LOGO
THE MATTERHORN GROWTH FUND, INC.
================================================================================
ANNUAL REPORT
================================================================================
For the Year Ended
June 30, 2000
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LOGO
THE MATTERHORN GROWTH FUND, INC.
Dear Shareholders,
For the first six months of 2000, the Matterhorn Growth Fund, Inc. was up
11.83%. This significantly outperforms both the Lipper Multi-Cap Core Fund Index
performance of +3.13% and the S&P 500 of -0.42%.
The 0.42% decline in the S&P 500 belies the extreme volatility that existed in
the market place during the last six months. The year began where 1999 ended,
i.e. the rising interest rate environment continued to favor technology stocks.
As we noted in our last shareholder report, we favor technology, but at a
reasonable price. We also noted that some technology stocks at year-end 1999
were selling at prices that defied reality. In fact, several months ago into the
first half of 2000 reality set in and technology stocks and most new economy
stocks underwent a severe correction. We reiterate our positive stance towards
technology if good companies can be purchased at an appropriate price. To that
point, we have added Motorola to the portfolio.
Volatility during the first half was also created by a shift in sentiment
towards the impact that the rise in short term interest rates created. Signs of
economic slowing began to appear during this period. Some interpreted this as a
successful, Federal Reserve engineered "soft landing", a return to slower, less
inflationary and more sustainable growth environment. This created a broad based
rally for a period of time. On the other hand, there was evidence that certain
companies' corporate profit outlook was deteriorating under the strain of rising
interest rates, rising raw material prices, and slowing volumes. This created
declines in the market. Volatility and uncertainty create opportunities and we
took advantage of those opportunities.
During the first half of 2000, we purchased several telephone stocks, including
AT&T, the BellSouth, SBC Communications, Centurytel and ALLTEL. This industry
has been burdened by concerns over increasing competition, increased capital
expenditures to meet that competition, potential diluted acquisitions, and major
uncertainties. We believe these concerns are fully reflected in the stock
prices. Furthermore, some of these fears will be resolved by the merger
uncertainties, and tremendous growth opportunities exist for these companies.
Some of these include the
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wireless area, long distance, and most importantly, the transmission of data. In
the case of AT&T, these growth opportunities should be captured through cable
assets.
Sincerely Yours,
/s/ Gregory A. Church
Gregory A. Church
Portfolio Manager
The Matterhorn Growth Fund, Inc.
Value of $10,000 vs S&P 500 Index
Annual Average Total Return
Period Ended June 30, 2000
1 Year....................... 17.98%
5 Year....................... 14.47%
10 Year...................... 13.58%
The Matterhorn S & P 500
Growth Fund, Inc. Index w/inc.
----------------- ------------
9/27/88 10,000.00 10,000.00
6/30/89 12,279.41 11,853.43
6/30/90 13,799.02 13,346.01
6/30/91 14,215.69 13,835.83
6/30/92 15,441.18 15,214.34
6/30/93 19,901.61 16,794.53
6/30/94 21,016.54 16,561.17
6/30/95 25,085.45 20,306.79
6/30/96 27,996.13 24,999.25
6/30/97 30,977.27 32,995.60
6/30/98 34,501.96 42,266.46
6/30/99 41,783.02 51,170.58
6/30/00 49,295.61 54,225.46
Past performance is not predictive of future performance.
The S&P 500 Index is a broad market-weighted average of U.S. blue-chip
companies. The S&P 500 Index is unmanaged and returns include reinvested
dividends.
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THE MATTERHORN GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS at June 30, 2000
Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS: 99.5%
Consumer Products: 3.6%
6,000 Kimberly Clark Corp. $ 344,250
-----------
Diversified Operations: 5.6%
3,500 FMC Corp.* 203,000
10,000 Honeywell International, Inc. 336,875
-----------
539,875
-----------
Drugs & Pharmaceuticals: 24.3%
10,000 Abbott Laboratories 445,625
5,000 Elan Corp., Plc ADR* 242,187
6,000 Eli Lilly and Co. 599,250
6,000 Johnson & Johnson 611,250
7,000 Smithkline Beecham Plc 456,312
-----------
2,354,624
-----------
Electronic Components: 9.5%
1,525 Agilent Technologies, Inc.* 112,469
3,000 Corning, Inc. 809,625
-----------
922,094
-----------
Electronic Parts Distribution: 3.1%
5,000 Avnet, Inc. 296,250
-----------
Internet Services: 2.7%
12,500 At Home Corp.* 258,594
-----------
Medical Supplies: 2.6%
5,000 Guidant Corp.* 247,500
-----------
Office Equipment & Supplies: 27.5%
7,500 Computer Associates International, Inc. 383,906
4,000 Hewlett-Packard Co. 499,500
6,000 LSI Logic Corp.* 324,750
16,000 Sun Microsystems, Inc.* 1,455,000
-----------
2,663,156
-----------
Telecommunications - Services: 20.6%
5,000 ALLTEL Corp. 309,687
5,700 AT&T Corp. 180,263
7,000 Bell Atlantic Corp. 355,688
10,000 BellSouth Corp. 426,250
5,000 CenturyTel, Inc. 143,750
5,000 Motorola, Inc. 145,313
10,000 SBC Communications, Inc. 432,500
-----------
1,993,451
-----------
TOTAL COMMON STOCKS
(cost $6,436,294) 9,619,794
---------
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THE MATTERHORN GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS at June 30, 2000 (Continued)
Principal
Amount Value
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENT: 0.1%
$14,164 Firstar Stellar Treasury Fund (cost $14,164) $ 14,164
-----------
TOTAL INVESTMENTS IN SECURITIES
(cost $6,450,458+): 99.6% 9,633,958
Other Assets less Liabilities: 0.4% 38,548
-----------
NET ASSETS: 100.0% $ 9,672,506
===========
ADR - American Depositary Receipt.
* Non-income producing security.
+ At June 30, 2000, the basis of investments for federal income tax purposes
was the same as their cost for financial reporting purposes. Unrealized
appreciation and depreciation were as follows:
Gross unrealized appreciation $ 3,548,590
Gross unrealized depreciation (365,090)
-----------
Net unrealized appreciation $ 3,183,500
===========
See accompanying Notes to Financial Statements.
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THE MATTERHORN GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES at June 30, 2000
ASSETS
Investments in securities, at value (cost $6,450,458 ) ........ $9,633,958
Receivables: Securities sold .................................. 217,620
Dividends and interest ........................................ 10,147
Fund shares sold .............................................. 417
Prepaid expenses and other assets................................ 11,580
----------
Total assets .............................................. 9,873,722
----------
LIABILITIES
Payables:
Securities purchased ........................................ 152,950
Due to advisor .............................................. 7,812
Administration fees ......................................... 3,388
Distribution fees ........................................... 1,953
Accrued expenses ................................................ 35,113
----------
Total liabilities ......................................... 201,216
----------
NET ASSETS....................................................... $9,672,506
==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($9,672,506/1,111,240 shares outstanding; 100,000,000
shares authorized with $.001 par value)........................ $ 8.70
==========
COMPONENTS OF NET ASSETS
Paid-in capital ............................................... $5,961,913
Accumulated net realized gain on investments .................. 527,093
Net unrealized appreciation on investments .................... 3,183,500
----------
Net assets................................................. $9,672,506
==========
See accompanying Notes to Financial Statements.
5
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THE MATTERHORN GROWTH FUND, INC.
STATEMENT OF OPERATIONS For the Year Ended June 30, 2000
INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld of $871) ......... $ 96,909
Interest .................................................. 13,717
-----------
Total income ............................................ 110,626
-----------
Expenses
Advisory fees ............................................ 91,754
Professional fees ........................................ 41,291
Administration fees ...................................... 40,000
Transfer agent fees ...................................... 25,413
Distribution fees ........................................ 22,939
Audit fees ............................................... 16,238
Fund accounting fees ..................................... 14,720
Registration expense ..................................... 11,277
Miscellaneous ............................................ 10,567
Trustee fees ............................................. 6,146
Reports to shareholders .................................. 5,940
Custody fees ............................................. 4,628
Legalfees ................................................ 3,986
Insurance expense ........................................ 300
-----------
Total expenses ......................................... 295,199
-----------
Net investment loss .................................. (184,573)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments ............................ 955,233
Net unrealized appreciation on investments .................. 761,069
-----------
Net realized and unrealized gain on investments......... 1,716,302
-----------
Net increase in net assets resulting from operations.. $ 1,531,729
===========
See accompanying Notes to Financial Statements.
6
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THE MATTERHORN GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
June 30, 2000 June 30, 1999
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment loss .......................... $ (184,573) $ (178,144)
Net realized gain on investments ............. 955,233 181,185
Net unrealized appreciation on investments ... 761,069 1,611,440
----------- -----------
Net increase in net assets resulting
from operations......................... 1,531,729 1,614,481
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gain ....................... (387,572) (1,038,914)
Return of capital ............................ -- (29,388)
----------- -----------
Total distributions to shareholders...... (387,572) (1,068,302)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets derived from
net change in outstanding shares (a) ....... (663,177) (377,814)
----------- -----------
Total increase in net assets............. 480,980 168,365
----------- -----------
NET ASSETS
Beginning of year .............................. 9,191,526 9,023,161
----------- -----------
END OF YEAR .................................... $ 9,672,506 $ 9,191,526
=========== ===========
(a) A summary of capital share transactions is as follows:
Year Ended Year Ended
June 30, 2000 June 30, 1999
------------------------ ------------------------
Shares Value Shares Value
-------- ----------- -------- -----------
Shares sold 60,890 $ 480,027 34,753 $ 243,286
Shares issued in
reinvestment of
distributions 49,385 371,873 151,701 993,642
Shares redeemed (192,569) (1,515,077) (231,096) (1,614,742)
-------- ----------- -------- -----------
Net decrease (82,294) $ (663,177) (44,642) $ (377,814)
======== =========== ======== ===========
See accompanying Notes to Financial Statements.
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THE MATTERHORN GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout each year
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------
2000 1999 1998 1997 1996(a)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 7.70 $ 7.29 $ 6.82 $ 7.00 $ 6.88
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss .................. (0.17) (0.15) (0.11) (0.07) (0.12)
Net realized and unrealized gain
on investments ..................... 1.50 1.52 0.85 0.74 0.85
------- ------- ------- ------- -------
Total from investment operations ....... 1.33 1.37 0.74 0.67 0.73
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net realized gain ............... (0.33) (0.93) (0.27) (0.85) (0.61)
Return of capital .................... -- (0.03) -- -- --
------- ------- ------- ------- -------
Total distributions .................... (0.33) (0.96) (0.27) (0.85) (0.61)
------- ------- ------- ------- -------
Net asset value, end of year ........... $ 8.70 $ 7.70 $ 7.29 $ 6.82 $ 7.00
======= ======= ======= ======= =======
Total return ........................... 17.98% 21.10% 11.22% 10.81% 11.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions).... $ 9.7 $ 9.2 $ 9.0 $ 9.2 $ 8.8
RATIO TO AVERAGE NET ASSETS:
Expenses (excluding interest) ....... 3.22% 3.57% 3.65% 4.00% 4.21%
Interest expense ..................... -- -- -- -- 0.02%
------- ------- ------- ------- -------
Total expense ........................ 3.22% 3.57% 3.65% 4.00%** 4.23%
======= ======= ======= ======= =======
Net investment loss .................. (2.01%) (2.12%) (1.32%) (1.23%) (1.64%)
======= ======= ======= ======= =======
Portfolio turnover rate .............. 101.94% 68.93% 115.28% 137.38% 88.32%
</TABLE>
8
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THE MATTERHORN GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------
2000 1999 1998 1997 1996(a)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BANK LOANS
Average amount of bank loans
outstanding during the year
(monthly average) (millions) ........ -- -- -- -- $0.01
Average number of shares
outstanding during the year
(monthly average) (millions)* ....... -- -- -- -- $1.31
Average amount of debt per
share during the year ............... -- -- -- -- $0.01
</TABLE>
* Based on average month-end shares outstanding.
** In the absence of the expense reimbursement, expenses would have been 4.17%
of average net assets for the year ended June 30, 1997.
(a) On March 15, 1996, the investment adviser changed, and Matterhorn Asset
Management Corporation became the Fund's investment adviser.
See accompanying Notes to Financial Statements.
9
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THE MATTERHORN GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
The Matterhorn Growth Fund, Inc. (the "Fund") was incorporated in the state
of Maryland 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. Securities traded on a national securities exchange or
Nasdaq are valued at the last reported sales price at the close of regular
trading on each day that the exchanges are open for trading; securities
traded on an exchange or Nasdaq for which there has been no sales, at the
mean between the last bid and asked prices, and at the closing bid price
for other 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 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. The cost of securities
sold is determined on a specific identification basis. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual 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.
C. Federal Income Taxes. The Fund intends 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
federal income tax provision is required.
D. 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.
10
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THE MATTERHORN GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
E. Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements. Actual results could
differ from those estimates.
F. Reclassification of Capital Accounts. The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountant's Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital and
Return of Capital Distributions by Investment Companies. For the year ended
June 30, 2000, the Fund decreased paid-in capital by $144,005 and decreased
net realized gain on investments by $40,568 due to the Fund experiencing a
net investment loss during the year. Net assets were not affected by this
change.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
A. Investment Advisory Agreements. Pursuant to an Advisory Agreement with
Matter-horn 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, 2000 totaled $91,754.
The Fund is responsible for its own operating expenses, as defined.
B. Distribution Agreements. Bainbridge Securities Inc. ("Bainbridge") acts as
distributor for shares of the Fund pursuant to a Distribution Agreement.
Bainbridge is an affiliate of the Adviser. For the year ended June 30,
2000, Bainbridge received as commissions $34,151 from the Fund in
connection with the purchases and sales of securities in the Fund's
portfolio. On November 22, 1999, the Fund terminated its agreement with
Cumberland Brokerage Corporation, formerly a co-distributor.
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 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 Bain-bridge as compensation for its services
rendered.
11
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THE MATTERHORN GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
D. Administration Agreement. Pursuant to an administration agreement with
Investment Company Administration, L.L.C. ("Administrator"), the Fund pays
the Administrator a monthly fee for its services 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. Certain officers and Directors of the Fund are also officers
and/or Directors of the Adviser, Administrator and Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from the sales of securities, excluding
short-term investments, for the year ended June 30, 2000, were 9,038,215 and
9,532,083 respectively.
12
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THE MATTERHORN GROWTH FUND, INC.
CHANGE IN CERTIFYING ACCOUNTANT
On August 13, 1999, McGladrey & Pullen, LLP, resigned as independent auditors of
the Fund.
None of the reports of McGladrey & Pullen, LLP on the financial statements of
the Fund for either of the past two fiscal years contained an adverse opinion or
a disclaimer of opinion, or was qualified or modified as to uncertainty, audit
scope or accounting principles. During the Fund's two most recent fiscal years
and subsequent interim period preceding the resignation of McGladrey & Pullen,
LLP, there were no disagreements with McGladrey & Pullen, LLP on any matter of
accounting principle or practices, financial statement disclosure, or auditing
scope or procedure, with disagreements, if not resolved to the satisfaction of
McGladrey & Pullen, LLP would have caused it to make reference to the subject
matter of disagreement in connection with its report. None of the reportable
events listed in Item 304 (a) (1) (v) of Regulation S-K occurred with respect to
the Fund during the Fund's two most recent fiscal years and the subsequent
interim period preceding the resignation of McGladrey & Pullen, LLP.
On September 22, 1999, the Fund upon the recommendation of the Audit Committee
of the Board of Directors, engaged Tait, Weller & Baker as its independent
auditors.
During the Fund's two most recent fiscal years and the subsequent interim period
preceding the engagement of Tait, Weller & Baker, neither the Fund nor anyone on
its behalf consulted Tait, Weller & Baker regarding the application of
accounting principles to a specified completed or contemplated transaction or
the type of audit opinion that might be rendered on the Fund's financial
statements, and no written or oral advice concerning same was provided to the
Fund that was an important factor considered by the Fund in reaching a decision
as to any accounting, auditing or financial reporting issue.
13
<PAGE>
NOTES REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO FINANCIAL STATEMENTS
To the Board of Directors and
Shareholders of
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,
2000, and the related statement of operations, the statement of changes in net
assets and the financial highlights for the year 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 audit. The financial statements
for the year ended June 30, 1999 and financial highlights presented for the four
year period ending June 30, 1999 were audited by other auditors whose report
dated July 21, 1999 expressed an unqualified opinion on those statements.
We conducted our audit 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, 2000, 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 audit provides 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, 2000, the results of its operations,
the changes in its net assets and the financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
August 4, 2000
14
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================================================================================
Investment Adviser
MATTERHORN ASSET MANAGEMENT CORPORATION
301 Oxford Valley Road, Suite 802B
Yardley, Pennsylvania 19067
Distributor
BAINBRIDGE SECURITIES INC. 301 Oxford
Valley Road, Suite 801B
Yardley, Pennsylvania 19067
Custodian
FIRSTAR INSTITUTIONAL CUSTODY SERVICES
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
================================================================================
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.
