LMH FUND, LTD.
560 HUDSON STREET
HACKENSACK, NJ 07601
(800) 366-6223
(800) 424-2295 Account Information
LMH Fund is a no-load, diversified mutual fund. The investment
objective of the Fund is to achieve a total rate of return which is comprised of
capital appreciation and current income. The Fund selects equity securities for
investment using the principles of value investing.
Heine Management Group, Inc. is the Fund's investment advisor. Matrix Asset
Advisors, Inc. is the Fund's Sub-Advisor.
Table of Contents
Table of Expense Information........................................2
Financial Highlights................................................3
Investment Program..................................................4
Management..........................................................5
How To Purchase Shares..............................................6
How To Redeem Shares................................................7
Exchange Privilege..................................................8
Dividends, Distributions and Taxes..................................10
Transfer and Dividend Disbursing Agent..............................11
General Information.................................................11
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please read this prospectus and retain it for future reference. It sets
forth concisely the information about the Fund a prospective investor ought to
know before investing.
Additional information about the Fund is contained in the Statement of
Additional Information dated November 1, 1996 filed with the Securities and
Exchange Commission. The Statement is hereby incorporated by reference into this
prospectus and is available upon request and without charge by calling (212)
633-9700 or the number listed above or by writing to the above address.
Prospectus dated November 1, 1996
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EXPENSE INFORMATION
Shareholder Transaction Expenses
Sales Load Imposed on Purchases.......................................None
Sales Load Imposed on Reinvested Dividends............................None
Deferred Sales Load...................................................None
Exchange Fee..........................................................None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees......................................................1.00%
12b-1 Fees...........................................................None
Other Expenses.......................................................0.84%
Total Fund Operating Expenses........................................1.84%
The purpose of the table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly.
Example
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
1 year 3 years 5 years 10 years
$19 $58 $100 $216
This example should not be considered a representation of past or
future performance. Actual expenses may be greater or less than those shown.
<PAGE>
<TABLE>
Financial Highlights (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE YEARS ENDED JUNE 30,
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year
$20.98 $17.78 $18.45 $17.08 $15.79 $17.88 $21.75 $18.83 $25.49 $29.20
Income from investment
operations:
Net investment income
0.47 0.46 0.34 0.30 0.36 0.57 0.59 0.82 1.61 1.13
Net realized and
unrealized gain
(loss) on investments
3.12 3.13 (0.78) 1.44 1.36 (1.92) (1.38) 2.92 (2.78) 0.68
Total from
investment
operations 3.59 3.59 (0.44) 1.74 1.72 (1.35) (0.79) 3.74 (1.17) 1.81
Less distributions:
Dividends from net
investment income
(0.47) (0.39) (0.23) (0.37) (0.43) (0.64) (0.72) (0.82) (2.37) (1.10)
Distributions from
net capital gains 0.00 0.00 0.00 0.00 0.00 (0.10) (2.36) 0.00 (3.12) (4.42)
Total distributions
(0.47) (0.39) (0.23) (0.37) (0.43) (0.74) (3.08) (0.82) (5.49) (5.52)
Net asset value,
end of year $24.10 $20.98 $17.78 $18.45 $17.08 $15.79 $17.88 $21.75 $18.83 $25.49
Total return 17.16% 20.47% (2.44)% 10.30% 11.09% (7.15)% (4.08)% 20.46% (20.52)%(2.09)
Ratios/supplemental data:
(millions) $6.6 $6.0 $5.7 $6.9 $7.7 $9.7 $26.7 $38.1 $40.0 $76.7
Ratio of expenses to average net assets:
Before expense
reimbursement 1.84% 2.35% 2.51% 2.55% 2.63% 2.39% 1.81% 1.55% 1.44% 1.29%
After expense
reimbursement 1.84% 2.35% 2.50% 2.50% 2.63% 2.39% 1.81% 1.55% 1.44% 1.29%
Ratio of net investment income to
average net assets:
Before expense
reimbursement 2.01% 2.27% 1.79% 1.52% 1.86% 2.61% 2.40% 3.65% 4.09% 4.11%
After expense
reimbursement 2.01% 2.27% 1.80% 1.58% 1.86% 2.61% 2.40% 3.65% 4.09% 4.11%
Portfolio
turnover rate 57% 34% 46% 53% 76% 133% 59% 26% 72% 19%
The above financial highlights, insofar as they pertain to each of the ten years in the period
ended June 30, 1996 have been audited by Price Waterhouse LLP, independent accountants, whose report
thereon was unqualified. This information should be read in conjunction with the financial statements
and notes thereto which appear in the annual report and are incorporated by reference into the Statement
of Additional Information. Further information about the Fund's performance may be included in its annual
report which may be obtained without charge by writing or calling the address or telephone number on the
Prospectus cover page.
</TABLE>
INVESTMENT PROGRAM
Investment Objective
The investment objective of the Fund is to achieve a total rate of
return composed of capital appreciation and current income. The Fund selects for
investment only securities that are financially strong and meet specific
valuation criteria using the principles of value investing based on Classic
Valuation Analysis.
This investment objective is a fundamental policy that cannot be
changed without approval of the holders of a majority of the Fund's shares, as
defined on page 12. There is no assurance that the Fund will achieve its
investment objective.
Classic Valuation Analysis
Classic Valuation Analysis is an investment methodology based on
principles developed over 50 years ago by Benjamin Graham. The underlying
principle of Classic Valuation Analysis is oBuy value . . . it will out.o
Companies are selected as suitable investments based on objective criteria that
require a strong financial position, as measured by balance sheet data, and
current low stock market valuation in comparison to investment value, as
measured by historic earnings.
Once an equity investment has been purchased for the Fund's portfolio,
it generally is sold for one of two reasons: (1) the security no longer
represents a value, as determined by the Investment Advisor and Sub-Advisor, or
(2) there has been a fundamental change in the issuer's balance sheet or results
of operations so that it no longer meets the Fund's financial or valuation
criteria. As is the case with all investment methods, however, value investing
using Classic Valuation Analysis does not ensure profit or protect against loss
in declining markets. The Investment Advisor and Sub-Advisor believe that the
implementation of the principles of value investing using Classic Valuation
Analysis constitutes a sound and conservative approach for seeking total return
over time.
Portfolio Management
The Fund invests primarily in common stocks, but may also invest in
preferred stocks and securities convertible into common stocks. The Fund may
purchase securities traded on national securities exchanges or over-the-counter,
and may purchase blocks of stock from principals in privately negotiated
transactions.
Consistent with the principles of Classic Valuation Analysis, the Fund
diversifies its portfolio over a range of companies and industries. Not more
than 5% of the Fund's total assets (determined at the time of investment) will
be invested in the securities of any one company. In addition, the Fund is not
permitted to invest more than 25% of its assets at the time of investment in the
securities of companies within any one industry. The Fund does not attempt to
weight particular industries or segments. The Fund will not purchase any
securities which would cause the Fund at the time of such purchase to own more
than 10% of the outstanding voting securities of any class of any issuer, but
this limitation does not apply to obligations issued or guaranteed by the U.S.
government.
<PAGE>
Decisions to sell the Fund's portfolio securities are generally made
solely on the basis of the criteria outlined under "Classic Valuation Analysis"
above, but the Fund may in unusual circumstances sell a security at a time when
the sale is not indicated by Classic Valuation Analysis to avoid adverse tax
consequences or to meet abnormally heavy redemption requests.
While the Fund invests primarily in equity securities in a manner
consistent with the principles of Classic Valuation Analysis, it may elect to
maintain a portion of its assets in fixed income securities. Such investments,
except as stated below, will have a maturity of less than one year and will
consist of U.S. Government securities, certificates of deposit and bankers'
acceptances of U.S. banks, and commercial paper. All non-U.S. government
short-term investments will have received one of the two highest ratings from a
major rating service. In the case of direct obligations of the U.S.
Treasury, the Fund may invest in instruments of any maturity.
The Fund may invest up to 10% of its total assets in foreign
securities, but only if such securities are traded on national securities
exchanges or over-the-counter in the United States. Investment in foreign
securities may involve special risks, such as changes in the administrative,
economic, and monetary policies of foreign governments.
The Fund may write (sell) covered call options on individual securities
and engage in related closing transactions. A covered call option on a security
is an agreement by the Fund, in exchange for a premium, to sell a particular
portfolio security if the option is exercised at a specified price before a set
date. Risks associated with writing covered call options include the possible
inability to effect closing transactions at favorable prices or in a liquid
market and an appreciation limit on the securities set aside for settlement. The
Fund may also purchase and sell options in closing transactions.
The Fund has no present intentions of purchasing restricted securities,
and may not purchase such securities in amounts in excess of 5% of its total
assets. The Fund may not borrow money, except for temporary emergency purposes
in amounts not in excess of 5% of the Fund's total assets.
MANAGEMENT
The business and affairs of the Fund are managed by its Board of Directors.
Subject to the supervision of the Board, Heine Management Group, Inc., 444
Madison Ave., New York, NY 10022, serves as the Fund's investment advisor, and
as such manages the Fund's portfolio and administers its day-to-day affairs.
Messrs. David A. Katz and Leonard M. Heine, Jr. are responsible for management
of the Fund's portfolio.
The Fund pays all the expenses of its operation except certain expenses
specifically assumed by the Investment Advisor. The Fund pays the Investment
Advisor an annual fee of 1% of the Fund's average daily net assets. Mr. Heine,
the Chairman, Chief Executive Officer, Treasurer and a Director of the Advisor
and Chairman, Chief Executive Officer, Treasurer and a Director of the Fund, is
a controlling person of the Investment Advisor by virtue of his ownership of all
of its outstanding voting stock.
<PAGE>
Effective July 3, 1996, Matrix Asset Advisors, Inc. ("Matrix") became
Sub-Advisor to the Fund. Mr. David A. Katz, C.F.A., President and Chief
Investment Officer of Matrix, is responsible for the management of the Fund's
portfolio, together with Mr. Heine. Mr. Katz also has been appointed as Vice
President, Chief Investment Officer and Secretary of the Fund.
The Sub-Advisory Agreement provides that prior to the end of calendar
year 1996, a meeting of Fund shareholders will be convened to consider the
approval of a new investment advisory agreement whereby Matrix Asset Advisors
will replace Heine Management as Investment Advisor to the Fund and Mr. Heine
will retire from active management of the Fund.
It is anticipated that under the new Investment Advisory Agreement to
be considered by shareholders, the annual advisory fee rate payable to Matrix
will be the same as that paid by the Fund to the Advisor under the current
investment advisory agreement.
While serving as Sub-Advisor, Matrix has agreed to waive any
Sub-Advisory fees payable from the Advisor. Also, while Matrix serves as
Sub-Advisor, the Advisor has agreed to waive payment of fees payable under the
existing Investment Advisory Agreement in excess of 25% of the net advisory fees
due thereunder.
Matrix Asset Advisors is a registered investment advisor which was founded
in 1986. Matrix provides investment advisory services to individuals, endowment,
and pension accounts with a value of over $375 million. The two principal
shareholders of Matrix are Mr. David A. Katz and Mr. Morley Goldberg. Matrix is
located at 444 Madison Avenue, New York, NY 10022.
HOW TO PURCHASE SHARES
The Fund offers its shares on a continuous basis at their net asset
value, which will fluctuate with the value of the Fund's investments. No sales
load or commission is charged.
The minimum initial purchase of shares of the Fund is $1,000 ($500 for
IRA plan and automatic investment accounts). The minimum for subsequent
purchases is $100 for all accounts.
Investment by Mail
New investors may order shares by mailing a completed account
application, together with payment for the order, to the Fund's transfer agent,
The LMH Fund, Ltd., The Provident Bank, P.O. Box 14967, Cincinnati, OH
45250-0967. Checks should be made payable to oLMH Fund, Ltd.o Additional account
applications are available from Matrix at the above address or The Provident
Bank at the above address, or by calling 1-800-424-2295. Subsequent investments
can be made by mailing a check to The Provident Bank along with either (a) the
detachable form which accompanies The Provident Bank's confirmation of a prior
investment, or (b) a letter indicating the dollar value of shares to be
purchased and identifying the Fund, the account number and account registration.
<PAGE>
Investment by Wire
Investors may invest in the Fund by wire by first contacting the Fund's
custodian bank at 1-800-424-2295 and then wiring the amount to be invested by
LMH Fund, Ltd., in care of the Fund's custodian bank, at the following address:
The Provident Bank
ABA 042-000-424
Account No. 0895-261
For further credit to LMH Fund, Ltd.
Account # (shareholder account number)
At the same time the investor should mail an application form to the
Fund at the following address:
LMH Fund, Ltd.
The Provident Bank
P.O. Box 14967
Cincinnati, OH 45202-0967
Payment and Terms of Offering
All orders must be accompanied by payment by check or money order on a
U.S. bank, bank wire or federal funds wire. The Fund may reject orders paid for
by checks drawn on foreign banks.
Checks should be made payable to "LMH Fund, Ltd."
Orders are priced at the net asset value determined as of the close of
the New York Stock Exchange on the day the order is received by the Fund's
transfer agent, provided the order is received before the close of the Exchange
on a day the Exchange is open. Orders received after the close of the Exchange,
or on a day the Exchange is not open are priced as of the close of the Exchange
on its next business day. The Fund reserves the right to require payment by
certified or official bank check or wire transfer for orders of $50,000 or more.
Orders are applied to the purchase of full or fractional shares to
three decimal places. The Provident Bank will mail a confirmation of each
completed purchase to the shareholder. A shareholder will not receive a share
certificate for his shares unless he requests one in writing.
The Fund reserves the right to reject any order at its sole discretion.
A purchase order is not binding until it is confirmed by The Provident Bank. If
an order to purchase shares is canceled because an investor's check does not
clear, the investor will be liable for any loss incurred by the Fund, the
Investment Advisor, or The Provident Bank.
<PAGE>
Retirement Plans
The Fund makes available an IRA plan for those investors who wish to
make contributions of Fund shares to such a plan. Information regarding
eligibility for the IRA plan, and the necessary plan documents, are available
from The Provident Bank or the Fund. Investors should consult their tax or legal
Advisors before determining to adopt an IRA plan.
Automatic Investments
Investors who wish to make regular additional monthly investments in
the Fund may establish an Automatic Investment Plan, with a reduced minimum
initial investment of $500. Under this Plan, each month the Fund will draft the
investor's bank account in the amount specified - which must be at least $100 -
and have the proceeds invested in shares of the Fund at the applicable net asset
value determined on the date of the draft. To use this plan, investors must
complete the Automatic Investment Plan application, which is available by
calling The Provident Bank at (800) 424-2295.
HOW TO REDEEM SHARES
The Fund will redeem its shares at any time at their net asset value
next determined after The Provident Bank receives a proper redemption request.
To effect a redemption, send the following to The Provident Bank, P.O.
Box 14967, Cincinnati, OH 45202-0967; (1) a written request for redemption,
signed by the registered owner(s) exactly as the shares are registered, which
sets forth the account number and states the dollar value of the shares to be
redeemed; (2) if stock certificates have been issued for any shares to be
redeemed, the stock certificates; (3) signature guarantees, if required (see
"Signature Guarantees" on page 9); and (4) for a corporation, executor,
administrator, trustee or guardian, documents evidencing authority to act. In
the case of joint owners of shares, both must sign.
Payment and Terms
Redemption requests may not contain any special conditions or specify a
future date for effecting redemptions; requests containing such terms or dates
will be rejected and will be of no effect.
Redemptions are effected at net asset values next determined after The
Provident Bank receives a redemption request in proper form. Redemption requests
received before the close of the New York Stock Exchange on a day the Exchange
is open will be effected at net asset value determined as of the close of the
Exchange on that day; requests received after the close of the Exchange or on a
day the Exchange is not open are effected at net asset value as of the close of
the Exchange on the next day the Exchange is open. The Provident Bank will
normally mail a redeeming shareholder a check for the redemption proceeds within
seven days after a redemption request is received in proper form. The Fund may
also from time to time accept telephone redemption orders from investors,
generally broker-dealers and institutions, who have been approved previously by
the Fund.
<PAGE>
If a shareholder requests redemption of shares which were purchased by
check within 15 days before the redemption request is received, the redemption
will be processed as described above, but the Fund may delay mailing a check for
the redemption proceeds until the earlier of the expiration of the 15 days or
the receipt by The Provident Bank or confirmation that the check has cleared.
The Fund reserves this right to protect against losses from checks that do not
clear. If a shareholder anticipates redeeming shares before 15 days have
elapsed, it is suggested that the shares be paid for by wire transfer.
Mandatory Redemption at the Option of the Fund
If, as a result of a redemption, a shareholder's account balance is
reduced below $1,000, the Fund may notify the shareholder that, unless
additional investments are made which bring the account up to $1,000 within 60
days, the account will be closed by redeeming the remaining shares. This does
not apply to IRA accounts.
Signature Guarantees
Signature guarantees are required to (a) redeem shares having a net
asset value of more than $5,000 by mail; (b) request that the bank account to
which redemption proceeds are sent be changed; (c) authorize transmission of
redemption proceeds by bank wire; (d) issue shares in certificate form; or (e)
transfer shares to another person.
Signature(s) on the redemption request must be guaranteed by an
oeligible guarantor institutiono as defined in the federal securities laws;
these institutions include banks, broker-dealers, credit unions and savings
institutions. A broker-dealer guaranteeing signatures must be a member of a
clearing corporation or maintain net capital of at least $100,000. Credit unions
must be authorized to issue signature guarantees. Signature guarantees will be
accepted from any eligible guarantor institution which participates in a
signature guarantee program. A notary public is not an acceptable guarantor.
EXCHANGE PRIVILEGE
Shareholders may exchange shares (in amounts of $1,000 or more) of the
Fund for shares in Riverfront Government Money Market Fund (oRiverfront Fundo),
a money market fund not affiliated with the Fund or the Advisor, if such shares
are offered in your state of residence. Prior to making such exchange, you
should obtain and carefully read the prospectus for the Riverfront Fund. The
exchange privilege does not constitute an offering or recommendation on the part
of the Fund or Advisor of an investment in the Riverfront Fund. For further
information, contact The Provident Bank at 1-800-424-2295.
To make a telephone exchange, the Exchange Privilege Authorization
option must have been selected on the Account Application form when the account
was opened. Otherwise an Exchange Privilege Application form must be completed
with signature(s) guaranteed and sent to the Transfer Agent prior to making
telephone exchanges. To make an exchange, simply call the Transfer Agent at
1-800-424-2295 prior to 4:00 p.m. Eastern Time. Your exchange will take effect
as of the next
<PAGE>
determination of net asset value per share of each fund involved (usually at the
close of business on the same day). Once an exchange request is made, either in
writing or by telephone, it may not be modified or canceled.
The Fund reserves the right to limit the number of exchanges or to
otherwise prohibit or restrict shareholders from making exchanges at any time,
without notice to shareholders, should the Directors determine that it would be
in the best interest of our shareholders to do so. Shareholders would be given
at least 60 days written notice prior to changing the fee for an exchange. The
Fund will use reasonable procedures, such as assigned personal identification
numbers, in an attempt to verify the identity of a person making a telephone
exchange request. The Fund reserves the right to refuse a telephone request if
it believes that the person making the request is neither the record owner of
the shares nor otherwise authorized by the shareholder to request the exchange.
Shareholders will be promptly notified of any refused request for a telephone
exchange. As long as these normal identification procedures are followed, the
Fund and its agents will not be liable for any loss, liability, or cost which
results from acting upon instructions of a person believed to be a shareholder
with respect to the telephone exchange privilege.
An exchange, for tax purposes, constitutes the sale of the shares of
one fund and the purchase of those of another; consequently, the sale will
usually involve either a capital gain or loss to the shareholder for Federal
income tax purposes. During drastic economic and market changes, telephone
exchange services may be difficult to implement. The exchange privilege is only
available in states which the exchange may legally be made.
Shareholders of the Riverfront Fund may request that redemption
proceeds of $1,000 or more be wired directly to a bank account. Shares purchased
by check within 15 days before the redemption request is received will not be
redeemed by wire transfer. Unless the shareholder has authorized redemption by
wire on the account application or by subsequently filling an authorization with
The Provident Bank, the signature on a request for wire transmission of
redemption proceeds must be guaranteed.
Net Asset Value
The net asset value of Fund shares is determined as of the close of
business of the New York Stock Exchange on each day on which there is a
sufficient degree of trading in the Fund's portfolio securities to affect its
net asset value. This determination is made by subtracting the Fund's
liabilities from the market value of the Fund's investments and the value of its
other assets, and dividing the result by the number of Fund shares outstanding.
Portfolio securities which are traded on national securities exchanges
are valued at the last sale price on such exchange as of the close of the New
York Stock Exchange on the day the calculation is made. If there were no
transactions in a security on that day, the security is generally valued at the
last reported bid price. Securities traded over-the-counter are generally valued
at the latest bid price. If no quotations are available for a security or if the
Board of Directors (or a committee of the Board of Directors appointed for that
purpose) believes that the latest bid price of a security which has not been
traded on the date in question does not fairly reflect its market value,
<PAGE>
it is valued in a manner determined in good faith by the Directors, or their
delegates, to reflect its fair value.
Performance Information
From time to time the Fund may include its average annual total return
for various specified time periods in advertisements or information furnished to
present or prospective shareholders.
Average annual total return quotations for the specified periods will
be computed by finding the average annual compounded rates of return (based on
net investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return will be computed assuming all dividends and
distributions are reinvested.
The Fund also may quote aggregate total return performance data for
various specified time periods. Such data will be calculated substantially as
described above, except that the rates of return calculated will not be average
annual rates, but rather, aggregate rates of return. Aggregate total return data
generally will be higher than average annual total return since the aggregate
rates of return reflect performance over a longer period of time.
Total return figures are based on the Fund's historical performance and
are not intended to indicate future performance. The Fund's total return will
vary depending on market conditions, the securities comprising the Fund's
portfolio, the Fund's operating expenses and the amount of realized and
unrealized net capital gains or losses during the period. The value of an
investment in the Fund will fluctuate and an investor's shares, when redeemed,
may be worth more or less than their original cost.
The Fund may compare its performance to the Standard & Poor's 500
Composite Stock Price Index, Standard & Poor's Industrials Stock Price Index,
the Dow Jones Industrial Average, or performance data published by Lipper
Analytical Services, Inc. As with other performance data, performance
comparisons should not be considered representative of the Fund's relative
performance for any future period. Further performance information is contained
in the Fund's annual report, which may be obtained without cost.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any distributions by the Fund to shareholders are classified normally
as ordinary income dividends or capital gains distributions. The Fund intends to
distribute each year substantially all of its net investment income and net
profits received from the sale of portfolio securities, after offsetting against
these profits any available capital loss carryforwards. Any dividends and
distributions from capital gains are expected to be made following the end of
each of the Fund's fiscal years. The Fund will be subject to a non-deductible 4%
excise tax on the excess of certain required distributions over the amounts
actually distributed by the Fund. The Fund expects to declare and pay
distributions of net investment income and capital gains as may be necessary to
avoid the application of this excise
<PAGE>
tax.
Unless a shareholder indicates otherwise on the account application,
any dividends and distributions will be reinvested in additional Fund shares
credited to the shareholder's account. Dividends and distributions will be
reinvested in Fund shares at their net asset value determined as of the close of
business on the date (no earlier than the record date nor later than the payment
date) determined by the Board of Directors, and the cost basis of shares so
purchased will be their net asset value as of such date. Shareholders can elect
to receive dividends and distributions in cash by sending a written request to
The Provident Bank at least three days before the record date for the dividend
or distribution. Reinvestment of dividends and distribution in shares of the
Fund is considered a sale of shares under securities laws of certain states.
Consequently, if a shareholder changes his or her residence to a state in which
the Fund's shares are not registered, the shareholder may be required to accept
dividends and distributions in cash. If a shareholder elects to have dividends
and distributions paid in cash, The Provident Bank will mail a check to the
shareholder's last address of record.
The Fund must generally withhold 31% of taxable dividends and certain
other payments to a shareholder who fails to furnish the Fund with the correct
taxpayer identification number, or who is notified by the Internal Revenue
Service that he or she is subject to such withholding. For Federal income tax
purposes, income dividends and distributions form net short-term capital gains
are taxable to shareholders as ordinary income, whether the distribution is
received in cash or additional shares. Net long-term capital gains
distributions, if any, will be taxable as long-term capital gains, whether the
distribution is received in cash or additional Fund shares and regardless of how
long the Fund shares have been held. In general, capital gains will be taxed at
the rate applicable to a taxpayer's ordinary income. Dividends and distributions
may also be subject to state or local taxes.
The Fund will advise shareholders within 60 days after the end of each
fiscal year as to the Federal income tax status of any dividends and
distributions made during the year.
At June 30, 1996, the Fund had a capital loss carryforward of
$2,479,501 of which $1,373,139 expires in fiscal 1999 and $1,106,362 expires in
fiscal 2000. To the extent that these deferred losses and carryforward are used
to offset capital gains it is probable that the gains so offset will not be
distributed to shareholders.
TRANSFER AND DIVIDEND DISBURSING AGENT
The Provident Bank acts as the Fund's transfer and dividend disbursing
agent. All mutual fund transfer, dividend disbursing and shareholder activities
are performed at The Provident Bank's headquarters at One East Fourth Street,
Cincinnati, OH, 45202
<PAGE>
GENERAL INFORMATION
Organization and Capitalization
The Fund is a Maryland corporation organized on May 4, 1983. It is
registered under the Investment Company Act of 1940 as an open-end, diversified,
investment company.
The Fund's authorized capital stock consists of a single class
designated oCommon Stocko in the Fund's Articles of Incorporation. Each full
share outstanding is entitled to one vote at all meetings of shareholders and to
share equally in the Fund's assets in liquidation. Each full share participates
equally in dividends and distributions declared by the Board of Directors.
Shares of the Fund do not have cumulative voting rights for the election of
directors. The Fund does not intend to hold annual meetings of shareholders
unless otherwise required by law.
Vote of Majority of Shares
As used in this Prospectus, the term ovote of the holders of a majority
of the Fund's shareso means an affirmative vote of (i) at least a majority of
all outstanding shares, or (ii) at least 67% of the shares represented at a
shareholder meeting at which the holders of more than 50% of the outstanding
shares are represented.
Brokerage Allocation
Subject to the supervision of the Fund's Board of Directors, the
Advisor selects the brokers and dealers to effect the Fund's portfolio
transactions. It is the policy of the Fund to select brokers and dealers who
will provide the Fund the best price and execution of orders. Subject to this
requirement, the Fund may execute some or all of the Fund's transactions through
brokers who have assisted investors in effecting purchases of Fund shares or who
have recommended the purchase of Fund shares to investors.
Reports and Inquiries
The Fund will send to its shareholders semi-annual reports containing
unaudited financial statements and annual financial statements with a report
thereon by the Fund's independent accountants. Each report will show the Fund's
investments and the market values thereof, and will provide other information
about the Fund's operations.
Shareholder inquiries should be directed to the Fund or, for account
information The Provident Bank. Their addresses are set forth on the back cover
of this prospectus.
<PAGE>
Investment Advisor and Sub-Advisor
Heine Management Group, Inc.
Matrix Asset Advisors, Inc.
444 Madison Avenue, 3rd Floor
New York, NY 10022
Custodian and Transfer Agent
The Provident Bank
One East Fourth Street
Cincinnati, OH 45202
(800) 424-2295
Administrator
Investment Company Administration Corporation
Independent Accountants
Price Waterhouse, LLP
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
<PAGE>
LMH FUND, LTD.
560 Hudson St.
Hackensack, NJ 07601
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information contains information about the LMH
Fund, Ltd., (the "Fund") in addition to that contained in the Fund's prospectus,
also dated November 1, 1996. This Statement is not a prospectus, and should be
read in conjunction with the Fund's prospectus, which may be obtained by calling
(212) 633-9700 or (212) 486-2004.
Table of Contents
Page
2 Investment Program
4 Investment Restrictions
6 Directors, Officers and Principal Shareholders
8 Investment Adviser
10 Sub-Advisor
10 Portfolio and Brokerage Transactions
11 Additional Redemption Information
12 Additional Tax Information
13 Performance Information
14 Observed Holidays
14 Custodian
14 Counsel and Independent Accountants
15 Capital Stock
15 Financial Statements
Investment Program
The following information supplements the discussion of the
<PAGE>
Fund's investment program beginning on page 4 of the prospectus.
Options on Securities
The Fund may write (sell) covered call options on its portfolio securities
("covered options") in an attempt to enhance gain, although it has no present
intention to do so and may only do so to the extent of up to 5% of its net
assets.
When the Fund writes a covered call option, it gives the purchaser of the
option the right, upon exercise of the option, to buy the underlying security at
the price specified in the option (the "exercise price") at any time during the
option period, generally ranging up to nine months. If the option expires
unexercised, the Fund will realize income to the extent of the amount received
for the option (the "premium"). If the call option is exercised, a decision over
which the Fund has no control, the Fund must sell the underlying security to the
option holder at the exercise price. By writing a covered option, the Fund
forgoes, in exchange for the premium less the commission ("net premium") the
opportunity to profit during the option period from an increase in the market
value of the underlying security above the exercise price.
The Fund may terminate its obligation as writer of a call option by
purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction."
Closing purchase transactions enable the Fund immediately to realize gains
or minimize losses on its options positions. There is no assurance that a liquid
secondary market on an options exchange will exist for any particular option, or
at any particular time, and for some options no secondary market may exist. In
addition, stock index prices may be distorted by interruptions in the trading of
securities of certain companies or of issuers in certain industries, which could
disrupt trading in option positions on such indices and preclude the Fund from
closing out its options positions. If the Fund is unable to effect a closing
purchase transaction with respect to options it has written, it will not be able
to terminate its obligations or minimize its losses under such options prior to
their expiration.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the options markets
close before the markets for the
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<PAGE>
underlying securities, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.
Investment Restrictions
The Fund has adopted the following investment restrictions, which are
"fundamental policies" which cannot be changed without approval of the holders
of a majority of the Fund's shares, as defined on page 12 of the prospectus. The
Fund may not:
1. Purchase any securities which would cause more than 5% of the Fund's
total assets at the time of such purchase to be invested in the securities of
any issuer, but this limitation does not apply to obligations issued or
guaranteed by the U.S.
Government;
2. Purchase any securities which would cause the Fund at the time of such
purchase to own more than 10% of the outstanding voting securities of any class
of any issuer, but this limitation does not apply to obligations issued or
guaranteed by the U.S.
Government;
3. Purchase any securities which would cause more than 25%
of the Fund's total assets at the time of such purchase to be
concentrated in the securities of issuers engaged in any one
industry;
4. Invest in companies for the purpose of exercising
management or control;
5. Purchase or sell real estate, although the Fund may
invest in the readily marketable securities of companies whose
business involves the purchase or sale of real estate;
6. Purchase or sell commodities or commodities contracts;
7. Purchase the securities of any investment company, except (I) in the
open market where no profit to a sponsor or dealer other than customary
brokerage commissions results from such purchases or (ii) if acquired in
connection with a plan of reorganization;
8. Purchase securities on margin;
3
<PAGE>
9. Effect short sales of any securities;
10. Make loans, except by the acquisition of a portion of
an issue of publicly traded bonds, debentures, notes, and other
debt securities;
11. Borrow money, except for temporary emergency purposes
in amounts not in excess of 5% of the Fund's total assets;
12. Mortgage, pledge or hypothecate securities;
13. Act as an underwriter of securities except insofar as
the Fund might technically be deemed an underwriter for purposes
of the Securities Act of 1933 upon the disposition of certain
securities;
14. Purchase or retain the securities of any issuer if the Fund's officers
or directors, or those of Heine Management, who each own .5% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
securities; or
15. Issue any class of securities senior to any other class
of securities.
As a matter of operating but not fundamental policy, which can be changed
without shareholder approval, the Fund may not purchase any securities which
would cause more than 5% of the Fund's total assets at the time of such purchase
to be invested in securities which may not be publicly sold without registration
under the Securities Act of 1933 or are otherwise not readily marketable. If
such policy were to be changed, such investments would be limited to no more
than 15% of total assets.
The Fund is required to comply with all of the above fundamental and
operating investment restrictions only at the time the relevant action is taken.
The Fund need not liquidate an existing position solely because a change in the
market value of an investment, or a change in the value of the Fund's net or
total assets, cause it to not comply with the restrictions at some future date.
Additional Investment Information
While the Fund intends to invest primarily in equity securities, it will
purchase such securities only when suitable investments can be found. During
periods when suitable investments cannot be found, and as an interim measure
pending investment in equity securities, the Fund may elect to maintain a
4
<PAGE>
portion of its assets in fixed income securities. Such
investments, except as stated below, will have a maturity of less
than one year and will consist of U.S. Government securities,
certificates of deposit and bankers' acceptances of U.S. banks
and commercial paper. All non-U.S. Government short-term
investments will have received one of the two highest ratings
from a major rating service. In the case of direct obligations
of the U. S. Treasury, the Fund may invest in instruments of any
maturity.
The Fund has the authority to invest up to 10% of its total assets in
foreign securities, but only if such securities are traded on national
securities exchanges or in the over-the-counter market in the United States.
Investment in foreign securities may involve special risks, such as changes in
the administrative, economic and monetary policies of foreign governments.
For the year ended June 30, 1996 and June 30, 1995, the Fund's portfolio
turnover rates were 57% and 34%, respectively.
Directors, Officers and Principal Shareholders
The directors and officers of the Fund are as follows:
Name and Address and Principal Offices with
Occupations During the Past Five Yrs. the Fund
Leonard M. Heine, Jr.* Chairman of the Board
67 Goodhill Rd. Chief Executive Officer
Weston, CT 06883 Treasurer and Director
Mr. Heine is Chairman, Chief Executive Officer, Treasurer and
Director of Heine Management, which was incorporated in 1983.
Robert M. Rosencrans Director
331 Round Hill Rd.
Greenwich, CT 06830
Mr. Rosencrans has been President of Columbia International, Inc.
since 1984. From 1962 to 1984 he was President and Chief
Executive Officer of United Artists Cablesystems Corporation.
5
<PAGE>
Mr. Richard S. Harman Director
146 Central Park West
New York, NY 10023
Mr. Harman is Managing Partner at R.S. Harman & Co., a securities
brokerage firm with which he has been associated since its
inception in 1972.
Mr. David A. Katz, CFA* Vice President and
444 Madison Ave. Secretary
New York, NY 10022
Mr. Katz is President and Chief Investment Officer of Matrix
Asset Advisors, the Fund's Sub-Advisor, and co-portfolio manager
of the Fund. He has been associated with the Sub-Advisor and its
predecessor since its founding in 1986.
- -----------------
*Mr. Heine and Mr. Katz are "interested persons" of the Fund
within the meaning of the Investment Company Act of 1940.
All directors who are not interested persons receive a fee of $500 per meeting
plus expenses of attending Board of Directors meetings. With respect to meetings
held during the fiscal year ended June 30, 1996, the Directors did not receive
fees or expense reimbursement.
The directors and officers of the Fund as a group may be deemed to own
beneficially less than 1% of Fund shares outstanding as of October 1, 1996.
Investment Adviser
Heine Management Group, Inc. (the "Adviser") serves as the Fund's
Investment Adviser under and Advisory Agreement, which provides that the Adviser
will obtain and evaluate information relating to the economy, industries,
businesses, securities markets and securities, formulate a continuing program
for the management of the Fund's assets in a manner consistent with its
investment objective, and implement this program by selecting on a discretionary
basis the securities to be purchased or sold by the Fund and placing orders for
such purchases and sales. In addition, the Adviser provides for the Fund's
office needs, supervises the maintenance of the Fund's books and records,
provides the Fund with persons competent to perform all of these executive and
administrative functions, supervises and coordinates the activities of the
Fund's institutional and other agents (e.g., custodian, transfer agent,
independent accountants, outside legal counsel), and permits its officers and
employees to
6
<PAGE>
serve as directors and officers of the Fund, all without additional cost to the
Fund. Certain directors and officers of the Adviser presently serve as directors
or officers of the Fund. The Adviser has retained, at its own expense,
Investment Company Administration Corporation, 560 Hudson Street, Hackensack, NJ
07601, to provide the Fund with certain administrative services.
The Fund pays all other expenses incurred in the operation of the Fund,
except as provided below, including taxes, fees and commissions, bookkeeping
expenses, share issuance expenses, expenses of redemption of shares, charges of
its custodian and transfer agent, costs of preparing and printing reports and
prospectuses for the Fund's existing shareholders, registration fees, auditing
and legal expenses, and expenses and fees of outside directors.
The Adviser also has agreed to pay the fees and expenses of printing and
distributing reports or prospectuses prepared for the Fund in connection with
the offering or sale of its shares, of preparing and setting in type, printing
and mailing all advertising and sales literature and all other expenses in
connection with the offer and sale of Fund shares not specifically allocated to
the Fund.
The Fund has agreed to pay the Adviser, as compensation for all services
rendered, staff and facilities provided and expenses paid or assumed (excluding
organizational costs), an annual fee, payable monthly, of 1% of the Fund's
average daily net assets. This fee is higher than that paid by most mutual
funds. The Adviser received advisory fees of $64,214 for the year ended June 30,
1996, $58,499 for the year ended June 30, 1995 and $63,080 for the year ended
June 30, 1994. The Advisory Agreement continues in effect from year to year, if
such continuation is specifically approved at least annually by the Fund's Board
of Directors at a meeting called for that purpose, or by vote of the holders of
a majority of the Fund's shares, and in either case, also by a vote of a
majority of the Fund's shares and in either case, also by a vote of a majority
of directors who are not "interested persons" of the Adviser or the Fund within
the meaning of the Investment Company Act of 1940. The Advisory Agreement is
subject to termination by either party without penalty on 60 days' written
notice to the other and terminates automatically in the event of its assignment.
Effective July 3, 1996, in connection with the appointment of Matrix Asset
Advisors, Inc. as Sub-Advisor to the Fund, the Advisor has agreed to waive
payment of fees payable under the Investment Advisory Agreement in excess of 25%
of the net
7
<PAGE>
advisory fees due thereunder.
The Advisory Agreement provides that neither the Adviser, its directors,
officers or employees, nor certain other persons performing specific functions
for the Fund, shall be liable to the Fund, except for any loss resulting from
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
Mr. Leonard M. Heine, Jr., Chairman, Chief Executive Officer, Treasurer and
a Director of the Investment Adviser, is a controlling person of the Investment
Adviser by virtue of his ownership of all of its outstanding voting stock.
Sub-Advisor
Effective July 3, 1996, Matrix Asset Advisors (the "Sub-Advisor"), located
at 444 Madison Avenue, New York, NY 10022, was appointed as Sub-Advisor to the
Fund pursuant to a Sub-Advisory Agreement, and Mr. David Katz, CFA, President
and Chief Investment Officer, was appointed Vice President, Chief Investment
Officer and Secretary of the Fund.
The Sub-Advisory Agreement provides that prior to the end of calendar year
1996, a meeting of Fund shareholders will be convened to consider the approval
of a new investment advisory agreement whereby the Sub-Advisor will replace the
Advisor and Mr. Heine will retire from active management of the Fund. It is
anticipated that the annual advisory fee rate payable under such new agreement
will be unchanged.
While serving as Sub-Advisor, Matrix has agreed to waive any Sub-Advisory
fees.
The Sub-Advisor is a registered investment advisor which was founded in
1986. It provides investment advisory services to individuals, endowment and
pension accounts with a value of over $330 million. The Advisor is controlled by
Mr. Katz and Mr.
Morley Goldberg.
Portfolio and Brokerage Transactions
The Investment Adviser is responsible for the selection of brokers and
dealers to effect the Fund's portfolio transactions, subject to the supervision
of the Fund's Board of Directors. It is the policy of the Fund to select brokers
and dealers who will provide the Fund with the best price and execution of
orders. Commission rates are a component of price and are considered together
with other relevant factors.
8
<PAGE>
Purchases and sales of securities not traded on a national securities
exchange are generally executed with primary market makers, except when it is
determined that a better price or execution may otherwise be obtained. The Fund
may purchase securities from, or sell securities to, dealers acting as
principals on a net basis.
The Fund is permitted by law to place orders with brokers or dealers who
may charge a higher commission than other brokers may charge, if the Investment
Adviser determines in good faith that the commission is reasonable in relation
to the value of the brokerage service and research information provided the
Fund. The Investment Adviser expects to rely predominantly on its own research
and not use research services supplied by brokers.
Subject to the requirements of obtaining the best price and execution, the
Investment Adviser may execute a portion of the Fund's transactions through
brokers who have assisted investors in effecting purchases of Fund shares or who
have recommended the purchase of Fund shares to investors. The Fund paid in
brokerage commissions $12,064 for the year ended June 30, 1996, $8,432 for the
year ended June 30, 1995, and $9,970 for the year ended June 30, 1994. All such
commissions were paid to persons unaffiliated with the Fund or the Investment
Adviser.
Additional Redemption Information
The Fund may suspend the right of redemption: (a) for any period during
which the New York Stock Exchange is closed, or the Securities and Exchange
Commission determines that trading on the Exchange is restricted; (b) when there
is an emergency as determined by the Commission as a result of which it is not
practicable for the Fund to dispose of its securities; or (C) for such other
period as the Commission may by order permit for the protection of the Fund's
shareholders.
The Fund has made an election pursuant to Rule 18f-1 under the Investment
Company Act which obligates it to pay in cash all redemptions to any shareholder
of record unless a shareholder requests a redemption, within a 90 day period, of
shares having a value in excess of ( I) $250,000, or (ii) 1% of the Fund's net
asset value, whichever is less. In this case, the Fund is permitted to pay the
redemption price in whole or in part by a distribution of securities from its
portfolio. In that event, the value of the securities distributed would be equal
to the amount redeemed, determined at the same time, and in the same manner, as
the redemption price is determined. Shareholders who receive redemption payments
in securities may incur brokerage
9
<PAGE>
costs in converting the securities they receive into cash.
Additional Tax Information
Tax Status of the Fund. The Fund intends to continue to qualify as a
"regulated investment company" under Subchapter M of the Internal Revenue Code,
and, as such, will pay no Federal income taxes on net income or net realized
capital gains distributed to shareholders. Consistent with requirements for
qualification as a regulated investment company, the Fund intends to distribute
each year substantially all of its net investment income and net profits
received from sales of portfolio securities, after offsetting against these
profits any available capital loss carryforwards. The availability of net income
for dividends is dependent on the level of the Fund's income and expenses, and
the actual amount and timing of any dividend or distribution is subject to the
discretion of the Fund's Board of Directors. Another requirement for
qualification as a regulated investment company is that the Fund derive less
than 30% of its gross income from the sale or other disposition of securities
held by it for less than three months.
Taxation of Distributions. Under current law, ordinary income dividends
received by corporate shareholders may be eligible for the 70%
dividends-received deduction for corporations. The dividends-received deduction
for corporations will apply to that portion of the ordinary income dividend
designated by the Fund as qualifying for the dividends-received deduction. Any
distributions made by the Fund will not be eligible for the dividends-received
deduction with respect to shares which are held by the shareholder for 45 days
or less. Capital gains distributions do not qualify for the dividends-received
deduction.
Investors should carefully consider the impact of buying Fund shares just
before the declaration of an income dividend or capital gains distribution. Any
such dividend or distribution paid shortly after a purchase of shares will
reduce the net asset value of the shares by the amount of the dividend or
distribution. The dividend or distribution, though in effect a return of
capital, would be taxable as ordinary income.
Investors will recognize gain or loss upon the redemption of shares of the
Fund. Such gain or loss will be capital gain or loss if the shares were held as
capital assets by the investor. Such capital gain or loss will be long-term or
short-term depending upon the investor's holding period for such shares. In
addition, if a shareholder sells shares of the Fund held for less
10
<PAGE>
than six months at a loss, the loss will be treated as long-term to the extent
of any capital gains distributions received on such shares.
The Fund will be subject to a non-deductible 4% excise tax on the excess of
certain required distributions over the amounts actually distributed by the
Fund. The Fund expects to declare and pay such distributions of net investment
income and capital gains as may be necessary to avoid the application of this
excise tax. The foregoing is a summary discussion of the federal income tax
consequences is based on federal income tax laws and regulations believed to be
in effect on the date of this Statement. This discussion is not intended to be
comprehensive and investors are urged to consult their tax advisers concerning
specific questions regarding federal, state and local taxation.
Performance Information
As indicated in the prospectus, from time to time the Fund may include its
average total return and other total return data in advertisements or
information furnished to present or prospective shareholders. Total return
figures are based on the Fund's historical performance and are not intended to
indicate future performance.
Average annual total return quotations for the specified periods are
computed rates of return ("T") (based on net investment income and any realized
and unrealized capital gains or losses on portfolio investments over such
periods) that would equate the initial amount invested ("P") to the redeemable
value of such investment at the end of each period ("ERV"), over a period of
time ["n"], according to the following formula:
n
P (1 + T) = ERV
The Fund may also quote aggregate total return performance data. Aggregate
total return data generally will be higher than average annual total return data
since the aggregate rate of return reflects performance over a longer period of
time.
Observed Holidays
The following is a list of holidays on which the New York Stock Exchange is
closed and therefore, shares of the Fund will not be traded: New Years Day;
Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor Day;
Thanksgiving Day; Christmas Day.
11
<PAGE>
Custodian
The Provident Bank acts as custodian of the Fund's assets and serves as the
Fund's transfer agent. These activities are performed at One East Fourth Street,
Cincinnati, OH 45202.
Counsel and Independent Accountants
Shereff, Friedman, Hoffman & Goodman LLP, 919 Third Avenue, New York, NY
10022, serves as counsel to the Fund. Price Waterhouse LLP, 100 E. Wisconsin
Ave., Milwaukee, WI 53202 serves as the Fund's independent accountants.
Capital Stock
The Fund's shares are denominated "Common Stock, $.01 par value." Shares
have no pre-emptive rights and are fully paid and non-assessable. Shares have
non-cumulative voting rights, which means the holders of more than 50% of the
shares voting for the election of directors can elect all of the directors if
they choose to do so, in which event the holders of the remaining less than 50%
of the shares voting for the election of directors will not be able to elect any
directors.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on any matter submitted to a
shareholder vote. The Fund does not intend to hold meetings of shareholders in
any year in which the Investment Company Act of 1940 does not require
shareholders to act upon any of the following matters: (I) election of
directors; (ii) approval of an investment advisory agreement; (iii) approval of
a distribution agreement; (iv) ratification of selection of independent
accountants.
Generally, under Maryland law, a meeting of shareholders may be called for
any purpose on the written request of the holders of at least 25% of the
outstanding shares of the Fund.
On October 29, 1996, the following shareholders owned of record and
beneficially the following percentages of the Fund's outstanding voting
securities: Richton International Corp., Madison, NJ 07940, 17.70%; A.Levitt and
P. Levitt, Jt.Ten., Greensboro, NC 27403, 6.10%.
FINANCIAL STATEMENTS
12
<PAGE>
The annual report to shareholders for the Fund for the fiscal year ended
June 30, 1996 is a separate document supplied with this Statement of Additional
Information and the financial statements, accompanying notes and report of
independent accountants appearing therein are incorporated by reference in this
Statement of Additional Information.
13
