<PAGE>
March 10, 2000
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
Semi-Annual Report to shareholders of the Matrix/LMH Value Fund series of the
Registrant for the six month period ended December 31, 1999.
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, 1999
747 Third Avenue, 31st Floor
New York, NY 10017
<PAGE>
MATRIX/LMH
VALUE FUND
Dear Fellow Shareholder:
I am pleased to enclose our report and commentary concerning the Fund
for the quarter and calendar year ending December 31, 1999.
The Fund had a very strong fourth quarter which completed a
tremendously successful year; Fund performance significantly outpaced the
overall stock market. The Net Asset Value of the Fund as of December 31st
was $40.77, an increase of +15.82% for the quarter and an increase of
+32.85% for the year.
As mentioned, the Fund's performance for 1999 was significantly ahead
of the major market indexes, including the S&P 500
Index, as shown below:
Matrix/LMH Value Fund................32.85%
All Cap Blend Index*.................13.93%
S&P 500 Index........................21.18%
Value Line Index.....................-0.20%
Russel 2000..........................20.82%
*( 1/3 S&P 500, 1/3 Value Line, 1/3 Russell 2000)
This strong continuing performance was noted by two leading mutual
fund evaluation firms, Morningstar and Lipper, each of which cited the
Fund among leading performers within its peer group for 1999.
<PAGE>
MATRIX/LMH
VALUE FUND
We are also pleased to report continued progress on a number of other
important fronts. Among our recent accomplishments:
o Capital gains for 1999 of less than 1% of year-end Net Asset
Value. This means the Fund has provided excellent performance in a
highly tax-efficient manner.
o Continued cash inflows to the Fund, at a time when most Value
funds are experiencing net outflows. Through January, 2000, the
Fund's assets have increased by more than 55% from prior 12
months.
o Continued cost reductions, which are expected to reduce the
Fund's expense ratio further during the next fiscal year.
o Increased visibility of the Fund, including our being recognized
for superior performance among mid-capitalization Value funds and
all-capitalization Value funds for rolling 12 month periods in The
Wall Street Journal, The San Francisco Chronicle and the
Investment Advisor Magazine.
o Continued additions of distribution channels through which the
Fund can be purchased.
As we have mentioned in the past, we continue to eat our own cooking,
as Matrix employees continue to add to our investments in the Fund through
our 401K and individual accounts. Family members and friends of Matrix and
the Fund's Directors also have made significant additions in the past year.
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, CFA
Chief Investment Officer
Past performance is not a guarantee of future results. The Fund's average
annual returns for the one-year and three-year periods ended December 31,
1999 were 32.85% and 17.23%, respectively. The Fund's average annualized
return for the period from July 3, 1996, the inception of Matrix's
involvement with the management of the Fund, through December 31, 1999, was
17.93%. 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. Indexes shown are
broad-based, unmanaged measures of market values of large, medium and
smaller company stocks. Small and Mid-cap investing may involve volatility
and other risks. Read the Fund prospectus carefully before investing.
<PAGE>
MATRIX/LMH
VALUE FUND
CAPITAL MARKETS COMMENTARY - 1999 IN REVIEW
Overview
The century ended on a high note for the Matrix/LMH Value Fund, as our
portfolio roared back from a disappointing 1998 to enjoy a strong absolute
and relative year.
In general, following a weak third quarter, the stock market had a
solid rebound in the fourth quarter. As has been the case all year,
technology stocks dominated the strong performance, with most other sectors
of the market continuing to lag significantly.
For the year, the market behaved much as it did in 1998, with a limited
number of very large technology companies accounting for the majority of
the market's gains, and with most stocks posting modestly positive or
negative annual returns. As in the year before, 1999 was not a year that
favored market fundamentals; rather, market momentum determined much of the
year's results and once again larger and more expensive stocks performed
better than smaller and cheaper stocks.
As in 1998, many Internet-related stocks had mind-boggling returns,
often as a result of IPOs that more resembled Oklahoma land rushes than
financings. Nevertheless, by year-end there were rumblings about the
continuing inability of so-called e-commerce stocks to make money, and a
growing recognition that many of these companies would not come through the
Christmas season in robust fashion. In fact we are starting to see the
stock prices of some of these icons return to earth. Prominent recent
sell-offs include Amazon.com, eToys and Priceline.com. More are likely to
occur in the near future.
Unlike 1998 however, your Fund enjoyed very strong gains, with Net
Asset Value increasing by 32.85% and substantially outperforming all
relevant indexes:
Matrix/LMH Value Fund................32.85%
All Cap Blend Index*.................13.93%
S&P 500 Index........................21.18%
Value Line Index.....................-0.20%
Russel 2000..........................20.82%
*( 1/3 S&P 500, 1/3 Value Line, 1/3 Russell 2000)
The Fund's strong performance benefited from the rewards of patience
with a number of 1998's disappointments, as well as from decisive and
opportunistic action taken during the market sell-off of 1998, and finally
from harnessing market volatility during the past year.
<PAGE>
MATRIX/LMH
VALUE FUND
Unfortunately, our Fund's strong performance was not widely
replicated by many other Value funds, many of whom were heavily
concentrated in industries or companies that have yet to return to favor
in the market.
FUND PERFORMANCE
Five factors contributed to the overall success of our equity
portfolios last year:
1. Many good businesses that were punished severely in 1998 staged
very strong recoveries in 1999.
2. Several companies bought in the midst of the market sell-off of
3Q `98 had dramatic rebounds shortly thereafter.
3. Meaningful technology investments which had been established at
bargain prices experienced substantial or dramatic
appreciation.
4. Harnessing volatility in selected 1999 investments produced
strong short-term results.
5. Lucrative takeovers of a number of our holdings.
Not surprisingly, in a year that saw dramatic results for technology
stocks, our tech stocks soared as well. It is also worthwhile to note that
our technology investments increased by more than 100%, outpacing the
NASDAQ Composite's staggering 88% increased for the year! Strong tech
performance was virtually universal including 3Com, Compaq, Electronic Data
Systems, LAM Research, Motorola, Novellus, Sterling Software, and Vishay.
Telecommunication and telecommunication equipment stocks also had great
performance led by the Frontier/Global Crossing one-two punch and then
further by our Alcatel position. Interestingly, at our time of purchase we
noted that the then middling Alcatel was the European version of Lucent
Technologies but at a much better price. During the past 12 months, Alcatel
gained over 75% while Lucent fell 10%.
Importantly our non-technology investments like Bausch & Lomb, First
Data, Manpower Inc., Mylan Labs, O'Sullivan Industries and Schlumberger
also vastly outperformed the very lackluster non-technology areas of the
market.
Conspicuous among the stocks that suffered badly in 1998, only to move
sharply higher in 1999 were Mark IV Industries, Olsten Corp., and
Sensormatic. Purchases in 1999 that showed strong gains out of the gate
included 3Com Corp., Manpower and Mylan Laboratories.
We certainly also had our share of disappointments. Financial stocks
and pharmaceuticals had a difficult year in general, and by and large ours
were weak as well. In addition, following a strong 1998 for Shaw
Industries' stock price (in which we took some profits) the stock price
declined on weakness in the overall housing and housing- related sector.
Other laggards last year included Aetna, Mattel, Polaroid and SpaceLabs
Medical.
<PAGE>
MATRIX/LMH
VALUE FUND
Through a Glass Clearly: Revisiting our Forecast for 1999
Our predictions for 1999 were partially accurate. We predicted
continued market volatility, which was certainly prevalent in 1999, there
were more days of movements of +1% than any year since World War II. Our
prediction for a continued healthy economy was also accurate, and our
concern about possible inflation worries arising did occur and negatively
impacted the bond market and the Fed's monetary policy.
Unfortunately, our prediction that the Value stocks would re-emerge and
outperform the market was accurate only as concerned the Fund's
performance, but not for the market in general. In addition, our conviction
concerning a broadening of the market performance was also premature.
Our Fearless Forecast for 2000
On the macro-economic front, we expect continued global recovery, led
by Asia and flowing through to Europe and Latin America. We believe the
U.S. growth will continue, although the cumulative impact of Federal
reserve rate hikes past and future will eventually temper our current
robust growth. Finally we think that inflation will continue to drift
modestly higher, led by higher oil prices and wage increases arising from
full employment.
As far as the stock market is concerned, the prolonged nature of the
bull market will make for a "white knuckle" year, with volatility
intensifying. A growing number of the market darlings of the recent past
will see significant corrections as they fail to satisfy increasing
demanding investors.
Technology stocks will certainly not be exempt from harsh revaluations;
arguably, they are more vulnerable than other stocks by virtue of the great
run up they had in 1999, and the extraordinary price premiums they command.
Clearly the Internet has changed the way individuals and corporate
America conduct their lives and their businesses. We expect a continued
rapid development of this phenomenon.
However, we would contrast this vision with a belief that by the end of
2000 the bloom will be off the rose of Internet stocks, particularly for
e-commerce stocks. Business realities are expected to overtake the Internet
Dream, as evidenced by the recently announced AOL/Time Warner merger.
In our view, the current move toward old economy business by select
Internet leaders, and the growing realization that many Internet darlings
might never attain meaningful profitability will contribute to a growing
sell-off of previous market icons and to a major reality check in general
for this sector.
We also believe that there will be greater market breadth in 2000 -
meaning that more than just a handful of stocks in a very limited number of
sectors will do well. We do predict that 2000 will mark the re-emergence of
"active" management vis-a-vis "passive" indexing. The volatility of the
markets will create great opportunities for those disciplined enough to
seize them.
Although no one can guarantee future results, all in all, we predict a
modestly positive year in the overall stock market, and our conviction is
that our Fund can and will again outperform the market in 2000.
<PAGE>
MATRIX/LMH
VALUE FUND
Following this letter is our regular quarterly segment focusing on
investing. This quarter we focus on three related topics arising from an
extended bull market: the wisdom of taking profits in hot stocks, the
current mania for speculating over investing, and the evolution of
Internet stocks and the message of these stocks for all investors.
Your questions, comments and input are always welcome. Not only that,
but we just like hearing from you. Please also remember our e-mail address,
[email protected]. We wish you a great start to a new millennium,
century, decade and year.
IDEAS ABOUT INVESTING
A Quarterly Quest for Investing Enlightenment
The Wisdom of Declaring Victory: Taking Profits
One of the by-products of a strong stock market is that every sale is
likely to look ill-considered a short time later. While "Monday Morning
Quarterbacking" is an unavoidable aspect of investing, for many investors
selling "winners" seems just plain foolish. After all, why fight the tape,
why exit the party and leave money on the table?
It is of course the very dynamism (a nicer way of saying "volatility"
of the market) that makes a selling discipline so important. We have always
subscribed to a belief that when a stock reaches its fair value it is time
to sell. We also recognize that this is not a market rooted in valuation
sensibilities, but rather in momentum sensibilities.
Therefore, unless we think a stock is particularly vulnerable to a
sell-off, as fair value is approached we have and expect to continue to
sell a partial position in the stock, and be prepared to sell more if the
stock continues to appreciate. This way if the stock further appreciates we
will participate in that appreciation, and if the stock reverses course we
will have locked in a partial profit and reduced our exposure going
forward.
In the meantime, we have re-developed the proceeds of the sale into one
or more undervalued positions; these should provide greater long-term
upside potential over time than by remaining fully invested in the inflated
stock.
This last point accounts for the unwillingness of many investors to
sell a winning stock: what do I do with the proceeds? However, a
disciplined investor, unlike a shoot from the hip speculator, never worries
about this. There are always interesting opportunities available if one has
the means to identify them.
Taking profits therefore allows one to re-allocate assets into
positions that have the opportunity to rise in the way that the successful
investment has already appreciated. Furthermore, by redeploying into the
undervalued position, one is locking in a good result with the winning
stock, and reducing risk since the rising stock has ever greater downside
potential and ever decreasing upside potential.
<PAGE>
MATRIX/LMH
VALUE FUND
Remember, the winners of today were at one time fallen angels or just
plain dogs, and that is one reason why we would have bought them in the
first place. Many other investors in some of our most successful positions
are still below cost because they bought the stocks at too high a price.
The fact that these stocks are now for us great successes does not mean
that they cannot once again go down.
The key to investing is not to try to buy every stock at its absolute
low and to sell it at its absolute high. The key is to set out a game plan
for a stock, realize that plan, and start all over again with another
stock. Over time the result will be better returns earned for less risk
taken.
Why Invest for the Long Term when You can Get Rich in two Weeks?
A recent article in The New York Times declared that long-term
investing has given way to short-term speculating. This transition has been
intensifying over the last two years as the Internet stocks have enjoyed
wild swings in price appreciation, and the marquee technology names
continue to appreciate dramatically.
It seems as if more and more former investors have become chartists,
buying and selling based on short-term rises and dips in a stock's price.
Every dip becomes a buy opportunity; every rise might be a chance to double
up by buying more.
It appears from the outside that investing has never been easier or
quicker. And the traditional way of doing things seems positively archaic.
Warren Buffett is increasingly portrayed as a doddering fogey because of
his unwillingness to invest in technology stocks. His spectacular success
of the past 30 years has been overshadowed by a poor year. Today's media
have investors believing that those who have abstained from pursuing the
Internet mania or from the high stakes roulette of the most expensive
technology stocks just don't get it, and deserve to be left in the dust.
Maybe, but consider the following: A recent study from The University
of California at Davis of trading activity from 1991 through 1997 found
that the most frequent traders with the shortest holding periods earned
11.4% annually versus 18.5% for those who traded infrequently. Investors
tend to remember their successes and to forget their failures. That's one
reason why the casino business is so lucrative even though everyone always
claims to have won at the tables.
Further, speculative trading is highly tax inefficient and costly, even
in an on-line trading world. Studies show that speculators, who buy and
quickly sell a stock, tend to buy another more expensive stock that lags
the performance of the original stock. In other words, the risk level of
activity is ever rising, not declining, as in taking profits from a Value
buy that reaches fair value.
Undoubtedly, today's rapid fire trading patterns have a musical chairs
aspect to them, where one wants to be out of the stock before something
happens and one is left without a seat -- or with too much stock. Musical
chairs is a fun game to play, but not a way to handle one's financial
future.
<PAGE>
MATRIX/LMH
VALUE FUND
In the current environment, one is reminded of the famous story of
the legendary investor Bernard Baruch and the shoeshine man. One day in the
spring of 1929, Baruch was having his shoes shined and listened as the shoe
shine man offered him a series of stock tips. When he got to the office
Baruch sold himself out of the market, saying that when the market is
determined by what the shoeshine man thinks is a good buy, it is too
speculative and time to get out. The rest, of course, is history.
Many would say that such fears are unrealistic, and that "the new
paradigm" of investing has changed all the rules.
Perhaps, but as an astute observer of the real estate industry noted
after the real estate crash of 1990, "We thought we were all Olympic
athletes, but in reality we were just riding bicycles downhill."
We have said it before and we'll keep saying it: when getting rich
looks so easy, you can rest assured that most people won't end up that way.
The Evolution of Internet Companies: Maybe the New Economy isn't so New
after All
We spoke above of the growing mania of trading speculation, much of it
centered on Internet companies. Ironically, many of these companies, flush
with sky-high valuations, are using the currency of their stock to
become...more traditional businesses.
The Frontier Corp. acquisition by Global Crossing is one example of a
high flying company which enjoyed a great valuation based on a concept, and
used that expensive stock to buy a real business. More recently, the
purchase of Time Warner by AOL marks a move by an inflated Internet company
to take advantage of its stock price by purchasing the world's largest
media company. While AOL stock price might not be a stellar investment
going forward (it's still quite expensive), from management's perspective
they will at least end up being a media powerhouse.
Investors have reacted by selling off AOL, which probably says more
about the prevalent investor mindset than anything. One gets the sense that
the possibilities for AOL were more exciting than any reality could be. AOL
is now a very substantial company; as such, its growth potential is
somewhat diminished and its possibilities fewer.
Days after this deal was announced, Charles Schwab & Co., whose stock
trades at a geometrically higher price than other brokerage houses because
of its on-line activities, announced it had purchased very old-line U.S.
Trust for stock.
In both cases the managers of the New Age company realized that there
might be something very fleeting about their elevated stock prices, and
that from a business perspective, it might be very smart to convert that
currency into a real and profitable business enterprise.
We agree, and suggest that investors take an important cue from the
managers of these companies. When the best and the brightest minds in the
new economy industry are either selling their shares outright or buying old
economy companies with new economy currency, it is clear that it is late in
the Internet stock price bubble. And there is a great likelihood that the
best gains in this area have already been realized -- at least until
Internet stocks become Value opportunities!
<PAGE>
MATRIX/LMH
VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C>
Schedule of
Investments (UNAUDITED) DECEMBER 31, 1999
- -----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (98.01%)
SECURITY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
AUTO PARTS: (1.34%)
Mark IV Industries, Inc. 10,000 $ 176,875
- -----------------------------------------------------------------------------------------------------------------
BANKS: (6.04%)
Bank One Corporation 4,500 144,281
Bank of America Corp. 7,900 396,481
Comerica 5,500 256,781
- -----------------------------------------------------------------------------------------------------------------
797,543
- -----------------------------------------------------------------------------------------------------------------
COMPUTER AND PERIPHERALS: (4.25%)
3 Com Corp.* 5,600 263,200
Compaq Computer Corp. 11,000 297,687
- -----------------------------------------------------------------------------------------------------------------
560,887
- -----------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE AND SERVICES: (9.71%)
Electronic Data Sytems Corp. 8,000 535,500
Gartner Group, Inc. 13,000 179,563
Sterling Software 18,000 567,000
- -----------------------------------------------------------------------------------------------------------------
1,282,063
- -----------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS: (7.79%)
Bausch & Lomb, Inc. 6,000 410,625
Eastman Kodak Co. 6,500 430,625
Polaroid Corp. 10,000 188,125
- -----------------------------------------------------------------------------------------------------------------
1,029,375
- -----------------------------------------------------------------------------------------------------------------
DRUGS: (12.65%)
Abbott Laboratories 3,000 108,938
American Home Products 6,600 260,287
Bristol-Myers Squibb Co. 5,200 333,775
Mylan Laboratories 17,000 428,187
Pharmacia & Upjohn, Inc. 7,200 324,000
Teva Pharmaceutical SP ADR 3,000 215,063
- -----------------------------------------------------------------------------------------------------------------
1,670,250
- -----------------------------------------------------------------------------------------------------------------
ELECTRONICS: (5.50%)
Arrow Electronics, Inc.* 9,000 228,375
Vishay Intertechnology, Inc.* 15,750 498,094
- -----------------------------------------------------------------------------------------------------------------
726,469
- -----------------------------------------------------------------------------------------------------------------
<PAGE>
MATRIX/LMH
VALUE FUND
COMMON STOCKS, Continued
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
ENERGY: (0.10%)
Transocean Sedco Forex, Inc. 406 $ 13,696
- -----------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES: (4.67%)
First Data Corp. 12,500 616,406
- -----------------------------------------------------------------------------------------------------------------
FURNITURE: (3.84%)
Hon Industries 8,000 175,500
Shaw Industries, Inc. 21,500 331,906
- -----------------------------------------------------------------------------------------------------------------
507,406
- -----------------------------------------------------------------------------------------------------------------
GROCERY: (2.44%)
Albertson's Inc. 10,000 322,500
- -----------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS: (2.18%)
Tupperware Corp. 17,000 287,938
- -----------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES: (5.06%)
Equifax, Inc. 6,000 141,375
Manpower Inc. 14,000 526,750
- -----------------------------------------------------------------------------------------------------------------
668,125
- -----------------------------------------------------------------------------------------------------------------
MEDICAL SERVICES: (2.79%)
Aetna Inc. 6,600 368,363
- -----------------------------------------------------------------------------------------------------------------
MEDICAL SUPPLIES: (3.95%)
St. Jude Medical, Inc.* 17,000 521,687
- -----------------------------------------------------------------------------------------------------------------
OILFIELD SERVICES/EQUIPMENT: (0.89%)
Schlumberger Ltd. 2,100 118,125
- -----------------------------------------------------------------------------------------------------------------
PRECISION INSTRUMENTS: (3.52%)
Sensormatic Electronics Corp.* 26,700 465,581
- -----------------------------------------------------------------------------------------------------------------
RETAIL: (2.50%)
Office Depot, Inc. 30,200 330,313
- -----------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS/CAPITAL EQUIPMENT: (2.78%)
Novellus Systems, Inc.* 3,000 367,594
- -----------------------------------------------------------------------------------------------------------------
<PAGE>
MATRIX/LMH
VALUE FUND
COMMON STOCKS, Continued
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/EQUIPMENT: (6.41%)
Alcatel SA 9,000 $ 405,000
Motorola Inc. 3,000 441,750
- -----------------------------------------------------------------------------------------------------------------
846,750
- -----------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS SERVICES (4.07%)
Global Crossing Ltd. 10,745 537,250
- -----------------------------------------------------------------------------------------------------------------
TEXTILE (0.46%)
Unifi, Inc.* 4,900 60,331
- -----------------------------------------------------------------------------------------------------------------
TOBACCO (1.62%)
Philip Morris Co., Inc. 9,200 213,325
- -----------------------------------------------------------------------------------------------------------------
TOYS AND SCHOOL SUPPLIES (3.45%)
Mattel Inc. 20,000 262,500
Toys R Us* 13,500 193,219
- -----------------------------------------------------------------------------------------------------------------
455,719
- -----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(cost $10,062,145) 12,944,571
- -----------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (2.24%)
- -----------------------------------------------------------------------------------------------------------------
Firstar Treasury Fund (cost $295,208) 295,208 295,208
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(cost $10,357,353) - 100.25% 13,239,779
LIABILITIES IN EXCESS OF
OTHER ASSETS - (0.25%) (32,651)
- -----------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $13,207,128
=================================================================================================================
</TABLE>
*Non-income producing security.
- --------------------------------------------------------------------------------
The accompanying notes to financial statements are an integral part of this
schedule.
<PAGE>
MATRIX/LMH
VALUE FUND
<TABLE>
Statement of
Assets and Liabilities (UNAUDITED) DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at value:
<S> <C>
Common stocks (cost $10,062,145)..................... $12,944,571
Short-term investments (cost $295,208)............... 295,208
Receivables:
Fund shares sold.................................. 1,600
Dividends and interest............................ 22,065
Prepaid expenses and other assets....................... 12,180
- --------------------------------------------------------------------------------
TOTAL ASSETS 13,275,624
- --------------------------------------------------------------------------------
LIABILITIES
Payables:
Advisory fee......................................... 3,739
Securities purchased................................. 51,526
Fund shares redeemed................................. 322
Accrued expenses........................................ 12,909
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 68,496
- --------------------------------------------------------------------------------
NET ASSETS $13,207,128
================================================================================
SOURCE OF NET ASSETS
Capital
Par value of 323,913 shares outstanding
(30,000,000 shares authorized)
at $.01 per share................................. $ 3,239
Paid-in capital ..................................... 9,848,326
- --------------------------------------------------------------------------------
Total capital paid in on shares...................... 9,851,565
Undistributed net investment income.................. 8,646
Undistributed net realized gain on
investment transactions........................... 464,491
Unrealized appreciation of investments............... 2,882,426
- --------------------------------------------------------------------------------
NET ASSETS $13,207,128
================================================================================
NET ASSET VALUE PER SHARE
(Offering and Redemption Price) $ 40.77
================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
MATRIX/LMH
VALUE FUND
<TABLE>
Statement of
Operations (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT
INCOME
<S> <C>
Dividends............................................... $ 59,428
Interest................................................ 8,901
- --------------------------------------------------------------------------------
TOTAL INCOME 68,329
- --------------------------------------------------------------------------------
EXPENSES
Investment advisory fee................................. 57,492
Transfer agent fee and expenses......................... 19,636
Audit fees.............................................. 6,072
Registration and filing fees............................ 3,432
Custodian fee and expenses.............................. 4,148
Reports to shareholders ................................ 1,672
Legal fees.............................................. 1,488
Miscellaneous........................................... 1,088
Insurance............................................... 1,000
- --------------------------------------------------------------------------------
TOTAL EXPENSES 96,028
LESS: Advisory fees waived and expenses paid
(36,231)
- --------------------------------------------------------------------------------
NET EXPENSES 59,797
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 8,532
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS - NET
Realized gain on investments - net........................... 464,889
Change in unrealized appreciation of investments - net....... 421,223
- --------------------------------------------------------------------------------
GAIN ON INVESTMENTS - NET 886,112
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 894,644
================================================================================
</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 SIX FOR THE
MONTHS ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
1999# 1999
- -----------------------------------------------------------------------------------------------------------------
Net investment income................................................ $ 8,532 $ 8,827
Realized gain on investments - net................................... 464,889 106,818
Change in unrealized appreciation of investments - net............... 421,223 1,664,100
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS 894,644 1,779,745
- -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income................................................ (0) (26,658)
Realized gain on investments......................................... (99,301) (201,601)
- ------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS
TO SHAREHOLDERS (99,301) (228,259)
- ------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Shares sold ......................................................... 1,858,875 1,871,606
Shares issued in connection with reinvestment of dividends........... 99,012 227,253
Shares redeemed...................................................... (693,691) (2,503,433)
- ------------------------------------------------------------------------------------------------------------------
NET CHANGE FROM
CAPITAL SHARE
TRANSACTIONS 1,264,196 (404,574)
- ------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE
IN NET ASSETS 2,059,539 1,146,912
Net assets, beginning of period...................................... 11,147,589 10,000,677
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (including undistributed
net investment income of $8,646 and $114,
respectively)..................................................... $13,207,128 $11,147,589
=================================================================================================================
CHANGES IN SHARES
OUTSTANDING
Shares sold.......................................................... 49,152 60,574
Shares issued in connection with reinvestment of dividends........... 2,560 7,516
Shares redeemed...................................................... (18,138) (81,688)
- ------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) 33,574 (13,598)
==================================================================================================================
</TABLE>
#Unaudited.
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, 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 six
months ended December 31, 1999, Matrix waived $36,231 of its fee.
NOTE 4 -
INVESTMENT TRANSACTIONS
The cost of purchases and the proceeds from sales of securities for the six
months ended December 31, 1999 were as follows:
Proceeds from
Sales (Including
Purchases Maturities)
- --------------------------------------------------------------------------------
Common Stock and Bonds $4,358,904 $3,335,176
Short-term Obligations 4,400,942 4,341,241
At December 31, 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 $3,689,663 and the aggregate
gross unrealized depreciation was $807,237, or a net unrealized
appreciation of $2,882,426.
<PAGE>
MATRIX/LMH
VALUE FUND
<TABLE>
<CAPTION>
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS
ENDED DECEMBER YEARS ENDED JUNE 30,
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
31, 1999# 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.. $38.40 $32.90 $29.39 $24.10 $20.98 $17.78
Income from investment operations:
Net investment income.............. 0.03 0.03 0.14 0.10 0.47 0.46
Net realized and unrealized gain
on investments................... 2.66 6.26 3.54 5.52 3.12 3.13
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations...... 2.69 6.29 3.68 5.62 3.59 3.59
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income........................... (0.00) (0.09) (0.17) (0.33) (0.47) (0.39)
Distributions from realized gains.. (0.32) (0.70) (0.00) (0.00) (0.00) (0.00)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions................... (0.32) (0.79) (0.17) (0.33) (0.47) (0.39)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period........ $40.77 $38.40 $32.90 $29.39 $24.10 $20.98
=======================================================================================================================
Total return ......................... 7.04% 19.79% 12.56% 23.47% 17.16% 20.47%
Ratios/supplemental data:
Net assets, end of period (millions).. $ 13.2 $ 11.1 $10.0 $ 8.5 $ 6.6 $ 6.0
Ratio of operating expenses to average
net assets:
Before expense reimbursement.... 1.67%+ 1.83% 1.80% 1.92% 1.84% 2.35%
After expense reimbursement..... 1.04%+ 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%)+ (0.48%) (0.12)% (0.06)% 2.01% 2.27%
After expense reimbursement .... 0.15%+ 0.10% 0.45% 0.44% 2.01% 2.27%
Portfolio turnover rate .............. 30% 33% 68% 129% 57% 34%
<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
o
Investment Advisor
Matrix Asset Advisors, Inc.
747 Third Avenue, 31st Floor
New York, NY 10017
(800) 366-6223
o
Custodian
Firstar Institutional Custody Services
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 LLC
o
Independent Accountants
Tait, Weller, & Baker
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.
