[MATTERHORN GROWTH FUND LOGO]
SEMI-ANNUAL REPORT
DECEMBER 31, 1999
<PAGE>
Dear Shareholders,
The Matterhorn Growth Fund, Inc. has given shareholders a very good return
for the year 1999. For the twelve months ended December 31, 1999, the Fund was
up 23.09% compared to 20.79% for the Lipper Multi-Cap Core Fund Index (an index
of stock mutual funds that by practice invest in a variety of market
capitalization stocks, without concentrating 75% of their equity assets in any
one market capitalization range over an extended period of time) and 21.04% for
the S&P Index. For the six months ended December 31, 1999 (the period covered by
this report), the Fund was up 5.51%, the Lipper Multi-Cap Core Fund Index was up
9.18% and the S&P 500 was up 7.70%.
Rising worldwide economic activity and commensurate rising interest rates
have dominated the direction of stocks in the last six months. Under these
circumstances the market has voted in favor of technology stocks. In fact, if
the technology stocks in the S&P 500 were excluded, the return for the year
would have only been 2.0% versus the 21.04% including technology. Not only is
technology deemed to be capable of generating predictable growth under a rising
interest rate environment, but that growth is anticipated to be of sufficient
magnitude that the discount rate (the price earnings ratio) is not at risk to
higher interest rates. In some cases the market has pushed some of these stocks
to levels that defy reality and create the risk of a severe correction.
We believe technology is an appropriate area of emphasis and have stated
this in the past. In fact we have added a leading computer service company,
First Data Corporation, to the portfolio in the last six months. However, we
also believe that a diversified portfolio of stocks, purchased at reasonable
prices, is the appropriate strategy for long term appreciation. Consequently we
continue to search for undervalued companies that will benefit from rising
worldwide economic activity. To that point we have purchased Airborne Freight
Company for the portfolio. As economic activity grows this company should
benefit from the increased need for overnight shipments of both consumer and
industrial products.
Lastly the previous shareholder letter addressed our position on the health
care industry. At that time we stated that on continued weakness we would
consider adding to this area. We have subsequently purchased Abbott
Laboratories. Under new aggressive management the company is positioning itself
to accelerate its growth rate.
Sincerely Yours,
/s/ Gregory A. Church
Gregory A. Church
Portfolio Manager
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THE MATTERHORN GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999 (UNAUDITED)
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Shares COMMON STOCKS: 98.8% Value
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BANKING: 2.1%
6,000 First Union Corporation ........................... $ 196,875
---------
CHEMICALS: 2.3%
6,000 Monsanto Company .................................. 213,750
---------
DIVERSIFIED OPERATIONS: 2.1%
3,500 FMC Corporation* .................................. 200,594
---------
ELECTRICAL EQUIPMENT: 8.8%
10,000 Arrow Electronics, Inc.* .......................... 253,750
3,000 Corning Incorporated .............................. 386,812
6,000 Thomas & Betts Corporation ........................ 191,250
---------
831,812
---------
HOUSEHOLD PRODUCTS: 6.3%
5,000 Gillette Company .................................. 205,938
6,000 Kimberly-Clark Corporation ........................ 391,500
---------
597,438
---------
INSURANCE: 5.9%
4,000 Chubb Corporation ................................. 225,250
4,000 Everest Reinsurance Holdings, Inc ................. 89,250
5,000 The Hartford Financial Service Group, Inc ......... 236,875
---------
551,375
---------
INTERNET SERVICE: 1.1%
2,500 At Home Corporation* .............................. 107,344
---------
MEDIA & ENTERTAINMENT: 4.1%
5,000 MediaOne Group, Inc.* ............................. 384,062
---------
NEWSPAPERS: 5.1%
6,000 A. H. Belo Corporation Class A .................... 114,375
7,000 Media General, Inc. Class A ....................... 364,000
---------
478,375
---------
2
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THE MATTERHORN GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999 (UNAUDITED), CONTINUED
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Shares Value
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OFFICE EQUIPMENT: 33.4%
5,000 Computer Associates International, Inc ........... $ 349,688
5,000 First Data Corporation ........................... 246,563
4,000 Hewlett-Packard Company .......................... 455,750
3,500 LSI Logic Corporation* ........................... 236,250
20,500 Sun Microsystems, Inc.* .......................... 1,586,187
12,200 Xerox Corporation ................................ 276,787
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3,151,225
----------
PHARMACEUTICALS: 20.1%
10,000 Abbott Laboratories .............................. 363,125
6,000 Eli Lilly and Company ............................ 399,000
6,000 Johnson & Johnson ................................ 558,750
11,000 Rite Aid Corporation ............................. 123,063
7,000 Smithkline Beecham Plc ADR ....................... 451,062
----------
1,895,000
----------
RAILROADS: 2.3%
5,000 Union Pacific Corporation ........................ 218,125
----------
RESTAURANTS: 3.3%
15,000 Wendy's International, Inc ....................... 309,375
----------
TRANSPORTATION: 1.9%
8,000 Airborne Freight Corporation ..................... 176,000
----------
Total Common Stocks (Cost $6,795,155) ............ 9,311,350
----------
3
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THE MATTERHORN GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999 (UNAUDITED), CONTINUED
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Shares INVESTMENT COMPANY SECURITIES: 1.1% Value
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103,832 Firstar Stellar Treasury Money Market
Fund (cost $103,832) ............................ $ 103,832
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Total Investments in Securities
(cost $6,898,987**): 99.9% ...................... 9,415,182
Other assets less liabilities: 0.1% ............. 10,458
----------
Total Net Assets: 100.0% ......................... $9,425,640
==========
* Non-income producing security.
ADR - American depositary receipt.
** At December 31, 1999, the cost of securities for federal income
tax purposes was the same. Gross unrealized appreciation and
depreciation of securities based on cost for federal income tax
were as follows:
Gross unrealized appreciation $ 3,104,492
Gross unrealized depreciation (588,297)
-----------
Net unrealized appreciation $ 2,516,195
===========
See Notes to Financial Statements.
4
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STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1999 (UNAUDITED)
- ----------------------------------------------------------------------
ASSETS
Investments in securities, at value (identified
cost $6,898,987) ............................................ $ 9,415,182
Receivables:
Investment securities sold .............................. 159,662
Fund shares sold ........................................ 2,903
Dividends and interest .................................. 10,304
Prepaid expenses .............................................. 7,624
Other assets .................................................. 2,465
-----------
Total Assets ............................................ 9,598,140
-----------
LIABILITIES
Payables:
Fund shares redeemed ........................................ 2,674
Investment securities purchased ............................. 109,288
Due to Adviser (Note 3) ....................................... 7,879
Due to Distributor (Note 3) ................................... 1,970
Other accrued expenses ........................................ 50,689
-----------
Total Liabilities ....................................... 172,500
-----------
NET ASSETS ...................................................... $ 9,425,640
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($9,425,640/1,211,384 shares outstanding;
100,000,000 shares authorized with $ 001 par value) ........... $ 7 78
===========
SOURCES OF NET ASSETS
Paid-in capital ............................................... $ 6,895,717
Accumulated net investment loss ............................... (96,736)
Accumulated net realized gain on investments .................. 110,464
Net unrealized appreciation on investments .................... 2,516,195
-----------
Net assets .............................................. $ 9,425,640
===========
See Notes to Financial Statements.
5
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STATEMENT OF OPERATIONS - SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
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INVESTMENT INCOME
Income
Dividends .................................................... $ 51,857
Interest ..................................................... 6,666
---------
Total investment income .................................. 58,523
---------
Expenses
Advisory fees (Note 3) ....................................... 45,579
Administration fees (Note 3) ................................. 20,111
Professional fees ............................................ 16,941
Transfer agent fees .......................................... 12,332
Distribution fees (Note 3) ................................... 11,395
Accounting fees .............................................. 9,093
Registration fees ............................................ 7,962
Auditing fees ................................................ 7,738
Directors fees ............................................... 5,319
Reports to shareholders ...................................... 5,804
Custody fees ................................................. 4,400
Legal fees ................................................... 4,836
Insurance .................................................... 502
Miscellaneous ................................................ 3,247
---------
Total expenses ........................................... 155,259
---------
NET INVESTMENT LOSS ...................................... (96,736)
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments ............................... 498,036
Net change in unrealized appreciation of investments ........... 93,764
---------
Net realized and unrealized gain on investments .......... 591,800
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ... $ 495,064
=========
See Notes to Financial Statements.
6
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STATEMENTS OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
Six Months Year
Ended Ended
December 31, 1999* June 30, 1999
------------------ -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment loss ...................................... $ (96,736) $ (178,144)
Net realized gain on investments ......................... 498,036 181,185
Net change in unrealized appreciation
of investments .......................................... 93,764 1,611,440
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NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ..................................... 495,064 1,614,481
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments ......................... (387,572) (1,038,914)
Return of capital ........................................ -- (29,388)
----------- -----------
NET DECREASE FROM DISTRIBUTIONS ...................... (387,572) (1,068,302)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................................ 197,109 243,286
Net asset value of shares issued on reinvestment
of distributions ........................................ 371,873 993,642
Cost of shares redeemed .................................. (442,360) (1,614,742)
----------- -----------
NET INCREASE (DECREASE) FROM CAPITAL SHARE
TRANSACTIONS ........................................ 126,622 (377,814)
----------- -----------
TOTAL INCREASE IN NET ASSETS ....................... 234,114 168,365
NET ASSETS
Beginning of year ........................................ 9,191,526 9,023,161
----------- -----------
END OF PERIOD ............................................ $ 9,425,640 $ 9,191,526
=========== ===========
CHANGES IN FUND SHARES
Shares sold .............................................. 25,956 34,753
Shares issued on reinvestment of distributions............ 49,386 151,701
Shares redeemed .......................................... (57,492) (231,096)
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Net increase (decrease) .................................. 17,850 (44,642)
=========== ===========
</TABLE>
* Unaudited.
See Notes to Financial Statements.
7
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FINANCIAL HIGHLIGHTS - FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
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<TABLE>
<CAPTION>
Six Months
Ended Years Ended June 30,
December 31, -----------------------------------------------
1999# 1999 1998 1997 1996(a) 1995
------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................ $ 7.70 $ 7.29 $ 6.82 $ 7.00 $ 6.88 $ 5.87
------ ------ ------- ------- ------ ------
Income from investment operations:
Net investment loss ............................. (0.02) (0.15) (0.11) (0.07) (0.12) (0.17)
Net realized and unrealized gain on
investments.................................... 0.43 1.52 0.85 0.74 0.85 1.28
------ ------ ------- ------- ------ ------
Total from investment operations .................. 0.41 1.37 0.74 0.67 0.73 1.11
------ ------ ------- ------- ------ ------
Less distributions:
From net realized gains ......................... (0.33) (0.93) (0.27) (0.85) (0.61) (0.10)
Return of capital ............................... -- (0.03) -- -- -- --
------ ------ ------- ------- ------ ------
Total distributions ............................... (0.33) (0.96) (0.27) (0.85) (0.61) (0.10)
------ ------ ------- ------- ------ ------
Net asset value, end of period .................... $ 7.78 $ 7.70 $ 7.29 $ 6.82 $ 7.00 $ 6.88
====== ====== ======= ======= ====== ======
Total return ...................................... 5.51% 21.10% 11.22% 10.81% 11.60% 19.32%
Ratios/supplemental data:
Net assets, end of period (000's omitted) ......... $9,426 $9,192 $ 9,023 $ 9,213 $8,816 $8,993
Ratio to average net assets:
Expenses (excluding interest) ................... 3.40%+ 3.57% 3.65% 4.00% 4.21% 4.62%
Interest expense ................................ -- -- -- -- 0.02 0.56
------ ------ ------- ------- ------ ------
Total expense ................................... 3.40%+ 3.57% 3.65% 4.00%** 4.23% 5.18%
====== ====== ======= ======= ====== ======
Net investment loss ............................. (2.12)%+ (2.12)% (1.32)% (1.23)% (1.64)% (2.50)%
====== ====== ======= ======= ====== ======
Portfolio turnover rate ........................... 39.00% 68.93% 115.28% 137.38% 88.32% 72.11%
BANK LOANS
Amount outstanding at end of period
(000's omitted)................................... -- -- -- -- -- $ 366
Average amount of bank loans outstanding during
the period (monthly average) (000's omitted)...... -- -- -- -- $ 12 $ 456
Average number of shares outstanding during
the period (monthly average) (000's omitted)*..... -- -- -- -- 1,306 1,369
Average amount of debt per share during
the period........................................ -- -- -- -- $ 0.01 $ 0.33
</TABLE>
- ----------
# Unaudited.
+ Annualized.
* Based on average month-end shares outstanding.
** In the absence of the expense reimbursement, expenses would have been 4.17%
of average net assets for the year ended June 30, 1997.
(a) On March 15, 1996, the investment adviser changed and Matterhorn Asset
Management Corporation became the Fund's investment adviser.
See Notes to Financial Statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 1 - ORGANIZATION
The Matterhorn Growth Fund, Inc. (the "Fund") was incorporated in the state
of Maryland on May 2, 1980 and is registered under the Investment Company Act of
1940 as a non-diversified, open-end management investment company. The Fund's
objective is to seek long-term capital appreciation for shareholders.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION. Securities traded on an exchange or Nasdaq are
valued daily based upon their last sale price, or if there has been no
sale that day, at the mean between the last bid and asked prices, and
at the closing bid price for other securities traded in the
over-the-counter market. Short-term investments with less than 60 days
to maturity when acquired by the Fund are valued on an amortized cost
basis. All other securities are valued at fair value as determined in
good faith by the Board of Directors.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Securities
transactions are accounted for on the trade date and dividend income
is recorded on the ex-dividend date. Interest income is recorded on
the accrual basis. The method for determining the cost of securities
sold is specific identification.
It is the Fund's policy to take possession of securities as collateral
under repurchase agreements and to determine, on a daily basis, that
the value of such securities are sufficient to cover the value of the
repurchase agreements.
C. FEDERAL INCOME TAXES. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
shareholders. Therefore, no provision for federal income tax is
required.
D. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Distributions are determined in accordance with
income tax regulations which may differ from generally accepted
accounting principles.
E. USE OF ESTIMATES. The preparation of financial statements in
conformity with general accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
9
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
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NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
A. INVESTMENT ADVISORY AGREEMENTS. Pursuant to an Advisory Agreement with
Matterhorn Asset Management Corporation (the "Adviser"), the Adviser
receives a fee, payable monthly, at the annual rate of 1.00% of the
Fund's daily average net assets. The advisory fee paid to the Adviser
for the six months ended December 31, 1999 totaled $45,579.
The Fund is responsible for its own operating expenses, as defined.
B. DISTRIBUTION AGREEMENTS. Bainbridge Securities Inc. ("Bainbridge")
acts as distributor for shares of the Fund pursuant to a Distribution
Agreement. Bainbridge is an affiliate of the Adviser. On November 22,
1999, the Fund terminated its agreement with Cumberland Brokerage
Corporation, formerly a co-distributor.
C. DISTRIBUTION PLAN. The Fund has adopted a Distribution Plan in
accordance with Rule 12b-1 under the Investment Company Act of 1940.
The Plan provides that the Fund will pay Bainbridge an aggregate
distribution fee, payable monthly, at the annual rate of 0.25% of the
Fund's average daily net assets. The fee is paid to Bainbridge as
compensation for its services rendered.
D. ADMINISTRATION AGREEMENT. Pursuant to an administration agreement with
Investment Company Administration, L.L.C. ("Administrator"), the Fund
pays the Administrator a monthly fee for its services at the annual
rate of 0.10% of the Fund's average daily net assets subject to a
minimum annual fee of $40,000.
E. OTHER. The Fund pays each Director who is not an "interested person" a
$300 attendance fee and reimburses them for expenses incurred to
attend the meetings. Certain officers and Directors of the Fund are
also officers and/or Directors of the Adviser, Administrator and
Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the six months ended December 31, 1999, purchases and sales of
securities other than short-term securities aggregated $3,859,957 and $3,446,259
respectively.
10
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CHANGE IN CERTIFYING ACCOUNTANT
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On August 13, 1999, McGladrey & Pullen, LLP, resigned as independent
auditors of the Fund.
None of the reports of McGladrey & Pullen, LLP on the financial statements
of the Fund for either of the past two fiscal years contained an adverse opinion
or a disclaimer of opinion, or was qualified or modified as to uncertainty,
audit scope or accounting principles. During the Fund's two most recent fiscal
years and subsequent interim period preceding the resignation of McGladrey &
Pullen, LLP, there were no disagreements with McGladrey & Pullen, LLP on any
matter of accounting principle or practices, financial statement disclosure, or
auditing scope or procedure, with disagreements, if not resolved to the
satisfaction of McGladrey & Pullen, LLP would have caused it to make reference
to the subject matter of disagreement in connection with its report. None of the
reportable events listed in Item 304 (a) (1) (v) of Regulation S-K occurred with
respect to the Fund during the Fund's two most recent fiscal years and the
subsequent interim period preceding the resignation of McGladrey & Pullen, LLP.
On September 22, 1999, the Fund upon the recommendation of the Audit
Committee of the Board of Directors, engaged Tait, Weller & Baker as its
independent auditors.
During the Fund's two most recent fiscal years and the subsequent interim
period preceding the engagement of Tait, Weller & Baker, neither the Fund nor
anyone on its behalf consulted Tait, Weller & Baker regarding the application of
accounting principles to a specified completed or contemplated transaction or
the type of audit opinion that might be rendered on the Fund's financial
statements, and no written or oral advice concerning same was provided to the
Fund that was an important factor considered by the Fund in reaching a decision
as to any accounting, auditing or financial reporting issue.
11
<PAGE>
INVESTMENT ADVISER
Matterhorn Asset Management Corporation
301 Oxford Valley Road, Suite 802B
Yardley, Pennsylvania 19067
DISTRIBUTOR
Bainbridge Securities Inc.
301 Oxford Valley Road, Suite 801B
Yardley, Pennsylvania 19067
CUSTODIAN
Firstar Institutional Custody Services
425 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AGENT
American Data Services, Inc.
150 Motor Parkway, Suite 109
Happauge, New York 11788
1-800-637-3901
THIS REPORT IS INTENDED FOR SHAREHOLDERS OF THE FUND AND MAY NOT BE USED AS
SALES LITERATURE UNLESS PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
PAST PERFORMANCE RESULTS SHOWN IN THIS REPORT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE PERFORMANCE. SHARE PRICE AND RETURNS WILL FLUCTUATE SO
THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
STATEMENTS AND OTHER INFORMATION HEREIN ARE DATED AND ARE SUBJECT TO CHANGE.
