March 11, 1998
Securities and Exchange Commission
Attn: Filing Desk, Stop 1-4
450 Fifth Street, N.W.
Washington, DC 20549
File No. 811-03758
CIK No. 0000720498
Dear Sir or Madam:
On behalf of the above Registrant and pursuant to Rule 30b-2 under
the Investment Company Act of 1940, I enclose for filing via EDGAR,
a copy of the Semi-annual Report to shareholders of the Matrix/LMH
Value Fund series of the Registrant for the six month period ended
December 31, 1997.
If you have any questions, please contact me at (602) 952-1100.
Sincerely yours,
/s/
Robert H. Wadsworth
<PAGE>
Semi - Annual Report
Matrix/LMH Value Fund
December 31, 1997
560 Hudson Street
Hackensack, New Jersey 07601
<PAGE>
Matrix/LMH Value Fund
February 27, 1998
Dear Fellow Shareholder:
We are happy to report on the progress of our Matrix/LMH Value Fund.
The Fund continues to report very positive returns. Over the past 12
months the Fund had a total return of 17.9%; in the 18 months since Matrix
has assumed its management, the Fund has posted a 29.4% gain. This growth
is well above the historic average rates achieved by the Fund.
These gains have enabled the Fund to reach a new all-time high Net
Asset Value of $30.86.
Assets under management have grown by more than 35% since Matrix's
involvement with the Fund. Furthermore, the Fund's expense ratio has
declined to 1.35%. This is a significant reduction from the expense ratio
of the past five years, and more importantly, is below the industry
average. This number is especially impressive given the modest size of the
Fund. As the Fund continues to grow, we expect further reductions in its
expense ratio.
Finally, while the Fund has had significant gains during the past 18
months, these gains have not resulted in any capital gains tax burden
during either 1996 or 1997. This is because we have been utilizing the
Fund's Tax Loss Carryforward. A remaining Tax Loss Carryforward of $215,973
is available to offset 1998 capital gains.
In summary, we are confident that the Fund is well-positioned to grow
as well as to protect capital in more turbulent environments. An in-depth
discussion regarding the Fund's portfolio and its performance follows in
the Capital Market Commentary section of this report.
One of our major undertakings as the Fund's manager has been to
increase the distribution of the Fund, and access by shareholders and
prospective shareholders to Fund information. Highlights of this effort
include:
o Incorporating the Fund into the Schwab One Source program. This means
that the Fund can be purchased at no expense to the shareholder through
Charles Schwab & Company.
o Facilitating the purchase of the Fund through many major and regional
broker firms.
o Creating a web site, which is now on-line, and which will provide
shareholders as well as other interested parties with our daily Net
Asset Value, information about the Fund's holdings, timely portfolio
updates and information about Matrix, the Fund's manager. Our web site
address is http:/www.MatrixLMH.com.
Finally, we have acted to maintain the quality of the Fund's Board of
Directors. We have been fortunate to attract T. Michael Tucker and Larry D.
Kieszek to the Board. Their contributions to the Board have been most
helpful, as has been their strong support.
<PAGE>
Matrix/LMH Value Fund
Following this letter and our Capital Market Commentary, we have
included some thoughts on investing. This period we revisit volatility,
talk about investment expectations and expand on the subject of market
turmoil in Asia.
We welcome any thoughts or comments on the enclosed report. If you have
any questions, please feel free to call us at 1-800-366-6223 or E-mail to
[email protected]. We certainly intend to maintain and, hopefully,
enhance our relationship with you in 1998. We wish you all the best for the
New Year, especially health, contentment, and while we're at it, a good
year in the markets.
Best regards.
Sincerely,
/s/
David A. Katz, CFA
Chief Investment Officer
<PAGE>
Matrix/LMH Value Fund
CAPITAL MARKET COMMENTARY -- 1997 IN REVIEW
- --------------------------------------------------------------------------------
Overview
Nineteen Ninety Seven was an historic year for equity markets -- the
first time this century that equity markets had increased by 20% or
more for a third consecutive year. This unprecedented ebullience is
clearly related to an equally impressive economy, corporate earnings
generally remain robust, the budget deficit has disappeared and
inflation remains low. In this environment, the stock market has
continued to attract huge inflows of cash.
The tremendous disruptions in Asian currency and equity markets that
first began in July have also produced a dramatic international "flight
to quality" inflow to U.S. Treasuries (and, to a lesser extent, U.S.
equities). This, coupled with very tame inflation numbers, resulted in
an impressive bond market rally, with a corresponding decline in
interest rates to as low as 5.75% for the 30-Year Treasury bond at year
end.
Year End Portfolio Review
The Fund's holdings performed well in 1997, consistent with the broader
market and other professional investment managers, though below the
large capitalization indices such as the S&P 500. Several stocks had
truly dramatic performance, with strong returns posted over short
periods of time, such as APL Ltd., Canandaigua Brands, Mylan Labs and
Telxon Corp. Attractive showings were also realized in financial stocks
such as John Alden Financial, J.P. Morgan and Mellon Bank. Other
impressive performers included American Greetings, BancTec, Bell
Atlantic Corp., Brinker International, Bristol-Myers Squibb, Carmike
Cinemas, Dynatech Corp., and Electronic Data Systems.
John H. Harland, O'Sullivan Industries and Reebok International
suffered reversals during 1997 and gave back much of their previous
impressive gains from 1996. This was unusual, as our recovering
companies typically appreciate past our fair value sale targets before
experiencing any major setbacks. Since our founding, about-faces of
this type have been very rare, and we do not expect to see many such
occurrences in the future. Moreover, we believe that all of these
adversely-effected companies will recover to their prior levels in
upcoming periods.
Because many of our stocks reached fair value last year, we had an
unusually high amount of turnover during 1997. The result was the
acquisition of a fair number of "loaded laggards" -- companies waiting
to work through short-term issues and return to fair market value.
Examples of these include Eastman Kodak, Lone Star Steakhouse & Saloon,
and Tupperware.
As in the past, our results were not attributable to a bet on a
particular sector or certain "hot" stocks. We therefore continue to
believe that our portfolio companies will, on balance, perform better
than the market during choppier times.
Three positions, APL Limited, Carter-Wallace and Dynatech Corp.,
benefited form takeovers or buyout offers during 1997. Several other
companies loom as attractive takeover possibilities for 1998, including
Allergan
<PAGE>
Matrix/LMH Value Fund
Inc., Circus Circus Enterprises, Eskimo Pie, Frontier Corp., Mellon
Bank, Pharmacia & Upjohn, SpaceLabs Medical and US Surgical.
Our Fearless Forecast for 1998
While we certainly resist the idea that our favorite economic
conditions are permanent and never changing, we do not foresee the
economy significantly faltering in 1998. Inflation will not be an
issue. If anything, there will be greater deflationary concerns
stemming from cheap exports from Asia flooding the world. We do not
believe that the problems in Asia will derail our economy. They will,
however, upset the earnings projections of selected U.S. companies, and
those companies might be vulnerable to a market correction.
In the equity markets, we see continued and even increased volatility,
reflecting the high prices of many stocks and the resulting intolerance
to negative news. Common sense dictates that following the recent
extraordinary performance of the equity markets, it is now less likely
that such performance will continue. This, however, does not mean that
we expect a down year in the market. Rather, we expect 1998 to be
closer to historic averages -- a high single to low double-digit
performance for the year.
Factors that have contributed to the current strength of the equity
markets are likely to continue in 1998: a favorable economy; low
interest rates; and strong cash inflows into equities. The unknown that
could have the most important impact on the equity markets in 1998 is
the strength of corporated earnings. Many stocks have been priced with
great expectations of increasing strong earnings. Disappointments will
be met with harsh reactions, which might have spillover effects on
similar companies within the same industry. Another factor which could
negatively impact the equity markets in 1998 is individual investor
psychology during periods of market weakness or volatility.
While we are upbeat about our holdings in general, portfolio companies
that we believe could be particularly interesting over the next nine to
12 months include: Circus Circus Enterprises, Frontier Corp., Lone Star
Steakhouse & Saloon, Sensormatic Electronics, SpaceLabs Medical, Inc.
and US Surgical.
IDEAS ABOUT INVESTING
- --------------------------------------------------------------------------------
A Quarterly Quest for Investing Enlightenment
1. Market Volatility -- A Continuing Fact of Investment Life
As stocks have become increasingly expensive (the average market
Price/Earnings multiple now exceeds 22 times earnings), investors
continue to exhibit both greater anxiety as to the direction of the
market and less tolerance for corporate disappointments. This state of
affairs is only likely to intensify during 1998, with intra-day price
movements of 1%-3% becoming commonplace.
Volatility is not good or bad per se, but can be very disheartening if
not expected. The best ways to manage volatility are to: a) invest in
lower volatility stocks, the way Matrix typically invests; b) stay the
course, without attempting to "outsmart" the market; and c) avoid the
temptation of following markets on a day-to-day basis.
<PAGE>
Matrix/LMH Value Fund
a) Lower Volatility Stocks
While the market is efficient over time, it can be irrational or
at least emotional over the short term. The result is that stocks
can be swept up in a burst of optimistic enthusiasm or pummeled by
disappointment and negativity.
Matrix likes to buy stocks that have already experienced strong
negativity; our typical stock is 30%-40% below its recent highs.
In doing so, one important component of volatility has been
reduced significantly, if not eliminated. While our stocks can and
sometimes do decline after we buy them, it is unusual for a Matrix
stock to drop dramatically, simply because it already has done so
before our purchase.
Conversely, when one of our stocks rises significantly, especially
if it rises quickly, it is often a signal to us to take profits.
Since the stock might be subject to a change in momentum, there
could be a reversal of gains. For us, the key is not to sell a
stock at its absolute peak but to accomplish our return goals for
that particular stock.
This orientation has allowed us to reduce our volatility exposure
in the markets, while still earning very favorable returns.
b) Staying the Course
In periods of volatility, it seems imperative that investors do
something. Anything. It is human nature, particularly for
intelligent, successful people, to act in order to control their
own destinies.
Unfortunately, this understandable motivation usually has adverse
investment consequences. Simply stated, it has been consistently
impossible for anyone, even the most knowledgeable professionals,
to time the market successfully. Perhaps the ultimate reason for
this is that rational people cannot consistently divine the course
of short-term irrational behavior.
Nevertheless, for whatever reason, market timing tends to
exacerbate the effects of volatility. Consider the short-term
price "corrections" of the last 12 months. As quickly as they
came, they were erased in a market rebound. Investors who
responded to a 10% market correction by moving out of the market
were actually victimized by the very volatility they were trying
to avoid.
The lesson? Staying the course in investing, like raising
children, can be frustrating -- even maddening at particular times
-- but over the long haul is greatly rewarding.
c) Turn Down the Volume
The great bull market has created a media frenzy. You should know
that no fewer than four national cable channels will happily
bombard you with minute-by-minute market news. Financial news has
taken on the intensity of war reporting from the front.
<PAGE>
Matrix/LMH Value Fund
While Matrix is certainly featured extensively in the financial
media, we would be the first to admit that the media pays way too
much attention to the markets. Endless information does not equate
into boundless knowledge, let alone abiding wisdom.
For many, the end result of this drumbeat of news is anxiety.
Should I be doing something? Is there a development here I need to
react to? The opportunities for self-doubt are endless. But please
remember: you, our clients, are neither traders nor arbitrageurs:
you are investors, intent on prudently building your wealth over
time, while managing your risk. Very, very little of what gets
reported on a constant basis will ultimately impact you.
Our suggestion: tune in when David is on, then turn it off.
11. Putting Equity Returns Into Context
The past three years for the stock market have been extraordinarily
good. Our equity portfolios have averaged more than twice the historic
average annual increase for the stock market. There is a tendency for
all investors, especially more recent equity investors, to assume that
recent history is the normative condition of equity investing.
Unfortunately, this is just not true. Certain things must be
remembered: historically, equities on average increase 11% annually.*
Furthermore, stocks typically increase approximately 75% of the time,*
which means that one year out of four will be negative. Markets work in
cycles of four to seven years, not in one-year snapshots.
Finally, there is a mathematical principle of "regression to the mean"
which many of us believe applies to investing. Simply defined, it means
that over time performance will approximate the average. There will be
extraordinarily good and bad periods, but over time, performance will
converge to the mean, the average.
We mention this to provide some context for equity investors. Many
investors have seen their equity portfolios increase sharply over the
past three years. If, hypothetically, the stock market lost 10% in
1998, these investors would most likely be distressed. However, they
would still have earned extremely favorable returns over the past four
years.
Knowledgeable investors understand that the stock market is not a
super-charged money market account, with a guaranteed level of return
every year. They recognize that there will be fluctuations in their
returns -- sometimes substantial fluctuations. However, the key is the
long term, and over the long term the equity markets have been very
attractive.
The ultimate question is whether your investments are helping you to
achieve your financial goals. If over time the answer is yes, then
volatility, overperformance, underperformance and even losses can be
understood and accepted as inevitable components of a much-larger
undertaking.
* Source: Ibbotson Associates
<PAGE>
Matrix/LMH Value Fund
111. Asian Contagion and Us
The currency and market turmoil in Asian markets has captured headlines
and raised the specter of turmoil here. But will it cause domestic
turmoil? And assuming not, what is the likely impact of the Asian
turmoil, or any foreign market turmoil, on domestic markets?
First, we should understand what is happening in Asia. Many of these
economies have experienced tremendous growth over the past decade. That
growth has been abetted by government policies that are profoundly
different from our own. In Asia, governments play an active and often
controlling market role by determining exchange rates, limiting imports
and encouraging, or even supporting, certain industries and financial
institutions.
The turmoil in Asia represents the impact of free market forces on
controlled economies. The most affected are the investors in Asian
stocks through international funds. Also impacted could be the earnings
of U.S. companies that are dependent on Asian-derived revenues. The
devaluation of Asian currencies means that their exports are far
cheaper, and imported U.S. products become more expensive. This could
negatively impact the sales and, therefore, earnings of U.S.
companies.
However, all this turbulence does not meaningfully threaten our
economy. On the contrary, Asians view American markets as the bastion
of stability. Foreign investments in U.S. Treasuries have increased
significantly, helping reduce interest rates and furthering our own
economic stability. What's more, the overseas uncertainty has moved the
Fed from leaning toward raising banks' lending rates, toward an
inclination to lower rates.
American markets have reacted to the fear that the spillover effect
will be significant. Most recently, however, that fear has abated, as
more sober consideration has contextualized the impact of Asian
contagion.
Therefore, with all the news and the drama (remember our discussion
above about the financial media), the fact remains that they should not
have extensive impact on our markets. While we might be all connected,
we're not necessarily all contagious.
<PAGE>
Matrix/LMH Value Fund
<TABLE>
<CAPTION>
Schedule of
Investments (Unaudited) DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (95.98%)
SECURITY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
APPAREL (3.30%)
<S> <C> <C>
Fruit of the Loom 11,700 $ 299,812
---------
BANKS (5.31%)
Mellon Bank Corp. 4,800 291,000
J.P. Morgan & Co. 1,700 191,888
-------
482,888
-------
BEVERAGES (2.90%)
Anheuser-Busch Companies, Inc. 6,000 264,000
-------
COMPUTER SOFTWARE AND SERVICES (7.85%)
BancTec, Inc.* 13,500 361,969
Electronic Data Sytems Corp. 8,000 351,500
-------
713,469
-------
CONSUMER PRODUCTS (6.18%)
Allergan, Inc. 8,000 268,500
Bausch & Lomb, Inc. 7,400 293,225
-------
561,725
-------
DRUGS (6.75%)
Bristol-Myers Squibb Co. 3,000 283,875
Pharmacia & Upjohn, Inc. 9,000 329,625
-------
613,500
-------
ELECTRONICS (4.12%)
Dynatech Corp. 8,000 375,000
-------
FOOD PROCESSING (2.40%)
Eskimo Pie Corp. 19,000 218,500
-------
FURNITURE (6.55%)
O'Sullivan Industries* 30,500 305,000
Shaw Industies, Inc. 25,000 290,625
-------
595,625
-------
GROCERY (1.36%)
American Stores 6,000 123,375
-------
<PAGE>
Matrix/LMH Value Fund
COMMON STOCKS (Unaudited), Continued
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
HOTEL/GAMING (2.82%)
Circus Circus Enterprises, Inc. 12,500 $ 256,250
---------
HOUSEHOLD PRODUCTS (3.68%)
Tupperware Corp. 12,000 334,500
-------
INDUSTRIAL SERVICES (3.38%)
Olsten Corp. 20,500 307,500
-------
MEDICAL SERVICES (2.95%)
Aetna Inc. 3,800 268,137
-------
MEDICAL SUPPLIES (7.01%)
SpaceLabs Medical, Inc.* 15,800 300,200
US Surgical Corp. 11,500 337,094
-------
637,294
-------
PRECISION INSTRUMENTS (6.81%)
Eastman Kodak Co. 4,500 273,656
Sensormatic Electronics Corp. 21,000 345,187
-------
618,843
-------
PRINTING AND PUBLISHING (3.05%)
John H. Harland & Co. 13,200 277,200
-------
RESTAURANTS (2.89%)
Lone Star Steakhouse & Saloon 15,000 262,500
-------
RETAIL - SPECIAL LINES (1.19%)
Designs, Inc.* 36,000 108,000
-------
SHOES (1.90%)
Reebok International Ltd.* 6,000 172,875
-------
TELECOMMUNICATIONS SERVICES (4.10%)
Frontier Corp. 15,500 372,969
-------
TIRE AND RUBBER (3.22%)
Cooper Tire & Rubber Co. 12,000 292,500
-------
<PAGE>
Matrix/LMH Value Fund
COMMON STOCKS (Unaudited), Continued
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
TOBACCO (3.49%)
Philip Morris Co., Inc. 7,000 $ 317,188
---------
TOYS AND SCHOOL SUPPLIES (2.77%)
Toys R Us 8,000 251,500
-------
TOTAL COMMON STOCKS
(Cost $8,110,913) 8,725,150
---------
SHORT-TERM INVESTMENTS - Investment Companies (5.99%)
- -----------------------------------------------------------------------------------------------------------------------------------
Gradison U.S. Government
Reserves Fund 320,515 320,515
Star Treasury Fund 224,339 224,339
-------
TOTAL SHORT-TERM INVESTMENTS
(Cost $544,854) 544,854
-------
TOTAL INVESTMENTS IN SECURITIES
(Cost $8,655,767) 9,270,004
LIABILITIES LESS OTHER ASSETS (-1.97%) (179,496)
--------
TOTAL NET ASSETS $9,090,508
==========
<FN>
*Non-income producing security.
</FN>
</TABLE>
The accompanying notes to financial statements are an integral
part of this schedule.
<PAGE>
Matrix/LMH Value Fund
<TABLE>
<CAPTION>
Statement of
Assets and Liabilities
(Unaudited) DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at value:
<S> <C>
Common stocks (cost $8,110,913)...................................................... $8,725,150
Short-term investments (cost $544,854)............................................... 544,854
Receivables:
Dividends and interest............................................................... 16,082
Fund shares sold..................................................................... 11,353
Prepaid expenses........................................................................ 1,750
-----
TOTAL ASSETS 9,299,189
---------
LIABILITIES
Payables:
Advisory fee......................................................................... 1,332
Securities purchased................................................................. 180,205
Fund shares repurchased.............................................................. 6,106
Dividends............................................................................ 130
Accrued expenses........................................................................ 20,908
------
TOTAL LIABILITIES 208,681
-------
NET ASSETS $9,090,508
==========
SOURCE OF NET ASSETS
Capital
Par value of 294,526 shares outstanding
(30,000,000 shares authorized)
at $.01 per share................................................................. $ 2,945
Paid-in capital ..................................................................... 8,687,903
---------
Total capital paid in on shares...................................................... 8,690,848
Undistributed net investment income.................................................. 1,396
Accumulated net realized loss on
investment transactions........................................................... (215,973)
Unrealized appreciation of investments............................................... 614,237
-------
NET ASSETS $9,090,508
==========
NET ASSET VALUE PER SHARE
(Offering and Redemption Price) $ 30.86
=======
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
<PAGE>
Matrix/LMH Value Fund
<TABLE>
<CAPTION>
FOR THE
Statement of 6 MONTHS ENDED
Operations (Unaudited) DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT
INCOME
<S> <C>
Dividends............................................................................... $ 64,979
Interest................................................................................ 12,486
------
TOTAL INCOME 77,465
------
EXPENSES
Investment advisory fee................................................................. 19,974
Transfer agent fee and expenses......................................................... 9,075
Audit fees.............................................................................. 8,571
Insurance............................................................................... 5,294
Registration and filing fees............................................................ 3,277
Custodian fee and expenses.............................................................. 2,420
Legal fees.............................................................................. 1,764
Reports to shareholders ................................................................ 1,260
Miscellaneous........................................................................... 815
---
NET EXPENSES 52,450
------
NET INVESTMENT INCOME 25,015
------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS - NET
Realized gain on investments - net...................................................... 1,149,791
Change in unrealized appreciation of investments - net.................................. (711,138)
--------
GAIN ON INVESTMENTS - NET 438,653
-------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 463,668
=========
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
<PAGE>
Matrix/LMH Value Fund
<TABLE>
<CAPTION>
Statement of Changes
in Net Assets FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
1997* 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income................................................ $ 25,015 $ 33,748
Realized gain on investments - net................................... 1,149,791 1,113,737
Change in unrealized appreciation of investments - net............... (711,138) 472,640
-------- -------
NET INCREASE IN
NET ASSETS RESULTING
FROM OPERATIONS 463,668 1,620,125
------- ---------
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income................................................ (49,805) (97,339)
------- -------
CAPITAL SHARE
TRANSACTIONS
Shares sold ......................................................... 1,407,393 1,607,377
Shares issued in connection with reinvestment of dividends........... 49,676 94,160
Shares redeemed...................................................... (1,316,206) (1,336,436)
---------- ----------
TOTAL 140,863 365,101
------- -------
TOTAL INCREASE
IN NET ASSETS 554,726 1,887,887
Net assets, beginning of period...................................... 8,535,782 6,647,895
--------- ---------
Net assets, end of period (including undistributed
net investment income of $1,396 and $26,186,
respectively)..................................................... $9,090,508 $8,535,782
========== ==========
CHANGES IN SHARES
OUTSTANDING
Shares sold.......................................................... 45,884 61,715
Shares issued in connection with reinvestment of dividends........... 1,619 3,556
Shares redeemed...................................................... (43,428) (50,683)
------- -------
INCREASE 4,075 14,588
===== ======
<FN>
*Unaudited.
</FN>
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
<PAGE>
Matrix/LMH Value Fund
Notes to
Financial
Statements (Unaudited) DECEMBER 31, 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.
<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.
NOTE 4 -
INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
Purchases and proceeds from sales of securities for the period ended
December 31, 1997 were as follows:
Proceeds from
Sales (Including
Purchases Maturities)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock and Bonds $4,039,031 $3,872,244
Short-term Obligations 3,767,064 3,874,798
</TABLE>
At December 31, 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 $1,035,111 and the aggregate
gross unrealized depreciation was $420,874, or a net unrealized
appreciation of $614,237. 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.
<PAGE>
Matrix/LMH Value Fund
<TABLE>
<CAPTION>
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS
ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1997* 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $29.39 $24.10 $20.98 $17.78 $18.45 $17.08
Income from investment operations:
Net investment income............ 0.08 0.10 0.47 0.46 0.34 0.30
Net realized and unrealized gain
(loss) on investments.......... 1.56 5.52 3.12 3.13 (0.78) 1.44
---- ---- ---- ---- ----- ----
Total from investment operations.... 1.64 5.62 3.59 3.59 (0.44) 1.74
---- ---- ---- ---- ----- ----
Less distributions:
Dividends from net investment
income......................... (0.17) (0.33) (0.47) (0.39) (0.23) (0.37)
----- ----- ----- ----- ----- -----
Total distributions................. (0.17) (0.33) (0.47) (0.39) (0.23) (0.37)
----- ----- ----- ----- ----- -----
Net asset value, end of period...... $30.86 $29.39 $24.10 $20.98 $17.78 $18.45
====== ====== ====== ====== ====== ======
Total return ....................... 11.38%+ 23.47% 17.16% 20.47% (2.44%) 10.30%
Ratios/supplemental data:
Net assets, end of period (millions) $ 9.1 $ 8.5 $ 6.6 $ 6.0 $ 5.7 $ 6.9
Ratio of operating expenses to
average net assets:
Before expense reimbursement.. 1.35%+ 1.92% 1.84% 2.35% 2.51% 2.55%
After expense reimbursement... 1.35%+ 1.42% 1.84% 2.35% 2.50% 2.50%
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement . 0.65%+ (0.06)% 2.01% 2.27% 1.79% 1.52%
After expense reimbursement .. 0.65%+ 0.44% 2.01% 2.27% 1.80% 1.58%
Portfolio turnover rate ............ 48% 129% 57% 34% 46% 53%
Average commission rate paid per share $.0602 $.0576 - - - -
<FN>
*Unaudited.
+Annualized.
</FN>
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
<PAGE>
Board of Directors
Leonard M. Heine, Jr., Director Emeritus
David A. Katz, CFA
Larry D. Kieszek
Robert M. Rosencrans
T. Michael Tucker
Investment Advisor
Matrix Asset Advisors, Inc.
444 Madison Avenue, 3rd Floor
New York, NY 10022
(800) 366-6223
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
Transfer Agent
American Data Services, Inc.
150 Motor Parkway
Hauppauge, NY 11788
(800) 385-7003
Administrator
Investment Company Administration Corporation
Independent Accountants
Price Waterhouse LLP
Legal Counsel
Shereff, Friedman, Hoffman & Goodman
This report is intended for shareholders of the Fund and may not be used
as sales literature unless preceded or accompanied by a current
prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Statements and other information herein are dated and
are subject to change.
