[THE MATTERHORN GROWTH FUND, INC. LOGO]
ANNUAL REPORT
JUNE 30, 1999
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[THE MATTERHORN GROWTH FUND, INC. LOGO]
Dear Shareholders,
The Fund has provided an outstanding return for shareholders for the first
half of 1999. As of June 30, 1999, the Fund was up 16.7% compared to 11.9% for
the Lipper Growth Fund (an index of stock mutual funds) and 12.4% for the S&P
500 Index.
During the last six months, the market has broadened out in terms of the
number of stocks and industries that have participated in the upward move in the
overall averages. This is in stark contrast to last year where only a handful of
stocks accounted for the higher market averages. This is a direct result of much
better growth in the U.S. economy, and in turn, better corporate profits.
Confidence that this corporate profit expansion is sustainable also contributed
to higher stock prices. The sustainability is predicated on the fact that world
economies are recovering from 1998 downturns, specifically Southeast Asia
(including Japan) and Latin America. More recently, signs that Europe is
beginning a recovery have also helped. The risk going forward now becomes the
fear that too rapid growth creates high inflation. This scenario may prompt the
Federal Reserve to raise interest rates. Higher interest rates become
competition for stocks and valuation levels are lowered. In fact, subsequent to
this reporting date, the market declined under the weight of such fears.
We believe the outlook for the market is still positive. Interest rates may
move up modestly, but not enough to threaten the sustainability of the corporate
profit expansion. Interest rates may only return to those levels seen prior to
the 1998 economic downturns in Southeast Asia and Latin America. Those events
prompted the Federal Reserve to lower interest rates at that time to safeguard
against a financial crisis. A recovery in world economies should ensure ample
supply of commodities which alleviates pricing pressure. In addition,
productivity gains driven by technology will continue to offset wage pressure.
Our portfolio composition reflects the above thoughts. We have increasingly
lowered our exposure to the interest sensitive side of the economy. While
interest rates may only rise modestly, the banks and insurance companies are
most impacted by any upward move. At the same time, we have increased our
investments in the technology sector, taking advantage of the recovery in world
economies and their intent in creating productivity
<PAGE>
gains to offset higher wages. Additionally, we have attempted to build a greater
exposure to the consumer as worldwide economic activity allows for greater
purchasing power. Examples include purchases of Gillette, Mattel and A.H. Belo.
Finally, a comment on our continued heavy presence in the healthcare area,
specifically the pharmaceutical companies. The stocks have weakened recently on
concern over possible adverse legislation in Washington. We continue to believe
the combination of a powerful demographic sift to an older population and a very
successful research and development effort will afford these companies the most
consistent growth rates of any sector. Therefore, on any weakness we continue to
add to positions.
We appreciate your investment in The Matterhorn Growth Fund, Inc.
Sincerely Yours,
/s/ Gregory A. Church
Gregory A. Church
Portfolio Manager
<PAGE>
Comparison of the change in value of a $10,000 Investment in the Matterhorn
Growth Fund, Inc. and the Standard & Poors 500 Index
Annual Average Total Return Periods
Ended June 30, 1999
1 Year 21.10%
5 Year 14.73%
10 Year 13.03%
Past performance is not predictive of future performance.
The S&P 500 Index contains 500 industrial, transportation, utility and financial
companies regarded as generally representative of the U.S. stock market.
Matterhorn Growth Fund, Inc. S & P 500
---------------------------- ---------
9/27/88 10000 10000
6/30/89 12279.41 11853.43
6/30/90 13799.02 13346.01
6/30/91 14215.69 13835.83
6/30/92 15441.18 15214.34
6/30/93 19901.61 16794.53
6/30/94 21016.54 16561.17
6/30/95 25085.45 20306.79
6/30/96 27996.13 24999.25
6/30/97 30977.27 32995.6
6/30/98 34501.96 42266.46
6/30/99 41783.02 51170.58
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THE MATTERHORN GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 92.1% Market Value
- --------------------------------------------------------------------------------
BANKING: 1.6%
4,000 Mellon Bank Corporation ............................... $ 145,500
-----------
CHEMICALS: 2.6%
6,000 Monsanto Company ...................................... 236,625
-----------
DIVERSIFIED OPERATIONS: 2.6%
3,500 FMC Corporation* ...................................... 239,094
-----------
ELECTRICAL EQUIPMENT: 9.0%
10,000 Arrow Electronics, Inc.* .............................. 190,000
5,000 Corning Incorporated .................................. 350,625
6,000 Thomas & Betts Corporation ............................ 283,500
-----------
824,125
-----------
HOUSEHOLD PRODUCTS: 6.0%
5,000 The Gillette Company .................................. 205,000
6,000 Kimberly-Clark Corporation ............................ 342,000
-----------
547,000
-----------
INSURANCE: 4.2%
4,000 Everest Reinsurance Holdings, Inc. .................... 130,500
4,575 XL Capital Ltd., Class A .............................. 258,487
-----------
388,987
-----------
MEDIA & ENTERTAINMENT: 4.1%
5,000 MediaOne Group, Inc.* ................................. 371,875
-----------
NEWSPAPERS: 5.2%
6,000 A. H. Belo Corporation Class A ........................ 118,125
7,000 Media General, Inc. Class A ........................... 357,000
-----------
475,125
-----------
OFFICE EQUIPMENT: 26.2%
5,000 Computer Associates International, Inc. ............... 275,000
4,000 Hewlett-Packard Company ............................... 402,000
4,000 Intel Corporation ..................................... 237,750
3,500 LSI Logic Corporation* ................................ 161,438
4
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THE MATTERHORN GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999, CONTINUED
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Shares Market Value
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OFFICE EQUIPMENT, CONTINUED
14,000 Sun Microsystems, Inc.* ............................... $ 964,250
6,200 Xerox Corporation ..................................... 366,187
-----------
2,406,625
-----------
OILS: 4.8%
7,000 Texaco Inc. ........................................... 437,500
-----------
PHARMACEUTICALS: 15.4%
6,000 Eli Lilly and Company.................................. 429,750
6,000 Johnson & Johnson...................................... 588,000
6,000 Smithkline Beecham Plc ADR............................. 396,375
-----------
1,414,125
-----------
RAILROADS: 3.2%
5,000 Union Pacific Corporation 291,563
-----------
RESTAURANTS: 4.6%
15,000 Wendy's International, Inc............................. 424,687
-----------
RETAIL: 2.6%
10,000 Mattel, Inc............................................ 264,375
-----------
Total Common Stocks (Cost $6,044,775).................. 8,467,206
-----------
5
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THE MATTERHORN GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999, CONTINUED
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Principal
Amount REPURCHASE AGREEMENT: 5.7%
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$526,000 Star Bank Repurchase Agreement, 3.30%, due 07/01/1999,
collateralized by $536,394 United States Treasury Note,
due 09/30/1999, (proceeds $526,048) (cost $526,000).... $ 526,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $6,570,775**) 97.8% ............................. 8,993,206
Other assets less liabilities: 2.2% ................... 198,320
-----------
Total Net Assets: 100.0%............................... $ 9,191,526
===========
* Non-income producing security.
** At June 30, 1999 the cost of securities for Federal income tax purposes was
the same. Gross unrealized appreciation and depreciation of securities, based on
cost for Federal income tax purposes, were as follows:
Gross unrealized appreciation.......................... $ 2,514,566
Gross unrealized depreciation.......................... (92,135)
-----------
Net unrealized appreciation.......................... $ 2,422,431
===========
See Notes to Financial Statements.
6
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THE MATTERHORN GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1999
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ASSETS
Investments in securities, at value (identified cost $6,570,775) $ 8,993,206
Cash............................................................ 881
Receivable for:
Investment securities sold.................................... 245,382
Dividends and interest........................................ 8,637
Prepaid expenses................................................ 6,111
Other Assets ................................................... 2,465
-----------
Total Assets.................................................. 9,256,682
LIABILITIES
Due to Advisor (Note 3)......................................... 8,062
Due to Distributors (Note 3).................................... 2,016
Other accrued expenses.......................................... 55,078
-----------
Total Liabilities............................................. 65,156
NET ASSETS ....................................................... $ 9,191,526
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($9,191,526/1,193,534 shares outstanding;
100,000,000 shares authorized with $.001 par value)............. $ 7.70
===========
SOURCES OF NET ASSETS
Paid-in capital................................................. 6,769,095
Net unrealized appreciation on investments...................... 2,422,431
-----------
Net assets.................................................... $ 9,191,526
===========
See Notes to Financial Statements.
7
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THE MATTERHORN GROWTH FUND, INC.
STATEMENT OF OPERATIONS - YEAR ENDED JUNE 30, 1999
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INVESTMENT INCOME
Income
Dividends..................................................... $ 94,730
Interest...................................................... 27,450
-----------
Total investment income..................................... 122,180
-----------
Expenses
Advisory fees (Note 3)........................................ 84,014
Administration fees (Note 3).................................. 40,000
Officer's salary.............................................. 32,766
Transfer agent fees........................................... 21,441
12b-1 expense (Note 3)........................................ 21,003
Accounting fees............................................... 18,128
Registration fees............................................. 15,929
Auditing fees................................................. 15,316
Directors fees................................................ 12,364
Reports to shareholders....................................... 10,881
Custody fees.................................................. 6,968
Legal fees.................................................... 5,882
Insurance..................................................... 1,000
Miscellaneous................................................. 14,632
-----------
Total expenses.............................................. 300,324
-----------
NET INVESTMENT LOSS ........................................ (178,144)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments................................ 181,185
Net change in unrealized appreciation of investments............ 1,611,440
-----------
Net realized and unrealized gain on investments............... 1,792,625
-----------
Net Increase in Net Assets Resulting from Operations........ $ 1,614,481
===========
See Notes to Financial Statements.
8
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THE MATTERHORN GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Year
Ended Ended
June 30, 1999 June 30, 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment loss............................................... $ (178,144) $ (120,551)
Net realized gain on investments.................................. 181,185 1,374,530
Net change in unrealized appreciation of investments.............. 1,611,440 (278,775)
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... 1,614,481 975,204
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments.................................. (1,038,914) (345,985)
Return of capital................................................. (29,388) --
----------- -----------
NET DECREASE FROM DISTRIBUTIONS .............................. (1,068,302) (345,985)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold......................................... 243,286 491,467
Net asset value of shares issued on reinvestment of distributions. 993,642 320,389
Cost of shares redeemed........................................... (1,614,742) (1,630,737)
----------- -----------
NET DECREASE FROM CAPITAL SHARE TRANSACTIONS ................. (377,814) (818,881)
TOTAL INCREASE (DECREASE) IN NET ASSETS .................. 168,365 (189,662)
NET ASSETS
Beginning of year................................................. 9,023,161 9,212,823
----------- -----------
END OF YEAR ...................................................... $ 9,191,526 $ 9,023,161
=========== ===========
CHANGES IN SHARES
Shares sold ...................................................... 34,753 69,763
Shares issued on reinvestment of distributions.................... 151,701 47,819
Shares redeemed................................................... (231,096) (230,954)
----------- -----------
Net decrease...................................................... (44,642) 113,372)
=========== ===========
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
THE MATTERHORN GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS - FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------------------
1999 1998 1997 1996(a) 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 7.29 $ 6.82 $ 7.00 $ 6.88 $ 5.87
------- ------- ------- ------- -------
Income from investment operations:
Net investment loss (0.15) (0.11) (0.07) (0.12) (0.17)
Net realized and unrealized gain on investments 1.52 0.85 0.74 0.85 1.28
------- ------- ------- ------- -------
Total from investment operations 1.37 0.74 0.67 0.73 1.11
Less distributions:
From net realized gains (0.93) (0.27) (0.85) (0.61) (0.10)
Return of capital (0.03) 0.00 0.00 0.00 0.00
------- ------- ------- ------- -------
Total distributions (0.96) (0.27) (0.85) (0.61) (0.10)
Net asset value, end of year $ 7.70 $ 7.29 $ 6.82 $ 7.00 $ 6.88
======= ======= ======= ======= =======
Total return 21.10% 11.22% 10.81% 11.60% 19.32%
Ratios/supplemental data:
Net assets, end of year (000 omitted) $ 9,192 $ 9,023 $ 9,213 $ 8,816 $ 8,993
Ratio to average net assets:
Expenses (excluding interest) 3.57% 3.65% 4.00% 4.21% 4.62%
Interest expense -- -- -- 0.02 0.56
------- ------- ------- ------- -------
Total expense 3.57% 3.65% 4.00%** 4.23% 5.18%
======= ======= ======= ======= =======
Net investment loss (2.12%) (1.32%) (1.23%) (1.64%) (2.50%)
Portfolio turnover rate 68.93% 115.28% 137.38% 88.32% 72.11%
BANK LOANS
Amount outstanding at end of year (000s omitted) -- -- -- -- $ 366
Average amount of bank loans outstanding during
the year (monthly average) (000s omitted) -- -- -- $ 12 $ 456
Average number of shares outstanding during
the year (monthly average) (000s omitted)* -- -- -- 1,306 1,369
Average amount of debt per share during the year -- -- -- $ 0.01 $ 0.33
</TABLE>
* Based on average month-end shares outstanding.
** In the abscence 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.
10
<PAGE>
THE MATTERHORN GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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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 latest closing market prices for those securities traded on
national securities exchanges, or if there has been no sale that day
at the mean between the last bid and asked prices, and at the closing
bid price for those securities traded in the over-the-counter market.
Short-term investments with less than 60 days to maturity when
acquired by the Fund are valued on an amortized cost basis. All other
securities and assets are valued at fair value, as determined in good
faith by the Board of Directors. There were no such securities
requiring valuation by the Board of Directors held during the year
ended June 30, 1999.
B. EQUITY OPTION CONTRACTS. When the Fund writes an 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 the premium received is treated as realized gain. If
the written option is exercised, the premium received is added to the
cost or 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. During the year ended June 30, 1999 the Board of
Directors of the Fund determined that it was in the Fund's best
interest to change the accounting method for cost of securities sold
to specific identification from a first-in, first-out basis. 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.
11
<PAGE>
THE MATTERHORN GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
E. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Distributions are determined in accordance with
income tax regulations which may differ from generally accepted
accounting principles.
F. USE OF ESTIMATES. The preparation of financial statements in
conformity with general accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
A. INVESTMENT ADVISORY AGREEMENTS. Pursuant to an Advisory Agreement with
Matterhorn Asset Management Corporation (the "Adviser"), the Adviser
receives a fee, payable monthly, at the annual rate of 1.00% of the
Fund's daily average net assets. The advisory fee paid to the Adviser
for the year ended June 30, 1999 totaled $84,014.
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 compensations for their services
rendered.
D. ADMINISTRATION AGREEMENT. Pursuant to an administration agreement with
Investment Company Administration, L.L.C. ("Administrator"), the Fund
pays the Administrator 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 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 year ended June
30, 1999 are included in the "Statement of Operations". Certain
officers and Directors of the Fund are also officers and/or Directors
of the Adviser, Administrator and co-distributors.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the year ended June 30, 1999, purchases and sales of securities other
than short-term securities aggregated $5,421,236 and $7,458,393 respectively.
12
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
The Matterhorn Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of The Matterhorn Growth Fund, Inc. as of
June 30, 1999, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Matterhorn Growth Fund, Inc. as of June 30, 1999, the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
MCGLADREY & PULLEN, LLP
New York, New York
July 21, 1999
13
<PAGE>
INVESTMENT ADVISER
Matterhorn Asset Management Corporation
301 Oxford Valley Road, Suite 802B
Yardley, Pennsylvania 19067
CO-DISTRIBUTORS
Bainbridge Securities Inc.
301 Oxford Valley Road, Suite 801B
Yardley, Pennsylvania 19067
Cumberland Brokerage Corporation
614 Landis Avenue
Vineland, New Jersey 08360
CUSTODIAN
Firstar Institutional Custody Services
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.
