September 7, 1999
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, 1999.
If you have any questions, please contact me at (602) 952-1100.
Sincerely yours,
/s/
Robert H. Wadsworth
<PAGE>
MATRIX/LMH
VALUE FUND
August 15, 1999
Dear Fellow Shareholder:
I am pleased to enclose our report and commentary concerning the
Matrix/LMH Value Fund for the past year as well as for the quarter ending
June 30, 1999.
It has now been three years since Matrix began its involvement in the
management of the Matrix/LMH Value Fund. We are happy to report that we
have made significant progress in boosting its performance and streamlining
the Fund's operations. These developments have positioned the Fund
for its next stage of significant growth.
Most importantly, the Fund has generated highly competitive returns
over the past three years, with a +18.52% annualized growth. These gains
are comfortably ahead of our peer group's returns of +15.91% (Source:
Morningstar -- Mid Cap. Value Index). During the past 12 months, the Fund
increased by 19.79%.
In addition to producing solid investment performance, we have made
good on our commitment to increase the distribution and visibility of the
Fund. Highlights of this achievement include:
o We are part of the Schwab One Source program.
o Investors can purchase the Fund through a substantial number of
other brokerage firms which offer no-load mutual funds to their
clients.
o We recently secured daily listing of the Fund's Net Asset Value in
The Wall Street Journal and weekly listing in Barron's.
o We have a web site which provides daily valuations, portfolio
updates, quarterly communications, as well as recent articles and
investment comments by Matrix principals.
o We expanded the Fund's communications and correspondence to
quarterly from semi-annually.
o Matrix was one of five firms recently highlighted in "Investing
Strategies of Top Value Players" in Lisa Holton's new book How to
Be a Value Investor.
o In the past quarter, we were included in various interviews and
stock discussions in Business Week, Money Magazine, and
Kiplinger's.
o We are making a concerted attempt to use existing relationships to
increase exposure of the Fund in the marketplace. These efforts
are expected to further increase the size of the Fund over the
next nine to 18 months.
We are especially gratified that we have been able to continually lower
the Fund's expense ratio. Starting at 1.84% prior to our involvement, the
expense ratio declined in the past year to 1.23%. We are pleased to note
that as of July 30th of this year, the expense ration has dropped below
1.1%.
As we have discussed in the past, the Matrix partners and associates in
our firm as well as our friends and family continue to increase our
participation in the Fund. You should take comfort from the recognition
that the highest endorsement any financial manager can give to an
investment is owning it.
<PAGE>
MATRIX/LMH
VALUE FUND
To all our shareholders, we reiterate our commitment to provide you
with quality investment management aimed at producing attractive long-term
growth, with less short-term risk and volatility than the market.
* * *
Our most recent investment performance has been very impressive. The
Fund posted extremely strong performance for the second quarter. The Net
Asset Value of the Fund ended the quarter at $38.40, an increase of 20.75%
for the quarter, 24.11% for the first six months of the calendar year and
19.79% over the past 12 months.
Not surprisingly, therefore, the Fund's performance for the
year-to-date significantly outpaced the major market indices, including the
S&P 500 Index, as shown below:
Comparison of Equity Performance from
12/31/98 - 6/30/99
Matrix/LMH Value Fund 24.11%
All Cap Blend Index * 9.70%
S&P 500 Index 12.38%
Value Line Index 7.28%
Russell 2000 Index 9.09%
*(1/3 S&P 500, 1/3 Value Line, 1/3 Russell 2000)
We were gratified to see that the common sense underlying the Fund's
investment discipline was fully recognized and rewarded in the second
quarter. Following this letter we include a commentary about the market,
our investment progress and the state of our holdings as well as our Ideas
About Investing.
<PAGE>
MATRIX/LMH
VALUE FUND
If you have any questions on the enclosed, or would like to discuss
our outlook on the market or the Fund in greater detail, please feel free
to call us at (800) 366-6223 or e-mail us at [email protected]. You might
also enjoy visiting our website at www.matrixlmh.com.
Best regards.
Sincerely,
/s/ David A. Katz
David A. Katz, CFA
Chief Investment Officer
Past performance is not a guarantee of future results. The Fund's average
annual returns for the one-year, five-year, and ten-year periods ended June
30th, 1999 were 19.79%, 18.63%, and 9.60%, respectively. Fund share value
and returns fluctuate and investors may have a gain or loss when they
redeem shares. Matrix Asset Advisors became sub-Advisor on July 3, 1996 and
Advisor to the Fund on May 11, 1997. Prior to those dates, the Fund was
managed by another advisor.
<PAGE>
MATRIX/LMH
VALUE FUND
Matrix/LMH Value Fund
Value of $10,000 vs S&P 500 Index
Date Matrix/LMH S&P 500 Index
Value Fund
30-Jun-89 10,000 10,000
30-Jun-90 9,592 11,673
30-Jun-91 8,907 12,547
30-Jun-92 9,895 14,219
30-Jun-93 10,914 16,158
30-Jun-94 10,648 16,383
30-Jun-95 12,827 20,665
30-Jun-96 15,035 26,020
30-Jun-97 18,563 35,054
30-Jun-98 20,895 45,615
30-Jun-99 25,030 52,919
Annual Average Total Returns
Year Ended June 30,1999
1 Year 19.79%
5 Year 18.63%
10 Year 9.60%
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 OF 1999
"Holy cow!" -- Phil Rizzuto
Overview:
The second quarter was marked by the breakdown of the dominance of the
megacap stocks that had characterized the stock market for the past two
years. For the first time since the decline of Asian economies in mid-1997,
there was intense interest in a broader base of stocks, most of which had
significantly underperformed the "New Nifty Fifty" in 1998. Simultaneously,
many previous market leaders suffered from a concern that their premium
pricing was unjustifiable.
The overall stock market had a very choppy quarter, which ended well,
thanks to the Federal Reserve returning to a neutral monetary policy, which
propelled markets upwards in the last few days of June. However, for much
of the quarter the market posted nominal and even negative results,
reflecting anxieties about interest rates and the ability of previous
market leaders to maintain their momentum.
For the Matrix/LMH Value Fund, the second quarter was nothing short of
breathtaking. For us, the quarter had a quasi-Biblical quality to it: a
sense of resurrection, redemption and vindication was the reward for
maintaining our discipline during a period last year when it seemed that
little was going right.
In the second quarter, the basic common sense underlying our discipline
-- "buy good companies at good prices" -- came through across our entire
portfolio, with the vast majority of our stocks benefiting from
increasingly favorable business prospects.
In addition, the second quarter provided some important object lessons
about investing. Whereas at the beginning of the quarter the death of Value
was being widely contemplated by market pundits, by quarter-end many of
those same sources were trumpeting the timeliness of Value. Following this
Commentary, we devote our Ideas About Investing to a discussion of the
lessons to be learned from this past quarter.
Portfolio Update
In the second quarter the vast majority of Matrix holdings experienced
solid gains. The primary reason for this was strong business performance,
as well as certain previously out-of-favor industries receiving renewed
interest.
Conspicuously successful were the firm's technology stocks:
Electronic Data Systems, LAM Research, Motorola, Novellus Systems and
Vishay Intertechnology. Other strong performers included Alcatel,
Bausch & Lomb, First Data Corp., Mark IV Industries, St. Jude Medical,
Sensormatic and Tupperware.
<PAGE>
MATRIX/LMH
VALUE FUND
Frontier and O'Sullivan, each of which announced plans to be acquired,
also had healthy gains. While a number of our other holdings had modest
appreciation during the quarter, there were few positions that had
meaningful setbacks.
During the quarter, we sold our holdings of Cooper Tire for a modest
loss to take advantage of more compelling investment opportunities. We also
scaled back our outsized position in Frontier Corp. and Mellon Bank for
gains in excess of 150%. We used the proceeds from these sales along with
existing cash balances to build positions in Bank One, Manpower and Mattel
as well as to add to other existing positions.
* * *
Following this letter is our quarterly feature, Ideas About Investing.
This quarter we reflect on the lessons that the past three months can teach
us all about equity investing.
Please call any of us at any time with any questions or concerns. And
remember our e-mail address, [email protected]. Best regards for a happy
and relaxing summer.
<PAGE>
MATRIX/LMH
VALUE FUND
IDEAS ABOUT INVESTING
A Quarterly Quest for Investing Enlightenment
1. So this is why people study history?
One truism about life is that things look much more clear in
retrospect. With distance comes perspective, and a cooler detached ability
to analyze things more calmly than in the heat of the moment.
The very same can be said for investing. Market movements seem
self-evident after the fact, but while they occur, few fully understand
what is moving the market. With distance comes the detached perspective
that allows investors to see a larger picture of the market at work, rather
than just short-term price fluctuations.
This past quarter in the market represented the culmination of
objective market analysis and perspective. While many investors in the heat
of the moment had been quick to abandon proven methods for evaluating the
relative attraction of stocks, the second quarter sent many people back to
their securities analysis textbooks for a refresher course in market
fundamentals.
Above all, the second quarter should remind us that the following
verities of investing have not been repealed, nor have been shown to be
obsolete:
1. Things change, but never change. The constant urge to depict
the present as unprecedented is a classic human conceit and error. Markets
work in cycles, cycles tend to be influenced by emotion and emotion is an
intrinsic part of what makes us human. It is humbling, but ultimately
reassuring to recognize that "all of this" has happened before.
2. Nothing is forever good or bad in the market. The fact that a
particular stock or industry has been attractive does not mean it will
continue that way. Furthermore, all stocks experience performance cycles,
either because of business fundamentals or because expectations about stock
performance have become overly exaggerated -- one way or the other.
Investors who insist on buying something because it has been going up run
the risk of getting in too late. It has become very common for many mutual
funds or individual stocks to post strong returns, and yet most of the
investors in them have lost money because they bought them at or close to
the top.
3. When everyone is thoroughly convinced that a stock, an industry
or the market itself will perform a certain way, you can count on the
opposite. Markets ultimately work counter-intuitively, and rarely comport
with conventional thinking over long periods of time. Despite the market of
the last few years, the stock market was never a place where everyone had
strong performance. Rather, the disciplined and the shrewd usually profited
while the unwary were usually disappointed. The key to successful long-term
investing has always been a consistent, disciplined methodology that has
established that it can work.
<PAGE>
MATRIX/LMH
VALUE FUND
4. Buying a stock for any reason other than a well-grounded
knowledge of the business, is speculation. The fact that a stock is moving
up means little in terms of its longer-term performance. That performance
will be determined by the business prospects of the company and the price
that an investor pays. Those who invest without such awareness are actually
investing in the movement of the stock, which, as we have seen, is volatile
and unpredictable.
5. Time is the greatest ally of prudent and disciplined investors.
For those who have adopted a sound methodology, and who have done their
homework about a stock (and keep doing it through constant monitoring of
the company's business prospects), time will usually reward you.
Why? Because time allows all the other elements necessary for good
investing to work their magic. In the second quarter, several of our stocks
which had previously been severely punished because of earnings
disappointments, perceptions of future growth prospects and industry
concerns, were positively re-appraised. Good companies have the ability to
overcome short-term operating issues, and, if successful, can benefit from
the reversal of the emotional power that had previously hurt their stock
prices.
6. Patience is the investor's way of harnessing the power of time.
While time might ultimately rescue and reward the stock price of a good
company, it does an investor no good unless he or she has the patience to
be there to reap the reward.
We recognize that in a world of instant information and shortened
timeframes this patience is not easily achieved. Our expectations have
become higher and we are encouraged by the financial media to be less
patient. Nevertheless, it is the investor with the longer-term focus who
should both perform better and lose less sleep.
An important element of patience is trust. When an investor has an
established discipline of investing, then he or she can trust that over
time there is a far better likelihood of doing well. That trust builds
confidence and conviction, which in turn allows for patience.
During the second quarter, many of the observations and
predictions that we had been making about the market began to come to
fruition. Our views have been based on close study of market cycles going
back more than 70 years. While we are relieved to be proven right, we are
also not terribly surprised. And while past performance doesn't guarantee
the future, history shows that much of what is going on today has all
happened before.
<PAGE>
MATRIX/LMH
VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C>
Schedule of
Investments JUNE 30, 1999
------------------------------------------------------
COMMON STOCKS (98.99%)
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
AUTO PARTS (3.22%)
Mark IV Industries, Inc. 17,000 $ 359,125
---------
BANKS (6.71%)
Bank One Corporation 1,800 107,213
Bank of America Corp. 3,500 256,594
Mellon Bank Corp. 4,000 145,500
J.P. Morgan & Co. 1,700 238,850
--------
748,157
--------
COMPUTER AND PERIPHERALS (1.10%)
3 Com Corp.* 4,600 122,762
--------
COMPUTER SOFTWARE AND SERVICES (4.06%)
Electronic Data Sytems Corp. 8,000 452,500
--------
CONSUMER PRODUCTS (8.79%)
Bausch & Lomb, Inc. 4,500 344,250
Eastman Kodak Co. 5,300 359,075
Polaroid Corp. 10,000 276,250
--------
979,575
--------
DRUGS (7.15%)
Bristol-Myers Squibb Co. 5,200 366,275
Pharmacia & Upjohn, Inc. 5,000 284,063
Teva Pharmaceutical SP ADR 3,000 147,000
--------
797,338
--------
ELECTRONICS (6.95%)
Arrow Electronics, Inc.* 9,000 171,000
Vishay Intertechnology, Inc.* 28,750 603,750
--------
774,750
--------
FINANCIAL SERVICES: (7.95%)
First Data Corp. 12,500 611,719
SLM Holding Corp. 6,000 274,875
--------
886,594
--------
<PAGE>
MATRIX/LMH
VALUE FUND
COMMON STOCKS, Continued
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
FURNITURE (6.87%)
O'Sullivan Industries* 30,500 $ 518,500
Shaw Industries, Inc. 15,000 247,500
---------
766,000
---------
HOUSEHOLD PRODUCTS (3.20%)
Tupperware Corp. 14,000 357,000
---------
INDUSTRIAL SERVICES (3.33%)
Manpower Inc. 10,000 226,250
Olsten Corp. 23,000 145,187
---------
371,437
---------
MEDICAL SERVICES (3.11%)
Aetna Inc. 2,200 196,763
Foundation Health Systems* 10,000 150,000
---------
346,763
---------
MEDICAL SUPPLIES (6.84%)
SpaceLabs Medical, Inc.* 14,000 264,250
St. Jude Medical, Inc.* 14,000 498,750
---------
763,000
---------
OILFIELD SERVICES/EQUIPMENT (1.20%)
Schlumberger Ltd. 2,100 133,744
---------
PRECISION INSTRUMENTS (3.34%)
Sensormatic Electronics Corp.* 26,700 372,131
---------
RESTAURANTS (1.57%)
Lone Star Steakhouse & Saloon* 18,000 174,937
---------
SEMICONDUCTORS/CAPITAL EQUIPMENT: (5.19%)
LAM Research Corp.* 8,000 373,500
Novellus Systems, Inc.* 3,000 204,750
---------
578,250
---------
TELECOMMUNICATIONS/EQUIPMENT: (4.84%)
Alcatel SA 9,000 255,375
Motorola Inc. 3,000 284,250
---------
539,625
---------
TELECOMMUNICATIONS SERVICES (4.98%)
Frontier Corp. 9,400 554,600
---------
<PAGE>
MATRIX/LMH
VALUE FUND
COMMON STOCKS, Continued
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
TEXTILE (1.72%)
Unifi, Inc.* 9,000 $ 191,250
---------
TOBACCO (2.60%)
Philip Morris Co., Inc. 7,200 289,350
---------
TOYS AND SCHOOL SUPPLIES (4.27%)
Mattel Inc. 9,000 237,937
Toys R Us* 11,500 237,906
---------
475,843
---------
TOTAL COMMON STOCKS
(cost $8,573,528) 11,034,731
------------------------------------------------------
SHORT-TERM INVESTMENTS (2.11%)
------------------------------------------------------------------------------------------------------
Firstar Treasury Fund (cost $235,507) 235,507 235,507
---------
TOTAL INVESTMENTS IN SECURITIES
(cost $8,809,035) - 101.10% 11,270,238
LIABILITIES IN EXCESS OF
OTHER ASSETS - (1.10%) (122,649)
------------------------------------------------------
TOTAL NET ASSETS $11,147,589
======================================================
<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>
<S> <C> <C>
Statement of
Assets and Liabilities JUNE 30, 1999
-------------------------------------------------------
ASSETS
Investments in securities, at value:
Common stocks (cost $8,573,528)................................................. $11,034,731
Short-term investments (cost $235,507).......................................... 235,507
Dividends and interest receivable.................................................. 18,463
Prepaid expenses and other assets.................................................. 1,732
------------------------------------------------------
TOTAL ASSETS 11,290,433
------------------------------------------------------
LIABILITIES
Payables:
Advisory fee.................................................................... 2,230
Securities purchased............................................................ 129,563
Accrued expenses................................................................... 11,051
------------------------------------------------------
TOTAL LIABILITIES 142,844
------------------------------------------------------
NET ASSETS $11,147,589
======================================================
SOURCE OF NET ASSETS
Capital
Par value of 290,339 shares outstanding
(30,000,000 shares authorized)
at $.01 per share............................................................ $ 2,903
Paid-in capital ................................................................ 8,584,466
-----------------------------------------------------
Total capital paid in on shares................................................. 8,587,369
Undistributed net investment income............................................. 114
Undistributed net realized gain on
investment transactions...................................................... 98,903
Unrealized appreciation of investments.......................................... 2,461,203
------------------------------------------------------
NET ASSETS $11,147,589
======================================================
NET ASSET VALUE PER SHARE
(Offering and Redemption Price) $ 38.40
======================================================
</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, 1999
------------------------------------------------------
INVESTMENT
INCOME
<S> <C>
Dividends.......................................................................... $ 116,845
Interest........................................................................... 7,387
------------------------------------------------------
TOTAL INCOME 124,232
------------------------------------------------------
EXPENSES
Investment advisory fee............................................................ 92,001
Transfer agent fee and expenses.................................................... 38,027
Audit fees......................................................................... 12,783
Registration and filing fees....................................................... 8,491
Custodian fee and expenses......................................................... 8,005
Reports to shareholders ........................................................... 2,863
Legal fees......................................................................... 2,422
Miscellaneous...................................................................... 2,132
Insurance.......................................................................... 2,000
------------------------------------------------------
TOTAL EXPENSES 168,724
LESS: Advisory fees waived (53,319)
------------------------------------------------------
NET EXPENSES 115,405
------------------------------------------------------
NET INVESTMENT INCOME 8,827
------------------------------------------------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS - NET
Realized gain on investments - net................................................. 106,818
Change in unrealized appreciation of investments - net............................. 1,664,100
------------------------------------------------------
GAIN ON INVESTMENTS - NET 1,770,918
------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,779,745
======================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
MATRIX/LMH
VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C>
Statement of Changes
in Net Assets FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1999 1998
------------------------------------------------------------
Net investment income................................................ $ 8,827 $ 41,565
Realized gain on investments - net................................... 106,818 1,559,450
Change in unrealized appreciation of investments - net............... 1,664,100 (528,272)
------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS 1,779,745 1,072,743
-----------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income................................................ (26,658) (49,806)
Realized gain on investments......................................... (201,601) 0
-----------------------------------------------------------
TOTAL DISTRIBUTIONS
TO SHAREHOLDERS (228,259) (49,806)
------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Shares sold ......................................................... 1,871,606 2,678,341
Shares issued in connection with reinvestment of dividends........... 227,253 49,203
Shares redeemed...................................................... (2,503,433) (2,285,586)
------------------------------------------------------------
NET CHANGE FROM
CAPITAL SHARE
TRANSACTIONS (404,574) 441,958
------------------------------------------------------------
TOTAL INCREASE
IN NET ASSETS 1,146,912 1,464,895
Net assets, beginning of year........................................ 10,000,677 8,535,782
------------------------------------------------------------
Net assets, end of year (including undistributed
net investment income of $114 and $17,945,
respectively)..................................................... $11,147,589 $10,000,677
============================================================
CHANGES IN SHARES
OUTSTANDING
Shares sold.......................................................... 60,574 84,762
Shares issued in connection with reinvestment of dividends........... 7,516 1,604
Shares redeemed...................................................... (81,688) (72,880)
-----------------------------------------------------------
(DECREASE) INCREASE (13,598) 13,486
===========================================================
</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, 1999
- --------------------------------------------------------------------------------
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, 1999, Matrix waived $53,319 of its fee.
NOTE 4 -
INVESTMENT TRANSACTIONS
The cost of purchases and the proceeds from sales of securities for the
year ended June 30, 1999 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Proceeds from
Sales (Including
Purchases Maturities)
-----------------------------------------
Common Stock and Bonds $2,988,378 $3,178,575
Short-term Obligations 3,158,058 3,513,793
</TABLE>
At June 30, 1999, 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 $3,090,380 and the aggregate gross
unrealized depreciation was $629,177, or a net unrealized appreciation of
$2,461,203.
<PAGE>
MATRIX/LMH
VALUE FUND
<TABLE>
<CAPTION>
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
YEARS ENDED JUNE 30,
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------
Net asset value, beginning of year............... $32.90 $29.39 $24.10 $20.98 $17.78
Income from investment operations:
Net investment income......................... 0.03 0.14 0.10 0.47 0.46
Net realized and unrealized gain
on investments.............................. 6.26 3.54 5.52 3.12 3.13
-----------------------------------------------------
Total from investment operations................. 6.29 3.68 5.62 3.59 3.59
-----------------------------------------------------
Less distributions:
Dividends from net investment
income...................................... (0.09) (0.17) (0.33) (0.47) (0.39)
Distributions from realized gains............. (0.70) (0.00) (0.00) (0.00) (0.00)
------------------------------------------------------
Total distributions.............................. (0.79) (0.17) (0.33) (0.47) (0.39)
------------------------------------------------------
Net asset value, end of year..................... $38.40 $32.90 $29.39 $24.10 $20.98
======================================================
Total return .................................... 19.79% 12.56% 23.47% 17.16% 20.47%
Ratios/supplemental data:
Net assets, end of year (millions).............. $ 11.1 $ 10.0 $ 8.5 $ 6.6 $ 6.0
Ratio of operating expenses to average
net assets:
Before expense reimbursement............... 1.83% 1.80% 1.92% 1.84% 2.35%
After expense reimbursement................ 1.25% 1.23% 1.42% 1.84% 2.35%
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement .............. (0.48%) (0.12)% (0.06)% 2.01% 2.27%
After expense reimbursement ............... 0.10% 0.45% 0.44% 2.01% 2.27%
Portfolio turnover rate .............. 33% 68% 129% 57% 34%
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
MATRIX/LMH
VALUE FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS and
SHAREHOLDERS OF MATRIX/LMH VALUE FUND
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Matrix/LMH Value Fund, as of June
30, 1999, and the related statement of operations, the statement of changes
in net assets and the financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The
financial statements for the year ended June 30, 1998 and financial
highlights presented for the four year period ending June 30, 1998 were
audited by other auditors whose report dated August 20, 1998 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 1999, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Matrix/LMH Value Fund as of June 30, 1999, the results of its
operations, the changes in its net assets and the financial highlights for
the year then ended, in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
August 6, 1999
<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.
747 Third Avenue, 31st Floor
New York, NY 10017
(800) 366-6223
Custodian
Firstar Institutional Custody Services
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 LLC
Independent Accountants
Tait, Weller, & Baker
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.
