 5.18% 5.01% 4.39% 5.33% 4.42% 4.28% 4.68%
======= ======= ====== ====== ======= ======= ======= ======= ======= =======
Net investment loss (1.32) (1.23) (1.64) (2.50) (2.77) (.62) (1.11) (1.19) (.44) (2.13)
======= ======= ====== ====== ======= ======= ======= ======= ======= =======
Portfolio turnover rate 115.28% 137.38% 88.32% 72.11% 160.06% 167.27% 135.89% 87.02% 234.84% 237.54%
======= ======= ====== ====== ======= ======= ======= ======= ======= =======
BANK LOANS
Amount outstanding at
end of year (000's) $ -- $ -- $ -- $ 366 $ 27 $ -- $ -- $ -- $ -- $ 344
Average amount of bank loans
outstanding during the
year (monthly average)
(000's) $ -- $ -- $ 12 $ 456 $ 44 $ 49 $ 54 $ -- $ 59 $ 153
Average number of shares
outstanding during the
year (monthly average)
(000's) -- -- 1,306 1,369 1,268 773 662 758 853 912
Average amount of debt per
share during the year $ -- $ -- $ 0.01 $ 0.33 $ 0.03 $ 0.06 $ 0.08 $ 0.00 $ 0.07 $ 0.17
</TABLE>
* Based on average month-end shares outstanding.
+ On March 15, 1996 Matterhorn Asset Management became the Fund's investment
adviser. From September 27, 1988 to March 15, 1996, MDB Asset Management
Corp. was the Fund's investment adviser.
++ In the absence of the expense reimbursement, expenses would have been
4.17% of average net assets for the year ended June 30, 1997.
4
<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 13).
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 companies in which the earnings and
stock prices are expected by the Fund's investment adviser to grow faster than
the average rate of companies in the Standard & Poor's 500 Stock Price Index.
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 adviser, 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.
5
<PAGE>
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 17). 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.
6
<PAGE>
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.
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.")
7
<PAGE>
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. (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 and (iii) securities which may require registration under the
Securities Act of 1933 prior to sale to the public (i.e., "restricted
securities") . 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.")
8
<PAGE>
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,
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 and has served as the Portfolio Manager of the Fund since January 1, 1997.
Asset Management is registered as an investment adviser under the Investment
Advisers Act of 1940.
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.
9
<PAGE>
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.
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 $40,000.
Co-Distributors
Cumberland Brokerage Corporation ("Cumberland") and Bainbridge
Securities Inc. ("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. 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.
10
<PAGE>
Distribution Plan
Rule 12b-1 (the "Rule") under the Investment Company 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 0.25% 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. 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
together with the completed application form to:
The Matterhorn Growth Fund, Inc.
c/o Star Bank N.A.
P.O. Box 641122
Cincinnati, Ohio 45264-1122
Subsequent investments may be made by mailing a check together with the
detachable stub from the Transaction Advice (see "General," page 13). 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
11
<PAGE>
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
The minimum initial investment in the Fund is $1,000, with subsequent
investments of $100 or more. The minimum initial investment in the Fund is $500
for Education IRA Accounts. The Fund reserves the right to vary the initial and
additional investment minimums. In addition, the Adviser may waive the minimum
initial investment requirement for any investor. The Fund reserves the right to
suspend the offering of shares.
The Fund's shares are offered directly to the public at the net asset
value next determined after receipt of a purchase order received, either by the
Fund's transfer agent or the investor's broker-dealer. Purchase orders for
shares of the Fund that are received in proper order 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
12
<PAGE>
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., 150 Motor Parkway,
Suite 109, Hauppauge, New York 11788, 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 broker-dealers, national
securities exchanges, registered securities associations or clearing agencies
deemed to be eligible guarantor institutions, as well as from participants in
the New York Stock Exchange Medallion Signature Program, the Stock Exchange
Medallion Program and the Securities Transfer Agents Medallion Program
("STAMP"). A notary public is not acceptable. Shareholders residing abroad may
obtain a signature verification from any U.S. Consulate under official seal.
13
<PAGE>
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., 150 Motor Parkway,
Suite 109, Hauppauge, New York 11788. 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 15).
Neither the Fund nor its transfer agent will be liable for acting upon any
instruction it reasonably believes to be genuine and in accordance with the
procedures described herein.
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 form by the Fund's
transfer agent (see "Net Asset Value," page 17). 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
14
<PAGE>
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 Fund will satisfy all redemption requests in cash to the fullest
extent feasible, so long as such payments would not, in the opinion of the Board
of Directors, require a Fund to sell assets under disadvantageous conditions or
to the detriment of the remaining shareholders of the Fund.
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., 150 Motor Parkway, Suite 109,
Hauppauge, New York 11788. 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).
15
<PAGE>
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 directly. 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 exceeds 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
16
<PAGE>
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, 1998, 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 carry
forwards. 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,
17
<PAGE>
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 Company 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 broker-dealers in which the Fund will receive best execution. 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.
18
<PAGE>
ADDITIONAL INFORMATION
Transfer and Shareholder Service Agent. American Data Services, Inc., 150 Motor
Parkway, Suite 109, Hauppauge, New York 11788 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.,
150 Motor Parkway, Suite 109, Hauppauge, New York 11788, 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.
Year 2000. The advisory services provided to the Fund by Asset Management, and
the services provided by the Distributors, Administrator, Transfer Agent and
Custodian to shareholders, depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or 1980, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Fund understands that Asset
Management, and the Distributors, Administrator, Transfer Agent and Custodian
have been actively working on necessary changes to their own computer systems to
deal with the year 2000 and expect that their systems will be adapted before
that date, but there can be no assurance that they will be successful or that
interaction with other noncomplying computer systems will not impair their
services at that time. In addition, the Year 2000 problem can adversely affect
the issues in which the Fund invests. Asset Management will continue to monitor
developments with this issue.
Custodian. Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202 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"), a prototype SEP IRA, a
prototype SIMPLE 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 number 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
19
<PAGE>
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.
20
<PAGE>
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.
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
Hauppauge, New York 11788
1-800-637-3901
AUDITORS
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017
<PAGE>
------------------------------------------------------------
PART B
STATEMENT OF ADDITIONAL INFORMATION
The Matterhorn Growth Fund, Inc.
------------------------------------------------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1998
THE MATTERHORN GROWTH FUND, INC.
301 Oxford Valley Road, Suite 802B, Yardley, Pennsylvania 19067
(Toll Free - 1-800-637-3901)
The Matterhorn Growth Fund, Inc. (the "Fund") seeks long-term capital
appreciation for shareholders through investment in the securities, principally
common stocks, of companies in which the earnings and stock prices are expected
by the Fund's investment adviser to grow faster than the average rate of those
companies in the Standard & Poor's 500 Stock Index.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. RATHER, IT SHOULD
BE READ IN CONJUNCTION WITH THE FUND'S PROSPECTUS DATED NOVEMBER 1, 1998, A COPY
OF WHICH MAY BE OBTAINED FROM THE FUND AT THE ADDRESS AND TELEPHONE NUMBER SHOWN
ABOVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES CONTAIN INFORMATION WHICH
MAY BE OF INTEREST TO INVESTORS.
B - 1
<PAGE>
INVESTMENT ADVISER TRANSFER AGENT
Matterhorn Asset Management Corporation American Data Services, Inc.
301 Oxford Valley Road, Suite 802B 150 Motor Parkway, Suite 109
Yardley, Pennsylvania 19067 Hauppauge, New York 11788
1-800-637-3901
CO-DISTRIBUTORS
Cumberland Brokerage Corporation Bainbridge Securities Inc.
614 Landis Avenue 301 Oxford Valley Road, Suite 801B
Vineland, New Jersey 08360 Yardley, Pennsylvania 19067
CUSTODIAN AUDITORS
Star Bank, N.A. McGladrey & Pullen, LLP
425 Walnut Street 555 Fifth Avenue
Cincinnati, Ohio 45202 New York, New York 10017
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
SUMMARY .................................................................. B-3
INVESTMENT OBJECTIVE AND POLICIES ........................................ B-4
Warrants ............................................... B-4
Defensive Investments .................................. B-5
Non-Liquid Assets ...................................... B-6
Foreign Securities ..................................... B-6
Securities Options ..................................... B-7
Investment Limitations ................................. B-9
Leverage ............................................... B-10
MANAGEMENT OF THE FUND ................................................... B-11
Investment Adviser ..................................... B-11
Administrator .......................................... B-11
Directors and Officers of the Fund ..................... B-13
CO-DISTRIBUTORS .......................................................... B-14
Distribution Agreement ................................. B-14
Distribution Plan ...................................... B-15
Brokerage .............................................. B-15
SPECIAL ACCOUNTS ......................................................... B-16
Check-A-Matic Plan ..................................... B-16
Self-Employed Retirement Plan ("Keogh") ................ B-16
Individual Retirement Accounts ("IRA") ................. B-16
Roth IRA ............................................... B-16
SEP IRA ................................................ B-16
SIMPLE IRA ............................................. B-16
Tax Sheltered Retirement Plan ("403(b)") ............... B-16
Education IRA Accounts ................................. B-16
Systematic Withdrawal Program .......................... B-17
TAXES .................................................................... B-18
Special Tax Considerations ............................. B-19
PERFORMANCE INFORMATION .................................................. B-21
Total Return ........................................... B-21
Comparison to Indices and Rankings ..................... B-22
FINANCIAL STATEMENTS ..................................................... B-22
- --------------------------------------------------------------------------------
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.
B - 2
<PAGE>
SUMMARY
-------
The 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 companies in which the earnings and stock prices are
expected by the Fund's investment adviser to grow faster than the average rate
of companies in the Standard & Poor's 500 Stock Price Index. 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.
Fund shares may be purchased by mail through its transfer agent,
American Data Services, Inc. at the address listed on the back cover page, or by
telephone (toll-free 1-800-637-3901), telegram or overseas cable. 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 Objective and Policies," page B-4, 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 Objective and Policies,"
page B-4).
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. Expenses 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,
B - 3
<PAGE>
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 A. Church. Mr. Church replaced Mr. Beckerman as the Fund's Portfolio
Manager on January 1, 1997.
The Fund's financial statements for the fiscal year ended June 30, 1998
are incorporated by reference to the Fund's 1998 Annual Report to Shareholders.
A copy of the Fund's Annual Report is included with this Statement of Additional
Information.
INVESTMENT OBJECTIVE AND POLICIES
---------------------------------
The Fund's sole objective is to achieve capital appreciation through
investment in the securities of companies in which the earnings and stock prices
are expected, by the Fund's investment adviser, to grow faster than the average
rate of companies in the Standard & Poor's 500 Stock Price Index. 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 200%. For fiscal
years 1996, 1997 and 1998, the Fund's annual portfolio turnover rates were
88.3%, 137.4% and 115.3%, respectively. The increased turnover rates for the
fiscal years ending June 30, 1997 and 1998 are principally due to the change in
investment approach under the new portfolio manager. Portfolio turnover rates
exceeding 100%, as occurred in fiscal 1997 and 1998, tend to increase the amount
of brokerage commissions paid.
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
B - 4
<PAGE>
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 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
B - 5
<PAGE>
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. 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.
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
B - 6
<PAGE>
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, liquid assets in such amount are segregated 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 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
B - 7
<PAGE>
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 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
B - 8
<PAGE>
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 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);
B - 9
<PAGE>
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 puts, calls or combinations
thereof listed on any national securities exchange.
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 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.
B - 10
<PAGE>
MANAGEMENT OF THE FUND
-----------------------
Investment Adviser
- ------------------
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, 1996, 1997 and 1998
was $90,749, $87,501 and $91,148 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,
1999, 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.
Administrator
- -------------
The Administrator of the Fund is Investment Company Administration
Corporation, 2020 East Financial Way, Suite 100, Glendora, CA 91741.
Pursuant to an administration agreement with the Fund effective March
15, 1996 (the "Administration Agreement"), 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
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. For the fiscal years ended
June 30, 1996, 1997 and 1998, the Administrator received fees of $23,345,
$43,534 and $40,000 respectively.
B - 11
<PAGE>
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
certain 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 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
B - 12
<PAGE>
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*, 42, President, Secretary and Director, 301 Oxford
Valley Road, Yardley, Pennsylvania 19067. President, Church Capital Management,
Inc.(formerly G. A. Church & Company)(registered investment advisers) since June
1987; Chairman, Bainbridge Securities Inc. (registered broker-dealer) since
October 1994.
R. BARRY BORDEN, 59, Director, P.O. Box 677, Bala Cynwyd, Pennsylvania
19004. President, LMA Group, Inc. (general management consulting) since April
1990.
KEVIN M. COVERT, 40, Director, 76 Euclid Avenue, Haddonfield, New
Jersey 08083. Shareholder, Kulzer & DiPadova, P.A. (law firm) since 1984.
DOMINICK A. CRUCIANI, JR., M.D., 67, Director, 1360 Wyoming Avenue,
Scranton, Pennsylvania 18503. Physician since 1958. A director of Cumberland
Growth Fund, Inc. from October 1989 to September 1992.
GERALD PRINTZ, 41, Director, 49 Napoleon Circle, Brandon, Mississippi
39047. President, AMSADOR, Ltd. (computer security and disaster recovery
planning consultant), since March 1994; consultant, IBM, 1988 to February 1994.
ROBERT R. JACKSON, 45, Director, 54 Hedgehog Lane, Bradford,
Pennsylvania 16701. Independent Consultant. Chief Financial Officer, Zippo
Manufacturing Company from 1986 to 1998. Served on the Board of Directors of
Zippo Manufacturing Company since 1988. Served as an officer and director of the
following subsidiaries of Zippo Manufacturing Company, Zahara, Inc. (Personal
Holding Company), ZIVI, Inc. (Foreign Sales Corporation), Zadco, Inc.
(Advertising Agency), Zippo International Inc., Zippo Europe SA, Zippo Europe
Holding Gmbh and Zippo UK, Inc. (All Distribution Companies).
ERIC M. BANHAZL, 42, Treasurer, 2020 East Financial Way, Suite 100,
Glendora, California 91741. Senior Vice President, The Wadsworth Group
(consultants) and Investment Company Administration Corporation since March
1990.
- -------------
*Mr. Church is an "interested person" of the Fund, as defined in the Investment
Company Act of 1940.
Attendance fees of $300 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
B - 13
<PAGE>
Bainbridge.
Set forth below is the compensation in tabular form for the fiscal year
ended June 30, 1998 of the directors of the Fund who are not "interested
persons" of the Fund as defined in the Investment Company Act of 1940.
COMPENSATION TABLE
- --------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
NAME OF AGGREGATE PENSION OR ESTIMATED TOTAL
PERSON COMPENSATION RETIREMENT ANNUAL COMPENSATION
FROM BENEFITS BENEFITS FROM
REGISTRANT ACCRUED AS UPON REGISTRANT
PART OF FUND RETIREMENT AND FUND
EXPENSES COMPLEX
- --------------------------------------------------------------------------------
R. Barry $900 0 0 $900
Borden
(Director)
Kevin M. $1,200 0 0 $1,200
Covert
(Director)
Dominick A. $600 0 0 $600
Cruciani, Jr.
(Director)
Gerald $1,200 0 0 $1,200
Printz
(Director)
Robert R. $300 0 0 $300
Jackson
(Director)
As of September 30, 1998, to the best of the knowledge of the Fund, the
Board of Directors and officers of the Fund, as a group, owned of record 1.5% of
the Fund's outstanding shares.
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.
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. For the fiscal year ended June 30, 1998, distribution
fees paid by the Fund totaled $22,787. Of this amount, $1,907 was used for
advertising and marketing, $128 was used for postage,$93 was used for supplies
and equipment, $602 was used for telephone expenses, $3,289 was used for Travel
and Entertainment purposes and $16,896 was used for salaries.
Brokerage
- ---------
The aggregate brokerage commissions paid by the Fund during the fiscal
years ended June 30, 1996, 1997 and 1998 were $27,296, $73,085 and $38,746,
respectively, of which $1,896 (6.95%), $34,570 (47.30%) and $4,060 (10.48%),
respectively, was paid to firms which provided research or other services to
Asset Management. The increase in commissions paid for the fiscal year ended
June 30, 1997 is principally due to the change in investment approach under the
new portfolio manager.
Rule 17e-1 under the 1940 Act provides that a commission, fee or other
remuneration, paid to an affiliate, 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
B - 15
<PAGE>
in compliance with those procedures. During the fiscal year ended June 30, 1998,
there were no such commissions paid by the Fund.
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 canceled 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")
ROTH IRA
SEP IRA
SIMPLE IRA
Tax Sheltered Retirement Plan ("403(b)")
Education IRA Accounts
- ----------------------------------------
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
B - 16
<PAGE>
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", 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 Services, 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 Services, 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.
B - 17
<PAGE>
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, 1998, the Fund qualified
for treatment as a regulated investment company under Subchapter M.
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 in accordance with certain requirements.
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) 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 (c) 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
B - 18
<PAGE>
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 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
during the 90- day period that begins 45 days before the stock becomes
ex-dividend with respect to the dividend (91 days during the 180-day period that
begins 90 days before the stock becomes ex-dividend with respect to the dividend
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. 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
B - 19
<PAGE>
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.
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 application 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 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
B - 20
<PAGE>
other states where it is deemed to be doing business. Further, in those states
which have income tax laws, the tax treatment 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 June 30, 1998 - 11.22%; five years ended June 30, 1998 -
11.63%; from September 28, 1988 to June 30, 1998 - 11.23%.
B - 21
<PAGE>
Comparison to Indices and Rankings
- ----------------------------------
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.
FINANCIAL STATEMENTS
--------------------
Incorporated by reference herein is the report of McGladrey & Pullen,
LLP, the Fund's independent accountants dated July 24, 1998, and the other
portions of Registrant's annual report to shareholders for the fiscal year ended
June 30, 1998, under the headings: "SCHEDULE OF INVESTMENTS," "STATEMENT OF
ASSETS AND LIABILITIES," "STATEMENT OF OPERATIONS," "STATEMENTS OF CHANGES IN
NET ASSETS," "FINANCIAL HIGHLIGHTS," "NOTES TO FINANCIAL STATEMENTS" and
"INDEPENDENT AUDITOR'S REPORT." Such material has been incorporated herein in
reliance upon such report given upon their authority as experts in accounting
and auditing. Copies of the annual report are available, upon request and
without charge, by calling the Fund's Investor Services Department at
((800)637-3901, or by writing to the following address: Matterhorn Asset
Management Corporation, 301 Oxford Valley Road, Suite 802B, Yardley, PA 19067.
B - 22
<PAGE>
----------------------------------------------------
PART C
OTHER INFORMATION
---------------------------------------------------
<PAGE>
THE MATTERHORN GROWTH FUND, INC.
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Included in Prospectus:
Accountant's Report (a).
Statements of Assets and Liabilities at June 30, 1998
(a).
Statement of Operations for the year ended June 30,
1998 (a).
Statements of Changes In Net Assets for the year
ended June 30, 1998 (a).
Statement of Portfolio of Investments in Securities
as at June 30, 1998 (a).
Notes to Financial Statements (a).
Included in Part C of the Registration Statement:
Consent of Independent Certified Public Accountants.
(b) Exhibits:
(1) (a) Copies of the charter (b).
(b) Form of Amendment to the Charter dated
March 15, 1996 (c).
(2) Copies of the existing By-Laws or instruments
corresponding thereto (b);
(4) Specimen Share Certificate (b);
(5) Form of Investment Advisory Agreement
Relating to the management of the assets of
the Registrant (c);
(6) Form of Distribution Agreement between the
Registrant and Cumberland Brokerage
Corporation and Bainbridge & Company, Inc.,
the co-distributors (e);
1
<PAGE>
(8) Form of Custody Agreement between the
Registrant and Star Bank, N.A. (e);
(9) (a) Form or Administration Agreement
between the Registrant and Investment
Company Administration Corporation
(e);
(b) Form of Transfer Agent and Service
Agreement between the Registrant and
American Data Services, Inc. (e);
(c) Form of Fund Accounting Service
Agreement between the Registrant and
American Data Services, Inc. (e);
(10) An opinion and consent of counsel as to the
legality of the securities being registered,
indicating whether they will when sold be
legally issued, fully paid and
non-assessable (d);
(11) Consent of Independent Accountants;
(15) Form of Distribution Plan (c);
(16) Schedule of Performance Computation;
(17) Financial Data Schedule.
- -----------------
(a) Incorporated in Part B by reference to Registrant's Annual Report to
Shareholders for the fiscal year ended June 30, 1998.
(b) Incorporated by reference to Pre-Effective Amendment No.1 to the
Registrant's Registration Statement on Form N-1, filed October 7, 1980.
(c) Incorporated by reference to the Registrant's Notice and Proxy Statement
dated January 15, 1996.
(d) Incorporated by reference to Post-Effective Amendment No.12 to the
Registrant's Registration Statement on Form N-1A, filed November 12, 1991.
(e) Incorporated by reference to Post-Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A, filed January 17, 1996.
2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
Not Applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record Holders
-----------------------------
Title of Class as of September 30, 1998
- ---------------------- -----------------------------
Common Stock 1,905
ITEM 27. INDEMNIFICATION
Article V of Registrant's By-Laws provides as follows:
The Corporation shall not be responsible or liable in any event for any neglect
or wrong-doing of any officer, agent, employee, Manager or Principal Underwriter
of the Corporation, nor shall any Directors be responsible for the act or
omission of any other Directors, and the Corporation out of its assets shall
indemnify and hold harmless each and every Directors from and against any and
all claims and demands whatsoever arising out of or related to each Directors's
performance of his duties as a Directors of the Corporation; provided that
nothing herein contained shall indemnify, hold harmless or protect any Directors
from or against any liability to the Corporation or any Shareholder to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Corporation or the Directors or any of them in connection with the
Corporation shall be conclusively deemed to have been issued, executed or done
only in or with respect to their or his capacity as Directors or Directors, and
such Director or Directors shall not be personally liable thereon."
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the
3
<PAGE>
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Registrant
of expenses incurred or paid by a director, officer or controlling person of the
Registrant in connection with the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such director, officer or
controlling person in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
During the two fiscal years ended June 30, 1997 and 1998, the Fund's
investment adviser, Matterhorn Asset Management Corporation, has engaged
principally in the business of providing investment advisory services to
registered investment companies. All of the additional information required by
this Item 28 with respect to Matterhorn Asset Management Corporation is set
forth in the Form ADV, as amended, of Matterhorn Asset Management Corporation
(File No. 801- 32050), which is incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Neither Cumberland Brokerage Corporation nor Bainbridge Securities Inc. act
as principal underwriter, depositor or investment adviser to any other
investment company.
(b) The following information is provided with respect to each director, officer
or partner of Cumberland Brokerage Corporation and Bainbridge Securities Inc.:
Name and Principal Positions and Position of Offices
Business Address Offices With With Registrant
------------------ Underwriter -------------------
-------------
Gregory A. Church Director and Director, President
Bainbridge Chairman and Secretary
Securities Inc.
301 Oxford Valley Rd.,
Suite 801B
Yardley, PA 19067
4
<PAGE>
Maureen A. Church Director None
Bainbridge Securities
Inc.
Malinda P. Berardino Director, Chief None
Bainbridge Securities Executive Officer,
Inc. Chief Financial
Officer
Sheldon E. Goldberg Director and None
Cumberland Brokerage President
Corp.
614 Landis Ave.
Vineland, NJ 08360
Ellyn H. Bruce Executive Vice None
Cumberland Brokerage President
Corp.
Robert B. Solms Vice President None
Cumberland Brokerage
Corp.
Antonia A. Alperin Secretary None
Cumberland Brokerage
Corp.
c. Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained by
the Fund pursuant to Section 31(a) of the Investment Company Act of 1940 and
Rules 31a-1 to 31a-3 promulgated thereunder, are maintained at the following
locations: Matterhorn Growth Fund, Inc., 301 Oxford Valley Road, Suite 802B,
Yardley, Pennsylvania 19067, Investment Company Administration Corporation, 2020
East Financial Way, Suite 100, Glendora, California 91741; and American Data
Services, Inc., 1675 Broadway, Suite 2050, Denver, Colorado 80202.
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
5
<PAGE>
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest Annual Report to
Shareholders, upon request and without charge.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements for effectiveness of this Post-Effective Amendment No. 20 under
Rule 485(b) under the Securities Act of 1933 and that the Registrant has duly
caused this Post-Effective Amendment No. 20 to the Registrant Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Glendora, and State of California, on the 28th, day of October 1998.
THE MATTERHORN GROWTH FUND, INC.
By: /s/ Gregory A. Church
-----------------------------
Gregory A. Church*
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 19 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gregory A. Church President, October 28, 1998
- ------------------------- Secretary and
Gregory A. Church* Director
/s/ R. Barry Borden Director October 28, 1998
- -------------------------
R. Barry Borden*
/s/ Kevin M. Covert Director October 28, 1998
- -------------------------
Kevin M. Covert*
/s/ Dominick A. Cruciani Director October 28, 1998
- -------------------------
Dominick A. Cruciani, Jr.*
7
<PAGE>
/s/ Gerald Printz Director October 28, 1998
- -------------------------
Gerald Printz*
/s/ Robert A. Jackson Director October 28, 1998
- -------------------------
Robert A. Jackson*
* By: /s/ Gregory A. Church
--------------------------------------------
Gregory A. Church, Attorney-in-Fact
under powers of attorney as filed
with Post-Effective Amendment No. 20 to
the Registration Statement
8
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
hereby constitutes and appoints Gregory A. Church his true and lawful
attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments to the Registration
Statement on Form N-1A of The Matterhorn Growth Fund, Inc. under the
Securities Act of 1933 and the Investment Company Act of 1940, and to
file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority
to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause
to be done by virtue hereof.
DATED: September 16, 1998
/s/ Gregory A. Church
-----------------------------
Gregory A. Church
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
hereby constitutes and appoints Gregory A. Church his true and lawful
attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments to the Registration
Statement on Form N-1A of The Matterhorn Growth Fund, Inc. under the
Securities Act of 1933 and the Investment Company Act of 1940, and to
file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority
to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause
to be done by virtue hereof.
DATED: September 16, 1998
/s/ R. Barry Borden
-----------------------------
R. Barry Borden
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
hereby constitutes and appoints Gregory A. Church his true and lawful
attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments to the Registration
Statement on Form N-1A of The Matterhorn Growth Fund, Inc. under the
Securities Act of 1933 and the Investment Company Act of 1940, and to
file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority
to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause
to be done by virtue hereof.
DATED: September 16, 1998
/s/ Kevin M. Covert
-----------------------------
Kevin M. Covert
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
hereby constitutes and appoints Gregory A. Church his true and lawful
attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments to the Registration
Statement on Form N-1A of The Matterhorn Growth Fund, Inc. under the
Securities Act of 1933 and the Investment Company Act of 1940, and to
file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority
to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause
to be done by virtue hereof.
DATED: September 16, 1998
/s/ Dominick A. Cruciani
-----------------------------
Dominick A. Cruciani, Jr.
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
hereby constitutes and appoints Gregory A. Church his true and lawful
attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments to the Registration
Statement on Form N-1A of The Matterhorn Growth Fund, Inc. under the
Securities Act of 1933 and the Investment Company Act of 1940, and to
file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority
to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause
to be done by virtue hereof.
DATED: September 16, 1998
/s/ Gerald Printz
-----------------------------
Gerald Printz
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
hereby constitutes and appoints Gregory A. Church his true and lawful
attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments to the Registration
Statement on Form N-1A of The Matterhorn Growth Fund, Inc. under the
Securities Act of 1933 and the Investment Company Act of 1940, and to
file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority
to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause
to be done by virtue hereof.
DATED: September 16, 1998
/s/ Robert R. Jackson
-----------------------------
Robert R. Jackson
<PAGE>
File Nos. 2-67610
811-03054
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
EXHIBITS
to
FORM N-1A
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
and
under
THE INVESTMENT COMPANY ACT OF 1940
-------------------------
The Matterhorn Growth Fund, Inc.
(Exact Name of Registrant as Specified in its Charter)
<PAGE>
Exhibit(s) Index
Exhibit No. Document Page No.
- ----------- -------- --------
(11) Consent of McGladrey & Pullen, LLP, Independent
Public Accountants ________
(27) Financial Data Schedules ________
CONSENT OF INDEPENDENT AUDITOR
We hereby consent to the use of our report dated July 24, 1998 on the
financial statements of The Matterhorn Growth Fund, Inc. referred to therein, in
Post Effective Amendment No. 20 to the Registration Statement on Form N-1A, file
No. 2-67610, as filed with the Securities and Exchange Commission.
We also consent to the reference to our firm in the Prospectus under
the captions "Financial Highlights" and "Accountants".
/s/McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
New York, New York
October 16, 1998
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