-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bim+0kXXLaOC15wuQQRJw0L8Gw55e8aK91KH2s3p/hJRx+SCEWvzb8nhn+0TUj2+ A39HVRvcn/DV8Is9wtXg2g== 0001003839-96-000013.txt : 19960928 0001003839-96-000013.hdr.sgml : 19960928 ACCESSION NUMBER: 0001003839-96-000013 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19960821 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATTHEW 25 FUND INC CENTRAL INDEX KEY: 0001003839 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 232820705 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-65411 FILM NUMBER: 96618786 BUSINESS ADDRESS: STREET 1: 1375 ANTHONY WAYNE DR CITY: WAYNE STATE: PA ZIP: 19087 BUSINESS PHONE: 6106886839 485APOS 1 UNITED STATES Securities and Exchange Commission Washington, DC. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X Post-Effective Amendment No. 2 X and THE INVESTMENT COMPANY ACT OF 1940 X Amendment No. 3 Matthew 25 Fund, Inc. (Exact Name of Registrant as Specified in Charter) 605 Cloverly Avenue Jenkintown, PA 19046 (Address of Principal Executive Offices) 215-884-4458 (Registrants Telephone Number) Mark Mulholland 605 Cloverly Avenue Jenkintown, PA 19046 (Name and Address of Agent for Service) Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Amendment. It is proposed that this filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [x] 60 days after filing pursuant to paragraph (a) [ ] on (date) pursuant to paragraph (a) of rule 485 No additional shares are being registered at this time. Cross Reference Sheet INFORMATION REQUIRED CAPTIONS IN FILING Part A: IN A PROSPECTUS Item 1. Cover Page Cover Page Item 2. Synopsis Fund Expenses Item 3. Condensed Financial Information Condensed Financial Information Item 4. General Description of Registrant The Fund Item 5. Management of the Fund Management of the Fund Item 6. Capital Stock and other Securities Capitalization Item 7. Purchase of Securities being Offered Purchase of Shares - Reinvestment Item 8. Redemption or Repurchase Redemption of Shares Item 9. Legal Proceedings Litigation Part B: STATEMENT OF ADDITIONAL INFORMATION Item 10. Cover Page Cover Page Item 11. Table of Contents Table of Contents Item 12. General Information and History The Fund Item 13. Investment Objectives and Policies Objectives and Policies Item 14. Management of the Registrant Officers & Directors of the Fund Item 15. Control Persons & Principal Holders Not Applicable of Securities Item 16. Investment Advisory and Other Ser- Investment Adviser vices Item 17. Brokerage Allocation Brokerage Item 18. Capital Stock & Other Securities Capitalization Item 19. Purchase, Redemption & Pricing of Purchase of Shares Securities Being Offered Item 19. Purchase, Redemption & Pricing of Redemption of Shares Securities Being Offered Item 19. Purchase, Redemption & Pricing of Pricing of Shares Securities Being Offered Item 20. Tax Status Tax Status Item 21. Underwriters Not Applicable Item 22. Calculation of Yield Quotations of Not Applicable Money Market Funds Item 23. Financial Statements Financial Statements Part C: OTHER INFORMATION Item 24. Financial Statements & Exhibits Financial Statements & Exhibits Item 25. Persons Controlled by/or under Control Persons Common Control Item 26. Number of Holders of Securities Number of Shareholders Item 27. Indemnifications Indemnification Item 28. Business & Other Connections of Activities of Investment Advisor Advisor Item 29 Principal Underwriters Principal Underwriter Item 30. Location of Accounts & Records Location of Accounts & Records Item 31. Management Services Not Applicable Item 32. Undertakings Not Applicable MATTHEW 25 FUND, INC. Jenkintown, PA 19046 215-884-4458 PROSPECTUS August 15, 1996 The Fund & Investment Objective Matthew 25 Fund, Inc. ("the Fund") is an open-end non-diversified management in- vestment company that seeks capital appreciation through investment in the com- mon stocks and/or securities convertible into common stocks. Criteria used by the Adviser will be based on the Business Economics, Management Quality, Finan- cial Condition and Stock Price of each business. Current income from these in- vestments will be a subordinate consideration. Fund Share Purchase Capital shares of the Fund may only be purchased directly from the Fund at net asset value as next determined after receipt of order. The Board of Directors has established $1,000 as the minimum initial purchase and $100 for subsequent purchases. Additional Information This Prospectus, which should be held for future reference, is designed to set forth concisely the information that you should know before you invest. A "Statement of Additional Information" containing more information about the Fund has been filed with the Securities and Exchange Commission. Such Statement is dated August 15, 1996 and has been incorporated by reference into the Prospec- tus. A copy of the Statement may be obtained without charge, by writing to the Fund or by calling the telephone number shown above. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 FUND EXPENSES The following illustrates all expenses and fees that a shareholder of the Mat- thew 25 Fund will incur. The expenses and fees set forth below are for the 1995 fiscal year. Shareholder Transaction Expenses: Sales Load Imposed on Purchases None Sales Load Imposed on Reinvested Dividends None Redemption Fees None Exchange Fees None IRA Trustee Fees None Annualized Fund Operating Expenses: Management Fees 1.0% 12b-1 Fees None Other Expenses 1.0% Total Operating Expenses 2.0% The following table is given to assist investors in understanding the various costs and expenses that an investor in the Fund will bear directly and indirect- ly. It illustrates the expenses paid on a $1,000 investment over various time periods assuming a) 5% annual rate of return and b) redemption at the end of each time period. This example should not be considered a representation of past or future expenses or performance. Actual expenses may be greater or less than those shown. 1 Year 3 Years 5 Years 10 Years $20 $63 $111 $252 THE FUND MATTHEW 25 FUND, INC. (also referred to as the "Fund") was incorporated in Penn- sylvania on August 28, 1995. The Fund's registered office is in Jenkintown, PA: mail may be addressed to 605 Cloverly Avenue Jenkintown, PA 19046. OBJECTIVES AND POLICIES Objective: Matthew 25 Fund, Inc. ("the Fund") is an open-end, non-diversified management investment company that seeks capital appreciation through investment in the common stocks and/or securities convertible into common stocks. Crite- ria used by the Adviser will be based on the Business Economics, Management Qua- lity, Financial Condition and Stock Price of each business. Current income from these investments will be a subordinate consideration. Risks associated with the Fund's performance will be those due to broad market declines and business risks from difficulties which occur to particular compan- ies while in the Fund's portfolio. It must be realized, as is true of almost all securities, there can be no assurance that the Fund will obtain its ongoing objective of capital appreciation. Security Selection Criteria: Criteria used by the Adviser in recommending pur- chases of securities will be based on the Business Economics, Management Quali- ty, Financial Condition and Security Price of each business. 2 Portfolio Turnover Policy: The Fund does not propose to purchase securities for short term trading in the ordinary course of operations. Accordingly, it is ex- pected that the annual turnover rate will not exceed 50%, wherein turnover is computed by dividing the lesser of the Fund's total purchases or sales of secu- rities within the period by the average monthly portfolio value of the Fund dur- ing such period. There may be times when management deems it advisable to sub- stantially alter the composition of the portfolio, in which event, the portfolio turnover rate might substantially exceed 50%; this would only result from spe- cial circumstances and not from the Fund's normal operations. Non-diversification Policy: The Fund is classified as being non-diversified which means that it may invest a relatively high percentage of its assets in the obligations of a limited number of issues. The Fund, therefore, may be more susceptible than a more widely diversified fund to any single economic, politi- cal, or regulatory occurrence. The policy of the Fund, in the hope of achiev- ing its objective as stated above, is, therefore, one of selective investments rather than broad diversification. The Fund seeks only enough diversification for adequate representation among what it considers to be the best performing securities and to maintain its federal non-taxable status under Sub-Chapter M of the Internal Revenue Code (see next paragraph). TAX STATUS Under provisions of Sub-Chapter M of the Internal Revenue Code of 1954 as amend- ed, the Fund, by paying out substantially all of its investment income and rea- lized capital gains, has been and intends to continue to be relieved of federal income tax on the amounts distributed to shareholders. In order to qualify as a "regulated investment company" under Sub-Chapter M, at least 90% of the Fund's income must be derived from dividends, interest and gains from securities trans- actions, no more than 30% of the Fund's profits may be derived from sales of se- curities held less than three months, and no more than 50% of the Fund's assets may be in security holdings that exceed 5% of the total assets of the Fund at the time of purchase. Distribution of any net long term capital gains realized by the Fund in 1996 will be taxable to the shareholder as long term capital gains, regardless of the length of time Fund shares have been held by the investor. All income realized by the Fund, including short term capital gains, will be taxable to the share- holder as ordinary income. Dividends from net income will be made annually or more frequently at the discretion of the Fund's Board of Directors. Dividends received shortly after purchase of shares by an investor will have the effect of reducing the per share net asset value of his shares by the amount of such divi- dends or distributions and, although in effect a return of capital, are subject to federal income taxes. The Fund is required by federal law to withhold 31% of reportable payments (which may include dividends, capital gains, distributions and redemptions) paid to shareholders who have not complied with IRS regulations. In order to avoid this withholding requirement, you must certify on a W-9 tax form supplied by the Fund that your Social Security or Taxpayer Identification Number provided is correct and that you are not currently subject to back-up withholding, or that you are exempt from back-up withholding. INVESTMENT RESTRICTIONS By-laws of the Fund provide the following fundamental investment restrictions; The Fund may not, except by the approval of a majority of the outstanding shares; i.e. a) 67% or more of the voting securities present at a duly called 3 meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy, or b) of more than 50% of the outstanding voting securities, whichever is less: (a) Act as underwriter for securities of other issuers except insofar as the Fund may be deemed an underwriter in selling its own portfolio securities. (b) Borrow money or purchase securities on margin, but may obtain such short term credit as may be necessary for clearance of purchases and sales of se- curities for temporary or emergency purposes in an amount not exceeding 5% of the value of its total assets. (c) Sell securities short. (d) Invest in securities of other investment companies except as part of a mer- ger, consolidation , or purchase of assets approved by the Fund's share- holders. (e) Invest over 25% of its assets at the time of purchase in any one industry. (f) Make investments in commodities, commodity contracts or real estate although the Fund may purchase and sell securities of companies which deal in real estate or interests therein. (g) Make loans. The purchase of a portion of a readily marketable issue of pub- licly distributed bonds, debentures or other debt securities will not be considered the making of a loan. (h) Acquire more than 10% of the securities of any class of another issuer, treating all preferred securities of an issuer as a single class and all debt securities as a single class, or acquire more than 10% of the voting securities of another issuer. (i) Invest in companies for the purpose of acquiring control. (j) The Fund may not purchase or retain securities of any issuer if those offi- cers and directors of the Fund or its Investment Adviser owning individual- ly more than 1/2 of 1% of any class of security or collectively own more than 5% of such class of securities of such issuer. (k) Pledge, mortgage or hypothecate any of its assets. (l) Invest in securities which may be subject to registration under the Securi- ties Act of 1933 prior to sale to the public or which are not at the time of purchase readily salable. (m) Invest more than 5% of the total Fund assets, taken at market value at the time of purchase, in securities of companies with less than three years' continuous operation, including the operations of any predecessor. (n) Issue senior securities. INVESTMENT ADVISER The Matthew 25 Management Corp. is a Pennsylvania corporation that acts as an Investment Adviser to the Fund. Mr. Mark Mulholland established the company in April 1995 and is the sole owner, director and officer of the Investment Adviser and president of the Fund. He has direct responsibility for day to day manage- ment of the Fund's portfolio registered with the Securities and Exchange Commis- sion. Mark Mulholland has a B.A. in Economics from Lafayette College and became an account executive who started his career with Advest Inc. on February 14, 1983. He moved to Paine Webber Inc. in 1988. He currently has built his prac- tice to manage over $80,000,000 in assets for about 800 clients. He reached a threshold where he desired to apply his expertise towards managing a public no- load mutual fund. He approached the management of the Valley Forge Fund, Inc. and solicited their support to this end. He wanted a Fund structured essentially identical to the Valley Forge Fund, Inc. except that he wished to place more em- phasis in the pursuit of long-term capital gains. The Matthew 25 Fund, Inc. was formed by Bernard Klawans, for Mark Mulholland. Mr. Klawans used Valley Forge Fund's Officers, Board of Directors, Investment Adviser, with the intent to have Mr. Mulholland form his own Investment Adviser concern and select his own Board of Directors when he was prepared to leave Paine Webber and operate the Fund. On 4 July 8, 1996 the first meeting of shareholders was held to permit Mark Mulhol- land's Investment Advisory company to begin its duties as Adviser to the Matthew 25 Fund, Inc. and installed a new Board of Directors to oversee operations with the complete cooperation and support of all Valley Forge Fund associated person- nel. Mr. Klawans has received $500 for his past services plus support services through the Fund's first year of operation. The Valley Forge Management Corp. received its contractual management fee and the Valley Forge Fund Directors, with the exception of Mr. Klawans, received $99 for each Matthew 25 Fund, Inc. Directors meeting they attended from either the Matthew 25 Fund or the Matthew 25 Management Corp. There have been no other financial arrangements or benefits including services and / or "soft dollars" since the start of the filing process in January 1996. This new Advisory Agreement will continue on a year to year basis provided that approval is voted at least annually by specific approval of the Board of Direc- tors of the Fund or by vote of the holders of a majority of the outstanding vot- ing securities of the Fund, but, in either event, it must also be approved by a majority of the directors of the Fund who are neither parties to the agreement nor interested persons as defined in the Investment Company Act of 1940 at a meeting called for the purpose of voting on such approval. Under the Agreement, the Matthew 25 Management Corp., the Adviser, will have full discretion and re- sponsibility for the investment decisions in the Fund. The Agreement may be terminated at any time, without the payment of any penalty, by the Board of Di- rectors or by vote of a majority of the outstanding voting securities of the Fund on not more than 60 days written notice to the Matthew 25 Management Corp. In the event of its assignment, the Agreement will terminate automatically. Ul- timate decisions as to the investment policy and as to individual purchases and sales of securities are made by the Fund's officers and directors. For these services the Fund has agreed to pay to Matthew 25 Management Corp. a fee of 1% per year on the net assets of the Fund. All fees are computed on the average daily closing net asset value of the Fund and are payable monthly. The fee is higher than the fee paid by most other funds. Not withstanding, the Investment Adviser would forgo sufficient fees to hold the total expenses of the Fund to less than 2.0% of the first $10 million in averaged assets and 1.5% of the next $20 million. These ratios were selected by the Board of Directors because they are believed to meet the most restrictive state requirements. Pursuant to its contract with the Fund, the Investment Adviser is required to render research, statistical, and Advisory services to the Fund; to make speci- fic recommendations based on the Fund's investment requirements; and to pay the salaries of those of the Funds employees who may be officers or directors or em- ployees of the Investment Adviser. Fees, if any, of the custodian, registrar transfer agents shall be paid by the Fund. The Fund pays all other expenses, including fees and expenses of directors not affiliated with the Adviser; legal and accounting fees; interest, taxes and brokerage commissions, recordkeeping and the expense of operating its offices. The Investment Adviser has paid the initial organizational costs of the Fund and will reimburse the Fund for any and all losses incurred because of purchase reneges. OFFICERS AND DIRECTORS OF THE FUND Officers and Directors of the Fund, together with their addresses, principal oc- cupations during the past five years and their ownership of the Fund are as fol- lows: 5 Principal Occupation Fund Shares Percent Name Age Past Five Years Owned 6/3/96 of class Steven D. Buck 36 Partner Stevens & Lee 0 0.00% Esq. Reading, PA Dr.Philip J. Cinelli 36 Physician Family Practice 0 0.00% D.O. Bangor, PA Samuel B. Clement 38 Stockbroker Legg Mason 0 0.00% Bryn Mawr, PA Linda Guendelsberger 36 Partner Fishbein & Co P.C. 0 0.00% CPA Elkins Park, PA Mark Mulholland* 36 Stockbroker Paine Webber 42,516.150** 99.78% Jenkintown, PA Scott A. Satell 34 Partner BPI 0 0.00% Manufacture's Rep Bala Cynwyd, PA * Director of the Fund who would be considered "interested persons" as defined by the Investment Company Act of 1940. Mark Mulholland will be an interested person insofar as he is President and owner of the Fund's Investment Adviser. ** Mark Mulholland owns his stock jointly with his wife Ann Mulholland. REMUNERATION OF DIRECTORS AND OFFICERS The Fund does not intend to pay fees to the directors until such time that the Fund's assets exceed $2,500,000.00, although the Fund will reimburse directors for their expenses.There has been no payments made to this Board as of the date of this filing. The previous Directors had received fees totaling $1,881, as of July 8, 1996, of this amount $693 was paid by the Fund and $1,188 was paid by Matthew 25 Management Corp. The Fund intends to pay Independent Directors $50 plus expenses per meeting, as long as the Fund's Assets exceed the threshold. Mark Mulholland will receive benefit from the investment advisory fees payable to Matthew 25 Management Corp. and therefore will not be eligible to receive di- rectors fees as long as his firm acts as the Investment Adviser. CAPITALIZATION Description of Common Stock: The authorized capitalization of the Fund consists of 1,500,000 shares of common stock of $0.01 par value per share. Each share has equal dividend, distribution and liquidation rights. There are no conver- sion or pre-emptive rights applicable to any shares of the Fund. All shares issued are fully paid and non-accessible. Voting Rights: Each holder of common stocks has one vote for each share held and fractional shares will have an equivalent fractional vote. Voting rights are non-cumulative, which means that the holders of a majority of shares of com- mon stock can elect all directors of the Fund if they so choose, and the holders of the remaining shares will not be able to elect any person as a director. Major Shareholders: Mark and Ann M. Mulholland as of the date of this Prospec- tus own 99.78 % of the outstanding shares in a Joint Tenancy account. PURCHASE OF SHARES AND REINVESTMENTS The offering price of the shares offered by the Fund is at the Net Asset Value per share ( "NAV" ) next determined after receipt of the purchase order by the 6 Fund. The NAV of the Fund's shares is determined as of the close of business of the New York Stock Exchange on each business day of which that Exchange is open. The price is determined by dividing the value of its securities, plus any cash and other assets less all liabilities, excluding capital surplus, by the number of shares outstanding. For further explanation on how NAV is computed see de- scription under the caption "PRICING OF SHARES" in this Prospectus. The Fund reserves the right, at its sole discretion, to terminate the offering of its shares made by this Prospectus at any time and to reject purchase applications when, in the judgment of management such termination or rejection is in the best interests of the Fund. Initial Investments: Initial purchase of shares of the Fund may be made only by application submitted to the Fund. For the convenience of investors, a Share Purchase Application form is provided with this Prospectus. The minimum initial purchase of shares is $1,000 which is due and payable 3 business days after the purchase date. Less may be accepted under especial circumstances. The Fund will be initially registered in Pennsylvania and therefore restricted to Penn- sylvania residents at the time of purchase. There will be no solicitation of out of the state of Pennsylvania potential shareholders until registration under the Blue Sky laws of the state of residence have been met. Subsequent Purchases: Subsequent purchases may be made by mail or by phone and are due and payable three business days after the purchase date. The minimum is $100, but less may be accepted under especial circumstances. Reinvestments: The Fund will automatically retain and reinvest dividends & cap- ital gains distributions and use same for the purchase of additional shares for the shareholder at net asset value as of the close of business on the distribu- tion date. A Shareholder may at any time by letter or forms supplied by the Fund direct the Fund to pay dividends and/or capital gains distributions, if any, to such shareholder in cash. Fractional Shares: Shares will be issued to three decimal places as purchased from the fund. The fund will maintain an account for each shareholder of shares for which no certificates have been issued. RETIREMENT PLANS Individual Retirement Account: Persons who earn compensation and are not active participants (and who do not have a spouse who is an active participant) in an employee maintained retirement plan may establish Individual Retirement Accounts (IRA) using Fund shares. Annual contributions, limited to the lesser of $2,000 or 100% of compensation, are tax deductible from gross income. This IRA deduc- tion is also retained for individual taxpayers and married couples with adjusted gross incomes within certain specified limits. All individuals may make nonde- ductible IRA contributions to separate accounts to the extent that they are not eligible for a deductible contribution. Earnings under the IRA are reinvested and are tax-deferred until withdrawals be- gin. The maximum annual contribution may be increased to $2,250 if you have a spouse who earns no compensation during the taxable year. A separate and inde- pendent Spousal IRA must be maintained. You may begin to make non-penalty withdrawals as early as age 59 1/2 or as late as age 70 1/2. In the event of death or disability, withdrawals may be made be- fore age 59 1/2 without penalty. 7 A Disclosure Statement is required by U.S. Treasury Regulations. This Statement describes the general provisions of the IRA and is forwarded to all prospective IRA's. There is no charge to open and maintain a Matthew 25 Fund IRA. This policy may be changed by the Board of Directors if they deem it to be in the best interests of all shareholders. All IRA's may be revoked within 7 days of their establishment with no penalty. PRICING OF SHARES The Net Asset Value of the Fund's shares is determined as of the close of busi- ness of the New York Stock Exchange on each business day of which that Exchange is open (presently 4:00 p.m.) Monday through Friday exclusive of Washington's Birthday, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving, Christ- mas & New Year's Day. The price is determined by dividing the value of its se- curities, plus any cash and other assets less all liabilities, excluding capital surplus, by the number of shares outstanding. The market value of securities listed on a national exchange is determined to be the last recent sales price on such exchange. Listed securities that have not recently traded and over-the- counter securities are valued at the last bid price in such market. Short term paper (debt obligations that mature in less than 60 days) are valued at amortized cost which approximates market value. Other assets are valued at fair market value. Other assets are valued at fair value as determined in good faith by the Fund's officers. REDEMPTION OF SHARES The Fund will redeem all or any part of the shares of any shareholder who ten- ders a request for redemption (if certificates have not been issued) or certifi- cates with respect to shares for which certificates have been issued. In either case, proper endorsements guaranteed either by a national bank or a member firm of the New York Stock Exchange will be required unless the shareholder is known to management. The redemption price is the net asset value per share next de- termined after notice is received by the Fund for redemption of shares. The proceeds received by the shareholder may be more or less than his cost of such shares, depending upon the net asset value per share at the time of redemption and the difference should be treated by the shareholder as a capital gain or loss for federal income tax purposes. Payment by the Fund will ordinarily be made within three business days after tender. The Fund may suspend the right of redemption or postpone the date of payment if: The New York Stock Exchange is closed for other than customary week- end or holiday closings, or when trading on the New York Stock Exchange is re- stricted as determined by the Securities and Exchange Commission or when the Securities and Exchange Commission has determined that an emergency exists, mak- ing disposal of fund securities or valuation of net assets not reasonably prac- ticable. The Fund intends to make payments in cash, however, the Fund reserves the right to make payments in kind. BROKERAGE The Fund requires all brokers to effect transactions of portfolio securities in such a manner as to get prompt execution of the orders at the most favorable price. The Fund will place all orders for purchases and sales of its portfolio securities through the Fund's President who is answerable to the Fund's Board of Directors. In accordance with Rule 17e-1 of the Investment Company Act of 1940, if the Fund's President is also a registered representative of a New York Stock Exchange or NASDAQ Member Firm, he may place orders through his concern at as low commission rates as possible but never to exceed rates that are higher than 8 would be available through any other national brokerage firm. The Directors will review each transaction when a commission is generated at a brokerage firm which is affiliated with the Fund's President or Adviser and determine if the commission paid appears reasonable. In the event that the Board determines that any or all of the commissions paid are higher than what they determine as rea- sonable, then the Board will reduce the fees paid to the Adviser by an amount e- qual to the commissions deemed unreasonable. This review must be done at least quarterly. The Fund's President may select other brokers who in addition to meeting the primary requirements of execution and price, have furnished statist- ical or other factual information and services, which, in the opinion of manage- ment, are helpful or necessary to the Fund's normal operations. No effort will be made in any given circumstances to determine the value of these services or the amount they might have reduced Adviser expenses. Other than as set forth above, the Fund has no fixed policy, formula, method or criteria which it uses in allocating brokerage business to brokers furnishing these materials and services. The Board of Directors will evaluate and review the reasonableness of brokerage commissions paid to brokers not affiliated with the President or Adviser at least semiannually. MANAGEMENT OF THE FUND Shareholders will meet annually to elect all members of the Board of Directors, select an independent auditor, and vote on any other items deemed pertinent by the incumbent Board. The Fund intends to hold Annual Meetings within 90 days of the Fund's Fiscal Year End, December 31st. Actual times and places will be an- nounced. The Directors are in turn responsible for determining that the Fund operates in accordance with its stated objectives, policies, and investment re- strictions. The Board appoints officers to run the Fund and selects an Invest- ment Adviser to provide investment advice (See Investment Adviser, pg. 4). It meets four times a year to review Fund progress and status. In addition, a non- interested Director performs an independent audit whenever requested by the Board. CUSTODIAN & TRANSFER AGENT The Fund acts as its own custodian and transfer agent. REPORTS TO SHAREHOLDERS The Fund sends all shareholders annual reports containing certified financial statements and other periodic reports, at least semiannually, containing unau- dited financial statements. AUDITORS Landsburg, Platt, Reschiatore & Dalton, Certified Public Accountants, Philadel- phia, PA. have been selected as the independent accountant and auditor of the Fund. Landsburg, Platt, Reschiatore & Dalton has no direct or indirect financial interest in the Fund or the Adviser. LITIGATION As of the date of this prospectus, there was no pending or threatened litigation involving the Fund in any capacity whatsoever. 9 ADDITIONAL INFORMATION This Prospectus omits certain information contained in the registration state- ment on file with the Securities & Exchange Commission. The registration state- ment may be inspected without charge at the principal office of the Commission in Washington, D.C. and copies of all or part thereof may be obtained upon pay- ment of the fee prescribed by the Commission. Shareholders may also direct in- quiries to the Fund by phone or at the address given on pg 1 of this Prospectus. 10 SHARE PURCHASE APPLICATION A) Please fill out one of the following four types of accounts: 1) Individual Accounts **** ______________________ __ ____________________ ______________________ First Name MI Last Name Social Security Number 2) Joint Accounts **** ______________________ __ ____________________ ______________________ First Name MI Last Name Social Security Number ______________________ __ _____________________ _______________________ First Name MI Last Name Social Security Number 3) Custodial Accounts **** ______________________ __ ____________________ Custodian's First Name MI Custodian's Last Name ______________________ __ ____________________ ______________________ Minor's First Name MI Minor's Last Name Minor's Social Security Number 4) All Other Accounts **** ___________________________________________ __________________________ Name of account. Tax Identification Number ___________________________________________ (Use this second line if you need it) B) Biographical and other information about the new account: Full Address: Number & Street ___________________________________________________ City__________________________ St____ Zip________________________ Citizen of____________________ Home Phone_____________ Bus Phone______________ Dividend Direction: Reinvest all distributions_________ Pay in Cash__________ Signature of Owner, Trustee or Custodian: ___________________________________ Signature of Joint Owner (if joint account): ___________________________________ Please make check payable to: MATTHEW 25 FUND, INC. Amount of Investment Attached $______________ (Minimum initial purchase $1,000) All applications are accepted in Pennsylvania and under Pennsylvania laws. 11 FORM W-9 (March 1994) Department of Treasury Internal Revenue Service PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER Name as shown on account (if joint account, give name corresponding to TIN) _________________________________________________ Street Address _________________________________________________ City, State & Zip Code _________________________________________________ Part 1.- Taxpayer Identification Number Part 2. - Backup Withholding Social Security Number ______________________ Check if you are NOT subject to backup withholding under or the provisions of section 3406(a) (1) (C) of the In- Employer ID Number ______________________ ternal Revenue Code ________ Certification - Under the penalty of perjury, I certify that the information provided on this form is true, correct and complete. Signature ___________________________________ Date _______________________ 12 INVESTMENT ADVISER PROSPECTUS VALLEY FORGE MANAGEMENT CORP. MATTHEW 25 FUND, INC. 1375 Anthony Wayne Drive PO Box 262 Wayne, Pa. 19087 Wayne, Pa. 19481 610-688-6839 August 15, 1996 TABLE OF CONTENTS Fund Expenses .................... 2 The Fund seeks capital appreciation Condensed Financial Information .. 2 through investment in common stocks The Fund ......................... 2 & securities convertible into com- Objective & Policies mon stocks in the pursuit of capi- Objective ...................... 2 tal gains. Current income from in- Investment Policies ............ 2 vestments is a subordinate consi- Portfolio Turnover Policy ...... 3 deration. Nondiversification Policy ...... 3 Tax Status ....................... 3 Investment Restrictions .......... 4 Investment Adviser ............... 4 Officers & Directors of the Fund . 5 Remuneration of Officers/Directors 6 Capitalization Description of Common Stock .... 6 Voting Rights .................. 6 Purchase of Shares - Reinvestment Initial Investments ............ 7 Subsequent Purchases ........... 7 Reinvestments .................. 7 Whole Shares ................... 7 Retirement Plans IRA ............................ 7 Pricing of Shares ................ 8 Redemption of Shares ............. 8 Brokerage ........................ 8 Management of the Fund ........... 9 Custodian & Transfer Agent ....... 9 Reports to Shareholders .......... 9 Auditors ......................... 9 Litigation ....................... 9 Additional Information ...........10 Share Purchase Application ...... 11 W-9 ............................. 12 MATTHEW 25 FUND INC. 605 Cloverly Ave. JENKINTOWN, PA 19046 215-884-4458 Part B STATEMENT OF ADDITIONAL INFORMATION AUGUST 15, 1996 This Statement is not a prospectus, but should be read in conjunction with the Fund's current prospectus dated August 15, 1996. To obtain the Prospectus, please write the Fund or call either of the telephone numbers that are shown above. TABLE OF CONTENTS The Fund ..........................2 Objectives & Policies .............2 Objectives ...................2 Security Selection Criteria ..2 Portfolio Turnover Policy ....2 Nondiversification Policy ....2 Tax Status ........................2 Investment Restrictions ...........3 Investment Adviser ................4 Officers and Directors of the Fund.5 Purchase of Shares - Reinvestment .6 Initial Investments .......6 Subsequent Purchases ......6 Reinvestments .............6 Fractional Shares..........7 Retirement Plans ..................7 IRA .......................7 Redemption of Shares ..............7 Brokerage .........................8 Auditor's Report ..................9 Statement of Assets & Liabilities.10 Schedule of Investments...........10 Statements of Operations..........11 Statement of Changes in Assets....11 Notes to Financial Statements ....12 Financial Highlights & Ratios.....14 1 THE FUND MATTHEW 25 FUND, INC. (also referred to as the "Fund") was incorporated in Penn- sylvania on August 28, 1995. The Fund's registered office is in Jenkintown, PA: mail may be addressed to 605 Cloverly Ave. Jenkintown, PA 19046. OBJECTIVES AND POLICIES Objective: Matthew 25 Fund, Inc. ("the Fund") is an open-end, non-diversified management investment company that seeks capital appreciation through investment in the common stocks and/or securities convertible into common stocks. Crite- ria used by the Adviser will be based on the Business Economics, Management Qua- lity, Financial Condition and Stock Price of each business. Current income from these investments will be a subordinate consideration. Risks associated with the Fund's performance will be those due to broad market declines and business risks from difficulties which occur to particular compan- ies while in the Fund's portfolio. It must be realized, as is true of almost all securities, there can be no assurance that the Fund will obtain its ongoing objective of capital appreciation. Security Selection Criteria: Criteria used by the Adviser in recommending pur- chases of securities will be based on the Business Economics, Management Quali- ty, Financial Condition and Security Price of each business. Portfolio Turnover Policy: The Fund does not propose to purchase securities for short term trading in the ordinary course of operations. Accordingly, it is ex- pected that the annual turnover rate will not exceed 50%, wherein turnover is computed by dividing the lesser of the Funds total purchases or sales of securi- ties within the period of the average monthly portfolio value of the Fund during such period. There may be times when management deems it advisable to substan- tially alter the composition of the portfolio, in which event, the portfolio turnover rate might substantially exceed 50%; this would only result from spe- cial circumstances and not from the Fund's normal operations. Non-diversification Policy: The Fund is classified as being non-diversified which means that it may invest a relatively high percentage of its assets in the obligations of a limited number of issuers. The Fund, therefore, may be more susceptible than a more widely diversified fund to any single, economic, politi- cal, or regulatory occurrence. The policy of the Fund, in the hope of achieving its objective as stated above, is, therefore, one of selective investments rath- er than broad diversification. The Fund seeks only enough diversification for adequate representation among what it considers to be best performing securities and to maintain its federal non-taxable status under Sub-Chapter M of the Inter- nal Revenue Code (see next paragraph). TAX STATUS Under the provisions of Sub-Chapter M of the Internal Revenue Code of 1954 as amended, the Fund, intends to pay out substantially all of its investment income and realized capital gains, and intends to be relieved of federal income tax on the amounts distributed to shareholders. In order to qualify as a "regulated investment company" under Sub-Chapter M, at least 90% of the Fund's income must be derived from dividends, interest, and gains from securities transactions, no more than 30% of the Fund's profits may be derived from securities held less than three months, and no more than 50% of the Fund assets may be held in secur- 2 ity holdings that exceed 5% of the total assets of the Fund at time of purchase. Distribution of any net long term capital gains realized by the fund will be taxable to the shareholder as long term capital gains, regardless of the length of time Fund shares have been held by the investor. All income realized by the Fund including short term capital gains, will be taxable to the shareholder as ordinary income. Dividends from net income will be made annually or more fre- quently at the discretion of the Fund's Board of Directors. Dividends received shortly after purchase of shares by an investor will have the effect of reducing the per share net asset value of his shares by the amount of such dividends or distributions and, although in effect a return of capital, are subject to feder- al income taxes. The Fund is required by Federal Law to withhold 31% of reportable payments (which may include dividends, capital gains, distributions and redemption's) paid to shareholders who have not complied with IRS regulations. In order to avoid this withholding requirement, you must certify on a W-9 tax form supplied by the Fund that your Social Security or Taxpayer Identification Number provided is correct and that your are not subject to back-up withholding, or that you are exempt from back-up withholding. INVESTMENT RESTRICTIONS The by-laws of the Fund provide the following fundamental investment restric- tions; the Fund may not, except by approval of a majority of outstanding shares; i.e. (A) 67% or more of the voting securities present at a duly called meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy, or (B) of more than 50% of the outstanding voting se- curities, whichever is less: (a) Act as underwriter for securities of other issuers except insofar as the Fund may be deemed an underwriter in disposing of its own portfolio securi- ties. (b) Borrow money or purchase securities on margin, but may obtain such short term credit as may be necessary for clearance of purchases and sales of se- curities for temporary or emergency purposes in an amount not exceeding 5% of the value of its total assets. (c) Sell securities short. (d) Invest in securities of other investment companies except as part of a mer- ger, consolidation , or purchase of assets approved by the Fund's share- holders. (e) Invest over 25% of its assets at the time of purchase in any one industry. (f) Make investments in commodities, commodity contracts or real estate although the Fund may purchase and sell securities of companies which deal in real estate or interests therein. (g) Make loans. The purchase of a portion of a readily marketable issue of pub- licly distributed bonds, debentures or other debt securities will not be considered the making of a loan. (h) Acquire more than 10% of the securities of any class of another issuer, treating all preferred securities of an issuer as a single class and all debt securities as a single class, or acquire more than 10% of the voting securities of another issuer. (i) Invest in companies for the purpose of acquiring control. (j) The Fund may not purchase or retain securities of any issuer if those offi- cers and directors of the Fund or its Investment Adviser owning individual- ly more than 1/2 of 1% of any class of security or collectively own more than 5% of such class of securities of such issuer. (k) Pledge, mortgage or hypothecate any of its assets. (l) Invest in securities which may be subject to registration under the Securi- 3 ties Act of 1933 prior to sale to the public or which are not at the time of purchase readily salable. (m) Invest more than 5% of the total Fund assets, taken at market value at the time of purchase, in securities of companies with less than three years' continuous operation, including the operations of any predecessor. (n) Issue senior securities. INVESTMENT ADVISER The Matthew 25 Management Corp. is a Pennsylvania corporation that acts as an Investment Adviser to the Fund. Mr. Mark Mulholland established the company in April 1995 and is the sole owner, director and officer of the Investment Adviser and president of the Fund. He has direct responsibility for day to day manage- ment of the Fund's portfolio registered with the Securities and Exchange Commis- sion. Mark Mulholland has a B.A. in Economics from Lafayette College and became an account executive who started his career with Advest Inc. on February 14, 1983. He moved to Paine Webber Inc. in 1988. He currently has built his prac- tice to manage over $80,000,000 in assets for about 800 clients. He reached a threshold where he desired to apply his expertise towards managing a public no- load mutual fund. He approached the management of the Valley Forge Fund, Inc. and solicited their support to this end. He wanted a Fund structured essentially identical to the Valley Forge Fund, Inc. except that he wished to place more em- phasis in the pursuit of long-term capital gains. The Matthew 25 Fund, Inc. was formed by Bernard Klawans, for Mark Mulholland. Mr. Klawans used Valley Forge Fund's Officers, Board of Directors, Investment Adviser, with the intent to have Mr. Mulholland form his own Investment Adviser concern and select his own Board of Directors when he was prepared to leave Paine Webber and operate the Fund. On July 8, 1996 the first meeting of shareholders was held to permit Mark Mulhol- land's Investment Advisory company to begin its duties as Adviser to the Matthew 25 Fund, Inc. and installed a new Board of Directors to oversee operations with the complete cooperation and support of all Valley Forge Fund associated person- nel. Mr. Klawans has received $500 for his past services plus support services through the Fund's first year of operation. The Valley Forge Management Corp. received its contractural management fee and the Valley Forge Fund Directors, with the exception of Mr. Klawans, received $99 for each Matthew 25 Fund, Inc. Directors meeting they attended from either the Matthew 25 Fund or the Matthew 25 Management Corp. There have been no other financial arrangements or benefits including services and/or "soft dollars" since the start of the filing process in January 1996. This new Advisory Agreement will continue on a year to year basis provided that approval is voted at least annually by specific approval of the Board of Direc- tors of the Fund or by vote of the holders of a majority of the outstanding vot- ing securities of the Fund, but, in either event, it must also be approved by a majority of the directors of the Fund who are neither parties to the agreement nor interested persons as defined in the Investment Company Act of 1940 at a meeting called for the purpose of voting on such approval. Under the Agreement, the Matthew 25 Management Corp., the Adviser, will have full discretion and re- sponsibility for the investment decisions in the Fund. It will furnish invest- ment advice to the Officers of the Fund on the basis of a continuous review of the portfolio and to recommend to the Fund when and to what extent securities should be purchased or disposed. The Agreement may be terminated at any time, without the payment of any penalty, by the Board of Directors or by vote of a majority of the outstanding voting securities of the Fund on not more than 60 days written notice to the Matthew 25 Management Corp. In the event of its as- signment, the Agreement will terminate automatically. Ultimate decisions as to the investment policy and as to individual purchases and sales of securities are made by the Fund's officers and directors. For these services the Fund has a- greed to pay to Matthew 25 Management Corp. a fee of 1% per year on the net 4 assets of the Fund. All fees are computed on the average daily closing net as- set value of the Fund and are payable monthly. The fee is higher than the fee paid by most other funds. Not withstanding, the Investment Adviser would forgo sufficient fees to hold the total expenses of the Fund to less than 2.0% of the first 10 million in averaged assets and 1.5% of the next 20 million. These ra- tios were selected by the Board of Directors because they are believed to meet the most restrictive state requirements. Pursuant to its contract with the Fund, the Investment Adviser is required to render research, statistical, and Advisory services to the Fund; to make speci- fic recommendations based on the Fund's investment requirements; and to pay the salaries of those of the Funds employees who may be officers or directors or em- ployees of the Investment Adviser. Fees, if any, of the custodian, registrar transfer agents shall be paid by the Fund. The Fund pays all other expenses, including fees and expenses of directors not affiliated with the Adviser; legal and accounting fees; interest, taxes and brokerage commissions, recordkeeping and the expense of operating its offices. The Investment Adviser has paid the initial organizational costs of the Fund and will reimburse the Fund for any and all losses incurred because of purchase reneges. OFFICERS AND DIRECTORS OF THE FUND Officers and Directors of the Fund, together with their addresses, principal occupations during the past five years and their ownership of the Fund are as follows: Principal Occupation Fund Shares Percent Name Age Past Five Years Owned 6/3/96 of class Steven D. Buck 36 Partner Stevens & Lee 0 0.00% Esq. Reading, PA Dr.Philip J. Cinelli 36 Physician Family Practice 0 0.00% D.O. Bangor, PA Samuel B. Clement 38 Stockbroker Legg Mason 0 0.00% Bryn Mawr, PA Linda Guendelsberger 36 Partner Fishbein & Co P.C. 0 0.00% CPA Elkins Park, PA Mark Mulholland* 36 Stockbroker Paine Webber 42,516.150** 99.78% Jenkintown, PA Scott A. Satell 34 Partner BPI 0 0.00% Manufacture's Rep Bala Cynwyd, PA * Director of the Fund who would be considered "interested persons" as defined by the Investment Company Act of 1940. Mark Mulholland will be an interested person insofar as he is President and owner of the Fund's proposed Investment Adviser. ** Mark Mulholland owns his stock jointly with his wife Ann Mulholland. REMUNERATION OF DIRECTORS AND OFFICERS The Fund does not intend to pay fees to the directors until such time that the Fund's assets exceed $2,500,000.00, although the Fund will reimburse directors for their expenses. There has been no payments made to this Board as of the date of this filing. The previous Directors had received fees totaling $1,881, as of July 8, 1996, of this amount $693 was paid by the Fund and $1,188 was paid 5 by Matthew 25 Management Corp. The Fund intends to pay Independent Directors $50 plus expenses per meeting, as long as the Fund's Assets clear the threshold. Mark Mulholland will receive benefit from the investment advisory fees payable to Matthew 25 Management Corp. and therefore will not be eligible to receive di- rectors fees as long as his firm acts as the Investment Adviser. CAPITALIZATION Description of Common Stock: The authorization capitalization of the Fund con- sists of 1,500,000 shares of common stock of $.01 par value per share. Each share has equal dividend, distribution and liquidation rights. There are no conversion or preemptive rights applicable to any shares of the Fund. All shares issued are fully paid and non-accessible. Voting Rights: Each holder of common stocks has one vote for each share held and fractional shares will have an equivalent fractional vote. Voting rights are non-cumulative, which means that the holders of a majority of shares of com- mon stock can elect all directors of the Fund if they so choose, and the holders of the remaining shares will not be able to elect any person as a director. Major Shareholders: Mark and Ann M. Mulholland as of the date of this Prospec- tus own 99.78 % of the outstanding shares in a Joint Tenancy account. PURCHASE OF SHARES - REINVESTMENTS The offering price of the shares offered by the Fund is at the net asset value per share next determined after receipt of the purchase order by the Fund and is computed in the manner described under the caption "PRICING OF SHARES" in this Prospectus. The Fund reserves the right at its sole discretion to terminate the offering of its shares made by this Prospectus at any time and to reject pur- chase applications when, in the judgment of the management such termination or rejection is in the best interests of the Fund. Initial Investments: Initial purchase of shares of the Fund may be made only by application submitted to the Fund. For the convenience of investors, a Share Purchase Application form is provided with this Prospectus. The minimum initial purchase of shares is $1,000 which is due and payable 3 business days after the purchase date. Less may be accepted under especial circumstances. The Fund will be initially registered in Pennsylvania and therefore restricted to Penn- sylvania residents at the time of purchase. There will be no solicitation of out of the state of Pennsylvania potential shareholders until registration under the Blue Sky laws of the state of residence have been met. Subsequent Purchases: Subsequent purchases may be made by mail or by phone and are due & payable three business days after the purchase date. The minimum here is $100, but less may be accepted under special circumstances. Reinvestments: The Fund will automatically retain and reinvest dividends & cap- ital gains distributions and use same for the purchase of additional shares for the shareholder at net asset value as of the close of business on the distribu- tion date. A Shareholder may at any time by letter or forms supplied by the Fund direct the Fund to pay dividends and/or capital gains distributions, if any, to such shareholder in cash. 6 Fractional Shares: Shares will be issued to three decimal places as purchased from the fund. The fund will maintain an account for each shareholder of shares for which no certificates have been issued. RETIREMENT PLANS Individual Retirement Accounts: Persons who earn compensation and are not act- ive participants nor have a spouse who is an active participant in an employee maintained retirement plan may establish Individual Retirement Accounts (IRA) using Fund shares. Annual contributions, limited to the lesser of $2,000.00 or 100% of compensation, are tax deductible from gross income. This IRA deduction is also retained for individual taxpayers and married couples with adjusted gross incomes within certain specified limits. All individuals may make nonde- ductible IRA contributions to separate accounts to the extent that they are not eligible for a deductible contribution. Earnings under the IRA are reinvested and are tax-deferred until withdrawals be- gin. The maximum annual contribution may be increased to $2,250.00 if you have a spouse who earns no compensation during the taxable year. A separate and in- dependent Spousal IRA must be maintained. You may begin to make withdrawals as early as age 59 1/2 or as late as age 70 1/2. In the event of death or disability, or withdrawals may be made before age 59 1/2 without penalty. A Disclosure Statement is required by U.S. Treasury Regulations. This Statement describes the general provisions of the IRA and is forwarded to all prospective IRA's. There is no charge to open and maintain a Matthew 25 Fund IRA. This pol- icy may be changed by the Board of Directors if they deem it to be in the best interests of all shareholders. All IRA's may be revoked within 7 days of their establishment, without penalty. REDEMPTION OF SHARES The Fund will redeem all or any part of the shares of any shareholder who ten- ders a request for redemption when certificates have not been issued. When cer- tificates have been issued then certificates need to accompany a request for re- demption. In either case, proper endorsements guaranteed either by a national bank or member firm of the New York Stock Exchange will be required unless waived by management. The redemption price is the net asset value per share next determined after not- ice is received by the Fund for redemption of shares. The proceeds received by the shareholder may be more or less than his cost of such shares, depending upon the net asset value per share at the time of redemption & the difference should be treated by the shareholder as a capital gain or loss for income tax purposes. Payment by the Fund will ordinarily be made within seven days after tender. The Fund may suspend the right of redemption or postpone the date of payment if: The New York Stock Exchange is closed for other than customary weekend or holiday closings, or when trading on the New York Stock Exchange is restricted as deter- mined by the by the Securities and Exchange Commission or when the Securities And Exchange Commission has determined that an emergency exists, making disposal of fund securities or valuation of net assets not practicable. The Fund intends to make payments in cash, to the extent possible, however the Fund reserves the right to make payments in kind. 7 BROKERAGE The Fund requires all brokers to effect transactions of portfolio securities in such a manner as to get prompt execution of the orders at the most favorable price. The Fund will place all orders for purchases and sales of its portfolio securities through the Fund's President who is answerable to the Fund's Board of Directors. In accordance with Rule 17E-1, if the Fund's President is also a reg- istered representative of a New York Stock Exchange or NASDAQ Member Firm, he may place orders through his concern at as low commission rates as possible but never to exceed rates that are higher than would be available through any other national brokerage firm. The Directors will review each transaction when a com- mission is generated at a brokerage firm which is affiliated with the Fund's President or Adviser and determine if the commission paid appears reasonable. In the event that the Board determines that any or all of the commissions paid are higher than what they determine as reasonable, then the Board will reduce the fees paid to the Adviser by an amount equal to the commissions deemed un- reasonable. This review must be done at least quarterly. The Fund's President may select other brokers who in addition to meeting the primary requirements of execution and price, have furnished statistical or other factual information and services, which, in the opinion of management, are helpful or necessary to the Fund's normal operations. No effort will be made in any given circumstances to determine the value of these services or the amount they might have reduced Ad- viser expenses. Other than as set forth above, the Fund has no fixed policy, formula, method or criteria which it uses in allocating brokerage business to brokers furnishing these materials and services. The Board of Directors will evaluate and review the reasonableness of brokerage commissions paid to brokers not affiliated with the President or Adviser at least semiannually. 8 LANDSBURG PLATT RASCHIATORE & DALTON Certified Public Accountants 117 South 17th Street 13th Floor Philadelphia, PA 19103 215-561-6633 Fax 215-561-2070 Independent Auditors' Report To the Shareholders and Board of Directors of Matthew 25 Fund, Inc. We have audited the accompanying statement of assets and liabilities of Matthew 25 Fund, Inc., including the schedule of investments in securities as of Febru- ary 5, 1996 and the related statement of operations for the period from January 1, 1996 through February 5, 1996, the statement of changes in net assets and the financial highlights and related ratios/supplemental data for each of the periods indicated. These financial statements and financial highlights and re- lated ratios/supplemental data are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights and related ratios/supplemental data based on our au- dit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights and related ratios/supplemental data are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and dis- closures in the financial statements. Our procedures included confirmation of securities owned as of February 5, 1996, by correspondence with the custodian and brokers. An audit includes assessing the accounting principles used and sig- nificant estimates made by management, as well as evaluating the overall finan- cial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and the financial highlights and re- lated ratios/supplemental data referred to above present fairly, in all material respects, the financial position of Matthew 25 Fund, Inc., as of February 5, 1996, the results of its operations from January 1, 1996 through February 5, 1996, the changes in its net assets and the financial highlights and related ra- tios/supplemental data for each of the periods indicated, in conformity with generally accepted accounting principles. Landsburg Platt Reschiatore & Dalton February 29, 1996 9 MATTHEW 25 FUND, INC. MATTHEW 25 FUND, INC. Statement of Assets and Liabilities Schedule of Investments in Securities February 5, 1996 February 5, 1996 ASSETS Number of ------ shares or Investments in securities, $ 114,528 principal Market at value (cost $108,382) --------- amount Value --------- -------- TOTAL ASSETS $ 114,528 COMMON STOCK - 80.54% --------- ------------ FINANCIAL - 26.18% LIABILITIES --------- ----------- Accounts Payable $ 496 Franklin Resources 200 $ 10,600 --------- Harris Savings 1,000 19,250 TOTAL LIABILITIES $ 496 --------- --------- 29,850 --------- NET ASSETS MANUFACTURERS - 34.24% ---------- ------------- Net assets $ 114,032 (equivalent to $5.28 per ========= Rubbermaid Inc. 800 22,300 share based on 21,585 shares Stride Rite Corp. 2,000 16,750 of capital stock outstanding) --------- 39,050 Composition of net assets: --------- Shares of common stock 216 MISCELLANEOUS - 20.12% Paid in capital 107,919 ------------- Accumulated net investment (249) loss Home Depot Inc. 500 22,938 Net unrealized appreciation 6,146 --------- of investments -------- TOTAL COMMON STOCKS 91,838 (Cost $85,692) --------- NET ASSETS 2/5/96 $ 114,032 ========= SHORT TERM INVESTMENTS - 19.90% ---------------------- First Montauk 9,403 9,403 Money Market Royal Bank Gold 13,287 13,287 Money Market --------- TOTAL SHORT TERM INVESTMENTS (Cost $22,690) 22,690 --------- TOTAL SECURITIES (Cost $108,382) $ 114,528 ========= The accompanying notes are an integral part of these financial statements. 10 MATTHEW 25 FUND, INC. MATTHEW 25 FUND, INC. STATEMENT OF OPERATIONS STATEMENT OF CHANGES IN NET ASSETS For the period January 1, 1996 Period from through February 5, 1996 October 26, 1995 ( com- Period from mencement of INVESTMENT INCOME: January 1, operations ) - ------------------ 1996 through through De- February 5, cember 31, Interest $ 38 1996 1995 Miscellaneous 6 ------------ ------------ ------- INCREASE IN NET ASSETS Total investment income 44 FROM OPERA- ------- TIONS: ------------ EXPENSES: Investment $ (49) $ (200) - --------- loss - net Investment advisor 89 Net realized 0 0 Miscellaneous 4 gain (loss) ------- on securi- Total Expenses 93 ties trans- ------- actions Net change 2,738 3,408 Investment loss - net (49) in unreal- ------- ized appre- Net realized gain (loss) 0 ciation of on securities transactions investments --------- --------- Net change in unrealized 2,738 Net Increase 2,689 3,208 appreciation of investments ------- in net as- sets from Net gain on investments 2,738 operations --------- --------- ------- Distributions to sharehold- ers from Net increase in net assets $ 2,689 Investment 0 0 resulting from operations ======= income-net Net realized 0 0 gain on in- vestments Capital share 5,136 2,999 transactions --------- --------- Net increase 7,825 6,207 in net assets --------- --------- NET ASSETS: ---------- Beginning of 106,207 100,000 period --------- --------- End of period $ 114,032 $ 106,207 ========= ========= The accompanying notes are an integral part of these financial statements. 11 MATTHEW 25 FUND, INC. Notes to the Financial Statements February 5, 1996 NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Matthew 25 Fund, Inc. (the "Fund") was incorporated on August 28, 1995 and com- menced operations on October 26, 1995. The Fund has no operations prior to the commencement of operations other than matters relating to its organization and registration as an open-end non-diversified management investment company under the Investment Company Act of 1940 and its securities under the Securities Act of 1933, the sale & issuance of 20,000 shares of common stock ("initial shares") to its initial, joint tenant investors on October 16, 1995. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. Significant accounting policies of the Fund are as follows: Security valuations The Fund values investment securities, where market quotations are available, at market value based on the last recorded sales prices as reported by the princi- pal securities exchange on which the security is traded, or if the security is not traded on an exchange, market value is based on the latest bid price. Short- term investments are valued at cost, approximately market value. Federal income taxes The Fund's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all its taxable income to its shareholders. Therefore, no federal income tax provision is required. Distribution to shareholders The Fund intends to distribute to shareholders substantially all of its net in- vestment income, if any, and net realized capital gains, if any, at year end. Organizational costs Organizational costs were borne by the Fund's Investment Advisor. Registration fees Registration fees were borne by the Fund's investment advisor. Other The Fund follows industry practice and records security transactions on the trade date. The specific identification method is used for determining gains or losses for financial statements and income tax purposes. Dividend income is re- corded on the ex-dividend date and interest income is recorded on an accrual ba- sis. 12 NOTE 2 INVESTMENT ADVISORY AGREEMENT AND OTHER RELATED TRANSACTIONS The Fund has an investment advisory agreement with The Matthew 25 Management Corp., (M25M), whereby M25M receives a fee of 1% per year on the net assets of the Fund. All fees are computed on the average daily closing net asset value of the Fund and are payable monthly. In accordance with State Regulations, M25M has agreed to decrease the investment advisory fee or, if necessary, to reim- burse the fund if and to the extent that the Fund's aggregate annual operating expenses exceed specified percentages of the Fund's net assets. The percentages are 2.0% of the first $10,000,000 and 1.5% of the average net assets in excess of $10,000,000. Mr. Mark Mulholland is the sole owner, director and officer of M25M and is also president of the Fund. NOTE 3 INVESTMENTS For the period from October 26, 1995 (commencement of operations) through Feb- ruary 5, 1996, purchases and sales of investment securities other than short- term investments aggregated $85,692 and $-0-, respectively. The gross unreal- ized appreciation for all securities totaled $6,414 and the gross unrealized depreciation for all securities totaled $268, or a net unrealized appreciation of $6,146. The aggregate cost of securities for federal income tax purposes at February 5, 1996 was $108,382. NOTE 4 CAPITAL SHARE TRANSACTIONS As of February 5, 1996 there were 1,500,000 shares of $.01 par value capital stock authorized and capital paid in aggregated $108,135. Transactions in capital stock were as follows: For the period from Oc- For the period from Jan- tober 26, 1995 (commence- uary 1, 1996 through Feb- ment of operations ) ruary 5, 1996. through December 31, 1995 Shares Amount Shares Amount -------- -------- -------- -------- Shares Sold* 995 $ 5,136 590 $ 2,999 Shares issued in rein- 0 0 0 0 vestment of dividends Shares redeemed 0 0 0 0 -------- -------- -------- -------- Net increase 995 $ 5,136 590 $ 2,999 ======== ======== ======== ======== *The Fund sold all shares to initial joint tenant investors as of February 5, 1996. 13 MATTHEW 25 FUND, INC. FINANCIAL HIGHLIGHTS AND RELATED RATIOS/SUPPLEMENTAL DATA For a Share Outstanding throughout each Period For the period from Oc- For the period from Jan- tober 26, 1995 (commence- uary 1, 1996 through Feb- ment of operations ) ruary 5, 1996. through December 31, 1995 ------------------------ ------------------------- Net asset value, begin- $ 5.16 $ 5.00 ning of period Income from investment operations Net investment income - (.01) Net gains or (losses) .12 .17 on securities both realized & unrealized ----------- ----------- Total from investment $ 5.28 $ 5.16 operations Less distributions Dividends (from net in- - - vestment income) Distributions(from cap- - - ital gains) ----------- ----------- Net Asset value, end of $ 5.28 $ 5.16 period =========== =========== Net assets, end of period $ 114,032 $ 106,207 Ratio of expenses to av- 1.04%* 2.00%* erage net assets Ratio of net investment .49%* .96%* income to average net assets Portfolio turnover rate 0% 0% *annualized The accompanying notes are an integral part of these financial statements. 14 FORM N-1A PART C - OTHER INFORMATION Contents Page # 1. Financial Statements & Exhibits 1 2. Control Persons 1 3. Number of Shareholders 1 4. Indemnification 1 5. Activities of Investment Adviser 1 6. Principal Underwriters 1 7. Location of Accounts & Records 2 8. Management Services 2 9. Distribution Expenses 2 10. Undertakings 2 11. Auditor's Consent 3 12. Signatures 4 Exhibits Articles of Incorporation 3 i By-Laws 3 ii Investment Advisery Contract 10 i Reimbursement Agreements - Officers/Directors 10 ii Opinion of Counsel Concerning Fund Sscurities 99.1 i 1. a. Financial Statements - Condensed financial information on a per share basis is presented in Part A for 1995. All other financial statements are presented in Part B. These include: Statement of Assets & Liabilities February 5, 1996 Schedule of Investments in Securities February 5, 1996 Statement of Operations February 5, 1996 Statement of Changes in Net Assets December 31, 1995 Statement of Changes in Net Assets February 5, 1996 Notes to Statement of Assets and Liabilities February 5, 1996 A post-effective amendment containing reasonably current financial state- ments which will not be certified will be filed with the Securities & Ex- change Commission within 4 to 6 months of the effective date of this fil- ing. b. Exhibits (3.i) Articles of Incorporation (3.ii) By-Laws (10.1) Investment Advisory Contract (10.2) Reimbursement Agreements with Officers and/or Directors (99.1) Opinion of Counsel Concerning Fund Securities All exhibits believed to be applicable to the Fund are incorporated by re- ference to pre-effective amendment no. 1 of the Securities Act of 1933 ex- cept exhibit 10.1 which is included. 2. Control Persons - Not applicable 3. Number of Shareholders - There are 3 shareholders of the Matthew 25 Fund, Inc. as of this filing. 4. Indemnification - Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant, the registrant has been advised that, in the opinion of the Securities and Exchange Commission, such in- demnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of ex- penses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceed- ing) is asserted by such director, officer or controlling person in con- nection with the securities 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 whe- ther such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 5. Activities of Investment Adviser - The Matthew 25 Management Corpora- tion's activity at the present time is performance on its Investment Ad- visory Contract currently effective with the Matthew 25 Fund, Inc. Mr. Mark Mulholland, is the sole proprietor of the Investment Adviser. He is also a Stockbroker with Boenning & Scattergood, Inc. 6. Principal Underwriter - The Fund acts as its own underwriter. 1 7. Location of Accounts & Records - All fund records are held at corporate headquarters - 605 Cloverly Avenue Jenkintown, PA 19046 - with the excep- tion of security certifications which are in a safe deposit box at the Royal Bank of Pennsylvania, DeKalb Pike, King of Prussia, PA. 8. Not applicable 9. Distribution Expenses - The fund currently bears no distribution expenses. 10. Not applicable 2 Landsburg Platt Raschiatore & Dalton Certified Public Accountants 117 S. 17th St. 13th Fl. Philadelphia, PA. 19103 215-561-6633 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the inclusion by reference to the Post effective Amendment #2 on Form N-1A of Matthew 25 Fund, Inc. of our report dated February 29, 1996 on our examination of the Financial Statements on such Company. We also consent to the reference to our firm in such Registration Statement. Landsburg Platt Raschiatore & Dalton (Signature) August 9, 1996 3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Invest- ment Company Act of 1940, the MATTHEW 25 FUND, Inc. certifies that it meets all of the requirements for effectiveness of this Registration State- ment and has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Borough of Jenkintown of the State of Pennsylvania, on August 15, 1996. MATTHEW 25 FUND, INC. Mark Mulholland, President Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signatures Title Date Mark Mulholland President, CEO and Director 8-15-96 Samuel B. Clement Secretary and Director 8-15-96 Steven D. Buck Director 8-15-96 Dr. Philip J. Cinelli Director 8-15-96 Linda Guendelsberger Director 8-15-96 Scott A. Satell Director 8-15-96 4 EX-10 2 Exhibit - 10 i INVESTMENT ADVISORY CONTRACT AGREEMENT, made by and between Matthew 25 Fund, Inc., a Pennsylvania Corpora- tion, (hereinafter called "Fund") and Matthew 25 Management Corporation, a Pennsylvania Corporation (hereinafter called "Investment Adviser") WITNESSETH: WHEREAS, Fund engages in the business of investing and reinvesting its assets and property in various stocks and securities and Investment Adviser engages in the business of providing investment advisory services. 1. The Fund hereby employs the Investment Adviser, for the period set forth in Paragraph 6 hereof, and on the terms set forth herein, to render invest- ment advisory services to the Fund, subject to the supervision and direction of the Board of Directors of the Fund. The Investment Adviser hereby ac- cepts such employment and agrees, during such period, to render the services and assume the obligations herein set forth, for the compensation provided. The Investment Adviser shall, for all purposes herein, be deemed to be an independent contractor, and shall, unless otherwise expressly provided and authorized, have no authority to act for or represent the Fund in any way, or in any way be deemed an agent of the Fund. 2. As a compensation for the services to be rendered to the Fund by the Invest- ment Adviser under the provisions of this Agreement, the Fund shall pay to the Investment Adviser monthly a fee equal to one-twelfth of one percent per month, (the equivalent of 1% per annum) of the daily average net assets of the Fund during the month. The first payment of fee hereunder shall be prorated on a daily basis from the date this Agreement takes effect. 3. It is expressly understood and agreed that the services to be rendered by the Investment Adviser to the Fund under the provisions of this Agreement are not to be deemed to be exclusive, and the Investment Adviser shall be free to render similar or different services to others so long as its abil- ity to render the services provided for in this Agreement shall not be im- paired thereby. 4. It is understood and agreed that directors, officers, employees, agents and shareholders of the Fund may be interested in the Investment Adviser as dir- ectors, officers, employees, agents and shareholders, and that directors, officers, employees, agents and shareholders of the Investment Adviser may be interested in the Fund, as directors, officers, employees, agents and shareholders or otherwise, and that the investment Adviser, itself, may be interested in the Fund as a shareholder or otherwise, specifically, it is understood and agreed that directors, officers, employees, agents and share- holders of the Investment Adviser may continue as directors, officers, emp- loyees, agents and shareholders of the Fund; that the Investment Adviser, its directors, officers, employees, agents and shareholders may engage in other business, may render investment advisory services to other investment companies, or to any other corporation, association, firm or individual, may render underwriting services to the Fund, or to any other investment compa- ny, corporation, association, form or individual. The Fund shall bear ex- penses and salaries necessary and incidental to the conduct of its business, 1 including but not in limitation of the foregoing, the costs incurred in the maintenance of its own books, records, and procedures; dealing with its own shareholders; the payment of dividends; transfers of stock (including issu- ance & redemption of shares); reports and notices to shareholders; expenses of annual stockholders; meetings; miscellaneous office expenses; brokerage commissions; taxes; and custodian, legal, accounting and registration fees. Employees, officers and agents of the Investment Adviser who are, or may in the future be, directors and/or senior officers of the Fund shall receive no remuneration from the Fund or acting in such capacities for the Fund. In the conduct of the respective businesses of the parties hereto and in the performance of this agreement, the Fund & Investment Adviser may share com- mon facilities and personnel common to each, with appropriate proration of expenses. 5. Investment Adviser shall give the Fund the benefit of its best judgment and efforts in rendering these services, and Fund agrees as an inducement to the undertaking of these services that Investment Adviser shall not be liable hereunder for any mistake of judgment or any event whatsoever, provided that nothing herein shall be deemed to protect, or purport to protect, Investment Adviser against any liability to Fund or to its security holders to which Investment Adviser would otherwise be subject by reason of willful misfeas- ance, bad faith or gross negligence in the performance of duties hereunder, or by reason of reckless disregard of obligations and duties hereunder. 6. This agreement shall continue in effect until December 31, 1996, and, there- after, only so long as such continuance is approved at least annually by votes of the Fund's Board of Directors, cast in person at a meeting called for the purpose of voting on such approval, including the votes of a majori- ty of the Directors who are not parties to such agreement or interested per- sons of any such party. This agreement may be terminated at any time upon 60 days prior written notice, without the payment of any penalty, by the Fund's Board of Directors or by vote of a majority of the outstanding voting securities of the Fund. The contract will automatically terminate in the event of its assignment by the Investment Adviser (within the meaning of the Investment Company Act of 1940), which shall be deemed to include a transfer of control of the Investment Adviser. Upon the termination of this agree- ment, the obligations of all the parties hereunder shall cease and terminate as of the date of such termination, except for any obligation to respond for a breach of this Agreement committed prior to such termination and except for the obligation of the Fund to pay to the Investment Adviser the fee pro- vided in Paragraph 2 hereof, prorated to the date of termination. 7. This Agreement shall not be assigned by the Fund without prior written con- sent thereto of the Investment Adviser. This Agreement shall terminate au- tomatically in the event of its assignment by the Investment Adviser unless an exemption from such automatic termination is granted by order or rule of the Securities and Exchange Commission. IN WITNESS WHEREOF, the parties hereto have caused their corporate seals to be affixed and duly attested and their presence to be signed by their duly authorized officers August 15, 1996. Matthew 25 Fund, Inc. By _____________________________ Mark Mulholland, President Attest: ________________ Samuel B. Clement Matthew 25 Management Corporation By ____________________________ Mark Mulholland, President Attest: ________________ Samuel B. Clement -----END PRIVACY-ENHANCED MESSAGE-----