THE
MATTERHORN
GROWTH
FUND, INC.
Dear Shareholders,
It is with anticipation and excitement, as well as closure and relief, that we
face the year 1998 and the millennium.
The realignment of Matterhorn's portfolio to reflect high quality growth was
completed by year end 1997. The investment strategy we are now employing is
anticipated to produce superior returns for the Fund's shareholders.
The firm global financial support provided to Asian countries and the continued
low or non-existent domestic inflation appears to support our bullish 1998
outlook. As predicted in the June 1997 fiscal year end message to shareholders
of The Matterhorn Growth Fund, Inc., the market has broken the 8000 level.
What does 1998 hold for investors? The economic backdrop continues to favor
lower, not higher, interest rates for the first quarter of 1998. Growth in the
U.S. may slow due to foreign pressures, however, the U.S. markets will still
have room to reach higher levels as U.S. equities continue to look attractive to
investors throughout the world. Current sectors that we favor in this
environment include the financial and media industries.
The recent portfolio changes bode well for you, our shareholders. We look
forward to pursuing excellent performance in 1998. Thank you for your continuing
confidence, encouragement and support.
Sincerely Yours,
/s/ Gregory A. Church /s/ Sheldon E. Goldberg
Gregory A. Church Sheldon E. Goldberg
President Chairman
The Matterhorn Growth Fund, Inc. Matterhorn Asset Management Corp.
President
Matterhorn Asset Management Corp.
<PAGE>
The Matterhorn Growth Fund, Inc.
SCHEDULE OF INVESTMENTS at December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 97.9% Market Value
- --------------------------------------------------------------------------------
Auto: 2.3%
6,000 Cooper Tire & Rubber ......................... $146,250
2,625 Mark IV Industries ........................... 57,422
--------
203,672
--------
Banking: 5.3%
2,000 First Chicago NBD Corp. ...................... 167,000
6,000 First Union Corp. ............................ 307,500
--------
474,500
--------
Beverages: 2.9%
7,000 PepsiCo, Inc. ................................ 255,062
--------
Broadcast Media: 1.6%
5,000 US West Media Group* ......................... 144,375
--------
Chemicals: 4.7%
3,000 DuPont (E.I.) deNemours ...................... 180,188
6,000 Nalco Chemical ............................... 237,375
--------
417,563
--------
Computer Peripherals: 3.1%
7,000 Sun Microsystems* ............................ 279,125
--------
Computer Software & Services: 4.3%
6,000 Ascend Communications, Inc.* ................. 147,375
8,000 First Data Corp. ............................. 234,000
--------
381,375
--------
Consumer Products: 3.3%
6,000 Kimberly-Clark Corp. ......................... 295,875
--------
Diversified: 7.0%
6,000 Corning Inc. ................................. 222,750
3,500 FMC Corp.* ................................... 235,594
4,000 General Signal Corp. ......................... 168,750
--------
627,094
--------
2
<PAGE>
The Matterhorn Growth Fund, Inc.
SCHEDULE OF INVESTMENTS at December 31, 1997 (Unaudited), Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
Drugs: 9.1%
5,000 Amgen ........................................ $270,625
6,000 Johnson & Johnson ............................ 395,250
2,000 Pfizer Inc. .................................. 149,125
--------
815,000
--------
Electronics Industry: 8.6%
4,000 AMP, Inc. .................................... 168,000
7,000 Thermo Electron Corp.* ....................... 311,500
6,000 Thomas & Betts Corp. ......................... 283,500
--------
763,000
--------
Insurance: 9.5%
1,400 General Re Corp. ............................. 296,800
5,000 NAC Re Corp. ................................. 244,062
14,000 USF&G Corp. .................................. 308,875
--------
849,737
--------
Natural Gas: 1.2%
3,000 Equitable Resources, Inc. .................... 106,125
--------
Office Equipment & Supplies: 2.6%
3,100 Xerox Corp. .................................. 228,819
--------
Packaging: 3.4%
6,000 Crown Cork & Seal Co., Inc. .................. 300,750
--------
Petroleum Production: 3.1%
5,000 Texaco Inc. .................................. 271,875
--------
Pollution Control: 4.2%
8,000 U.S. Filter Corp. ............................ 239,500
5,000 Waste Management ............................. 137,500
--------
377,000
--------
Publishing: 4.7%
2,500 Media General, Class A ....................... 104,531
5,000 Pulitzer Publishing .......................... 314,063
--------
418,594
--------
3
<PAGE>
The Matterhorn Growth Fund, Inc.
SCHEDULE OF INVESTMENTS at December 31, 1997 (Unaudited), Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
Restaurants: 6.9%
3,500 CPC International .............................. $ 378,000
10,000 Wendy's International .......................... 240,625
----------
618,625
----------
Retail: 1.6%
12,000 Heilig Meyers Co. .............................. 144,000
----------
Semiconductor: 0.8%
3,500 LSI Logic Corp.* ............................... 69,125
----------
Technology: 4.9%
6,000 Cognizant Corp. ................................ 267,375
3,000 Motorola ....................................... 171,187
----------
438,562
----------
Transportation: 2.8%
4,000 Union Pacific Corp. ............................ 249,750
----------
Total Common Stocks (cost $7,848,260) .......... 8,729,603
----------
<TABLE>
<CAPTION>
Principal Amount REPURCHASE AGREEMENT: 8.7%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$776,000 Star Bank Repurchase Agreement, 5.50%, dated 12/31/1997,
due 1/2/1998, collateralized by $792,195 GNMA, 6.5%,
due 2/20/2024 (proceeds $776,234) (cost $776,000)....................... 776,000
-----------
Total Investment in Securities (cost $8,624,260+): 106.6%............... 9,505,603
Liabilities in excess of other assets: (6.6)%........................... (586,189)
-----------
Total Net Assets: 100.0%................................................ $ 8,919,414
===========
</TABLE>
*Non-income producing security.
+ At December 31, 1997, the cost of securities for Federal tax purposes was
$8,624,260. Unrealized appreciation and depreciation of securities, based on
cost for Federal income tax purposes, were as follows:
Gross unrealized appreciation .................. $ 1,176,469
Gross unrealized depreciation .................. (295,126)
-----------
Net unrealized appreciation .............. $ 881,343
===========
See Notes to Financial Statements.
4
<PAGE>
The Matterhorn Growth Fund, Inc.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at December 31, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (identified cost $8,624,260)....................... $ 9,505,603
Cash................................................................................... 117
Receivables for dividends and interest................................................. 9,496
Prepaid expenses....................................................................... 7,247
Other assets........................................................................... 2,477
-----------
Total assets .............................................................. 9,524,940
-----------
LIABILITIES
Payables:
Fund Shares redeemed............................................................. 2,252
Investment securities purchased.................................................. 586,507
Due to Advisor (Note 3-A).............................................................. 7,943
Due to Distributors (Note 3-C)......................................................... 1,986
Other accrued expenses................................................................. 6,838
-----------
Total liabilities.......................................................... 605,526
-----------
NET ASSETS ................................................................... $ 8,919,414
===========
Net asset value, offering and redemption price per share
($8,919,414/1,324,183 shares outstanding;
100,000,000 shares authorized with $.001 par value) ............................. $6.74
===========
COMPONENTS OF NET ASSETS
Paid-in capital........................................................................ $ 7,795,328
Accumulated net investment loss........................................................ (161,762)
Accumulated net realized gain on investments........................................... 404,505
Net unrealized appreciation on investments............................................. 881,343
-----------
Net assets ................................................................ $ 8,919,414
===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
The Matterhorn Growth Fund, Inc.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - Period Ended December 31, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Dividends........................................................................ $ 62,204
Interest ........................................................................ 23,546
--------
Total investment income ................................................... 85,750
--------
Expenses
Advisory fees (Note 3-A)......................................................... 45,746
Administration fees (Note 3-D)................................................... 20,164
Officer's salary................................................................. 12,100
12b-1 expense (Note 3-C)......................................................... 11,436
Accounting fees.................................................................. 9,099
Auditing fees.................................................................... 8,066
Registration fees................................................................ 8,033
Transfer agent fees.............................................................. 7,202
Custody fees..................................................................... 6,856
Reports to shareholders.......................................................... 4,285
Legal fees....................................................................... 2,521
Directors' fees.................................................................. 2,276
Insurance........................................................................ 504
Miscellaneous.................................................................... 1,600
--------
Total expenses............................................................. 139,888
--------
Net investment loss ..................................................... (54,138)
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments ...................................................... 515,870
Unrealized depreciation on investments................................................. (208,423)
--------
Net realized and unrealized gain on investments.................................. 307,447
--------
Net Increase in Net Assets Resulting from Operations ...................... $ 253,309
=========
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
The Matterhorn Growth Fund, Inc.
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
Six Months Year
Ended December Ended
31, 1997* June 30, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment loss....................................................... $ (54,138) $ (107,624)
Net realized gain on investments ......................................... 515,870 271,540
Unrealized appreciation (depreciation) on investments..................... (208,423) 751,797
---------- ----------
Net increase in net assets resulting from operations ............... 253,309 915,713
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gain on investments.......................................... (345,985) (1,051,231)
---------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold................................................. 248,537 889,719
Net asset value of shares issued on reinvestment of distributions......... 320,389 985,471
Cost of shares redeemed................................................... (769,659) (1,342,657)
---------- ----------
Net increase (decrease) from capital share transactions ............ (200,733) 532,533
---------- ----------
Total increase (decrease) in net assets ...................... (293,409) 397,015
NET ASSETS
Beginning of period....................................................... 9,212,823 8,815,808
---------- ----------
End of period ............................................................ $8,919,414 $9,212,823
========== ==========
CHANGE IN SHARES
Shares sold .............................................................. 35,813 134,740
Shares issued on reinvestment of distributions............................ 47,819 158,947
Shares redeemed........................................................... (110,997) (201,491)
---------- ----------
Net increase (decrease)................................................... (27,365) 92,196
========== ==========
</TABLE>
*Unaudited.
See Notes to Financial Statements.
7
<PAGE>
The Matterhorn Growth Fund, Inc.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - For a capital share outstanding throughout each period
- -----------------------------------------------------------------------------------------------------------------
For the Six
Months Ended
December 31,
1997 (Unaudited) 1997 1996(a) 1995 1994 1993*
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year............. $ 6.82 $ 7.00 $ 6.88 $ 5.87 $ 7.09 $ 6.30
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment loss ........................ (.04) (.07) (.12) (.17) (.17) (.04)
Net realized and unrealized gain on
investments.............................. .23 .74 .85 1.28 .71 1.77
------ ------ ------ ------ ------ ------
Total from investment operations............... .19 .67 .73 1.11 .54 1.73
------ ------ ------ ------ ------ ------
Less distributions:
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................... $ 6.74 $ 6.82 $ 7.00 $ 6.88 $ 5.87 $ 7.09
====== ====== ====== ====== ====== ======
Total return .................................. 2.98% 10.81% 11.60% 19.32% 5.60% 28.89%
Ratios/supplemental data:
Net assets, end of period (000's omitted)...... $8,919 $9,213 $8,816 $8,993 $8,201 $8,048
Ratio to average net assets:
Expenses (excluding interest) .............. 3.08%++ 4.00% 4.21% 4.62% 4.87% 4.27%
Interest expense............................ .00 .00 .02 .56 .14 .12
------ ------ ------ ------ ------ ------
Total expenses, net of reimbursement........ 3.08% 4.00%+ 4.23% 5.18% 5.01% 4.39%
====== ====== ====== ====== ====== ======
Net investment loss......................... (1.19)%++ (1.23)% (1.64)% (2.50)% (2.77)% (.62)%
====== ====== ====== ====== ====== ======
Portfolio turnover rate ....................... 49.07% 137.38% 88.32% 72.11% 160.06% 167.27%
Average commission rate paid**................. $.0874 $.0623 $ - $ - $ - $ -
(B) BANK LOANS
Amount outstanding at end of period
(000's omitted).............................. $ - $ - $ - $ 366 $ 27 $ -
Average amount of bank loans outstanding during
the period (monthly average) (000's omitted). $ - $ - $ 12 $ 456 $ 44 $ 49
Average number of shares outstanding during
the period (monthly average) (000's omitted)* - - 1,306 1,369 1,268 773
Average amount of debt per share during
the period................................... $ - $ - $ .01 $ .33 $ .03 $ .06
</TABLE>
* Based on average month-end shares outstanding.
** A fund is required to disclose its average commission rate paid per share for
security trades on which commissions are charged. This amount may vary from fund
to fund depending on the mix of trades executed in various markets where trading
practices and commission rate structures may differ. This rule took effect on
September 30, 1996 and is not required for periods prior to that date.
+ In the absence of the expense reimbursement, expenses would have been 4.17% of
average net assets for the year ended June 30, 1997.
++Annualized.
(a) On March 15, 1996, the investment adviser changed, and Matterhorn Asset
Management Corporation became the Fund's investment adviser.
See Notes to Financial Statements.
8
<PAGE>
The Matterhorn Growth Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Matterhorn Growth Fund, Inc. (the "Fund") is a Maryland corporation
incorporated on May 2, 1980 and is registered under the Investment Company Act
of 1940 as a non-diversified, open-end management investment company. The Fund's
objective is to seek long-term capital appreciation for shareholders.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments in securities are valued daily based
upon latest closing market prices for those securities traded on
national securities exchanges, or if there has been no sale that day
at the mean between the last bid and asked prices, and at the closing
bid price for those securities traded in the over-the-counter market.
Short-term investments with less than 60 days to maturity when
acquired by the Fund are valued on an amortized cost basis. All other
securities and assets are valued at fair value, as determined in good
faith by the Board of Directors.
B. Equity Option Contracts. When the Fund writes a call option, the
premiums received are recorded as a liability and marked-to-market
daily to reflect the current value of the option written. If the
written option is not exercised prior to expiration, the premium
received is treated as realized gain. If the written option is
exercised, the premium received is added to the sale proceeds of the
underlying security.
The premium paid by the Fund for the purchase of an option is
included as an investment and is marked-to-market daily to reflect
the current value of the option purchased. If the purchased option is
not exercised prior to expiration, the premium paid is treated as
realized loss. If the Fund exercised a call option, the cost of the
security is increased by the premium paid to buy the call. If the
Fund exercises a put option, it realizes a gain or loss from the sale
of the underlying security and the proceeds from such sale are
decreased by the premium originally paid.
C. Security Transactions and Related Investment Income. Securities
transactions are accounted for on the trade date, and dividend income
is recorded on the ex-dividend date. Interest income is recorded on
the accrual basis. The cost of securities sold is determined on a
first-in, first out basis for both financial statement and federal
income tax purposes.
It is the Fund's policy to take possession of securities as
collateral under repurchase agreements and to determine, on a daily
basis, that the value of such securities are sufficient to cover the
value of the repurchase agreements.
D. Federal Income Taxes. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
shareholders. Therefore, no provision for federal income tax is
required.
E. Dividends and Distributions to Shareholders. Dividends and
distributions to shareholders are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from
generally accepted accounting principles.
9
<PAGE>
The Matterhorn Growth Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
- --------------------------------------------------------------------------------
F. Use of Estimates. The preparation of financial statements in
conformity with general accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
A. Investment Advisory Agreements. Pursuant to an Advisory Agreement
with Matterhorn Asset Management Corporation (the "Adviser"), the
Adviser receives a fee, payable monthly, at the annual rate of 1.00%
of the Fund's daily average net assets. The advisory fee paid to the
Adviser for the six months ended December 31, 1997 totaled $45,746.
The Fund is responsible for its own operating expenses, as defined.
The Adviser has agreed until March 15, 1998, to reimburse the Fund to
the extent that the Fund's operating expenses (excluding interest,
taxes, brokerage commissions and other portfolio transaction
expenses, capital expenditures and extraordinary expenses) exceeds 4%
of the Fund's average net assets. No reimbursements were required for
the period.
B. Distribution Agreements. Bainbridge Securities Inc. ("Bainbridge")
and Cumberland Brokerage Corporation ("Cumberland") act as
co-distributors for shares of the Fund pursuant to a Distribution
Agreement. Bainbridge and Cumberland are affiliates of the Adviser.
C. Distribution Plan. The Fund has adopted a Distribution Plan in
accordance with Rule 12b-1 under the Investment Company Act of 1940.
The Plan provides that the Fund will pay Bainbridge and Cumberland an
aggregate distribution fee, payable monthly, at the annual rate of
0.25% of the Fund's average daily net assets. The fee is paid to
Bainbridge and Cumberland as compensations for their services
rendered.
D. Administration Agreement. Pursuant to an administration agreement
with Investment Company Administration Corporation ("Administrator"
or "ICAC") the Fund pays ICAC for its services a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets, subject
to a minimum annual fee of $40,000.
E. Other. The Fund pays each Directors who are not "interested persons"
a $300 attendance fee and any expenses incurred to attend the
meetings. Prior to December 5, 1997, the Fund paid each Director an
attendance fee of $250. Total fees paid to Directors for six months
ended December 31, 1997 are included in the "Statement of
Operations". Certain officers and Directors of the Fund are also
officers and/or Directors of the Adviser, Administrator and
co-distributors.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the six months ended December 31, 1997, purchases and sales of
securities other than short-term securities aggregated $4,731,840 and
$3,973,963, respectively.
10
<PAGE>
INVESTMENT ADVISER
Matterhorn Asset Management Corporation
301 Oxford Valley Road, Suite 802B
Yardley, Pennsylvania 19067
CO-DISTRIBUTORS
Bainbridge Securities Inc.
301 Oxford Valley Road, Suite 801B
Yardley, Pennsylvania 19067
THE
Cumberland Brokerage Corporation MATTERHORN
614 Landis Avenue GROWTH
Vineland, New Jersey 08360 FUND, INC.
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AGENT
American Data Services, Inc.
150 Motor Parkway, Suite 109
Happauge, New York 11788
1-800-637-3901
This report is intended for
shareholders of the Fund and may not
be used as sales literature unless
preceded or accompanied by a current Semi-Annual Report
prospectus.
Past performance results shown in December 31, 1997
this report should not be considered
a representation of future
performance. Share price and returns
will fluctuate so that shares, when
redeemed, may be worth more or less
than their original cost. Statements
and other information herein are
dated and are subject to change.
