MATRIX/LMH
VALUE FUND
----------
Dear Fellow Shareholder:
We are very happy to forward our first annual report as the Manager of the
Fund. The past year has been filled with favorable investment progress, as well
as positive business developments.
These include:
A 23.47% total return over the past 12 months.
Toward the end of the second quarter, the Fund's Net Asset Value reached
an all-time high of $29.72.
Assets under management have continued to increase, and were at 8.5
million dollars as of June 30, 1997, up from 6.6 million dollars last year.
With the S&P 500 selling at all-time highs, and many of its components
selling at extended valuations, our portfolio is positioned in solid businesses
selling well below the market's price/earnings, price/book value and price/cash
flow multiples.
The Fund's costs continue to decline. Our expense ratio, after expense
reimbursement, ended the year at 1.42%, down from 1.84% on June 30, 1996 and
2.35% on June 30, 1995. In addition, we have undertaken a number of important
initiatives since year-end which are expected to further reduce our expenses.
These initiatives, coupled with our growing asset base, should result in a
continued decline in our expense ratio.
Gratifyingly, a significant number of our friends, family, and Matrix
partners and associates have become shareholders. All of us at Matrix expect to
continue to increase our own investments in the Fund in upcoming periods.
The Fund's name was modified to the Matrix/LMH Value Fund to reflect our
stewardship and commitment to its future.
We are implementing further initiatives designed to increase our service
and communication to you, and to make an investment in the Fund more accessible
to others. These include:
<PAGE>
MATRIX/LMH
VALUE FUND
----------
o The creation of a Matrix/LMH Value Fund web site to provide shareholders
and potential investors with timely information, daily Net Asset Values, and
portfolio updates. Details about its address are expected to follow in upcoming
periods.
o Becoming a participant in Schwab's "One Source" program, to make
purchases of the Fund through Charles Schwab a seamless activity.
o Enabling the Fund to be both FundServe and Network eligible, which
allows major and regional brokerage firms to offer the Fund to their clients and
have it appear on their brokerage statements.
o A switch to quarterly letters rather than semi-annual correspondence, to
provide you with more timely information and greater insight into our investment
thoughts and portfolio progress and holdings.
Ultimately the success of the Fund will be tied to making our shareholders
money, while controlling risk and preserving capital as much as possible. We
believe we have started this process and are well positioned to grow your money
in upcoming periods. Simultaneously our recent steps and upcoming initiatives
are aimed at lowering the costs of the Fund, and creating a host of other
investor-oriented benefits.
The Fund's future looks bright, and we look forward to continuing to
report on our progress in upcoming periods.
Let me also extend a warm thanks and expression of great appreciation to
Leonard M. Heine, Jr. for his involvement and commitment of making the Fund a
continued success.
We welcome your thoughts and comments on the enclosed report and look
forward to speaking with you in the future. Please feel free to give us a call
at 1-800-366-6223.
Best regards.
Sincerely,
/S/ David A. Katz
David A. Katz, CFA
President and Chief Investment Officer
2
<PAGE>
MATRIX/LMH
VALUE FUND
----------
Matrix/LMH Value Fund
Value of $10,000 vs. S&P 500 Index
30-Jun-87 30-Jun-88 30-Jun-89 30-Jun-90 30-Jun-91
--------- --------- --------- --------- ---------
LMH Fund 10,000 9,795 11,799 11,318 10,509
S & P 500 Index 10,000 9,334 11,205 13,080 14,060
30-Jun-92 30-Jun-93 30-Jun-94 30-Jun-95 30-Jun-96 30-Jun-97
--------- --------- --------- --------- --------- ---------
LMH Fund 11,674 12,877 12,563 15,133 17,738 21,901
S & P 500 Index 15,933 18,105 18,358 23,156 29,157 39,279
Annual Average Total Return Periods.
Ended June 30, 1997
1 Year 23.47%
5 Year 13.41%
10 Year 8.16%
Past performance is not predictive of future performance.
3
<PAGE>
MATRIX/LMH
VALUE FUND
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<TABLE>
<CAPTION>
Schedule of
Investments JUNE 30, 1997
------------------------------------------------------------
COMMON STOCKS (93.00%)
SECURITY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BANKS (5.23%)
Mellon Bank Corp. 4,800 $ 216,600
J.P. Morgan & Co. 2,200 229,625
---------
446,225
---------
BEVERAGES (3.44%)
Anheuser-Busch Companies, Inc. 7,000 293,562
---------
COMPUTER SOFTWARE AND SERVICES (3.19%)
BancTec, Inc.* 10,500 272,344
---------
CONSUMER PRODUCTS (7.10%)
Allergan, Inc. 7,500 238,594
Bausch & Lomb, Inc. 7,800 367,575
---------
606,169
---------
DISTILLING (4.30%)
Canandaigua Wine Company, Inc., Class A* 10,800 367,200
---------
DRUGS (6.85%)
Bristol-Myers Squibb Co. 4,000 324,000
Pharmacia & Upjohn, Inc. 7,500 260,625
---------
584,625
---------
DRUGS - GENERIC (3.63%)
Mylan Laboratories, Inc. 21,000 309,750
---------
ELECTRONICS (6.41%)
Dynatech Corp. 6,000 214,500
Telxon Corp. 18,500 333,000
---------
547,500
---------
FOOD PROCESSING (2.70%)
Eskimo Pie Corp. 19,000 230,375
---------
</TABLE>
4
<PAGE>
MATRIX/LMH
VALUE FUND
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<TABLE>
<CAPTION>
COMMON STOCKS, Continued
SECURITY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FURNITURE (8.48%)
O'Sullivan Industries* 27,000 $ 447,187
Shaw Industies, Inc. 26,000 276,250
---------
723,437
---------
GROCERY (1.91%)
Great Atlantic & Pacific Tea Company 6,000 163,125
---------
HOTEL/GAMING (2.60%)
Circus Circus Enterprises, Inc. 9,000 221,625
---------
INDUSTRIAL SERVICES (3.19%)
Olsten Corp. 14,000 272,125
---------
MEDICAL SERVICES (2.09%)
John Alden Financial Corp. 8,500 177,969
---------
MEDICAL SUPPLIES (3.73%)
SpaceLabs Medical, Inc.* 12,500 318,750
---------
OFFICE EQUIPMENT AND SUPPLIES (1.69%)
Ennis Business Forms 15,000 144,375
---------
PRECISION INSTRUMENTS (2.90%)
Sensormatic Electronics Corp. 19,200 247,200
---------
PRINTING AND PUBLISHING (3.34%)
John H. Harland & Co. 12,500 285,156
---------
RESTAURANTS (3.67%)
Brinker International, Inc. 22,000 313,500
---------
RETAIL - SPECIAL LINES (2.06%)
Designs, Inc.* 36,000 175,500
---------
SHOES (4.38%)
Reebok International Ltd.* 8,000 374,000
---------
</TABLE>
5
<PAGE>
MATRIX/LMH
VALUE FUND
----------
<TABLE>
<CAPTION>
COMMON STOCKS, Continued
SECURITY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS SERVICES (6.42%)
Frontier Corp. 14,500 $ 289,094
NYNEX Corp. 4,500 259,313
---------
548,407
---------
TOYS AND SCHOOL SUPPLIES (3.69%)
Toys R Us 9,000 315,000
---------
TOTAL COMMON STOCKS
(Cost $6,612,544) 7,937,919
-----------------------------------------------------------
SHORT-TERM INVESTMENTS - Investment Companies (7.64%)
- ----------------------------------------------------------------------------------------------------------------
Gradison U.S. Government
Reserves Fund 304,547 304,547
Star Treasury Fund 348,041 348,041
---------
TOTAL SHORT-TERM INVESTMENTS
(Cost $652,588) 652,588
-----------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $7,265,132) 8,590,507
LIABILITIES LESS OTHER ASSETS (-.64%) (54,725)
-----------------------------------------------------------
TOTAL NET ASSETS $8,535,782
===========================================================
*Non-income producing security.
The accompanying notes to financial statements are an integral part of this schedule.
</TABLE>
6
<PAGE>
MATRIX/LMH
VALUE FUND
----------
<TABLE>
<CAPTION>
Statement of
Assets and Liabilities
JUNE 30, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in securities, at value:
Common stocks (cost $6,612,544)...................................................... $7,937,919
Short-term investments (cost $652,588)............................................... 652,588
Dividends and interest receivable....................................................... 8,726
-----------------------------------------------------------
TOTAL ASSETS 8,599,233
-----------------------------------------------------------
LIABILITIES
Accrued investment advisory fee......................................................... 5,392
Other accrued expenses.................................................................. 20,354
Payable for investments purchased....................................................... 37,705
-----------------------------------------------------------
TOTAL LIABILITIES 63,451
-----------------------------------------------------------
NET ASSETS $8,535,782
===========================================================
SOURCE OF NET ASSETS
Capital
Par value of 290,451 shares outstanding
(30,000,000 shares authorized)
at $.01 per share................................................................. $ 2,905
Paid-in capital ..................................................................... 8,547,080
-----------------------------------------------------------
Total capital paid in on shares...................................................... 8,549,985
Undistributed net investment income.................................................. 26,186
Accumulated net realized loss on
investment transactions........................................................... (1,365,764)
Unrealized appreciation of investments............................................... 1,325,375
-----------------------------------------------------------
NET ASSETS $8,535,782
===========================================================
NET ASSET VALUE PER SHARE
(Offering and Redemption Price) $ 29.39
===========================================================
The accompanying notes to financial statements are an integral part of this schedule.
</TABLE>
7
<PAGE>
MATRIX/LMH
VALUE FUND
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<TABLE>
<CAPTION>
Statement of FOR THE
Operations YEAR ENDED
JUNE 30,1997
------------------------------------------------------------
<S> <C> <C>
INVESTMENT
INCOME
Dividends............................................................................... $ 126,807
Interest................................................................................ 14,408
------------------------------------------------------------
TOTAL INCOME 141,215
------------------------------------------------------------
EXPENSES
Investment advisory fee................................................................. 75,679
Transfer agent fee and expenses......................................................... 22,756
Audit fees.............................................................................. 17,975
Insurance............................................................................... 10,462
Registration and filing fees............................................................ 6,695
Custodian fee and expenses.............................................................. 4,338
Legal fees.............................................................................. 3,196
Reports to shareholders ................................................................ 2,478
Miscellaneous........................................................................... 2,016
------------------------------------------------------------
TOTAL EXPENSES 145,595
Less: Advisory fees waived (38,128)
------------------------------------------------------------
NET EXPENSES 107,467
------------------------------------------------------------
NET INVESTMENT INCOME 33,748
------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS - NET
Realized gain on investments - net...................................................... 1,113,737
Change in unrealized appreciation of investments - net.................................. 472,640
------------------------------------------------------------
GAIN ON INVESTMENTS - NET 1,586,377
------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,620,125
===========================================================
The accompanying notes to financial statements are an integral part of this schedule.
</TABLE>
8
<PAGE>
MATRIX/LMH
VALUE FUND
----------
<TABLE>
<CAPTION>
Statement of Changes
in Net Assets FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1997 1996
------------------------------------------------------------
<S> <C> <C> <C>
Net investment income................................................ $ 33,748 $ 128,905
Realized gain on investments - net................................... 1,113,737 608,596
Change in unrealized appreciation of investments - net............... 472,640 275,717
------------------------------------------------------------
NET INCREASE IN
NET ASSETS RESULTING
FROM OPERATIONS 1,620,125 1,013,218
------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income................................................ (97,339) (132,354)
------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Shares sold ......................................................... 1,607,377 44,611
Shares issued in connection with reinvestment of dividends........... 94,160 128,205
Shares redeemed...................................................... (1,336,436) (451,012)
------------------------------------------------------------
TOTAL 365,101 (278,196)
------------------------------------------------------------
TOTAL INCREASE
IN NET ASSETS 1,887,887 602,668
Net assets, beginning of year ....................................... 6,647,895 6,045,227
------------------------------------------------------------
Net assets, end of year (including undistributed
net investment income of $26,186 and $67,474,
respectively)..................................................... $8,535,782 $6,647,895
===========================================================
CHANGES IN SHARES
OUTSTANDING
Shares sold.......................................................... 61,715 1,945
Shares issued in connection with reinvestment of dividends........... 3,556 5,567
Shares redeemed...................................................... (50,683) (19,837)
------------------------------------------------------------
INCREASE (DECREASE) 14,588 (12,325)
===========================================================
The accompanying notes to financial statements are an integral part of this schedule.
</TABLE>
9
<PAGE>
MATRIX/LMH
VALUE FUND
----------
Notes to
Financial
Statements JUNE 30, 1997
--------------------------------------------
NOTE 1 -
ORGANIZATION
Matrix/LMH Value Fund (the "Fund"), formerly known as LMH Fund, Ltd., is a
Maryland corporation registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Fund commenced
operations September 16, 1983. The objective of the Fund is to achieve a total
rate of return composed of capital appreciation and current income.
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES
The Fund consistently follows the accounting policies set forth below which are
in conformity with generally accepted accounting principles.
(a) Security Valuation
Portfolio securities which are traded on national securities exchanges are
valued at the last sale price on the principal exchange on which the security is
traded as of the close of the New York Stock Exchange. 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 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, it
is valued in a manner determined in good faith by the Board of Directors, or
their delegates, to reflect its fair value.
(b) Federal Income Taxes
The Fund has elected to be treated as a "regulated investment company" under
Subchapter M of the Internal Revenue Code. The Fund intends to distribute
substantially all of its taxable income and any capital gains less any
applicable capital loss carryforwards. Accordingly, no provision for Federal
income taxes has been made in the accompanying financial statements.
(c) Portfolio Transactions
Security transactions are accounted for on the trade date, the date the order to
buy or sell is executed. Security gains and losses are computed on an identified
cost basis.
(d) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
10
<PAGE>
MATRIX/LMH
VALUE FUND
----------
(e) Other
Interest income is recorded on the accrual basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
NOTE 3 -
INVESTMENT ADVISORY FEE
The Fund has a management agreement with Matrix Asset Advisors, Inc. (the
"Advisor", "Matrix") to serve as investment advisor. Matrix, formerly the
Sub-Advisor, replaced Heine Management Group, Inc. ("Heine") as the Advisor on
May 11, 1997. Certain officers of the Advisor are also officers of the Fund.
Under the terms of the agreement, the Fund has agreed to pay the Advisor as
compensation for all services rendered, staff and facilities provided and
expenses paid or assumed, an annual fee, accrued daily, paid monthly, of 1.00%
of the Fund's average daily net assets. For the year ended June 30, 1997, Matrix
and Heine combined to waive $38,128 of their advisory fee.
NOTE 4 -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities for the year ended June 30, 1997
were as follows:
Proceeds from
Sales (Including
Purchases Maturities)
--------------------------------------------
Common Stock and Bonds $9,997,604 $9,565,528
Short-term Obligations 4,868,397 4,966,665
At June 30, 1997, the cost of securities for federal income tax purposes was
substantially the same as that recorded for book purposes. Accordingly, the
aggregate gross unrealized appreciation of investments over cost for federal
income tax purposes was $1,553,752 and the aggregate gross unrealized
depreciation was $228,377, or a net unrealized appreciation of $1,325,375. At
June 30, 1997, the Fund had a capital loss carryforward of $1,365,764, of which
$259,402 expires in fiscal 1999 and $1,106,362 expires in fiscal 2000. To the
extent future capital gains are offset by these capital losses, the Fund does
not anticipate distributing any such gains to the shareholders.
11
<PAGE>
MATRIX/LMH
VALUE FUND
----------
<TABLE>
<CAPTION>
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
YEARS ENDED JUNE 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.............. $24.10 $20.98 $17.78 $18.45 $17.08
Income from investment operations:
Net investment income........................ 0.10 0.47 0.46 0.34 0.30
Net realized and unrealized gain
(loss) on investments...................... 5.52 3.12 3.13 (0.78) 1.44
-----------------------------------------------------
Total from investment operations................ 5.62 3.59 3.59 (0.44) 1.74
-----------------------------------------------------
Less distributions:
Dividends from net investment
income..................................... (0.33) (0.47) (0.39) (0.23) (0.37)
-----------------------------------------------------
Total distributions............................. (0.33) (0.47) (0.39) (0.23) (0.37)
-----------------------------------------------------
Net asset value, end of year.................... $29.39 $24.10 $20.98 $17.78 $18.45
=====================================================
Total return ................................... 23.47% 17.16% 20.47% (2.44%) 10.30%
Ratios/supplemental data:
Net assets, end of period (millions)............ $ 8.5 $ 6.6 $ 6.0 $ 5.7 $ 6.9
Ratio of operating expenses to
average net assets:
Before expense reimbursement.............. 1.92% 1.84% 2.35% 2.51% 2.55%
After expense reimbursement............... 1.42% 1.84% 2.35% 2.50% 2.50%
Ratio of net investment income (loss) to
average net assets:
Before expense reimbursement ............. (0.06)% 2.01% 2.27% 1.79% 1.52%
After expense reimbursement .............. 0.44% 2.01% 2.27% 1.80% 1.58%
Portfolio turnover rate ........................ 129% 57% 34% 46% 53%
Average commission rate paid per share.......... $.0576 - - - -
The accompanying notes to financial statements are an integral part of this schedule.
</TABLE>
12
<PAGE>
MATRIX/LMH
VALUE FUND
----------
Report of
Price Waterhouse LLP Independent Accountants
----------------------------------------
To the Board of Directors and
Shareholders of the Matrix/LMH Value Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Matrix/LMH Value Fund (the
"Fund") at June 30, 1997, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1997 by correspondence with the custodian, provides a reasonable basis for
the opinion expressed above.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
August 15, 1997
13
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<PAGE>
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<PAGE>
Board of Directors
Leonard M. Heine, Jr., Director Emeritus
David A. Katz
Larry D. Kieszek
Robert M. Rosencrans
T. Michael Tucker
o
Investment Advisor
Matrix Asset Advisors, Inc.
444 Madison Avenue, 3rd Floor
New York, NY 10022
(800) 366-6223
o
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
o
Transfer Agent
American Data Services, Inc.
24 West Carver Street
Huntington, NY 11743
(800) 385-7003
o
Administrator
Investment Company Administration Corporation
o
Independent Accountants
Price Waterhouse LLP
o
Legal Counsel
Shereff, Friedman, Hoffman & Goodman
This report is intended for the information of
shareholders of Matrix/LMH Value Fund and should not be used as sales literature
unless preceded or accompanied by a current prospectus.
<PAGE>
MATRIX/LMH
VALUE FUND
Annual Report
June 30, 1997
560 Hudson Street
Hackensack, New Jersey 07601
