September 4, 1998
Securities and Exchange Commission
Attn: Filing Desk, Stop 1-4
450 Fifth Street, N.W.
Washington, DC 20549
Re: Professionally Managed Portfolios
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
Annual Report to shareholders of the Matrix/LMH Value Fund series of the
Registrant for the twelve month period ended June 30, 1998.
If you have any questions, please contact me at (602) 952-1100.
Sincerely yours,
Robert H. Wadsworth
<PAGE>
Annual Report
MATRIX/LMH VALUE FUND
June 30, 1998
560 Hudson Street
Hackensack, New Jersey 07601
<PAGE>
MATRIX/LMH VALUE FUND
August 18, 1998
Dear Fellow Shareholder:
I am pleased to enclose our report and commentary concerning the Fund
for the past year, including the second quarter of 1998.
The twelve months ending June 30, 1998 were strong if one was invested
in the largest companies. For broad market investors, however, results have
been attractive but not at the same level as for the "mega" stocks.
During the past 12 months, the Fund accomplished many of the objectives
outlined in our August 20, 1997 correspondence.
o Shareholder wealth continued to grow as the Net Asset Value closed
the quarter at $32.90, a +12.56% total return for the past 12
months and +6.61% since the beginning of 1998.
o The Fund continued to operate in a tax efficient manner. While we
have had significant increases in Net Asset Value during the two
years of Matrix's stewardship, these capital gains did not result
in a tax burden for our investors as we continued to use the
Fund's tax loss carryforward.
o We have increased the Fund's level of communication with
Shareholders through our quarterly reports and our website. In the
future, we expect to put our market commentaries, discussions
about stocks and other timely information on the website.
Investors can access Net Asset Value updates as well. The Fund's
address is matrixlmh.com.
o We continue to own a portfolio of quality businesses selling at
well below market valuations. We believe this formula should allow
for long-term growth of assets and less-than-market risk in
volatile environments.
o Matrix Partners and Associates as well as our friends and family
continue to increase their holdings in the Fund.
o The Fund's expense ratio continues to decrease and currently
stands at 1.23% after expense reimbursement.
Most recently, in the second quarter of 1998, the Fund had a slightly
negative quarter, much like the overall stock market. However, we believe
that many of the investments made during this period will bear profitable
fruit in the future. (Please see our Capital Market Commentary for a
thorough discussion about our portfolio, as well as the current investment
environment.)
While the past 12 months have been profitable and the Fund has
progressed on many fronts, this period has been more difficult for us and
other value managers on a relative basis. Historically, periods of relative
under-performance have been followed by more favorable times. We believe we
are poised to re-enter a period of favorable relative returns.
As I write this letter the market is experiencing a significant pull
back. We believe this should set the stage for a more selective and
value-oriented market. The current market volatility is allowing a good
entry point for many new investments, and should represent a good bargain
hunting opportunity. As such, we feel that now could be an opportune time
to increase your position in the Fund.
<PAGE>
MATRIX/LMH VALUE FUND
If you would like to make any additional investments in the Fund, draw
a check to The Matrix/LMH Value Fund, include your account number and send
to The Matrix/LMH Value Fund, Inc., Post Office Box 641220, Cincinnati,
Ohio 45264-1220. In addition, if you know of others who you think would be
well served by the Fund, please ask them to call us at (800) 366-6223. Or
they can request information from our website at matrixlmh.com. Thereafter,
we will send a Fund prospectus, which they should read carefully before
investing.
If we can provide you with any additional information about the Fund,
or you have questions on the enclosed, please do not hesitate to call.
Best regards.
Sincerely,
/S/
David A. Katz, CFA
Chief Investment Officer
Annual Average Total Return
Period Ended June 30, 1998
1 Year 12.56%
5 Year 13.85%
10 Year 9.66%
LMH Fund S & P 500 Index
30-Jun-88 10,000 10,000
30-Jun-89 12,046 12,005
30-Jun-90 11,555 14,013
30-Jun-91 10,730 15,063
30-Jun-92 11,919 17,070
30-Jun-93 13,147 19,397
30-Jun-94 12,826 19,668
30-Jun-95 15,451 24,807
30-Jun-96 18,111 31,237
30-Jun-97 22,361 42,081
30-Jun-98 25,170 54,760
Past performance is not predictive of future performance.
The S&P 500 is an unmanaged index composed of 500 common stocks
representative of the stock market as a whole.
<PAGE>
MATRIX/LMH VALUE FUND
Capital Markets Commentary - Second Quarter 1998
Overview
"All that glitters is not gold."
-- Universal Folk Wisdom
This timeless good advice provides some much-needed caution about the
current state of the stock market. Most factors that correlate with
investment returns over the long term have been upside down for the past
six months. It was a great quarter and first half for the very largest
stocks and for high-flying stocks. The rest of the market had by and large
poor results for the quarter. First half results have been positive, but
certainly not in the realm of the performance of the largest stocks.
This trend of disparate performance that we have been discussing for
some time reached dramatic levels during the second quarter. A recently
published study shows that in 1998 the low price to earnings stocks favored
by Matrix and other Value investors has had its worst relative performance
to high price-to-earnings stocks in the past 50 years! Conversely, high
price-to-earnings stocks, a group which has historically lagged the overall
market returns, had their best relative gains in the past half century.
We strongly believe that this state of the market will not be
sustained. When the 10 largest companies in the market sell for over 35
times earnings, then these stocks are being bought with total disregard for
valuation. History has shown that when a company sells at an excessive
valuation - no matter how good its underlying business - therein lies a
recipe for disaster.
Our Matrix/LMH Value Fund had slightly negative performance during the
quarter, in line with the broad market. First-half performance has also
been in line with the broad market. Nevertheless, we are certainly not
pleased with it. Above all, however, we remain confident that we are
pursuing the right long-term strategy for you and will be amply rewarded
for staying the course.
Looking ahead, we expect continued volatility for the overall stock
market. In the not so distant future, we expect the current anomaly in the
financial arena to end. At that point, the factors that have guided stock
market returns in the past will again take hold.
Fund Performance
The Fund had a modest decline of -2.55% for the quarter, which was in
line with the broader market. This resulted in a June 30th Net Asset Value
of $32.90. Over the past six months, the Fund gained +6.61%, resulting in a
+12.56% increase for the past 12 months.
Over the past three months, the Fund had widely-diverging performance
among its stocks in the portfolio. On the one hand, several stocks, such as
Allergan Inc., Eastman Kodak, Fruit of the Loom, O'Sullivan Industries,
Pharmacia & Upjohn, Shaw Industries and U.S. Surgical had solid gains. SLM
Holdings, a new purchase during the quarter, enjoyed a significant upswing
after initial weakness. Older positions such as Bausch & Lomb and
Bristol-Myers Squibb also performed well.
<PAGE>
MATRIX/LMH VALUE FUND
On the other hand, stocks such as Circus Circus Enterprises, Lone Star
Steakhouse, Olsten Corp., Sensormatic and SpaceLabs Medical declined
during the quarter based on short-term uncertainty rather than a weakening
of their long-term business prospects. We believe these declines have left
these businesses selling at fire sale prices. As business prospects
improve, as we fully expect they will, we look for sharp rebounds in each.
We also saw negative volatility in new technology purchases such as Lam
Research and Vishay Intertechnology, reflecting our early entrance into
the arena of fallen technology stocks (more on this below).
We successfully sold Fruit of the Loom, which had quickly reached its
fair value, US Surgical, which was acquired by Tyco International, and The
Sports Authority, in the wake of a buyout offer by Venator. We expect to
continue to benefit from takeover activity over the next 12 to 18 months,
as several of our stocks are acquisition candidates. Among this group are
Allergan, American Stores*, Circus Circus, Cooper Tire, Foundation Health
Systems, J.P. Morgan, Mark IV Industries, and Mellon Bank.
Technology
As the Asian crisis rolls on, the financial fallout continues to
adversely impact the current earnings of a number of technology issues. The
conventional wisdom as recently as 18 months ago was that these were
hyper-growth companies not subject to cyclical fluctuations. Now, the
market is valuing these businesses as if the current slowdown has no end in
sight. Many of these stocks have been sold off with a vengeance. These
fallen stocks currently sell as much as 50-70% below their all-time highs
and at the low end of their historic valuation range.
We have used this weakness to build positions in the technology group.
Our focus has been on market leaders in selective niches with strong
management very favorable long-term prospects and healthy balance sheets.
Because technology stocks tend to be exceptionally volatile, both on
the upside and the downside, we have started to build our exposure in this
area gradually with smaller-than-usual purchases in a number of holdings.
As prices become more attractive, or fundamentals show early signs of
improving, we expect to increase our positions in a number of these stocks.
Recent purchases include: Arrow Electronics, Lam Research, Motorola, and
Vishay Intertechnology.
These stocks are very much out of favor, and we have been early in our
entrance into this group. However, history very clearly illustrates that
the best time to purchase this group is during periods of uncertainty.
These stocks tend to rebound 3-6 months prior to improvements in
fundamentals, and often can move as much as 30 to 50% in these first few
months of recovery. We believe that our timing will be well rewarded.
Our New Address
Effective August 1, the Fund and its advisor, Matrix Asset Advisors,
have relocated to larger, brighter and, frankly, more client-friendly
quarters. Our new address is 747 Third Avenue, 31st floor, New York, NY
10017. Our telephone and fax numbers as well as our E-mail address remain
the same. We certainly hope that you visit us soon. However, housewarming
gifts are not necessary.
*Soon after the quarter ended, American Stores was acquired by Albertson's.
<PAGE>
MATRIX/LMH VALUE FUND
As is our custom, we follow this letter with pertinent thoughts about
investing. This quarter we study mythology, specifically some of the myths
and misconceptions about investing today.
As always, please call at any time with any questions, concerns or
observations. We all hope that you have a comfortable, relaxing and
profitable summer.
<PAGE>
MATRIX/LMH VALUE FUND
IDEAS ABOUT INVESTING
A Quarterly Quest for Investing Enlightenment
The ebullience of the equity markets during the past three-and-a-half
years has convinced many that a new age of markets has arrived to stay.
With that perception has come certain notions - what we would call the
myths of the current market that need to be examined carefully and
critically.
Myth #1: The realities of the markets have changed. The fundamentals
driving the markets during the past few years will continue unabated, and
therefore so will performance.
During every strong bull market, there are those who attribute its
success to Fundamental changes in the business cycle, the economy or the
laws of markets. Much the same is heard today. Inevitably, however, the
economy is cyclical, with strong growth periods followed by slowdowns.
Similarly the markets operate through cycles, some longer than others, but
all variations on a theme.
Certain factors peculiar to this bull market, such as the extraordinary
amount of money that has and continues to flow into the stock market, might
serve to extend and expand a bull market. However, these factors do not
mean that cyclicality has ended or that the fundamental realities that
control markets have changed. To believe otherwise is a risky conceit.
Myth #2: All of that money flowing into the stock market represents a floor
for the market that should be in place for the next 10-15 years. This too
will assure strong market performance.
What makes this a myth is the assumption that the money currently
flowing into the stock market will automatically continue to do so during
the foreseeable future. The flow of funds into the stock market results
from the perception of easy, strong market returns, if the market turns
choppy or down, that flow of funds could go into bonds, cash or hard
assets.
Futhermore, much of the money flowing into the market today is coming
from foreign sources; reflecting short-term stability, liquidity and
currency exchange issues. As these issues turn, substantial money could be
pulled out of the market.
Myth #3: There is nothing that can sink this market. Risk management is
therefore an overrated concern.
Recognize that all the economic considerations right now are favorable,
and the markets are reacting accordingly. But the economy itself is
dynamic, and its current success can be easily impacted by any number of
factors.
The factor or factors that will ultimately end this bull market cycle
exist today, though they may not be on many radar screens. However, once
they do impact the markets, in hindsight they will be perceived with
crystal clarity. Let us remind ourselves that the often-discussed Asian
crisis was a non-issue until it exploded in the late summer and fall of
last year. The uniformly-favorable picture we have right now will change
at some point.
<PAGE>
MATRIX/LMH VALUE FUND
Myth #4: Bigger is Safer. Investing in the largest companies is less risky.
The recent market has certainly rewarded the largest stocks, which have
benefited from indexing and have posted unprecedented relative returns. But
that very success carries the seeds of future correction, and that growing
likelihood represents a substantial risk.
Simply stated, the great risk is in the implicit expectation of
tremendous future earnings performance of these mega-companies. If earnings
falter or even fail to meet increasingly high expectations, then investors
will feel that valuations are unwarranted and prices will begin to fall.
This is seen daily now, as companies post disappointing earnings. However,
as a company gets increasingly expensive, that exposure to corrections
becomes greater. As the saying goes, the bigger they are, the harder they
fall.
<PAGE>
MATRIX/LMH VALUE FUND
<TABLE>
<CAPTION>
Schedule of
Investments JUNE 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (94.53%)
SECURITY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
AUTO PARTS (2.59%)
<S> <C> <C>
Mark IV Industries, Inc. 12,000 $ 259,500
---------
BANKS (5.33%)
Mellon Bank Corp. 4,800 334,200
J.P. Morgan & Co. 1,700 199,113
-------
533,313
-------
BEVERAGES (2.36%)
Anheuser-Busch Companies, Inc. 5,000 235,937
-------
COMPUTER SOFTWARE AND SERVICES (6.78%)
BancTec, Inc.* 15,500 358,437
Electronic Data Sytems Corp. 8,000 320,000
-------
678,437
-------
CONSUMER PRODUCTS (6.76%)
Allergan, Inc. 8,000 371,000
Allergan Specialty Therapeutics - Class A 400 4,100
Bausch & Lomb, Inc. 6,000 300,750
-------
675,850
-------
DRUGS (7.60%)
Bristol-Myers Squibb Co. 3,000 344,813
Pharmacia & Upjohn, Inc. 9,000 415,125
-------
759,938
-------
ELECTRONICS (3.43%)
Arrow Electronics, Inc. 8,000 174,000
Vishay Intertechnology, Inc. 9,450 169,509
-------
343,509
-------
ENTERTAINMENT / VIDEO / PUBLISHING: (0.54%)
Carmike Cinemas, Inc. 2,000 53,875
------
FINANCIAL SERVICES: (2.94%)
SLM Holding Corp. 6,000 294,000
-------
FOOD PROCESSING (2.40%)
Eskimo Pie Corp. 19,000 239,875
-------
<PAGE>
MATRIX/LMH VALUE FUND
COMMON STOCKS, Continued
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
FURNITURE (8.68%)
O'Sullivan Industries* 30,500 $ 427,000
Shaw Industies, Inc. 25,000 440,625
-------
867,625
-------
GROCERY (1.45%)
American Stores Co. 6,000 145,125
-------
HOTEL/GAMING (2.12%)
Circus Circus Enterprises, Inc. 12,500 211,719
-------
HOUSEHOLD PRODUCTS (3.94%)
Tupperware Corp. 14,000 393,750
-------
INDUSTRIAL SERVICES (2.29%)
Olsten Corp. 20,500 229,344
-------
MEDICAL SERVICES (2.89%)
Aetna Inc. 3,800 289,275
-------
MEDICAL SUPPLIES (5.06%)
Foundation Health Systems 8,000 211,000
SpaceLabs Medical, Inc.* 17,600 294,800
-------
505,800
-------
PRECISION INSTRUMENTS (6.81%)
Eastman Kodak Co. 5,300 387,231
Sensormatic Electronics Corp. 21,000 294,000
-------
681,231
-------
RESTAURANTS (2.49%)
Lone Star Steakhouse & Saloon 18,000 248,625
-------
RETAIL - SPECIAL LINES (0.56%)
Designs, Inc.* 36,000 56,250
------
SEMICONDUCTORS/CAPITAL EQUIPMENT: (1.53%)
Lam Research Corp. 8,000 153,000
-------
SHOES (1.11%)
Reebok International Ltd.* 4,000 110,750
-------
<PAGE>
MATRIX/LMH VALUE FUND
COMMON STOCKS, Continued
SECURITY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/EQUIPMENT: (1.58%)
Motorola Inc. 3,000 $ 157,687
---------
TELECOMMUNICATIONS SERVICES (4.88%)
Frontier Corp. 15,500 488,250
-------
TIRE AND RUBBER (2.47%)
Cooper Tire & Rubber Co. 12,000 247,500
-------
TOBACCO (3.23%)
Philip Morris Co., Inc. 8,200 322,875
-------
TOYS AND SCHOOL SUPPLIES (2.71%)
Toys R Us 11,500 270,969
-------
TOTAL COMMON STOCKS
(Cost $8,656,906) 9,454,009
-----------------------------------------------------------
SHORT-TERM INVESTMENTS (5.91%)
- -----------------------------------------------------------------------------------------------------------------------------------
Gradison U.S. Government
Reserves Fund 100,000 100,000
Star Treasury Fund 491,242 491,242
-------
TOTAL SHORT-TERM INVESTMENTS
(Cost $591,242) 591,242
-----------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $9,248,148) 10,045,251
LIABILITIES LESS OTHER ASSETS (-0.44%) (44,574)
-----------------------------------------------------------
TOTAL NET ASSETS $10,000,677
===========================================================
<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 JUNE 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at value:
<S> <C>
Common stocks (cost $8,656,906)...................................................... $ 9,454,009
Short-term investments (cost $591,242)............................................... 591,242
Cash................................................................................. 100,000
Receivables:
Dividends and interest............................................................... 16,384
Fund shares sold..................................................................... 722
Prepaid expenses........................................................................ 1,632
-----------------------------------------------------------
TOTAL ASSETS 10,163,989
-----------------------------------------------------------
LIABILITIES
Payables:
Advisory fee......................................................................... 1,047
Securities purchased................................................................. 139,432
Accrued expenses........................................................................ 22,833
-----------------------------------------------------------
TOTAL LIABILITIES 163,312
-----------------------------------------------------------
NET ASSETS $10,000,677
===========================================================
SOURCE OF NET ASSETS
Capital
Par value of 303,937 shares outstanding
(30,000,000 shares authorized)
at $.01 per share................................................................. $ 3,039
Paid-in capital ..................................................................... 8,988,904
-----------------------------------------------------------
Total capital paid in on shares...................................................... 8,991,943
Undistributed net investment income.................................................. 17,945
Undistributed net realized gain on
investment transactions........................................................... 193,686
Unrealized appreciation of investments............................................... 797,103
-----------------------------------------------------------
NET ASSETS $10,000,677
===========================================================
NET ASSET VALUE PER SHARE
(Offering and Redemption Price) $ 32.90
===========================================================
</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 YEAR ENDED
Operations JUNE 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT
INCOME
<S> <C>
Dividends............................................................................... $ 133,015
Interest................................................................................ 21,984
-----------------------------------------------------------
TOTAL INCOME 154,999
-----------------------------------------------------------
EXPENSES
Investment advisory fee................................................................. 92,091
Transfer agent fee and expenses......................................................... 24,249
Audit fees.............................................................................. 21,327
Custodian fee and expenses.............................................................. 8,874
Registration and filing fees............................................................ 7,888
Reports to shareholders ................................................................ 4,546
Miscellaneous........................................................................... 2,580
Legal fees.............................................................................. 2,276
Insurance............................................................................... 2,000
-----------------------------------------------------------
TOTAL EXPENSES 165,831
LESS: Advisory fees waived (52,397)
-----------------------------------------------------------
NET EXPENSES 113,434
-----------------------------------------------------------
NET INVESTMENT INCOME 41,565
-----------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS - NET
Realized gain on investments - net...................................................... 1,559,450
Change in unrealized appreciation of investments - net.................................. (528,272)
-----------------------------------------------------------
GAIN ON INVESTMENTS - NET 1,031,178
-----------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,072,743
===========================================================
</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
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income................................................ $ 41,565 $ 33,748
Realized gain on investments - net................................... 1,559,450 1,113,737
Change in unrealized appreciation of investments - net............... (528,272) 472,640
-----------------------------------------------------------
NET INCREASE IN
NET ASSETS RESULTING
FROM OPERATIONS 1,072,743 1,620,125
-----------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income................................................ (49,806) (97,339)
-----------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Shares sold ......................................................... 2,678,341 1,607,377
Shares issued in connection with reinvestment of dividends........... 49,203 94,160
Shares redeemed...................................................... (2,285,586) (1,336,436)
-----------------------------------------------------------
TOTAL 441,958 365,101
-----------------------------------------------------------
TOTAL INCREASE
IN NET ASSETS 1,464,895 1,887,887
Net assets, beginning of year........................................ 8,535,782 6,647,895
-----------------------------------------------------------
Net assets, end of year (including undistributed
net investment income of $17,945 and $26,186,
respectively)..................................................... $10,000,677 $8,535,782
===========================================================
CHANGES IN SHARES
OUTSTANDING
Shares sold.......................................................... 84,762 61,715
Shares issued in connection with reinvestment of dividends........... 1,604 3,556
Shares redeemed...................................................... (72,880) (50,683)
-----------------------------------------------------------
INCREASE 13,486 14,588
===========================================================
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
<PAGE>
MATRIX/LMH VALUE FUND
Notes to
Financial
Statements JUNE 30, 1998
- --------------------------------------------------------------------------------
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 its 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. For the year
ended June 30, 1998, Matrix waived $52,397 of its fee.
NOTE 4 -
INVESTMENT TRANSACTIONS
The cost of purchases and the proceeds from sales of securities for the
year ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Proceeds from
Sales (Including
Purchases Maturities)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock and Bonds $6,265,592 $5,965,807
Short-term Obligations 7,680,614 7,741,960
</TABLE>
At June 30, 1998, 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 $1,559,817 and the aggregate gross
unrealized depreciation was $762,714, or a net unrealized appreciation of
$797,103.
<PAGE>
MATRIX/LMH VALUE FUND
<TABLE>
<CAPTION>
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
YEARS ENDED JUNE 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.............. $29.39 $24.10 $20.98 $17.78 $18.45
Income from investment operations:
Net investment income........................ 0.14 0.10 0.47 0.46 0.34
Net realized and unrealized gain
(loss) on investments...................... 3.54 5.52 3.12 3.13 (0.78)
---------------------------------------------------
Total from investment operations................ 3.68 5.62 3.59 3.59 (0.44)
---------------------------------------------------
Less distributions:
Dividends from net investment income......... (0.17) (0.33) (0.47) (0.39) (0.23)
---------------------------------------------------
Total distributions............................. (0.17) (0.33) (0.47) (0.39) (0.23)
----------------------------------------------------
Net asset value, end of year.................... $32.90 $29.39 $24.10 $20.98 $17.78
=====================================================
Total return ................................... 12.56% 23.47% 17.16% 20.47% (2.44%)
Ratios/supplemental data:
Net assets, end of year (millions).............. $ 10.0 $ 8.5 $ 6.6 $ 6.0 $ 5.7
Ratio of operating expenses to average net assets:
Before expense reimbursement.............. 1.80% 1.92% 1.84% 2.35% 2.51%
After expense reimbursement............... 1.23% 1.42% 1.84% 2.35% 2.50%
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement ............. (0.12)% (0.06)% 2.01% 2.27% 1.79%
After expense reimbursement .............. 0.45% 0.44% 2.01% 2.27% 1.80%
Portfolio turnover rate ........................ 68% 129% 57% 34% 46%
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
<PAGE>
MATIX/LMH VALUE FUND
PRICE WATERHOUSE COOPERS
Report of
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, 1998, 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 audit. We
conducted our audit of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit 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 audit, which included
confirmation of securities at June 30, 1998 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion
expressed above.
/S/PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 20, 1998
<PAGE>
Board of Directors
Leonard M. Heine, Jr., Director Emeritus
David A. Katz, CFA
Larry D. Kieszek
Robert M. Rosencrans
T. Michael Tucker
o
Investment Advisor
Matrix Asset Advisors, Inc.
747 Third Avenue, 31st Floor
New York, NY 10017
(800) 366-6223
o
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
o
Transfer Agent
American Data Services, Inc.
150 Motor Parkway
Hauppauge, NY 11788
(800) 385-7003
o
Administrator
Investment Company Administration Corporation
o
Independent Accountants
PricewaterhouseCoopers LLP
o
Legal Counsel
Swidler Berlin Shereff Friedman, LLP
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.
