AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 2000
SECURITIES ACT FILE NO. 2-67610
INVESTMENT COMPANY ACT FILE NO. 811-3054
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post Effective Amendment No. 23 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 23 [X]
(Check appropriate box or boxes)
THE MATTERHORN GROWTH FUND, INC.
(Exact Name of Registrant as Specified in Charter)
301 Oxford Valley Road, Suite 802B
Yardley, PA 19067
(215) 321-7110
(Registrant's Telephone Number, including Area Code)
Gregory A. Church, President
301 Oxford Valley Road, Suite 802B
Yardley, PA 19067
(Name and Address of Agent for Service)
Copy to:
Michael Glazer, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street, 23rd Floor
Los Angeles, CA 90071
It is proposed that this filing will become effective (check appropriate box)
[X] Immediately upon filing pursuant to paragraph (b)
[ ] On _____________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On _____________ pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
THE MATTERHORN GROWTH FUND, INC.
The Matterhorn Growth Fund, Inc. (the "Fund") is a no-load mutual fund.
The Fund seeks long-term capital appreciation. The Fund seeks to achieve its
objective through investment in the securities, principally common stocks, of
companies whose earnings and stock prices are expected by the Fund's investment
advisor to grow faster than the average of the companies in the Standard &
Poor's 500 Stock Price Index and which are trading at reasonable price levels
relative to their peers.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION DOES NOT
APPROVE OR DISAPPROVE OF THESE SHARES OR DETERMINE IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 27, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
Risk Return Summary......................................................... 3
Performance................................................................. 4
Fees and Expenses........................................................... 5
Principal Investment Strategies............................................. 6
Principal Risks of Investing in the Fund.................................... 7
Investment Advisor.......................................................... 7
Shareholder Information..................................................... 8
Pricing of Fund Shares...................................................... 12
Dividends and Distributions................................................. 12
Tax Consequences............................................................ 12
Rule 12b-1 Fees............................................................. 13
Financial Highlights........................................................ 14
2
<PAGE>
RISK RETURN SUMMARY
THE FUND'S INVESTMENT GOAL
The Fund seeks long-term capital appreciation. The Fund seeks to achieve its
objective through investment in the securities, principally common stocks, of
companies whose earnings and stock prices are expected by the Fund's investment
advisor to grow faster than the average of the companies in the Standard &
Poor's 500 Stock Price Index and which are trading at reasonable price levels
relative to their peers.
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES
THE FUND INVESTS PRINCIPALLY IN COMMON STOCKS OF GROWING U.S. COMPANIES WITH
MEDIUM AND LARGE MARKET CAPITALIZATION THAT ARE IN UNDERVALUED AND IN GROWTH
SECTORS OF THE ECONOMY -- QUALITY GROWTH COMPANIES AT REASONABLE PRICES. The
Fund is non-diversified. This means that with respect to 50% of its assets, it
may make larger investments in individual companies than a fund that is
diversified. However, with respect to the other 50% of its assets, the Fund may
only invest 5% of its assets in any individual security.
PRINCIPAL RISKS OF INVESTING IN THE FUND
You could lose money on your investment in the Fund. The following risks could
affect the value of your investment:
* The stock market could go down
* Value stocks could fall out of favor with investors
* Companies in the Fund's portfolio may not increase their earnings at the
expected rate
* Securities of medium sized companies involve greater risk of loss than
larger companies
* Because the Fund may take large positions in a small number of issuers, the
Fund's share price may be more volatile than a diversified fund.
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for investors who:
* Are pursuing a long-term goal such as retirement
* Want to add an equity investment to diversify their investment portfolio
* Are willing to accept higher short-term risk along with higher potential
for long-term growth of capital
3
<PAGE>
The Fund may not be appropriate for investors who:
* Need regular income
* Are pursuing a short-term goal
PERFORMANCE
The following performance information indicates some of the risks of
investing in the Fund. The bar chart shows how the Fund's total return has
varied from year to year. The table shows the Fund's average return over time
compared with a broad-based market index. This past performance will not
necessarily continue in the future. Before March 5, 1996, the Fund was advised
by a different investment advisor.
CALENDAR YEAR TOTAL RETURNS*
[The following is the bar chart]
1990: -8.61
1991: 25.65
1992: 18.18
1993: 25.78
1994: -11.25
1995: 25.28
1996: 10.51
1997: 13.66
1998: 12.27
1999: 23.09
[End of bar chart]
----------
* The Fund's year-to-date return as of 9/30/00 was 9.13%.
During the period shown in the bar chart, the Fund's highest quarterly return
was 19.36% for the quarter ended December 31, 1998, and its lowest quarterly
return was -16.87% for the quarter ended September 30, 1990.
4
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
1 Year 5 Years 10 Years
------ ------- --------
Matterhorn Growth Fund 23.09% 16.81% 12.66%
S&P 500 Index* 21.04% 28.56% 18.21%
------------
* The S&P 500 Index is an unmanaged index generally representative of the
market for the stocks of large sized U.S. companies.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases......................... None
Maximum deferred sales charge (load) ...................................... None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees 1.00%
Distribution and Service (12b-1) Fees..................................... 0.25%
Other Expenses ........................................................... 1.97%
----
Total Annual Fund Operating Expenses ..................................... 3.22%
====
5
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year, that
dividends and distributions are reinvested and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
under these assumptions your costs would be:
One Year ............... $ 325
Three Years............. $ 992
Five Years.............. $ 1,683
Ten Years............... $ 3,522
PRINCIPAL INVESTMENT STRATEGIES
THE FUND INVESTS PRINCIPALLY IN COMMON STOCKS OF GROWING U.S. COMPANIES WITH
MEDIUM AND LARGE MARKET CAPITALIZATION THAT ARE IN UNDERVALUED AND IN GROWTH
SECTORS OF THE ECONOMY -- QUALITY GROWTH COMPANIES AT REASONABLE PRICES. These
are generally stocks with market capitalization of more than $1 billion.
The Advisor begins its portfolio construction with a "top down" approach
looking for both attractive growth sector and value sector oppotunities.
The Advisor then uses a "bottom-up" approach to identify companies with the
strongest franchises and financial fundamentals within those economic sectors.
The Advisor seeks to identify classic "value" stocks - stocks with above
average growth and below average risk that are trading below their earnings
growth or asset valuation levels. Companies considered for purchase must have
inherent strength. Healthy balance sheets, low price to earnings ratios relative
to growth, strong cash flows, are all examined before purchasing a security.
Companies undergoing positive change or revitalization may also exhibit
potential relative to their peers. Revitalization may occur in a number of ways
- including streamlining of production, stock repurchases, and industry
consolidation - and result in opportunities to buy stocks at attractive prices.
Strong, well-established companies with solid franchises are the backdrop for
benefits from changes.
Investments are sold when the Advisor believes they are fully valued by the
market or the reasons for the purchase no longer exist.
6
<PAGE>
Under normal market conditions, the Fund will stay fully invested in common
stocks. However, it may also invest a portion of its assets in convertible
debentures and warrants, American Depositary Receipts, stock options, and other
instruments described fully in the Statement of Additional Information. In
addition, the Fund may temporarily depart from its principal investment
strategies by making short-term investments in cash equivalents in response to
adverse market, economic or political conditions; this may result in the Fund
not achieving its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The principal risks of investing in the Fund that may adversely affect the
Fund's net asset value or total return are summarized above in "Risk Reward
Summary." These risks are discussed in more detail below.
MANAGEMENT RISK. Management risk means that your investment in the Fund
varies with the success and failure of the Advisor's investment strategies and
the Advisor's research, analysis and determination of portfolio securities. If
the Advisor's investment strategies do not produce the expected results, your
investment could be diminished or even lost.
MARKET RISK. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less than it
was worth at an earlier time. Market risk may affect a single issuer, an
industry, or a sector of the economy or the market as a whole.
UNDERVALUED STOCKS RISK. Undervalued stocks can react differently to
issuer, political, market and economic developments than the market as a whole
and other types of stocks. Undervalued stocks tend to be inexpensive relative to
their earnings or assets compared to other types of stock. However, these stocks
can continue to be inexpensive for long periods of time and may not realize
their full economic value.
MEDIUM COMPANIES RISK. Investing in securities of medium sized companies
may involve greater volatility than investing in larger and more established
companies because they can be subject to more abrupt or erratic share price
changes than larger, more established companies. Such companies may have limited
product lines, markets or financial resources and their securities may have
limited market liquidity.
INVESTMENT ADVISOR
Matterhorn Asset Management Corp. is the investment advisor to the Fund.
The Advisor's address is 301 Oxford Valley Road, Suite 802B, Yardley, PA 19067.
The Advisor has been providing investment advisory services since 1996. The
Advisor buys and sells the Fund's portfolio securities. The Advisor also
furnishes the Fund with office space and certain administrative services and
provides most of the personnel needed by the Fund. For its services, the Fund
pays the Advisor a monthly management fee based upon its average daily net
assets. For the fiscal year ended June 30, 2000, the Advisor received advisory
fees of 1.00% of the Fund's average daily net assets.
7
<PAGE>
PORTFOLIO MANAGER
Gregory A. Church has been Portfolio Manager of the Fund since January
1997. Mr. Church has also been President, Secretary and a Director of the Fund
since March 1996, and Treasurer since July 1999. He has been the President of
the Advisor since March 1996. He has also been President of Church Capital
Management, a registered investment advisor, since June 1987.
FUND EXPENSES
The Fund is responsible for its own operating expenses. At times, the
Advisor may reduce its fees and/or pay expenses of the Fund in order to reduce
the Fund's aggregate annual operating expenses. Any reduction in advisory fees
or payment of expenses made by the Advisor may be reimbursed by the Fund if the
Advisor requests such reimbursements within three fiscal years of such reduction
or payment. Any such reimbursement will be reviewed by the Trustees. The Fund
must pay its current ordinary operating expenses before the Advisor is entitled
to any such reimbursement.
SHAREHOLDER INFORMATION
HOW TO BUY SHARES
You may open a Fund account with $1,000 and add to your account at any time
with $100 or more. After you have opened your Fund account, you also may make
automatic subsequent monthly investments with $100 or more through the Automatic
Investment Plan. The minimum investment requirements may be waived from time to
time by the Advisor or the Fund.
You may purchase shares of the Fund by check or wire. All purchases by
check must be in U.S. dollars. Third party checks and cash will not be accepted.
A charge may be imposed if your check does not clear. The Fund is not required
to issue share certificates. The Fund reserves the right to reject any purchase
in whole or in part.
BY CHECK
If you are making your first investment in the Fund, complete the
Application Form included with this Prospectus and mail it with a check (made
payable to "The Matterhorn Growth Fund, Inc.") to:
The Matterhorn Growth Fund, Inc.
P.O. Box 641122
Cincinnati, OH 45264-1122
8
<PAGE>
If you are making a subsequent purchase, a stub is attached to the account
statement you will receive after each transaction. Detach the stub from the
statement and mail it together with a check made payable to "The Matterhorn
Growth Fund, Inc." to the Fund in the envelope provided with your statement or
to the address noted above. Your account number should be written on the check.
BY WIRE
If you are making your first investment in the Fund, before you wire funds
you should call the Transfer Agent at (800) 637-3901 between 9:00 a.m. and 4:00
p.m., Eastern time, on a day when the New York Stock Exchange ("NYSE") is open
for trading, to advise it that you are making an investment by wire. The
Transfer Agent will ask for your name and the dollar amount you are investing.
You will then receive your account number and an order confirmation number. You
should then complete the Account Application included with this Prospectus.
Include the date and the order confirmation number on the Account Application
and mail the completed Account Application to the address at the top of the
Account Application. Your bank should transmit immediately available funds by
wire in your name to:
Firstar Bank, N.A. Cinti/Trust
ABA Routing #0420-0001-3
Attn: Matterhorn Growth Fund, Inc.
DDA #483897641
Account name (shareholder name)
Shareholder account number
If you are making a subsequent purchase, your bank should wire funds as
indicated above. Before each wire purchase, you should be sure to notify the
Transfer Agent. IT IS ESSENTIAL THAT YOUR BANK INCLUDE COMPLETE INFORMATION
ABOUT YOUR ACCOUNT IN ALL WIRE INSTRUCTIONS. If you have questions about how to
invest by wire, call the Transfer Agent. Your bank may charge you a fee for
sending a wire to the Fund.
You may buy and sell shares of the Fund through certain brokers (and their
agents) that have made arrangements with the Fund to sell its shares. When you
place your order with such a broker or its authorized agent, your order is
treated as if you had placed it directly with the Fund's Transfer Agent, and you
will pay or receive the next price calculated by the Fund. The broker (or agent)
holds your shares in an omnibus account in the broker's (or agent's) name, and
the broker (or agent) maintains your individual ownership records. The Fund may
pay the broker (or its agent) for maintaining these records as well as providing
other shareholder services. The broker (or its agent) may charge you a fee for
handling your order. The broker (or agent) is responsible for processing your
order correctly and promptly, keeping you advised regarding the status of your
individual account, confirming your transactions and ensuring that you receive
copies of the Fund's prospectus.
9
<PAGE>
AUTOMATIC INVESTMENT PLAN
For your convenience, the Fund offers an Automatic Investment Plan. Under
this Plan, after your first investment, you authorize the Fund to withdraw from
your personal checking account each month an amount that you wish to invest,
which must be at least $100. To enroll in this Plan, complete the appropriate
section of the Account Application. The Fund may terminate or modify this
privilege at any time. You may terminate your participation in the Plan at any
time by notifying the Transfer Agent in writing.
RETIREMENT PLANS
The Fund has available for investors a retirement plan, an Individual
Retirement Account ("IRA"), a SEP IRA, a SIMPLE IRA and a tax-sheltered plan in
accordance with Section 403(b) of the Internal Revenue Code for employees of
public school systems and certain other charitable organizations. The Fund also
offers an Education IRA account. The minimum initial investment in a retirement
account is $1,000 except for the Education IRA which requires a minimum of $500.
Subsequent investments into retirement accounts are $100. For further
information or application forms for these retirement plans, write the Fund at
301 Oxford Valley Road, Suite 802B, Yardley, PA 19067 or call 1-800-637-3901.
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the Fund and the NYSE are
open for business.
You may redeem your shares by sending a written request to the Transfer
Agent. Give your account number and state whether you want all or some of your
shares redeemed. The letter should be signed by all of the shareholders whose
names appear on the account registration. Send your redemption request to:
The Matterhorn Growth Fund, Inc.
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
To protect the Fund and its shareholders, a signature guarantee is required
for all written redemption requests. Signature(s) on the redemption request must
be guaranteed by an "eligible guarantor institution." These include banks,
broker-dealers, credit unions and savings institutions. A broker-dealer
guaranteeing signatures must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any eligible
guarantor institution which participates in a signature guarantee program. A
notary public is not an acceptable guarantor.
If you complete the Redemption by Telephone portion of the Account
Application, you may redeem all or some of your shares by calling the Transfer
Agent at (800) 637-3901 before the close of trading on the NYSE. This is
10
<PAGE>
normally 4:00 p.m., Eastern time. Redemption proceeds normally will be mailed on
the next business day to the address on the Transfer Agent's records. If you
request, redemption proceeds will be wired, normally on the next business day,
to the bank account you designated on the Account Application. The minimum
amount that may be wired is $1,000. Wire charges, if any, will be deducted from
your redemption proceeds. Telephone redemptions cannot be made if you notify the
Transfer Agent of a change of address within 30 days before the redemption
request. If you invest through a retirement account, you may not redeem shares
by telephone.
When you establish telephone privileges, you are authorizing the Fund and
its Transfer Agent to act upon the telephone instructions of the person or
persons you have designated on your Account Application. Before acting on
instructions received by telephone, the Fund and the Transfer Agent will use
reasonable procedures to confirm that the telephone instructions are genuine.
These procedures will include recording the telephone call and asking the caller
for a form of personal identification. If the Fund and the Transfer Agent follow
these reasonable procedures, they will not be liable for any loss, expense, or
cost arising out of any telephone redemption request that is reasonably believed
to be genuine. This includes any fraudulent or unauthorized request. The Fund
may change, modify or terminate these privileges at any time upon at least 60
days' notice to shareholders.
You may request telephone redemption privileges after your account is
opened by calling the Transfer Agent at (800) 637-3901 for instructions.
You may have difficulties in making a telephone redemption during periods
of abnormal market activity. If this occurs, you may make your redemption
request in writing.
Payment of your redemption proceeds will be made promptly, but no later
than seven days after the receipt of your written request in proper form as
discussed in this Prospectus. If you made your initial investment by wire,
payment of your redemption proceeds for those shares will not be made until one
business day after your completed Account Application is received by the Fund.
If you did not purchase your shares with a certified check or wire, the Fund may
delay payment of your redemption proceeds for up to 15 days from date of
purchase or until your check has cleared, whichever occurs first.
The Fund may redeem the shares in your account if the value of your account
is less than $500 as a result of redemptions you have made. This does not apply
to retirement plan or Uniform Gifts or Transfers to Minors Act accounts. You
will be notified that the value of your account is less than $500 before the
Fund makes an involuntary redemption. You will then have 30 days to make an
additional investment and bring the value of your account to at least $500
before the Fund takes any action.
The Fund has the right to pay redemption proceeds to you in whole or in
part by a distribution of securities from the Fund's portfolio. The Fund does
not expect to do this except in unusual circumstances. If the Fund pays your
redemption proceeds by a distribution of securities, you could incur brokerage
or other charges in converting the securities to cash.
11
<PAGE>
SYSTEMATIC WITHDRAWAL PROGRAM
As another convenience, you may redeem your Fund shares through the
Systematic Withdrawal Program. If you elect this method, the Fund will send you
a check in the minimum amount of $100. You may choose to receive a check each
month or calendar quarter. Your Fund account must have a value of at least
$10,000 to participate in this Program. This Program may be terminated at any
time by the Fund. You may also elect to terminate your participation in this
Program at any time by writing to the Transfer Agent.
A withdrawal under the Program involves a redemption of shares and may
result in a gain or loss for federal income tax purposes. In addition, if the
amount withdrawn exceeds the dividends credited to your account, then the
account ultimately may be depleted.
PRICING OF FUND SHARES
The price of the Fund's shares is the Fund's net asset value per share.
This is calculated by dividing the Fund's assets, minus its liabilities, by the
number of shares outstanding. The Fund's assets are the market value of
securities held in its portfolio, plus any cash and other assets. The Fund's
liabilities are fees and expenses owed by the Fund. The number of Fund shares
outstanding is the amount of shares which have been issued to shareholders. The
price you will pay to buy Fund shares or the amount you will receive when you
sell your Fund shares is the net asset value per share next calculated after
your order is received by the Transfer Agent with complete information and
meeting all the requirements discussed in this Prospectus.
The net asset value per share of the Fund's shares is determined as of the
close of regular trading on the NYSE. This is normally 4:00 p.m., Eastern time.
Fund shares will not be priced on days that the NYSE is closed for trading
(including certain U.S. holidays).
DIVIDENDS AND DISTRIBUTIONS
The Fund will make distributions of dividends and capital gains, if any, at
least annually, typically after year end. The Fund will make another annual
distribution of any additional undistributed capital gains earned during the
12-month period ended October 31 on or about December 31.
All distributions will be reinvested in Fund shares unless you choose one
of the following options: (1) receive dividends in cash, while reinvesting
capital gain distributions in additional Fund shares; or (2) receive all
distributions in cash. If you wish to change your distribution option, write to
the Transfer Agent in advance of the payment date of the distribution.
TAX CONSEQUENCES
The Fund intends to make annual distributions of substantially all its net
ordinary income and net realized capital gains. Income dividends are taxable to
you as ordinary income. The rate you pay on capital gain distributions will
depend on how long the Fund held the securities that generated the gains, not on
12
<PAGE>
how long you owned your Fund shares. You will be taxed in the same manner
whether you receive your dividends and capital gain distributions in cash or
reinvest them in additional Fund shares.
If you sell your Fund shares, it is considered a taxable event for you.
Depending on the purchase price and the sale price of the shares you sell, you
may have a gain or a loss on the transaction. You are responsible for any tax
liabilities generated by your transaction.
RULE 12b-1 FEES
The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940. This rule allows the Fund to pay distribution
fees for the sale and distribution of its shares and for services provided to
its shareholders. The annual distribution and service fee is 0.25% of the Fund's
average daily net assets, which is payable to Bainbridge Securities, Inc., the
Distributor of the Fund's shares. Because these fees are paid out of the Fund's
assets on an on-going basis, over time these fees will increase the cost of your
investment in Fund shares and may cost you more than paying other types of sales
charges.
FINANCIAL HIGHLIGHTS
This table shows the Fund's financial performance for the past five years.
Certain information reflects financial results for a single Fund share. "Total
return" shows how much your investment in the Fund would have increased or
decreased during each period, assuming you had reinvested all dividends and
distributions. This information has been audited by Tait, Weller & Baker for the
year ended June 30, 2000 and by other independent accountants for the periods
prior to June 30, 2000. Tait, Weller & Baker's report and the Fund's financial
statements are included in the Fund's Annual Report, which is available upon
request.
13
<PAGE>
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%
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.
14
<PAGE>
THE MATTERHORN GROWTH FUND, INC.
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated by reference into this
Prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Fund by contacting the Fund at:
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
Telephone: 1-800-637-3901
You can review and copy information including the Fund's reports and SAI at the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. You can obtain information on the operation of the Public Reference Room by
calling 1-202-942-8090.
Reports and other information about the Fund are also available:
* Free of charge from the EDGAR database on the Commission's Internet website
at http://www.sec.gov, or
* For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-0102, or
* For a fee, by electronic request at the following e-mail address:
[email protected].
(The Trust's SEC Investment Company Act
file number is 811-3054)
15
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 27, 2000
THE MATTERHORN GROWTH FUND, INC.
301 OXFORD VALLEY ROAD
SUITE 802B
YARDLEY, PA 19067
(800) 637-3901
This Statement of Additional Information ("SAI") is not a prospectus and it
should be read in conjunction with the Prospectus dated October 27, 2000, as may
be revised, of The Matterhorn Growth Fund, Inc. (the "Fund"). Matterhorn Asset
Management Corporation (the "Advisor") is the investment advisor to the Fund.
Copies of the Fund's Prospectus are available by calling the number listed
above.
TABLE OF CONTENTS
THE FUND ................................................................. B-2
INVESTMENT OBJECTIVE AND POLICIES......................................... B-2
INVESTMENT RESTRICTIONS................................................... B-8
DISTRIBUTIONS AND TAX INFORMATION......................................... B-9
DIRECTORS AND EXECUTIVE OFFICERS.......................................... B-13
THE FUND'S INVESTMENT ADVISOR............................................. B-14
THE FUND'S ADMINISTRATOR.................................................. B-15
THE FUND'S DISTRIBUTOR.................................................... B-15
PLAN OF DISTRIBUTION...................................................... B-16
EXECUTION OF PORTFOLIO TRANSACTIONS....................................... B-16
PORTFOLIO TURNOVER........................................................ B-18
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................ B-19
DETERMINATION OF SHARE PRICE.............................................. B-22
PERFORMANCE INFORMATION................................................... B-22
GENERAL INFORMATION....................................................... B-23
FINANCIAL STATEMENTS...................................................... B-24
APPENDIX.................................................................. B-25
<PAGE>
THE FUND
The Matterhorn Growth Fund, Inc. (the "Fund") was organized as a Maryland
corporation on May 2, 1980. From its inception to March 14, 1996, the Fund was
known as The 44 Wall Street Equity Fund, Inc.
The Fund is registered with the SEC as a management investment company.
Such a registration does not involve supervision of the management or policies
of the Fund. The Prospectus of the Fund and this SAI omit certain of the
information contained in the Registration Statement filed with the SEC. Copies
of such information may be obtained from the SEC upon payment of the prescribed
fee.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a mutual fund with the investment objective of seeking
long-term capital appreciation. The Fund seeks to achieve its objective through
investment in the securities, principally common stocks, of companies whose
earnings and stock prices are expected by the Fund's investment advisor to grow
faster than the average of the companies in the Standard & Poor's 500 Stock
Price Index and which are trading at reasonable price levels relative to their
peers. The following discussion supplements the discussion of the Fund's
investment objective and policies as set forth in the Prospectus. There can be
no assurance the Fund's objective will be attained.
CONVERTIBLE DEBENTURES AND WARRANTS. The Fund may invest in convertible
debentures and warrants. Convertible debentures are interest-bearing securities
which may be converted into shares of the issuer's common stock at the option of
the holder. Convertible debentures generally pay interest and provide for
participation in the appreciation of the underlying common stock, but at a lower
level of risk because the yield is higher and the security is senior to common
stock. The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market value, if
converted into the underlying common stock). The credit standing of the issuer
and other factors may also affect the investment value of a convertible
security. Like other debt securities, the market value of convertible debentures
tend to vary inversely with the level of interest rates. A convertible security
may be subject to redemption at the option of the issuer at a fixed price and,
if it is called for redemption, the Fund will be required to permit the issuer
to redeem the security, convert it into the underlying common stock, or sell it
to a third party.
The Fund may invest up to 5% of its assets in warrants. A warrant gives the
holder a right to purchase at any time during a specified period a predetermined
number of shares of common stock at a fixed price. Unlike convertible debt
securities or preferred stock, warrants do not pay a fixed dividend. Investments
in warrants involve certain risks, including the possible lack of a liquid
B-2
<PAGE>
market for resale of the warrants, potential price fluctuations as a result of
speculation or other factors, and failure of the price of the underlying
security to reach or have reasonable prospects of reaching a level at which the
warrant can be prudently exercised (in which event the warrant may expire
without being exercised, resulting in a loss of the Fund's entire investment
therein).
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. Under
such agreements, the seller of the security agrees to repurchase it at a
mutually agreed upon time and price. The repurchase price may be higher than the
purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund together with the repurchase price on repurchase. In either case, the
income to the Fund is unrelated to the interest rate on the U.S. Government
security itself. Such repurchase agreements will be made only with banks with
assets of $500 million or more that are insured by the Federal Deposit Insurance
Corporation or with Government securities dealers recognized by the Federal
Reserve Board and registered as broker-dealers with the Securities and Exchange
Commission ("SEC") or exempt from such registration. The Fund will generally
enter into repurchase agreements of short durations, from overnight to one week,
although the underlying securities generally have longer maturities. The Fund
may not enter into a repurchase agreement with more than seven days to maturity
if, as a result, more than 5% of the value of its net assets would be invested
in illiquid securities including such repurchase agreements.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
U.S. Government security subject to the repurchase agreement. It is not clear
whether a court would consider the U.S. Government security acquired by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, the Fund may encounter delays and incur costs before being able to
sell the security. Delays may involve loss of interest or a decline in price of
the U.S. Government security. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. Government
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller. As an unsecured creditor,
the Fund would be at the risk of losing some or all of the principal and income
involved in the transaction. As with any unsecured debt instrument purchased for
the Fund, the Advisor seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the other party, in this case
the seller of the U.S. Government security.
ILLIQUID SECURITIES. The Fund may invest up to 5% of the value of its net
assets in securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid. The Advisor will monitor the
amount of illiquid securities in the Fund's portfolio, under the supervision of
the Trust's Board of Trustees, to ensure compliance with the Fund's investment
restrictions.
B-3
<PAGE>
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to sell restricted or other illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemption requests within
seven days. The Fund might also have to register such restricted securities in
order to sell them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
LEVERAGE. The Fund may leverage by borrowing from banks and investing the
borrowed funds, but does not currently intend to do so. To the extent that
borrowed money is utilized and the amount borrowed is substantial, the Fund's
net asset value per share may tend to appreciate or depreciate more rapidly than
would otherwise be the case. This is the speculative factor known as "leverage."
Interest on borrowed money would be an expense of the Fund which it would not
otherwise incur, so that the Fund's net investment income could expect to be
adversely impacted during periods when the Fund's borrowings are substantial.
Pursuant to the provisions of the Investment Company Act of 1940, the Fund
may borrow only from banks, and only if immediately after such borrowed the
value of the assets of the Fund (including the amount borrowed), less its
liabilities (not including any borrowings), is at least three times the amount
of its borrowing. The amount of any borrowing would also be limited by the
applicable regulations of the Federal Reserve Board. If, due to market
fluctuations or other reasons, the value of the Fund's assets, computed as
provided above, becomes at any times less than three times the amount of its
outstanding bank debt, the Fund, within three days (not including Sundays and
holidays), would be required to reduce the bank debt to the extent necessary to
meet the required 300% net asset coverage. The Fund may not pledge more than 75%
of its assets as security for money borrowed.
FOREIGN INVESTMENTS. Although the Fund has the authority to invest in up to
10% of its net assets in securities of issuers domiciled in foreign countries,
the Fund currently intends to exercise such authority only as to foreign issuers
whose securities are traded in the U.S. securities markets through
dollar-denominated American Depositary Receipts ("ADRs").
AMERICAN DEPOSITARY RECEIPTS. ADRs are certificates issued by an American
bank to evidence ownership of original foreign shares. The original foreign
stock certificate is deposited with a foreign branch or correspondent bank of
B-4
<PAGE>
the issuing American bank. ADRs are considered to be "sponsored" when the
foreign issuer has designated a single U.S. financial institution to act as the
transfer agent for that ADR. Unsponsored ADRs are organized independently and
without the cooperation of the foreign issuer of the underlying securities; as a
result, available information regarding the issuer may not be as current as for
sponsored ADRs, and the prices of unsponsored ADRs may be more volatile than if
they were sponsored by the issuers of the underlying securities.
RISKS OF FOREIGN SECURITIES. The securities of foreign issuers involve
risks that are different from those of domestic issuers, including possibly
different or adverse political and economic developments, possible imposition of
governmental restrictions and possible curtailment of dividends or principal,
subject to currency blockage, at the source, and also involve such other
considerations as the then current exchange rate if such issuer does not pay
interest or dividends, as the case may be, in U.S. dollars. In addition, it may
be more difficult to obtain and enforce a judgment against a foreign issuer,
there may be less publicly available information about the foreign issuer and
foreign issuers generally are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic issuers.
SECURITIES OPTIONS. The Fund has authority to engage in transactions in
exchange listed securities options, as such transactions are currently defined
and may be defined in the future, and not just the particular types of options
transactions which are described herein merely by way of example. Listed options
are issued by the Options Clearing Corporation the "OCC"), which guarantees the
performance of the obligations of the parties to such options.
The Fund may purchase or sell (write) call options. A call option gives the
purchaser the right to buy the underlying security from the writer at a
specified price for a specified period. Among the reasons why the Fund may
purchase a call option is to achieve a greater amount of leverage than would
otherwise be possible by buying the underlying stock. This is so because only
the amount of the "premium" need be paid when purchasing a call, rather than the
full purchase price for the underlying stock. On the other hand, one reason why
the Fund may engage in the selling (or "writing") of call options is to earn the
premium income. The risk to the Fund in the purchase of calls is the loss of the
premium paid if the price of the security has not risen during the term of the
option. The risk to the Fund for writing calls is that the Fund could lose any
price appreciation on the securities upon which calls have been written when
those calls are exercised by the purchasers.
The Fund will only write "covered calls." This means that the Fund must own
the underlying security in order for the Fund to write the applicable options
contract, or must have the absolute right to acquire the underlying security
without additional cash consideration (or, if additional cash consideration is
required, liquid assets in such amount are segregated by the Fund's Custodian).
The Fund may also purchase or sell (write) put options. A put option gives
the purchaser the right to sell the underlying security to the writer at a
specified price for a specified period. The principal reason why the Fund may
B-5
<PAGE>
purchase puts would be to reduce the risk in any investment position taken by
the Fund in any security. This strategy would allow the Fund to continue holding
a particular security for any anticipated further price appreciation and at the
same time would protect the Fund from any decline in the value of the security.
However, such a strategy would effectively increase the cost of a security by
the cost of the option and thereby reduce the return, if any, on that security.
In addition to purchasing puts, the Fund also may write covered puts. A put
option is "covered" if the Fund holds cash or liquid high-grade debt securities
in a segregated account with its Custodian in an amount sufficient to acquire
the security, or holds a put option on the same security with the same or a
greater exercise price (or with a lesser price and with the balance maintained
as cash or liquid high grade debt securities). The principal reason for the Fund
to write a put would be to earn the premium income thereon. The Fund has not
written any puts since the inception of its authority to engage in transactions
in exchange listed securities options.
The Fund may also engage in options transactions in various combinations,
two of which are known as "spreads" and "straddles". A spread involves the
simultaneous buying and writing of the same type of option (whether a put or a
call) on the same underlying stock, with the options having different exercise
prices or different exercise dates, or both. A straddle involves the
simultaneous buying (or writing, as the case may be) of a put and a call on the
same underlying security, usually for different exercise prices. The risks of
straddle writing are greatest where the underlying stock has a high degree of
price volatility.
A separate and additional risk to the Fund with respect to engaging in
options transactions may be that the Fund will not be able to close out its
position in a particular option if and when the Fund desires to do so. The Fund
closes out an option which it has purchased by selling an option of the same
series as the option previously purchased, and closes out an option which it has
written by buying an option of the same series as the option previously written.
The Fund's ability to close out its position as a purchaser of an exchange
listed option would be dependent upon the existence of a liquid secondary market
on option exchanges (i.e., the CBOE, the American, Pacific and Philadelphia
Stock Exchanges). Among the possible reasons for the absence of a liquid
secondary market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations of an exchange; (v) inadequacy of the
facilities of an exchange or the OCC to handle current trading volume; or (vi) a
decision by one or more of the exchanges to discontinue the trading of options,
in which event the secondary market on the exchange would cease to exist,
although outstanding options on that exchange that had been listed by the OCC as
a result of trades on that exchange would generally continue to be exercisable
in accordance with their terms.
B-6
<PAGE>
Some of the strategies employed with options may be considered to be
speculative. One type of transaction which is inherently speculative is the
purchase of calls. With the purchase of a call, the Fund is considered to be "at
risk" for the amount of the premium paid for the call if the underlying security
does not rise above the "exercise" price during the life of the call.
Accordingly, the Fund will follow the practice of limiting the net "at risk"
amounts with respect to the purchase of puts or calls to 10% of the Fund's net
assets, determined on the date of purchase.
On the other hand, certain strategies involving options are deemed to be
conservative and may tend to minimize the risk of loss due to a decline in the
value of the underlying security position. At the same time, the use of these
strategies may also tend to limit any potential gain which might result from an
increase in the value of any such position. The Fund's ability to use this
strategy successfully will depend upon the Advisor's ability to forecast
pertinent market movements, which cannot be assured.
SHORT-TERM INVESTMENTS
The Fund may invest in any of the following securities and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The Fund
may hold certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic banks, savings and loan associations
or financial institutions which, at the time of purchase, have capital, surplus
and undivided profits in excess of $100 million (including assets of both
domestic and foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully insured
by the U.S. Government.
In addition to buying certificates of deposit and bankers' acceptances, the
Fund also may make interest-bearing time or other interest-bearing deposits in
commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Fund may invest a portion of its
assets in commercial paper and short-term notes. Commercial paper consists of
unsecured promissory notes issued by corporations. Commercial paper and
short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
B-7
<PAGE>
Commercial paper and short-term notes will consist of issues rated at the
time of purchase AA-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's, or
similarly rated by another nationally recognized statistical rating organization
or, if unrated, will be determined by the Advisor to be of comparable quality.
These rating symbols are described in the Appendix.
INVESTMENT RESTRICTIONS
The Fund's investment objective cannot be changed without shareholder
approval. The following policies and investment restrictions have been adopted
by the Fund and (unless otherwise noted) are fundamental and cannot be changed
without the affirmative vote of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. The Fund may not:
1. Invest in companies for the purpose of exercising management or control
or invest more than 25% of its assets in a particular industry;
2. Purchase (i) the securities of any unseasoned issuer if by reason
thereof and immediately after making such purchase the value of the Fund's
aggregate investments in the securities of all such unseasoned issuers shall
equal or exceed 5% of the Fund's total assets (for this purpose an unseasoned
issuer shall be deemed to be an entity which has been in operation for less than
three years, including all predecessors), or the equity securities of any issuer
which are not readily marketable, (ii) repurchase agreements, the maturity of
which exceeds seven days, and the aggregate of which repurchase agreements
exceeds 5% of the Fund's total assets, or (iii) "restricted" securities, except
that the Fund may invest no more than 5% of the value of its assets (at the time
of investment) in portfolio securities under circumstances in which the Fund
might not be free to sell such securities without being deemed an underwriter
for purposes of the Securities Act of 1933 and without registration of such
securities under such Act, in which case the Fund might be obliged to pay all or
part of the expenses of such registration;
3. Invest in commodities, commodity contracts or real estate, except that
the Fund may invest in securities of real estate trusts or companies;
4. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may purchase marketable securities of
any issuer engaged in oil, gas or other mineral exploration or development
programs;
5. Make loans, except by the purchase of bonds or other obligations of
types commonly sold privately to financial institutions (also see 2) (the
purchase of a portion of an issue of publicly distributed bonds, debentures or
other obligations is not considered the making of a loan);
B-8
<PAGE>
6. Borrow money, except from banks in an amount which will not cause the
Fund's net assets (including the amount borrowed) to be less than 300% of such
borrowed amount;
7. Make short sales (but if securities, such as warrants or convertible
debentures, are being tendered for conversion, the Fund may sell the securities
to be acquired, provided that upon receipt such securities are used to close the
sale);
8. Purchase or retain securities of an issuer if the officers and directors
of the Fund or Asset Management owning individually more than 2 of 1% of the
securities of such issuer together own more than 5% of the securities of such
issuer;
9. Purchase the securities of any other investment company, except as part
of a merger, consolidation or acquisition;
10. With respect to 50% of the value of its assets, invest more than 5% of
the value of its assets in any one issuer, excluding United States Government
securities, or purchase more than 10% of the outstanding securities of any one
issuer. With respect to the other 50% of the value of its assets, the Fund will
not invest more than 25% of its assets in the securities of any one issuer or
any two or more issuers which pursuant to regulations under the Internal Revenue
Code may be deemed to be controlled by the Fund and engaged in the same or
related trades or businesses; and
11. Write, purchase or sell puts, calls or combinations thereof (this
restriction does not refer to warrants), except for puts, calls or combinations
thereof listed on any national securities exchange.
If a percentage restriction described in the Fund's Prospectus or this SAI
is adhered to at the time of investment, a subsequent increase or decrease in a
percentage resulting from a change in the values of assets will not constitute a
violation of that restriction, except for the policy regarding borrowing or the
purchase of restricted and illiquid securities.
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually. Also, the Fund expects
to distribute any undistributed net investment income on or about December 31 of
each year. Any net capital gains realized through the period ended October 31 of
each year will also be distributed by December 31 of each year.
Each distribution by the Fund is accompanied by a brief explanation of the
form and character of the distribution. In January of each year the Fund will
issue to each shareholder a statement of the federal income tax status of all
distributions.
B-9
<PAGE>
TAX INFORMATION
The Fund intends to qualify and continue to elect to be treated as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986 (the "Code"), provided it complies with all applicable requirements
regarding the source of its income, diversification of its assets and timing of
distributions. The Fund's policy is to distribute to its shareholders all of its
investment company taxable income and any net realized capital gains for each
fiscal year in a manner that complies with the distribution requirements of the
Code, so that the Fund will not be subject to any federal income or excise
taxes.
To qualify as a regulated investment company, a Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities or foreign currencies, or
other income (including gains from options, futures and forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of a Fund's assets is
represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
of any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of a Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (c) distribute to its shareholders at least 90% of its
investment company taxable income (which includes dividends, interest and net
short-term capital gains in excess of any net long-term capital losses) and 90%
of its net exempt interest income each taxable year.
To avoid a 4% excise tax, the Fund must distribute (or be deemed to have
distributed) by December 31 of each calendar year (i) at least 98% of its
ordinary income for such year, (ii) at least 98% of the excess of its realized
capital gains over its realized capital losses for the 12-month period ending on
October 31 during such year and (iii) any amounts from the prior calendar year
that were not distributed and on which the Fund paid no federal income tax. A
distribution will be treated as paid on December 31 of the calendar year if it
is declared by the Fund in October, November, or December of that year to
shareholders of record on a date in such a month and paid by a Fund during
January of the following year. Such distributions will be taxable to
shareholders (other than those not subject to federal income tax) in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.
The Fund's ordinary income generally consists of interest and dividend
income, less expenses. Net realized capital gains for a fiscal period are
computed by taking into account any capital loss carryforward of the Fund.
B-10
<PAGE>
Distributions of net investment income and net short-term capital gains are
taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designate the amount
distributed as a qualifying dividend. This designated amount cannot, however,
exceed the aggregate amount of qualifying dividends received by the Fund for
their taxable year. In view of the Fund's investment policy, it is expected that
dividends from domestic corporations will be part of the Fund's gross income and
that, accordingly, part of the distributions by the Fund may be eligible for the
dividends-received deduction for corporate shareholders. However, the portion of
the Fund's gross income attributable to qualifying dividends is largely
dependent on the Fund's investment activities for a particular year and
therefore cannot be predicted with any certainty. The deduction may be reduced
or eliminated if the Fund shares held by a corporate investor are treated as
debt-financed or are held for less than 46 days.
The Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.
The options contracts used by the Fund are "section 1256 contracts." Any
gains or losses on section 1256 contracts are generally credited 60% long-term
and 40% short-term capital gains or losses ("60/40") although gains and losses
from hedging transactions may be treated as ordinary in character. Also, section
1256 contracts held by the Fund at the end of each taxable year (and, for
purposes of the 4% excise tax, on certain other dates as prescribed under the
Code) are "marked to market" with the result that unrealized gains or losses are
treated as though they were realized and the resulting gain or loss is treated
as ordinary or 60/40 gain or loss, depending on the circumstances.
Generally, the hedging transactions and certain other transactions in
options undertaken by the Fund may result in "straddles" for U.S. federal income
tax purposes. The straddle rules may affect the character of gains (or losses)
realized by the Fund. In addition, losses realized by the Fund on positions that
are part of a straddle may be deferred under the straddle rules, rather than
being taken into account in calculating the taxable income for the taxable year
in which such losses are realized. Because only a few regulations implementing
the straddle rules have been promulgated, the tax consequences of transactions
in options, futures and forward contracts to the Portfolio are not entirely
clear. The transactions may increase the amount of short-term capital gain
realized by the Portfolio which is taxed as ordinary income when distributed to
shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions. Because application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the recognition of
B-11
<PAGE>
gains or losses from the affected straddle positions, the amount which must be
distributed to the shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The qualifying income and diversification requirements applicable to the
Funds' assets may limit the extent to which the Fund will be able to engage in
option transactions.
A redemption of Fund shares may result in recognition of a taxable gain or
loss. Any loss realized upon a redemption of shares within six months from the
date of their purchase will be treated as a long-term capital loss to the extent
of any amounts treated as distributions of long-term capital gains during such
six-month period. Any loss realized upon a redemption of Fund shares may be
disallowed under certain wash sale rules to the extent shares of the Fund are
purchased (through reinvestment of distributions or otherwise) within 30 days
before or after the redemption.
Under the Code, the Fund will be required to report to the Internal Revenue
Service ("IRS") all distributions of ordinary income and capital gains as well
as gross proceeds from the redemption or exchange of Fund shares, except in the
case of exempt shareholders, which includes most corporations. Pursuant to the
backup withholding provisions of the Code, distributions of any taxable income
and capital gains and proceeds from the redemption of Fund shares may be subject
to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law. If the withholding provisions are applicable,
any such distributions and proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Corporate and other exempt shareholders should provide the Fund with their
taxpayer identification numbers or certify their exempt status in order to avoid
possible erroneous application of backup withholding. The Fund reserve the right
to refuse to open an account for any person failing to provide a certified
taxpayer identification number.
The Fund may also be subject to state or local taxes in certain other
states where it is deemed to be doing business. Further, in those states which
have income tax laws, the tax treatment of the Fund and of the shareholders of
the Fund with respect to distributions by the Fund may differ from federal tax
treatment. Distributions to shareholders may be subject to additional state and
local taxes. Shareholders should consult their own tax advisers regarding
specific questions as to federal, state or local taxes.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
B-12
<PAGE>
In addition, the foregoing discussion of tax law is based on existing
provisions of the Code, existing and proposed regulations thereunder, and
current administrative rulings and court decisions, all of which are subject to
change. Any such charges could affect the validity of this discussion. The
discussion also represents only a general summary of tax law and practice
currently applicable to the Fund and certain shareholders therein, and, as such,
is subject to change. In particular, the consequences of an investment in shares
of the Fund under the laws of any state, local or foreign taxing jurisdictions
are not discussed herein. Each prospective investor should consult his or her
own tax advisor to determine the application of the tax law and practice in his
or her own particular circumstances.
DIRECTORS AND EXECUTIVE OFFICERS
The Directors of the Fund are responsible for the overall management of the
Fund, including general supervision and review of the investment activities of
the Fund. The Directors, in turn, elect the officers of the Fund, who are
responsible for administering the day-to-day operations of the Fund. The current
Directors and officers, their affiliations, dates of birth and principal
occupations for the past five years are set forth below.
GREGORY A. CHURCH*, 44, President, Secretary, Treasurer and Director,
Matterhorn Asset Management, Corp., 301 Oxford Valley Road, Yardley,
Pennsylvania 19067. President, Church Capital Management, Inc.(formerly Church
Capital Management, Inc. and G. A. Church & Company)(registered investment
advisers) since June 1987; Chairman, Bainbridge Securities Inc. (registered
broker-dealer) since October 1994.
KEVIN M. COVERT, 42, Director, 217 Winding Way, Moorestown, New Jersey
08057 . Assistant General Counsel-Employee Benefits, Allied Signal Inc. since
November 1998; Partner, Kulzer & DiPadova, P.A. (law firm) from 1984 to November
1998.
DOMINICK A. CRUCIANI, JR., M.D., 69, Director, 1360 Wyoming Avenue,
Scranton, Pennsylvania 18509. Physician since 1958. A director of Cumberland
Growth Fund, Inc. from October 1989 to September 1992.
GERALD PRINTZ, 43, Director, 49 Napoleon Circle, Brandon, Mississippi
39047. President, AMSADOR, Ltd. (computer security and disaster recovery
planning consultant), since March 1994; consultant, IBM, 1988 to February 1994.
B-13
<PAGE>
RICHARD E. PFEIFFER, JR., 44, Director, 299 E. Street Road, Warminster,
Pennsylvania 18974. Owner/operator of two Texaco service stations since 1988;
Business partner/ Manager, "C&P" Rental Enterprise (apartment complexes) since
November 1998.
----------
* Mr. Church is an "interested person" of the Fund, as defined in the
Investment Company Act of 1940.
Attendance fees of $300 per meeting have been authorized for those
Directors who are not "interested persons" (as such term is defined in the
Investment Company Act of 1940) of Matterhorn Asset Management Corporation or
Bainbridge Securities, Inc.
Set forth below is the compensation for the fiscal year ended June 30, 2000
of the Directors of the Fund who are not "interested persons" of the Fund as
defined in the Investment Company Act of 1940. No other compensation or
retirement benefits were received by any Director from the Fund.
Name of Director Total Annual Compensation
---------------- -------------------------
Kevin M. Covert $1,200
Dominick A. Cruciani, Jr. $1,200
Gerald Printz $1,200
Robert R. Jackson* $ 900
Richard E Pfeiffer, Jr. $ 900
As of September 30, 2000, to the best knowledge of the Fund, the Directors
and officers of the Fund, as a group, owned of record 2.60 % of the outstanding
shares of the Fund.
----------
* Robert R. Jackson is no longer a Director as of March 1, 2000.
THE FUNDS INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are provided to
the Fund by Matterhorn Asset Management Corporation, the Advisor, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement"). As compensation, the
Fund pays the Advisor a monthly management fee (accrued daily) based upon the
average daily net assets of the Fund at the annual rate of 1.00%.
The Advisory Agreement provides that neither the Advisor, nor any of its
officers, directors or employees, nor any person performing administrative or
other functions for the Fund at the direction or request of the Adviser, will be
liable for errors of judgment or mistakes of law or for any loss suffered by the
Fund in connection with their advisory services to the Fund, except for losses
B-14
<PAGE>
resulting from their willful misfeasance, bad faith, or gross negligence in the
performance of their duties on behalf of the Fund, or from their reckless
disregard of the duties of the Advisor under the Agreement.
The Advisory Agreement will continue in effect for successive annual
periods so long as such continuation is approved at least annually by the vote
of (1) the Board of Directors of the Fund (or a majority of the outstanding
shares of the Fund, and (2) a majority of the Directors who are not "interested
persons" of any party to the Advisory Agreement (as defined in 1940 Act), in
each case cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated at any time, without penalty,
by either party to the Advisory Agreement upon sixty days' written notice and is
automatically terminated in the event of its "assignment," as defined in the
1940 Act.
For the fiscal years ended June 30, 2000, 1999, and 1998, the Fund paid
advisory fees of $91,754, $84,014, and $91,148, respectively.
THE FUNDS ADMINISTRATOR
The Fund has an Administration Agreement with Investment Company
Administration, LLC (the "Administrator"), a corporation owned and controlled by
in part by Mr. Banhazl with offices at 4455 E. Camelback Rd., Ste. 261-E,
Phoenix, AZ 85018. The Administration Agreement provides that the Administrator
will prepare and coordinate reports and other materials supplied to the
Trustees; prepare and/or supervise the preparation and filing of all securities
filings, periodic financial reports, prospectuses, statements of additional
information, marketing materials, tax returns, shareholder reports and other
regulatory reports or filings required of the Fund; prepare all required notice
filings necessary to maintain the Fund's ability to sell shares in all states
where the Fund currently does, or intends to do business; coordinate the
preparation, printing and mailing of all materials (e.g., Annual Reports)
required to be sent to shareholders; coordinate the preparation and payment of
Fund related expenses; monitor and oversee the activities of the Fund's
servicing agents (i.e., transfer agent, custodian, fund accountants, etc.);
review and adjust as necessary the Fund's daily expense accruals; and perform
such additional services as may be agreed upon by the Fund and the
Administrator. For its services, the Administrator receives a monthly fee at the
following annual rate of 0.10% of the Fund's average daily net assets, subject
to a minimum annual fee of $40,000.
For each of the fiscal years ended June 30, 2000, 1999, and 1998, the
Administrator received fees of $40,000.
B-15
<PAGE>
THE FUNDS DISTRIBUTOR
Bainbridge Securities, Inc. ("Bainbridge") acts as the Fund's principal
underwriter in a continuous public offering of the Fund's shares. Bainbridge is
a Pennsylvania corporation controlled by Gregory Church (an officer and director
of the Fund and the Advisor) and his wife. The Distribution Agreement between
the Fund and the Distributor continues in effect from year to year if approved
at least annually by (i) the Board of Directors or the vote of a majority of the
outstanding shares of the Fund (as defined in the 1940 Act) and (ii) a majority
of the Directors who are not interested persons of any such party (as defined in
the 1940 Act), in each case cast in person at a meeting called for the purpose
of voting on such approval. The Distribution Agreement may be terminated without
penalty by the parties thereto upon sixty days' written notice, and is
automatically terminated in the event of its assignment as defined in the 1940
Act. Pursuant to the Agreement, the Fund has agreed to indemnify the Distributor
to the extent permitted by applicable law against certain liabilities under the
Securities Act of 1933.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan"), under which, the Fund pays the Distributor a fee, which is
accrued daily and paid monthly, at the annual rate of 0.25% of the Fund's
average daily assets. Among other things, the Plan provides that (1) the
Distributor will submit to the Board of Directors at least quarterly, and the
Directors will review, reports regarding all amounts expended under the Plan and
the purposes for which such expenditures were made, (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Board of Directors, including those who
are not "interested persons" of the Fund (as defined in the 1940 Act) and who
have no direct or indirect financial interest in operation of the plan or any
agreement related to the Plan, acting in person at a meeting called for that
purpose, (3) payments by the Fund under the Plan shall not be materially
increased without the affirmative vote of the holders of a majority of the
outstanding shares of the Fund and (4) while the Plan remains in effect, the
selection and nomination of Directors who are not "interested persons" of the
Fund shall be committed to the discretion of the Directors who are not
interested persons of the Trust. During the year ended June 30, 2000, the Fund
paid fees of $22,939 under the Plan, of which $19,564 was used for salaries,
$2,089 was used for advertising and marketing, $752 was used for printing, and
$534 was used for miscellaneous expenses.
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement, the Advisor determines which securities
are to be purchased and sold by the Fund and which broker-dealers are eligible
to execute the Fund's portfolio transactions. Purchases and sales of securities
in the over-the-counter market will generally be executed directly with a
"market-maker" unless, in the opinion of the Advisor, a better price and
execution can otherwise be obtained by using a broker for the transaction.
B-16
<PAGE>
Purchases of portfolio securities for the Fund also may be made directly
from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which the Fund will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principal for their own accounts. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one dealer or underwriter are comparable, the order
may be allocated to a dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, the Advisor will use its reasonable
efforts to choose broker-dealers capable of providing the services necessary to
obtain the most favorable price and execution available. The full range and
quality of services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and other factors. In those instances where it is reasonably
determined that more than one broker-dealer can offer the services needed to
obtain the most favorable price and execution available, consideration may be
given to those broker-dealers which furnish or supply research and statistical
information to the Advisor that it may lawfully and appropriately use in its
investment advisory capacities, as well as provide other services in addition to
execution services. The Advisor considers such information, which is in addition
to and not in lieu of the services required to be performed by it under its
Agreement with the Fund, to be useful in varying degrees, but of indeterminable
value. Portfolio transactions may be placed with broker-dealers who sell shares
of the Fund subject to rules adopted by the National Association of Securities
Dealers, Inc.
While it is the Fund's general policy to seek first to obtain the most
favorable price and execution available in selecting a broker-dealer to execute
portfolio transactions for the Fund, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Fund or to the
Advisor, even if the specific services are not directly useful to the Fund and
may be useful to the Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Fund may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Advisor to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer. The standard of reasonableness
is to be measured in light of the Advisor's overall responsibilities to the
Fund.
Investment decisions for the Fund are made independently from those of
other client accounts managed or advised by the Advisor. Nevertheless, it is
possible that at times identical securities will be acceptable for both the Fund
and one or more of such client accounts. In such event, the position of the Fund
and such client account(s) the same issuer may vary and the length of time that
each may choose to hold its investment in the same issuer may likewise vary.
B-17
<PAGE>
However, to the extent any of these client accounts seeks to acquire the same
security as the Fund at the same time, the Fund may not be able to acquire as
large a portion of such security as it desires, or it may have to pay a higher
price or obtain a lower yield for such security. Similarly, the Fund may not be
able to obtain as high a price for, or as large an execution of, an order to
sell any particular security at the same time. If one or more of such client
accounts simultaneously purchases or sells the same security that the Fund is
purchasing or selling, each day's transactions in such security will be
allocated between the Fund and all such client accounts in a manner deemed
equitable by the Advisor, taking into account the respective sizes of the
accounts and the amount being purchased or sold. In some cases this system could
have a detrimental effect on the price or value of the security insofar as the
Fund is concerned. In other cases, however, the ability of the Fund to
participate in volume transactions may produce better executions for the Fund.
The Fund does not effect securities transactions through brokers in
accordance with any formula, nor does it effect securities transactions through
brokers solely for selling shares of the Fund, although the Fund may consider
the sale of shares as a factor in allocating brokerage. However, as stated
above, broker-dealers who execute brokerage transactions may effect purchase of
shares of the Fund for their customers.
For the fiscal year ended June 30, 2000 the Fund paid $43,518 in brokerage
commissions, of which $2,430 was paid to firms which provided research or other
services to the Advisor and $34,151 was paid to the Distributor. For the fiscal
year ended June 30, 1999, the Fund paid $30, 897 in brokerage commissions, of
which $9,885 was paid to firms which provided research or other services to the
Advisor. For the fiscal year ended June 30, 1998, the Fund paid $38,746 in
brokerage commissions, of which $4,040 was paid to firms which provided research
or other services to the Advisor.
PORTFOLIO TURNOVER
Although the Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Advisor, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in the Fund's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to higher transaction costs and may
result in a greater number of taxable transactions. See "Execution of Portfolio
Transactions." For the fiscal years ended June 30, 2000, and 1999, the Fund had
a portfolio turnover rate of 101.94% and 68.93% respectively. Portfolio turnover
increased during the fiscal year ended June 30, 2000 due to the repositioning of
the Fund into new securities.
B-18
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The information provided below supplements the information contained in the
Fund's Prospectus regarding the purchase and redemption of Fund shares.
HOW TO BUY SHARES
You may purchase shares of the Fund from selected securities brokers,
dealers or financial intermediaries. Investors should contact these agents
directly for appropriate instructions, as well as information pertaining to
accounts and any service or transaction fees that may be charged by those
agents. Purchase orders through securities brokers, dealers and other financial
intermediaries are effected at the next-determined net asset value after receipt
of the order by such agent before the Fund's daily cutoff time. Orders received
after that time will be purchased at the next-determined net asset value.
The public offering price of Fund shares is the net asset value per share,
all of which is received by the Fund. Shares are purchased at the public
offering price next determined after the Transfer Agent receives your order in
proper form as discussed in the Prospectus. In most cases, in order to receive
that day's public offering price, the Transfer Agent must receive your order in
proper form as discussed in the Prospectus before the close of regular trading
on the New York Stock Exchange ("NYSE"), normally 4:00 p.m., Eastern time. If
you buy shares through your investment representative, the representative must
receive your order before the close of regular trading on the NYSE to receive
that day's public offering price. Orders are in proper form only after funds are
converted to U.S. funds.
The NYSE annually announces the days on which it will not be open for
trading. The most recent announcement indicates that it will not be open on the
following days: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, the NYSE may close on days not included in that
announcement.
If you are considering redeeming or transferring shares to another person
shortly after purchase, you should pay for those shares with a certified check
to avoid any delay in redemption or transfer. Otherwise the Fund may delay
payment until the purchase price of those shares has been collected or, if you
redeem by telephone, until 15 calendar days after the purchase date.
The Fund reserves the right in its sole discretion (i) to suspend the
continued offering of the Fund's shares, (ii) to reject purchase orders in whole
or in part when in the judgment of the Advisor or the Distributor such rejection
B-19
<PAGE>
is in the best interest of the Fund, and (iii) to reduce or waive the minimum
for initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
HOW TO SELL SHARES
You can sell your Fund shares any day the NYSE is open for regular trading,
either directly to the Fund or through your investment representative.
Selling shares through your investment representative
Your investment representative must receive your request before the close
of regular trading on the NYSE to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge you for its services.
Delivery of redemption proceeds
Payments to shareholders for Fund shares redeemed directly from the Fund
will be made as promptly as possible but no later than seven days after receipt
by the Fund's Transfer Agent of the written request with complete information
and meeting all the requirements discussed in the Fund's Prospectus, except that
the Fund may suspend the right of redemption or postpone the date of payment
during any period when (a) trading on the NYSE is restricted as determined by
the SEC or the NYSE is closed for other than weekends and holidays; (b) an
emergency exists as determined by the SEC making disposal of portfolio
securities or valuation of net assets of the Fund not reasonably practicable; or
(c) for such other period as the SEC may permit for the protection of the Fund's
shareholders. At various times, the Fund may be requested to redeem shares for
which it has not yet received confirmation of good payment. In this
circumstance, the Fund may delay the redemption payment until payment for the
purchase of such shares has been collected and confirmed to the Fund (which may
take up to 15 days).
The value of shares on redemption or repurchase may be more or less than
the investor's cost, depending upon the market value of the Fund's portfolio
securities at the time of redemption or repurchase.
If you choose to receive distributions in cash and distribution checks are
returned as undeliverable, or remain uncashed for six months, the Fund will
change you account so that all future distributions are reinvested in your
account. Checks that remain uncashed for six months will be canceled and the
money reinvested in the Fund. No interest is paid during the time a redemption
check is outstanding
B-20
<PAGE>
Telephone redemptions
Shareholders must have selected telephone transactions privileges on the
Account Application when opening a Fund account. Upon receipt of any
instructions or inquiries by telephone from a shareholder or, if held in a joint
account, from either party, or from any person claiming to be the shareholder,
the Fund or its agent is authorized, without notifying the shareholder or joint
account parties, to carry out the instructions or to respond to the inquiries,
consistent with the service options chosen by the shareholder or joint
shareholders in his or their latest Account Application or other written request
for services, including purchasing, exchanging or redeeming shares of the Fund
and depositing and withdrawing monies from the bank account specified in the
Bank Account Registration section of the shareholder's latest Account
Application or as otherwise properly specified to the Fund in writing.
The Transfer Agent will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine; if it fails to
employ reasonable procedures, the Fund and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent instructions. If these procedures
are followed, an investor agrees, however, that to the extent permitted by
applicable law, neither the Fund nor its agents will be liable for any loss,
liability, cost or expense arising out of any redemption request, including any
fraudulent or unauthorized request. For information, consult the Transfer Agent.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this event,
you may wish to submit a written redemption request, as described in the
Prospectus, or contact your investment representative. The Telephone Redemption
Privilege may be modified or terminated without notice.
Redemptions-in-kind
The Fund has filed an election under SEC Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (in excess of the lesser of (i) $250,000 or (ii) 1% of the Fund's assets).
The Fund has reserved the right to pay the redemption price of its shares in
excess of the amounts specified by the rule, either totally or partially, by a
distribution in kind of portfolio securities (instead of cash). The securities
so distributed would be valued at the same amount as that assigned to them in
calculating the net asset value for the shares being sold. If a shareholder
receives a distribution in kind, the shareholder could incur brokerage or other
charges in converting the securities to cash.
The value of shares on redemption or repurchase may be more or less than
the investor's cost, depending upon the market value of the Fund's portfolio
securities at the time of redemption or repurchase.
B-21
<PAGE>
Automatic Investment Plan
As discussed in the Prospectus, the Fund provides an Automatic Investment
Plan for the convenience of investors who wish to purchase shares of the Fund on
a regular basis. All record keeping and custodial costs of the Automatic
Investment Plan are paid by the Fund. The market value of the Fund's shares is
subject to fluctuation, so before undertaking any plan for systematic
investment, the investor should keep in mind that this plan does not assure a
profit nor protect against depreciation in declining markets.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of
shares of the Fund will be determined once daily as of the close of public
trading on the NYSE (normally 4:00 p.m., Eastern time) on each day that the NYSE
is open for trading. The Fund does not expect to determine the net asset value
of its shares on any day when the NYSE is not open for trading even if there is
sufficient trading in its portfolio securities on such days to materially affect
the net asset value per share. However, the net asset value of the Fund's shares
may be determined on days the NYSE is closed or at times other than 4:00 p.m. if
the Board of Directors decides it is necessary.
In valuing the Fund's assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are valued at the current or last bid price. If no bid is quoted on
such day, the security is valued by such method as the Board of Directors of the
Fund shall determine in good faith to reflect the security's fair value. All
other assets of the Fund are valued by or under the direction of the Board of
Directors in such manner as the Board of Directors or its delegate in good faith
deems appropriate to reflect their fair value.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in advertisements
and investor communications. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return will be accompanied by information on the Fund's average annual
compounded rate of return over the most recent four calendar quarters and the
period from the Portfolio's inception of operations. The Fund may also advertise
aggregate and average total return information over different periods of time.
The Fund's total return may be compared to relevant indices, including
Standard & Poor's 500 Composite Stock Index, the Dow Jones Industrial Average
and indices published by Lipper Analytical Services, Inc. From time to time,
B-22
<PAGE>
evaluations of the Fund's performance by independent sources may also be used in
advertisements and in information furnished to present or prospective investors
in the Fund..
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's total return may be in any future period.
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized.
The average annual rate of return for the Fund for the periods ending June
30, 2000, are as follows:
One year 17.98%
Five Years 14.47%
Ten Years 13.58%
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
Firstar Institutional Custody Services, located at 425 Walnut St.,
Cincinnati, Ohio 45201 acts as Custodian of the securities and other assets of
the Fund. American Data Services, Inc., 150 Motor Parkway, Hauppauge, NY 11788,
acts as the Fund's transfer and shareholder service agent. The Custodian and
Transfer Agent do not participate in decisions relating to the purchase and sale
of securities by the Fund.
B-23
<PAGE>
Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia, PA 19103, are the
independent auditors for the Fund.
Paul, Hastings, Janofsky & Walker, LLP, 555 South Flower Street, 23rd
Floor, Los Angeles, California 90071 is legal counsel to the Fund.
The authorized capital of the Fund consists of 100,000,000 shares of common
stock, par value $.001 each. Currently, all Fund shares are of the same class
with equal voting rights. The Board of Directors has the authority to issue
additional class of shares if deemed desirable. Fund shares have non-cumulative
voting rights, which means that the holders of more than 50% of the shares
voting for the election of directors can elect all of the directors if they
choose to do so, and in such event the holders of the remaining shares so voting
will not be able to elect any directors. Shares of the Fund have equal rights
with respect to dividends, assets and liquidation. Shares are fully paid and
non-assessable when issued, are transferable without restriction, and have no
preemptive or conversion rights.
As a Maryland corporation, the Fund is not required to hold annual meetings
of shareholders except when required by the Investment Company Act of 1940. The
Fund has undertaken that, (i) if required to do so by the holders of at least
10% of the Fund's then outstanding shares, it will call a meeting of
shareholders for the purpose of voting upon the removal of any director, and
(ii)( it will assist in the communication with Fund shareholders, to the extent
required by Section 16(c) of the Investment Company Act of 1940.
The Boards of the Trust, the Advisor and the Distributor have adopted Codes of
Ethics under Rule 17j-1 of the 1940 Act. These Codes permit, subject to certain
conditions, personnel subject to these Code to invest in securities that may be
purchased or held by the Funds.
FINANCIAL STATEMENTS
The Fund's annual report to shareholders for its fiscal year ended June 30,
2000 is a separate document supplied with this SAI and the financial statements,
accompanying notes and report of independent accountants appearing therein are
incorporated by reference in this SAI.
B-24
<PAGE>
APPENDIX
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have
a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
B-25
<PAGE>
PART C
ITEM 23. EXHIBITS.
(1) (a) Charter(1)
(b) Form of amendment to Charter(2)
(2) By-Laws or instruments corresponding thereto(1)
(3) Specimen share certificate(1)
(4) Form of Investment Advisory Agreement(2)
(5) Form of Distribution Agreement(3)
(6) Not applicable
(7) Form of Custodian Agreement with Star Bank, NA(3)
(8) (a) Form of Administration Agreement with Investment Company
Administration, LLC(3)
(b) Fund Accounting Service Agreement with American Data Services(3)
(c) Transfer Agency and Service Agreement with American Data
Services(3)
(9) Opinion of Counsel(4)
(10) Consent of accountants - filed herewith
(11) Not applicable
(12) No undertaking in effect
(13) Rule 12b-1 Plan(2)
(14) Not applicable
(15) Not applicable
(16) Code of Ethics
(a) The Matterhorn Growth Fund, Inc.
(b) Matterhorn Asset Management Corporation & Bainbridge Securities,
Inc.
----------
(1) Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A, filed on October 7, 1980.
(2) Incorporated by reference from Registrant's Notice and Proxy Statement
dated January 15, 1996.
(3) Incorporated by reference from Post-Effective Amendment No. 17 to the
Registration Statement on Form N-1A, filed on January 17, 1996.
(4) Incorporated by reference from Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A, filed on November 12, 1991.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 25. INDEMNIFICATION
Article V of Registrant's By-Laws provides as follows:
The Corporation shall not be responsible or liable in any event for any neglect
or wrong-doing of any officer, agent, employee, Manager or Principal Underwriter
C-1
<PAGE>
of the Corporation, nor shall any Directors be responsible for the act or
omission of any other Directors, and the Corporation out of its assets shall
indemnify and hold harmless each and every Directors from and against any and
all claims and demands whatsoever arising out of or related to each Directors's
performance of his duties as a Directors of the Corporation; provided that
nothing herein contained shall indemnify, hold harmless or protect any Directors
from or against any liability to the Corporation or any Shareholder to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Corporation or the Directors or any of them in connection with the
Corporation shall be conclusively deemed to have been issued, executed or done
only in or with respect to their or his capacity as Directors or Directors, and
such Director or Directors shall not be personally liable thereon."
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Since the fiscal year ended June 30, 1996, the Fund's investment adviser,
Matterhorn Asset Management Corporation, has engaged principally in the business
of providing investment advisory services to registered investment companies.
All of the additional information required by this Item 28 with respect to
Matterhorn Asset Management Corporation is set forth in the Form ADV, as
amended, of Matterhorn Asset Management Corporation (File No. 801-32050), which
is incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITER.
(a) Bainbridge Securities Inc. does not act as principal underwriter, depositor
or investment adviser to any other investment company.
(b) The following information is provided with respect to each director,
officer or partner of Bainbridge Securities Inc.:
C-2
<PAGE>
Positions and Positions and
Name and Principal Offices with Offices
Business Address Underwriter with Fund
---------------- ----------- ---------
Gregory A. Church Director and Director, President
Bainbridge Securities Inc. Chairman Secretary, and
301 Oxford Valley Rd., Ste. 801B Treasurer
Yardley, PA 19067
Maureen A. Church Director None
Bainbridge Securities Inc.
Malinda P. Berardino Director, Chief None
Bainbridge Securities Inc. Executive Officer,
Chief Financial
Officer
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained by the
Fund pursuant to Section 31(a) of the Investment Company Act of 1940 and Rules
31a-1 to 31a-3 promulgated thereunder, are maintained at the following
locations: Matterhorn Growth Fund, Inc., 301 Oxford Valley Road, Suite 802B,
Yardley, Pennsylvania 19067, Investment Company Administration LLC, 2020 East
Financial Way, Suite 100, Glendora, California 91741; and American Data
Services, Inc., 1675 Broadway, Suite 2050, Denver, Colorado 80202.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS
The registrant hereby undertakes to furnish each person to whom a
Prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this amendment
meets all the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment to the
Registrant Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Glendora, and State of California, on the 23rd day of
October, 2000.
THE MATTERHORN GROWTH FUND, INC.
By: /s/ Gregory A. Church
------------------------------------
Gregory A. Church
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gregory A. Church President, Secretary, October 23, 2000
---------------------------- Treasurer and Director
Gregory A. Church
*Kevin M. Covert Director October 23, 2000
----------------------------
Kevin M. Covert
*Dominick A. Cruciani Director October 23, 2000
----------------------------
Dominick A. Cruciani, Jr.
*Gerald Printz Director October 23, 2000
----------------------------
Gerald Printz
*Richard E. Pfeiffer Director October 23, 2000
----------------------------
Richard E. Pfeiffer
* By: /s/ Gregory A. Church
------------------------------
Gregory A. Church, Attorney-in-Fact
under powers of attorney as filed
with Post-Effective Amendment No. 20 to
the Registration Statement
<PAGE>
EXHIBITS
Exhibit No. Description
----------- -----------
99.B10 Consent of Auditors
99.16a Code of Ethics - Matterhorn Growth Fund, Inc.
99.16b Code of Ethics - Matterhorn Asset Management Corporation
and Bainbridge Securities, Inc.
