[MATTERHORN LOGO]
Dear Shareholders,
The year 1998 was not particularly kind to growth funds with a value portfolio.
Nevertheless, we are pleased to report The Matterhorn Growth Fund had a 3.80%
gain in net asset value per share for the six months ending December 31, 1998.
This is reflective of our conservative outlook while opting for quality
investments rather than currently in vogue and volatile over valued securities.
The trend toward free-market economies and free trade on a world wide basis,
combined with the impact of the continuing revolution in communications, leads
us to believe that economic growth can continue with low inflation and moderate
interest rates. We believe this favorable environment for equities will result
in a continuation of the secular bull market. This economic environment will
also continue to create new investment opportunities for the Fund.
In our philosophy of selectivity in choosing the Funds investments, a chief
consideration is the size of the discount of market price relative to the
economic value of each security. The Fund's Adviser believes that over time,
market price and value converge and that investment in securities priced
significantly below long term value present the best opportunity to achieve long
term capital appreciation. We will strive to maintain self control in decision
making and err on the part of conservatism as we work to attain a suitable
return on investment.
Thank you for your continued confidence.
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, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 92.4% Market Value
- --------------------------------------------------------------------------------
BANKING: 10.0%
4,860 Bank One Corp............................. $ 248,164
6,000 First Security Corp....................... 139,875
2,500 Mellon Bank Corp.......................... 171,875
6,000 Summit Bancorp............................ 262,125
------------
822,039
------------
BEVERAGE: 3.4%
7,000 PepsiCo Inc............................... 286,562
------------
CHEMICALS: 5.8%
6,000 Monsanto Co............................... 285,000
8,000 Morton International, Inc................. 196,000
------------
481,000
------------
DIVERSIFIED OPERATIONS: 5.6%
6,000 AlliedSignal Inc.......................... 265,875
3,500 FMC Corp.*................................ 196,000
------------
461,875
------------
ELECTRICAL EQUIPMENT: 5.6%
7,000 Corning, Inc.............................. 315,000
10,000 Thermo Electron Corp.*.................... 150,625
------------
465,625
------------
HOUSEHOLD PRODUCTS: 6.8%
5,000 Gillette Company.......................... 241,563
6,000 Kimberly-Clark Corp....................... 327,000
------------
568,563
------------
INSURANCE: 2.8%
5,000 NAC Re Corp............................... 234,688
------------
MEDIA AND ENTERTAINMENT: 2.8%
5,000 MediaOne Group, Inc.*..................... 235,000
------------
NEWSPAPERS: 4.6%
10,000 A.H. Belo Corp., Class A.................. 199,375
3,500 Media General, Class A.................... 185,500
------------
384,875
------------
2
<PAGE>
The Matterhorn Growth Fund, Inc.
SCHEDULE OF INVESTMENTS at December 31, 1998 (Unaudited), Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
OFFICE EQUIPMENT: 18.1%
5,000 Computer Associates Int'l. Inc............ $ 213,125
4,000 Hewlett-Packard Co........................ 273,250
3,500 LSI Logic Corp.*.......................... 56,438
7,000 Sun Microsystems, Inc.*................... 598,937
3,100 Xerox Corp................................ 365,800
------------
1,507,550
------------
PHARMACEUTICALS: 17.5%
6,000 Eli Lilly & Co............................ 533,250
6,000 Johnson & Johnson......................... 503,250
6,000 SmithKline Beecham ADR.................... 417,000
------------
1,453,500
------------
POLLUTION CONTROL: 2.2%
8,000 U.S. Filter Corp.*........................ 183,000
------------
RAILROADS: 2.7%
5,000 Union Pacific Corp........................ 225,312
------------
RESTAURANTS: 3.9%
15,000 Wendy's International..................... 327,187
------------
RETAIL: 0.5%
6,000 Heilig Meyers Co.......................... 40,125
------------
TELECOMMUNICATION: 0.1%
136 U.S. West Inc............................. 8,789
------------
Total Common Stocks (cost $6,360,430)..... 7,685,690
------------
Principal Amount REPURCHASE AGREEMENT: 10.9%
- --------------------------------------------------------------------------------
$903,000 Star Bank Repurchase Agreement, 3.5%, due
1/4/1999, collateralized by $1,195,000
GNMA, 5.5%, due 5/20/2024 (proceeds
$903,351) (cost $903,000)................. 903,000
------------
3
<PAGE>
The Matterhorn Growth Fund, Inc.
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 (UNAUDITED), CONTINUED
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENT IN SECURITIES (cost $7,263,430+): 103.3%............... $ 8,588,690
Liabilities in excess of other assets: (3.3)%........................... (274,854)
------------
Total Net Assets: 100.0%................................................ $ 8,313,836
===========
*Non-income producing security.
+ At December 31, 1998, the cost of securities for Federal tax purposes was the same. Unrealized appreciation and
depreciation of securities, based on cost for Federal income tax purposes, were as follows:
Gross unrealized appreciation........................................... $ 1,749,158
Gross unrealized depreciation.......................................... (423,898)
-----------
Net unrealized appreciation....................................... $ 1,325,260
===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
The Matterhorn Growth Fund, Inc.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (identified cost $7,263,430) $ 8,588,690
Cash ........................................................... 819
Receivables:
Fund shares sold ......................................... 138
Dividends and interest ................................... 8,181
Prepaid expenses ............................................... 5,425
Other assets ................................................... 2,465
-----------
Total assets ....................................... 8,605,718
-----------
LIABILITIES
Payables:
Fund shares redeemed ..................................... 2,251
Investment securities purchased .......................... 208,888
Due to Adviser (Note 3) ........................................ 6,928
Due to Distributors (Note 3) ................................... 1,732
Other accrued expenses ......................................... 72,083
-----------
Total liabilities .................................. 291,882
-----------
NET ASSETS ........................................................... $ 8,313,836
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($8,313,836/1,260,569 shares outstanding;
100,000,000 shares authorized with $.001 par value) ...... $6.60
=====
COMPONENTS OF NET ASSETS
Paid-in capital ................................................ $ 7,275,262
Accumulated net investment loss ................................ (224,234)
Accumulated net realized loss on investments ................... (62,452)
Net unrealized appreciation on investments ..................... 1,325,260
-----------
Net assets ......................................... $ 8,313,836
===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
The Matterhorn Growth Fund, Inc.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - PERIOD ENDED DECEMBER 31, 1998 (UNAUDITED)
- ----------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Dividend ................................................. $ 47,850
Interest ................................................. 21,650
---------
Total investment income ............................ 69,500
---------
Expenses
Advisory fees (Note 3) ................................... 40,799
Transfer agent fees ...................................... 26,438
Administration fees (Note 3) ............................. 20,165
Officer's salary ......................................... 17,815
12b-1 expense (Note 3) ................................... 10,200
Accounting fees .......................................... 9,629
Reports to shareholders .................................. 8,052
Auditing fees ............................................ 8,082
Registration fees ........................................ 8,052
Directors fees ........................................... 7,239
Custody fees ............................................. 6,820
Legal fees ............................................... 5,840
Insurance ................................................ 504
Miscellaneous ............................................ 3,548
---------
Total expenses ..................................... 173,183
---------
NET INVESTMENT LOSS ................................ (103,683)
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments ............................... (149,691)
Net change in unrealized appreciation of investments ........... 514,269
---------
Net realized and unrealized gain on investments .......... 364,578
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 260,895
=========
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
The Matterhorn Growth Fund, Inc.
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
For the Six Months Year
Ended Ended
December 31, 1998# June 30, 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
DECREASE IN NET ASSETS FROM:
OPERATIONS
Net investment loss ............................................... $ (103,683) $ (120,551)
Net realized gain (loss) on investments ........................... (149,691) 1,374,530
Net change in unrealized appreciation (depreciation) of investments 514,269 (278,775)
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........ 260,895 975,204
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gain on investments .................................. (1,068,302) (345,985)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ......................................... 87,506 491,467
Net asset value of shares issued on reinvestment of distributions . 993,642 320,389
Cost of shares redeemed ........................................... (983,066) (1,630,737)
----------- -----------
NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS ..... 98,082 (818,881)
----------- -----------
TOTAL DECREASE IN NET ASSETS .......................... (709,325) (189,662)
NET ASSETS
Beginning of period ............................................... 9,023,161 9,212,823
----------- -----------
END OF PERIOD ..................................................... $ 8,313,836 $ 9,023,161
=========== ===========
CHANGE IN SHARES
Shares sold ....................................................... 12,205 69,763
Shares issued on reinvestment of distributions .................... 151,701 47,819
Shares redeemed ................................................... (141,513) (230,954)
----------- -----------
Net increase (decrease) ........................................... 22,393 (113,372)
=========== ===========
</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 Years Ended June 30,
December 31, --------------------------------------------------
1998# 1998 1997 1996(a) 1995 1994
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 7.29 $ 6.82 $ 7.00 $ 6.88 $ 5.87 $ 7.09
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment loss ..................... (.08) (.11) (.07) (.12) (.17) (.17)
Net realized and unrealized gain
on investments......................... .35 .85 .74 .85 1.28 .71
------ ------ ------ ------ ------ ------
Total from investment operations............ .27 .74 .67 .73 1.11 .54
------ ------ ------ ------ ------ ------
Less distributions:
From net realized gains.................. (.96) (.27) (.85) (.61) (.10) (1.76)
------ ------ ------ ------ ------ ------
Total distributions......................... (.96) (.27) (.85) (.61) (.10) (1.76)
------ ------ ------ ------ ------ ------
Net asset value, end of period.............. $ 6.60 $ 7.29 $ 6.82 $ 7.00 $ 6.88 $ 5.87
====== ====== ====== ====== ====== ======
Total return ............................... 3.80% 11.22% 10.81% 11.60% 19.32% 5.60%
Ratios/supplemental data:
Net assets, end of period (000's omitted)... $8,314 $9,023 $9,213 $8,816 $8,993 $8,201
====== ====== ====== ====== ====== ======
Ratio to average net assets:
Expenses (excluding interest) ........... 4.25%+ 3.65% 4.00% 4.21% 4.62% 4.87%
Interest expense......................... .00 .00 .00 .02 .56 .14
------ ------ ------ ------ ------ ------
Total expenses, net of reimbursement..... 4.25% 3.65% 4.00%** 4.23% 5.18% 5.01%
====== ====== ====== ====== ====== ======
Net investment loss...................... (2.54)%+ (1.32)% (1.23)% (1.64)% (2.50)% (2.77)%
====== ====== ====== ====== ====== ======
Portfolio turnover rate .................... 41.70% 115.28% 137.38% 88.32% 72.11% 160.06%
BANK LOANS
Amount outstanding at end of period (000)... $-- $-- $-- $ -- $ 366 $ 27
Average amount of bank loans outstanding
during the period (monthly average) (000) $-- $-- $-- $ 12 $ 456 $ 44
Average number of shares outstanding during
the period (monthly average) (000)*...... -- -- -- 1,306 1,369 1,268
Average amount of debt per share during
the period............................... $-- $-- $-- $ .01 $ .33 $ .03
</TABLE>
#Unaudited.
+Annualized.
* Based on average month-end shares outstanding.
** In the absence of the expense reimbursement, expenses would have been 4.17%
of average net assets for the year ended June 30, 1997.
(a) On March 15, 1996, the investment adviser changed, and Matterhorn Asset
Management Corporation became the Fund's investment adviser.
See Notes to Financial Statements.
8
<PAGE>
The Matterhorn Growth Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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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 the 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 the amortized cost basis. All
other securities and assets are valued at fair value, as determined
in good faith by the Board of Directors.
B. 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.
C. 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.
D. DISTRIBUTIONS TO SHAREHOLDERS. Distributions to shareholders are
recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting
principles.
E. 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 periods.
Actual results could differ from those estimates.
9
<PAGE>
The Matterhorn Growth Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT ADVISORY FEES 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 fees paid to the
Adviser for the six months ended December 31, 1998 totaled $40,799.
The Fund is responsible for its own operating expenses, as defined.
B. DISTRIBUTION AGREEMENTS. Bainbridge Securities Inc. ("Bainbridge")
and Cumberland Brokerage Corporation ("Cumberland") act as
co-distributors for shares of the Fund pursuant to a Distribution
Agreement. Bainbridge and Cumberland are affiliates of the Adviser.
C. DISTRIBUTION PLAN. The Fund has adopted a Distribution Plan in
accordance with Rule 12b-1 under the Investment Company Act of 1940.
The Plan provides that the Fund will pay Bainbridge and Cumberland an
aggregate distribution fee, payable monthly, at the annual rate of
0.25% of the Fund's average daily net assets. The fee is paid to
Bainbridge and Cumberland as compensation for their services
rendered.
D. ADMINISTRATION AGREEMENT. Pursuant to an administration agreement
with Investment Company Administration, L.L.C. ("Administrator" or
"ICA"), the Fund pays ICA a monthly fee at the annual rate of 0.10%
of the Fund's average daily net assets, subject to minimum annual
fees of $40,000.
E. OTHER. The Fund pays each Director who is not an "interested person"
a $300 attendance fee and reimburses them for expenses incurred to
attend the meetings. Total fees paid to Directors for the six months
ended December 31, 1998 are included in the "Statement of
Operations". Certain officers and Directors of the Fund are also
officers and/or Directors of the Adviser, Administrator and
co-distributors.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the six months ended December 31, 1998, purchases and sales of
securities other than short-term securities aggregated $3,047,401 and
$4,438,344, 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
Cumberland Brokerage Corporation
614 Landis Avenue
Vineland, New Jersey 08360
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AGENT
American Data Services, Inc.
150 Motor Parkway, Suite 109
Happauge, New York 11788
1-800-637-3901
This report is intended for shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost. Statements and other information herein are dated and are subject to
change.
[MATTERHORN LOGO]
SEMI-ANNUAL REPORT
DECEMBER 31, 1998
