Matrix/LMH Value Fund
Supplement of April 21, 1997 to Prospectus dated November 1, 1996
Management
On April 18, 1997, shareholders approved a new management agreement, whereby
Matrix Asset Advisors ("Matrix"), the Fund's Sub-Advisor since July 3, 1996,
became investment advisor to the Fund. The terms and conditions of the new
agreement are substantially identical to those of the old agreement, and the
advisory fee rate payable is the same as that under the old agreement. Mr. David
A. Katz is the Fund's Portfolio Manager. Also, effective with approval of the
agreement, the Fund's name has been changed to "Matrix/LMH Value Fund." Further,
Matrix has agreed to limit the Fund's ratio of operating expenses to average net
assets to no more than 1.65% for the remainder of 1997.
How to Purchase and Redeem Shares
Effective April 1, 1997, Star Bank, N.A., 425 Walnut Street, Cincinnati, OH
45202 will serve as Custodian of the Fund's assets and American Data Services,
Inc., 24 West Carver St., Huntington, NY 11743 will serve as the Fund's Transfer
and Shareholder Service Agent.
On or after April 1, 1997, telephone calls for shareholder account information
should be directed to 1-800-385-7003.
Shareholders should direct correspondence and other inquiries as follows:
INVESTMENTS:
BY MAIL: Initial and subsequent investments should be sent to Matrix/LMH Value
Fund, P.O. Box 641220, Cincinnati, OH 45264-1220.
BY WIRE: It is necessary to notify the Fund prior to each wire purchase. Wires
sent without notifying the Fund will result in a delay of the effective date of
your purchase.
Shareholders should instruct their bank to wire funds as follows:
Star Bank, N.A. Cinti/Trust
ABA# 0420-0001-3
Attn: Matrix/LMH Value Fund
DDA# 486447501
Account name (shareholder name)
Shareholder account number
BY COURIER: All investments sent by overnight or other courier services should
be sent to Matrix/LMH Value Fund, c/o Star Bank, N.A., Mutual Fund Custody
Department, 425 Walnut Street., M.L. 6118, Sixth Floor, Cincinnati, OH 45202.
REDEMPTIONS:
Requests for redemption of fund shares should be mailed to Matrix/LMH Fund,
Ltd., 24 West Carver St., Huntington, NY 11743.
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MATRIX/LMH VALUE FUND
560 Hudson St.
Hackensack, NJ 07601
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information dated April 21, 1997 contains
information about the MATRIX/LMH VALUE FUND (the "Fund"), in addition to that
contained in the Fund's prospectus, dated November 1, 1996 as supplemented April
21, 1997. This Statement is not a prospectus, and should be read in conjunction
with the Fund's prospectus, which may be obtained by calling (212) 486-2004 or
(800) 385-7003.
Table of Contents
Page
2....................................................Investment Program
3...............................................Investment Restrictions
5........................Directors, Officers and Principal Shareholders
6....................................................Investment Adviser
7................................. Portfolio and Brokerage Transactions
8.....................................Additional Redemption Information
8............................................Additional Tax Information
9...............................................Performance Information
9.....................................................Observed Holidays
10............................................................Custodian
10..................................Counsel and Independent Accountants
10........................................................Capital Stock
10.................................................Financial Statements
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INVESTMENT PROGRAM
The following information supplements the discussion of the 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 underlying securities, significant
price and rate movements may take place in the underlying markets that cannot be
reflected in the options markets.
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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;
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;
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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 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.
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DIRECTORS, OFFICERS and PRINCIPAL SHAREHOLDERS
The directors and officers of the Fund are as follows:
Name and Address and Principal Offices with the Fund
Occupations During the Past Five Yrs.
David A. Katz, CFA, Age 35* President, Secretary, and Treasurer
444 Madison Ave.
New York, NY 10022
Mr. Katz is President and Chief Investment Officer of Matrix Asset Advisors, the
Fund's Advisor, and portfolio manager of the Fund. He has been associated with
the Advisor and its predecessor since its founding in 1986.
Robert M. Rosencrans, Age 69 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.
Mr. T. Michael Tucker, Age 54 Director
218 South Pear Street
Blountstown, FL 32424
Mr. Tucker is the owner of T. Michael Tucker, a certified public accounting firm
which he established in 1977.
Mr. Larry D. Kieszek, Age 46 Director
222 Northeast First Street
Gainesville, FL 32602
Mr. Kieszek is Managing Partner of Purvis, Gray & Company, a certified public
accounting firm with which he has been associated since 1974.
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*Mr. Katz is an "interested persons" of the Fund within the meaning of the
Investment Company Act of 1940.
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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 yearended 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
Matrix Asset Advisers, Inc. (the "Adviser") serves as the Fund's
Investment Adviser under an 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 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 assist it in providing 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. Heine Management Group, Inc. served as
Investment Adviser to the Fund from its inception until April 18, 1997, when
shareholders approved the Investment Advisory Agreement with the Adviser. Heine
Management 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
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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.
The Adviser 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 $400 million. The Adviser is controlled by
Mr. David A. Katz and Mr. Morley Goldberg.
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.
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.
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.
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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 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.
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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 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. The Fund's average annual total return for the fiscal
year ended June 30, 1996 was 17.16%.
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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.
CUSTODIAN AND TRANSFER AGENT
Star Bank acts as custodian of the Fund's assets and serves as the
Fund's transfer agent. These activities are performed at 425 Walnut Street,
Cincinnati, OH 45202. American Data Services, 24 West Carver Street, Huntington,
NY 11743 is the Fund's transfer agent.
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.
FINANCIAL STATEMENTS
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.
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