MATRIX GROWTH FUND
MATRIX EMERGING
GROWTH FUND
ANNUAL REPORT
December 31, 1998
<PAGE>
Matrix Growth Fund
Matrix Emerging
Growth Fund
Dear Matrix Shareholder,
On the strength of a robust fourth quarter, U.S. stocks churned out
their fourth consecutive year of gains in 1998. Continuing their monopoly on
performance, large capitalization issues dominated the action as the S&P 500
gained 28.7%. In contrast, small capitalization stocks as measured by the
Russell 2000 declined 2.6%. The Matrix Growth and Emerging Growth Funds returned
20.44% and -2.72% respectively.
Economic events for the year presented their own divergences as the
U.S. domestic economy was the standout performer in a year that was pretty
dismal for the rest of the globe. Domestic unemployment and inflation remained
at levels not seen since the 1960's while real incomes increased and GDP rose a
very respectable 4%. The U.S. is now enjoying the longest peacetime expansion in
history.
Economic conditions outside the U.S. were much less auspicious and in
some cases absolutely abysmal. While Southeast Asian countries suffered vigorous
austerity and stabilization programs, balance of payment and currency problems
began to threaten the economic health of Latin America, and Russia suffered a
serious relapse in its recovery efforts. Japan remained mired in deep recession.
In sum, prospects for a truly global recession cannot be ruled out.
The major central banks have worked vigorously to contain these
problems and limit their effect. After orchestrating a bailout of Long Term
Capital Management in September, the U.S. Federal Reserve took the lead in
reducing interest rates and were followed by central banks of other major
nations. Reserves of the International Monetary Fund and World Bank have been
increased and investors now perceive that global financial risk is subsiding.
These conditions have worked very much to the advantage of U.S.
companies and investors. Weak demand has brought commodity prices to a 21 year
low, the multi-year decline in interest rates has made corporate earnings
generally more valuable, and large growth companies have become particularly
valuable properties in these chaotic conditions.
We doubt, however, that the existent extreme divergences in the U.S.
market can be sustained in the upcoming year. Similar to 1997, a small minority
of the stocks included in the major indexes contributed a vast
1
<PAGE>
majority of the 1998 gains. In relative terms, and frequently in real terms,
small capitalization, or "secondary", issues are at unprecedented levels of
undervaluation.
With better global stability in the coming year, we believe earnings
momentum will be a much stronger factor in determining stock performance and
earnings momentum is clearly on the side of small capitalization stocks. We
estimate 1999 earnings for small growth stocks will rise 20%, or four-fold the
increase of the S&P 500. Market performance of small cap issues should be
commensurately better.
In 1990, only one U.S. company ranked in the world's ten most valuable
companies, while at the end of 1998 nine of the ten were U.S. based. The
conditions which fostered this resurgence are still in place and, remarkably,
the outlook for stock prices remains positive. We will continue our policy of
maintaining diversified portfolios of attractively valued stocks with superior
earnings prospects.
And, as always, we wish to express our appreciation for the opportunity
to work on behalf of the shareholders of the Matrix Funds.
Sincerely,
SENA + WELLER + ROHS + WILLIAMS + INC
2
<PAGE>
MATRIX GROWTH FUND
Past performance is not predictive of future performance.
The S&P 500 is a broad market-weighted average of U.S. blue-chip companies. The
S&P 500 is unmanaged and returns include reinvested dividends.
Average Annual Total Return
Period Ended December 31, 1998
1 Year............20.44%
5 Year............17.57%
10 Year...........16.21%
Matrix Growth
Qtr Fund S&P Adj Fund Adj S&P label
--- ---- --- -------- ------- -----
5/14/86 1,000.00 517.39 10,000 10,000 9,000
6/30/86 1,000.00 547.03 10,000 10,573 9,000
12/31/86 1,000.00 537.39 10,000 10,387 9,000
6/30/87 1,188.00 684.89 11,880 13,237 9,000
12/31/87 1,008.00 565.53 10,080 10,930 9,000
6/30/88 1,039.37 639.29 10,394 12,356 9,000
12/31/88 987.76 659.34 9,878 12,744 9,000
6/30/89 1,165.49 767.45 11,655 14,833 9,000
12/31/89 1,344.25 868.10 13,443 16,778 9,000
6/30/90 1,389.97 895.85 13,900 17,315 9,000
12/31/90 1,283.67 842.93 12,837 16,292 9,000
6/30/91 1,479.19 962.95 14,792 18,612 9,000
12/31/91 1,722.42 1,099.63 17,224 21,253 9,000
6/30/92 1,604.40 1,091.24 16,044 21,091 9,000
12/31/92 1,808.48 1,183.87 18,085 22,882 9,000
6/30/93 1,892.09 1,240.02 18,921 23,967 9,000
12/31/93 1,975.69 1,302.83 19,757 25,181 9,000
6/30/94 1,840.89 1,257.34 18,409 24,302 9,000
12/31/94 1,880.38 1,319.44 18,804 25,502 9,000
6/30/95 2,111.06 1,585.90 21,111 30,652 9,000
12/31/95 2,322.58 1,814.66 23,226 35,073 9,000
6/30/96 2,597.38 1,996.93 25,974 38,596 9,000
12/31/96 2,739.08 2,231.87 27,391 43,137 9,000
6/30/97 3,211.02 2,690.21 32,110 51,996 9,000
12/31/97 3,685.92 2,976.08 36,859 57,521 9,000
6/30/98 4,247.51 3,500.75 42,475 67,662 9,000
9/30/98 3,763.04 3,153.44 37,630 60,949 9,000
12/31/98 4,439.20 3,826.40 44,392 73,956 9,000
MATRIX EMERGING GROWTH FUND
Average Annual Total Return
Period Ended December 31, 1998
1 Year............-2.72%
Since Inception (4/4/95)13.86%
Past performance is not predictive of future performance.
The Russell 2000 Index is formed by taking the 3,000 largest U.S. companies and
then eliminating the largest 1,000 leaving a good small company index. The S&P
500 is a broad market-weighted average of U.S. blue-chip companies. The indicies
are unmanaged and returns include reinvested dividends.
Matrix Emerging Growth
<TABLE>
<CAPTION>
Qtr Fund S&P Russell 2000 Adj Fund Adj S&P Adj Russ2 label
--- ---- --- ------------ -------- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
4/4/95 1,000.00 1,461.22 946.52 10,000 10,000 10,000 9,000
6/30/95 1,079.00 1,585.90 1,032.98 10,790 10,853 10,913 9,000
9/30/95 1,235.00 1,711.82 1,135.00 12,350 11,715 11,991 9,000
12/31/95 1,298.00 1,814.66 1,159.60 12,980 12,419 12,251 9,000
3/31/96 1,390.00 1,912.43 1,218.77 13,900 13,088 12,876 9,000
6/30/96 1,449.00 1,996.93 1,279.74 14,490 13,666 13,520 9,000
9/30/96 1,406.00 2,059.49 1,284.07 14,060 14,094 13,566 9,000
12/31/96 1,433.94 2,231.87 1,350.87 14,339 15,274 14,272 9,000
3/31/97 1,278.87 2,290.99 1,281.02 12,789 15,679 13,534 9,000
6/30/97 1,577.94 2,690.21 1,488.68 15,779 18,411 15,728 9,000
9/30/97 1,866.94 2,892.07 1,710.24 18,669 19,792 18,069 9,000
12/31/97 1,671.75 2,976.08 1,652.97 16,718 20,367 17,464 9,000
3/31/98 1,946.10 3,390.95 1,802.67 19,461 23,206 19,045 9,000
6/30/98 1,837.59 3,500.75 1,734.42 18,376 23,958 18,324 9,000
9/30/98 1,408.65 3,153.44 1,385.01 14,087 21,581 14,633 9,000
12/31/98 1,626.24 3,826.40 1,610.89 16,262 26,186 17,019 9,000
</TABLE>
3
<PAGE>
MATRIX GROWTH FUND
SCHEDULE OF INVESTMENTS at December 31, 1998
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 92.2% Market Value
- --------------------------------------------------------------------------------
CONGLOMERATES: 8.3%
11,000 General Electric Company............................ $1,122,688
----------
CONSUMER CYCLICAL: 8.5%
17,088 Mattel, Inc......................................... 389,820
10,000 McDonald's Corp..................................... 766,250
----------
1,156,070
----------
CONSUMER NON-CYCLICAL: 16.7%
12,000 Albertson's, Inc.................................... 764,250
9,000 Colgate-Palmolive Company........................... 835,875
12,000 Schering-Plough Corp................................ 663,000
----------
2,263,125
----------
ENERGY: 11.9%
2,000 British Petroleum Company, ADR (United Kingdom)..... 179,250
13,000 Enron Corp.......................................... 741,812
8,000 Mobil Corp.......................................... 697,000
----------
1,618,062
----------
FINANCIAL: 14.9%
8,000 American Express Company............................ 818,000
30,000 Wells Fargo Company................................. 1,198,125
----------
2,016,125
----------
INDUSTRIALS: 5.3%
10,000 AlliedSignal, Inc................................... 443,125
16,125 Thermo Electron Corp.*.............................. 273,117
----------
716,242
----------
MEDICAL: 1.7%
8,000 HCR Manor Care*..................................... 235,000
----------
TECHNOLOGY: 14.6%
8,200 Automatic Data Processing, Inc...................... 657,538
10,125 Computer Associates International, Inc.............. 431,578
16,000 Stryker Corp........................................ 881,000
----------
1,970,116
----------
4
<PAGE>
MATRIX GROWTH FUND
SCHEDULE OF INVESTMENTS at December 31, 1998
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
UTILITIES: 10.3%
13,000 Ameritech Corp.................................... $ 823,875
8,000 MCI WorldCom, Inc.*............................... 574,000
-----------
1,397,875
-----------
Total Common Stocks (cost $3,292,956)............. $12,495,303
-----------
Principal Amount REPURCHASE AGREEMENT: 7.9%
- --------------------------------------------------------------------------------
$1,066,000 Star Bank Repurchase Agreement, 3.50%, dated
12/31/98, due 1/4/99, collateralized by $1,102,000
GNMA, 7.00%, due 3/20/24 (proceeds $1,066,415)
(cost $1,066,000)................................. 1,066,000
-----------
Total Investment in Securities (cost $4,358,956+):
100.1% ......................................... 13,561,303
Liabilities in excess of Other Assets: (0.1)%..... (15,833)
-----------
TOTAL NET ASSETS: 100.00% ........................ $13,545,470
===========
* Non-income producing security.
ADR - American Depository Receipt
+ At December 31, 1998, the cost of investments for Federal tax purposes was the
same as the basis for financial reporting. Unrealized appreciation and
depreciation of securities were as follows:
Gross unrealized appreciation..................... $ 9,202,347
Gross unrealized depreciation..................... 0
-----------
Net unrealized appreciation..................... $ 9,202,347
===========
See accompanying Notes to Financial Statements.
5
<PAGE>
MATRIX GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES at December 31, 1998
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $4,358,956) ........... $13,561,303
Cash............................................................. 595
Receivables:
Dividends and interest......................................... 15,576
Deferred organization costs 4,984
Prepaid expenses and other assets ............................... 3,081
-----------
Total assets ................................................. 13,585,539
-----------
LIABILITIES
Payables:
Advisory fees.................................................. 7,015
Administration fee............................................. 2,671
Distribution fees.............................................. 7,982
Accrued expenses ................................................ 22,401
-----------
Total liabilities............................................ 40,069
-----------
NET ASSETS ........................................................ $13,545,470
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($13,545,470/672,401 shares outstanding;
unlimited number of shares authorized without par value) ...... $20.14
======
COMPONENTS OF NET ASSETS
Paid-in capital ................................................. $ 4,236,960
Undistributed net realized gain on investments................... 106,163
Net unrealized appreciation on investments....................... 9,202,347
-----------
Net assets .................................................... $13,545,470
===========
See accompanying Notes to Financial Statements.
6
<PAGE>
MATRIX GROWTH FUND
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INVESTMENT LOSS
Income
Dividends .................................................... $ 146,774
Interest ..................................................... 33,774
Other ........................................................ 77
-----------
Total income ............................................... 180,625
-----------
Expenses
Advisory fees ................................................ 118,473
Distribution fees............................................. 32,909
Administration fee............................................ 30,000
Transfer agent fees........................................... 17,638
Fund accounting fees.......................................... 17,077
Audit fee .................................................... 14,419
Custody fees.................................................. 9,279
Trustee fees.................................................. 5,163
Amortization of deferred organization costs................... 5,000
Legal fees ................................................... 4,235
Registration fees............................................. 3,333
Reports to shareholders....................................... 2,726
Miscellaneous................................................. 2,508
Insurance .................................................... 694
-----------
Total expenses.............................................. 263,454
Less: expenses waived and reimbursed........................ (33,090)
-----------
Net expenses................................................ 230,364
-----------
Net investment loss ...................................... (49,739)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions.................... 1,156,986
Net change in unrealized appreciation on investments ........... 1,233,028
-----------
Net unrealized gain on investments ........................... 2,390,014
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... $ 2,340,275
===========
See accompanying Notes to Financial Statements.
7
<PAGE>
MATRIX GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment loss .................... $ (49,739) $ (39,120)
Net realized gain from security
transactions ......................... 1,156,986 1,292,345
Net change in unrealized
appreciation on investments .......... 1,233,028 2,104,427
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ...................... 2,340,275 3,357,652
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments ....... (1,309,143) (1,034,432)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets derived
from net change in outstanding
shares (a) ........................... (53,812) (1,829,826)
------------ ------------
TOTAL INCREASE IN NET ASSETS ........... 977,320 493,394
NET ASSETS
Beginning of year ...................... 12,568,150 12,074,756
------------ ------------
END OF YEAR ............................... $ 13,545,470 $ 12,568,150
============ ============
(a) A summary of capital shares transactions is as follows:
Year Ended Year Ended
December 31, 1998 December 31, 1997
---------------------- ----------------------
Shares Value Shares Value
------- ----------- -------- -----------
Shares sold 18,675 $ 375,201 35,928 $ 673,028
Shares issued in reinvestment
of distributions 64,225 1,203,586 49,749 907,913
Shares redeemed ................ (84,711) (1,632,599) (211,493) (3,410,767)
------- ---------- -------- ----------
Net decrease ................... (1,811) $ (53,812) (125,816) $(1,829,826)
======= =========== ======== ===========
See accompanying Notes to Financial Statements.
8
<PAGE>
MATRIX GROWTH FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH YEAR
- --------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...... $ 18.64 $ 15.09 $ 14.96 $ 13.45 $ 14.51
Income from investment operations:
Net investment (loss) income .......... (0.07) (0.06) (0.01) 0.10 0.05
Net realized and unrealized gain (loss)
on investments ..................... 3.72 5.24 2.69 3.06 (0.75)
------- ------- ------- ------- -------
Total from investment operations ........ 3.65 5.18 2.68 3.16 (0.70)
------- ------- ------- ------- -------
Less distributions:
From net investment income ............ 0.00 0.00 0.00 (0.10) (0.05)
From net capital gains ................ (2.15) (1.63) (2.55) (1.55) (0.31)
------- ------- ------- ------- -------
Total distributions ..................... (2.15) (1.63) (2.55) (1.65) (0.36)
------- ------- ------- ------- -------
Net asset value, end of year ............ $ 20.14 $ 18.64 $ 15.09 $ 14.96 $ 13.45
======= ======= ======= ======= =======
Total return ............................ 20.44% 34.57% 17.93% 23.52% (4.82)%
Ratios/supplemental data:
Net assets, end of year (millions) ...... $ 13.5 $ 12.6 $ 12.1 $ 12.3 $ 15.5
Ratio of expenses to average net assets:
Before expense reimbursement .......... 2.00% 1.98% 1.99% 1.76% 1.84%
After expense reimbursement ........... 1.75% 1.75% 1.75% 1.75% 1.84%
Ratio of net investment (loss) income
to average net assets:
Before expense reimbursement .......... (0.63) % (0.57) % (0.33) % 0.47% 0.29%
After expense reimbursement ........... (0.38) % (0.34) % (0.08) % 0.48% 0.29%
Portfolio turnover rate ................. 1% 0% 0% 27% 25%
</TABLE>
See accompanying Notes to Financial Statements.
9
<PAGE>
MATRIX EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS at December 31, 1998
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 94.1% Market Value
- --------------------------------------------------------------------------------
CHEMICALS: 2.0%
3,000 Cambrex Corp.......................................... $ 72,000
1,700 OM Group, Inc......................................... 62,050
---------
134,050
---------
COMPUTER NETWORKING: 2.4%
1,750 Cisco Systems, Inc.*.................................. 162,422
---------
CONSULTING SERVICES: 2.4%
4,500 Hagler Bailly, Inc.*.................................. 90,000
2,500 Professional Detailing, Inc.*......................... 70,625
---------
160,625
---------
DISTRIBUTION/WHOLESALE: 1.5%
7,500 Brightpoint, Inc.*.................................... 103,125
---------
ENERGY: 2.3%
7,000 Comstock Resources, Inc.*............................. 21,437
4,500 Cross Timbers Oil Company............................. 33,750
3,500 Marine Drilling Companies, Inc.*...................... 26,906
5,000 Ocean Energy, Inc.*................................... 31,563
6,000 R&B Falcon Corp.*..................................... 45,750
---------
159,406
---------
FINANCIAL SERVICES: 3.3%
3,500 Amerin Corp.*......................................... 82,687
3,500 Freedom Securities Corp............................... 52,938
2,756 Litchfield Financial Corp............................. 52,364
5,000 UniCapital Corp.*..................................... 36,875
---------
224,864
---------
HEALTH CARE SERVICES: 4.4%
4,500 Healthcare Recoveries, Inc.*........................ 76,500
4,000 HEALTHSOUTH Corp.*.................................. 61,750
4,500 Res-Care, Inc.*..................................... 111,094
1,200 United Healthcare Corp.............................. 51,675
---------
301,019
---------
HOTELS AND MOTELS: 1.2%
6,500 ExecuStay Corp.*.................................... 84,500
---------
10
<PAGE>
MATRIX EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS at December 31, 1998, Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
INDUSTRIAL AND COMMERCIAL SERVICES: 10.3%
5,000 ACSYS, Inc.*........................................ $ 19,375
6,000 Access Worldwide, Inc.*............................. 50,250
5,000 Modis Professional Services, Inc.*.................. 72,500
2,666 Mutual Risk Management Ltd.......................... 104,307
3,575 NOVA Corp.*......................................... 124,008
2,000 Pre-Paid Legal Services, Inc.*...................... 66,000
4,000 RCM Technologies, Inc.*............................. 106,000
2,000 Snyder Communications, Inc.*........................ 67,500
3,000 Sylvan Learning Systems, Inc.*...................... 91,500
---------
701,440
---------
INSURANCE: 1.4%
2,100 PartnerRe Ltd....................................... 96,075
---------
INTERNET CONTENT: 2.1%
1,750 At Home Corp.*...................................... 129,938
500 theglobe.com, Inc.*................................. 16,437
---------
146,375
---------
MANUFACTURED HOUSING: 2.3%
3,750 American Homestar Corp.*............................ 56,250
3,906 Palm Harbor Homes, Inc.*............................ 98,382
---------
154,632
---------
MEDIA BROADCASTING: 1.4%
2,300 Young Broadcasting Corp., Class A*.................. 96,313
---------
MEDICAL - ADVANCE DEVICES: 4.0%
2,500 Guidant Corp........................................ 275,625
---------
MEDICAL - HOSPITALS: 1.3%
3,375 Tenet Healthcare Corp.*............................. 88,594
---------
11
<PAGE>
MATRIX EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS at December 31, 1998, Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
MEDICAL AND DENTAL PRACTICES MANAGEMENT: 2.2%
5,000 American Oncology Resources, Inc.*.................. $ 72,812
6,000 Castle Dental Centers, Inc.*........................ 36,750
6,000 PhyCor, Inc.*....................................... 40,875
----------
150,437
----------
MEDICAL LABS AND TESTING: 2.7%
3,000 Covance, Inc.*...................................... 87,375
4,200 Kendle International, Inc.*......................... 98,175
----------
185,550
----------
MEDICAL AND OPTICAL SUPPLIES: 3.4%
3,400 Ocular Sciences, Inc.*.............................. 90,950
6,000 PSS World Medical, Inc.*............................ 138,000
----------
228,950
----------
PHARMACEUTICALS: 10.5%
2,300 Elan Corp., PLC - ADR (Ireland)*.................... 159,994
4,000 Express Scripts, Inc., Class A*..................... 268,500
2,600 Transkaryotic Therapies, Inc.*...................... 65,975
3,478 Watson Pharmaceuticals, Inc.*....................... 218,679
----------
713,148
----------
RETAILERS - SPECIALTY: 2.3%
3,125 99 Cents Only Stores*............................... 153,516
----------
RETIREMENT/AGED CARE: 1.5%
2,000 Sunrise Assisted Living, Inc.*...................... 103,750
----------
SCHOOLS: 1.2%
1,000 Apollo Group, Inc.*................................. 33,875
1,800 Bright Horizons Family Solutions, Inc.*............. 48,600
----------
82,475
----------
SEMICONDUCTORS AND RELATED: 2.4%
500 Broadcom Corp., Class A*............................ 60,375
1,500 Uniphase Corp.*..................................... 104,062
----------
164,437
----------
12
<PAGE>
MATRIX EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS at December 31, 1998, Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
SOFTWARE AND PROCESSING: 13.6%
2,250 Advent Software, Inc.*........................... $ 106,031
3,000 CBT Group PLC-ADR (Ireland)*..................... 44,625
4,500 Cadence Design Systems, Inc.*.................... 133,875
5,500 Cambridge Technology Partners, Inc.*............. 121,687
2,400 HNC Software, Inc.*.............................. 97,050
4,232 Hyperion Software Corp.*......................... 76,176
2,500 J.D. Edwards & Company*.......................... 70,937
3,925 Oracle Corp.*.................................... 169,266
7,500 Phoenix International Ltd., Inc.*................ 110,625
-----------
930,272
-----------
TELECOMMUNICATIONS EQUIPMENT: 4.4%
2,275 Comverse Technology, Inc.*....................... 161,525
3,625 Excel Switching Corp.*........................... 137,750
-----------
299,275
-----------
TELEPHONE SYSTEMS: 5.8%
3,000 MCI WorldCom, Inc.*.............................. 215,250
2,300 Pacific Gateway Exchange, Inc.*.................. 110,544
5,987 Star Telecommunications, Inc.*................... 72,967
-----------
398,761
-----------
TRAVEL SERVICES: 1.8%
2,800 Galileo International, Inc....................... 121,800
-----------
Total Common Stocks (cost $4,143,454)............ 6,421,436
-----------
Principal Amount REPURCHASE AGREEMENT: 6.2%
- --------------------------------------------------------------------------------
$423,000 Star Bank Repurchase Agreement, 3.50%,
dated 12/31/98, due 1/4/99, collateralized by
$437,500 GNMA, 7.00%, due 3/20/24 (proceeds
$423,165) (cost $423,000)........................ 423,000
-----------
Total Investment in Securities (cost $4,566,454+):
100.3%.......................................... 6,844,436
Liabilities in excess of Other Assets: (0.3)%.... (19,656)
-----------
TOTAL NET ASSETS: 100.00% ....................... $ 6,824,780
===========
* Non-income producing security.
ADR - American Depository Receipt
13
<PAGE>
MATRIX EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS at December 31, 1998, Continued
- --------------------------------------------------------------------------------
+ At December 31, 1998, the cost of investments for Federal income tax purposes
was the same as the basis for financial reporting. Unrealized appreciation and
depreciation of securities were as follows:
Gross unrealized appreciation...................... $ 2,870,766
Gross unrealized depreciation...................... (592,784)
-----------
Net unrealized appreciation...................... $ 2,277,982
===========
See accompanying Notes to Financial Statements.
14
<PAGE>
MATRIX EMERGING GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES at December 31, 1998
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $4,566,454) .......... $ 6,844,436
Cash 210
Receivables:
Due from Advisor.............................................. 114
Fund shares sold.............................................. 771
Dividends and interest........................................ 221
Deferred organization costs..................................... 7,779
-----------
Total assets ............................................... 6,853,531
-----------
LIABILITIES
Payables:
Administration fee............................................ 2,554
Distribution fees............................................. 3,829
Accrued expenses ............................................... 22,368
-----------
Total liabilities........................................... 28,751
-----------
NET ASSETS ....................................................... $ 6,824,780
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($6,824,780/436,916 shares outstanding; unlimited
number of shares authorized without par value) ............. $15.62
======
COMPONENTS OF NET ASSETS
Paid-in capital ............................................ $ 4,829,940
Accumulated net realized loss on investments................ (283,142)
Net unrealized appreciation on investments.................. 2,277,982
-----------
Net assets ................................................. $ 6,824,780
===========
See accompanying Notes to Financial Statements.
15
<PAGE>
MATRIX EMERGING GROWTH FUND
STATEMENT OF OPERATIONS - For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
INVESTMENT LOSS
Income
Dividends ..................................................... $ 22,510
Interest ...................................................... 6,922
----------
Total income ................................................ 29,432
----------
Expenses
Advisory fees ................................................. 64,626
Administration fee............................................. 30,000
Distribution fees.............................................. 17,952
Fund accounting fees........................................... 15,705
Transfer agent fees............................................ 14,265
Audit fee ..................................................... 13,468
Custody fees................................................... 9,198
Registration fees.............................................. 9,051
Amortization of deferred organization costs.................... 6,001
Trustee fees................................................... 4,563
Legal fees .................................................... 4,039
Miscellaneous.................................................. 1,895
Reports to shareholders........................................ 1,880
Insurance ..................................................... 1,310
----------
Total expenses............................................... 193,953
Less: expenses waived and reimbursed......................... (50,214)
----------
Net expenses................................................. 143,739
----------
NET INVESTMENT LOSS ..................................... (114,307)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions ................ (195,449)
Net change in unrealized appreciation on investments ........ 58,539
----------
Net realized and unrealized loss on investments ........... (136,910)
----------
Net decrease in net assets resulting from operations .... $ (251,217)
==========
See accompanying Notes to Financial Statements.
16
<PAGE>
MATRIX EMERGING GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
Ended Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------
(DECREASE) INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment loss.................... $ (114,307) $ (95,357)
Net realized (loss) gain from security
transactions ........................ (195,449) 245,027
Net change in unrealized appreciation
on investments....................... 58,539 804,993
----------- -----------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ......... (251,217) 954,663
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain from security
transactions....................... (103,792) (108,341)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived
from net change in outstanding
shares (a) .......................... 215,079 456,780
----------- -----------
TOTAL (DECREASE) INCREASE IN
NET ASSETS ..................... (139,930) 1,303,102
NET ASSETS
Beginning of year...................... 6,964,710 5,661,608
----------- -----------
END OF YEAR ............................. $ 6,824,780 $ 6,964,710
=========== ===========
(a) A summary of capital shares transactions is as follows:
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- ---------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold ................... 59,862 $1,031,630 49,723 $ 772,800
Shares issued in reinvestment
of distributions ............ 3,755 53,016 3,456 53,845
Shares redeemed ............... (53,153) (869,567) (24,207) (369,865)
------- ---------- ------- ----------
Net increase .................. 10,464 $ 215,079 28,972 $ 456,780
======= ========== ======= ==========
See accompanying Notes to Financial Statements.
17
<PAGE>
MATRIX EMERGING GROWTH FUND
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Year Ended December 31, April 4, 1995*
------------------------------- through
1998 1997 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ....... $ 16.33 $ 14.24 $ 12.98 $ 10.00
------- ------- ------- -------
Income from investment operations:
Net investment loss ...................... (0.26) (0.21) (0.18) (0.03)
Net realized and unrealized (loss)
gain on investments .................... (0.21) 2.56 1.54 3.01
------- ------- ------- -------
Total from investment operations ........... (0.47) 2.35 1.36 2.98
------- ------- ------- -------
Less distributions:
From net capital gains ................. (0.24) (0.26) (0.10) 0.00
------- ------- ------- -------
Net asset value, end of period ............. $ 15.62 $ 16.33 $ 14.24 $ 12.98
======= ======= ======= =======
Total return ............................... (2.72)% 16.58% 10.47% 42.09%
Ratios/supplemental data:
Net assets, end of period (millions) ....... $ 6.8 $ 7.0 $ 5.7 $ 4.3
Ratio of expenses to average net assets:
Before expense reimbursement ............. 2.70% 2.71% 3.13% 3.43%+
After expense reimbursement .............. 2.00% 2.00% 2.00% 2.00%+
Ratio of net investment loss to average
net assets:
Before expense reimbursement ............. (2.29)% (2.19)% (2.53)% (1.87)%+
After expense reimbursement .............. (1.59)% (1.48)% (1.40)% (0.43)%+
Portfolio turnover rate .................... 25% 41% 30% 10%
</TABLE>
*Commencement of operations.
+Annualized.
See accompanying Notes to Financial Statements.
18
<PAGE>
MATRIX GROWTH FUND
MATRIX EMERGING GROWTH FUND
NOTES TO FINANCIAL STATEMENTS at December 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Matrix Growth Fund and the Matrix Emerging Growth Fund (the "Funds")
are each a series of shares of beneficial interest of Professionally Managed
Portfolios (the "Trust"), which is registered under the Investment Company Act
of 1940 (the "1940 Act") as a diversified, open-end management investment
company. The Funds began operations on May 14, 1986 and April 4, 1995,
respectively. Prior to January 1, 1995, Matrix Growth Fund was a series of
shares in the Gateway Trust, a family of four no-load, diversified mutual funds
registered under the 1940 Act. The investment objectives of the Funds are
long-term growth of capital and long-term capital appreciation, respectively.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. These policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION. Investments in securities traded on a national
securities exchange or included in the NASDAQ National Market System
are valued at the last reported sales price at the close of regular
trading on the last business day of the period; securities traded on
an exchange or NASDAQ for which there have been no sales and other
over-the-counter securities are valued at the last reported bid
price. Securities for which quotations are not readily available are
valued at their respective fair values as determined in good faith by
the Board of Trustees. Short-term investments are stated at cost,
which when combined with accrued interest, approximates market value.
B. FEDERAL INCOME TAXES. The Funds intend to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of their taxable income to
their shareholders. Therefore, no federal income tax provision is
required.
C. SECURITY TRANSACTIONS, Investment Income and Distributions. As is
common in the industry, security transactions are accounted for on
the trade date. The cost of securities owned on realized transactions
is relieved on a first-in, first-out basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
D. DEFERRED ORGANIZATION COSTS. The costs incurred by the Funds with
respect to adopting their current management and trust agreements,
and initial organization for Emerging Growth, have been deferred and
are being amortized using the straight-line method over a period of
five years from January 1, 1995 for Growth and April 4, 1995
(commencement of operations) for Emerging Growth.
E. 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 at the date of the financial
statements. Actual results could differ from those estimates.
19
<PAGE>
MATRIX GROWTH FUND
MATRIX EMERGING GROWTH FUND
NOTES TO FINANCIAL STATEMENTS at December 31, 1998, Continued
- --------------------------------------------------------------------------------
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the year ended December 31, 1998, Sena Weller Rohs Williams, Inc. (the
"Advisor") provided the Funds with investment management services under an
Investment Advisory Agreement. The Advisor furnished all investment advice,
office space and certain administrative services, and most of the personnel
needed by the Funds. As compensation for its services, the Advisor was entitled
to a monthly fee at the annual rate of 0.90% based upon the average daily net
assets of the Funds up to $50 million per Fund, 0.70% of the next $50 million
and 0.60% of all such assets over $100 million. For the year ended December 31,
1998, the advisory fees incurred were $118,473 for Matrix Growth and $64,626 for
Matrix Emerging Growth.
The Advisor has agreed to reduce fees payable to it by the Funds and
reimburse other expenses to the extent necessary to limit the Funds' aggregate
annual operating expenses, excluding brokerage commissions and other portfolio
transaction expenses, interest, taxes, capital expenditures and extraordinary
expenses, to 1.75% and 2.00%, respectively, of average daily net assets through
December 31, 1998. As a result, the Advisor has reimbursed the Funds for
expenses in excess of the limit in the amounts of $33,090 for Matrix Growth and
$50,214 for Matrix Emerging Growth, respectively.
Investment Company Administration, L.L.C. (the "Administrator") acts as
the Funds' Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Funds; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Funds' custodian, transfer agent and accountants;
coordinates the preparation and payment of Fund expenses and reviews the Funds'
expense accruals. For its services, the Administrator receives a monthly fee
from each Fund at the following annual rate:
Under $15 million $30,000
$15 to $50 million 0.20% of average daily net assets
$50 to $100 million 0.15% of average daily net assets
$100 to $150 million 0.10% of average daily net assets
Over $150 million 0.05% of average daily net assets
For the year ended December 31, 1998, Matrix Growth Fund and Matrix
Emerging Growth Fund each incurred $30,000 in Administration fees.
Reynolds DeWitt Securities Company (the "Distributor") acts as the Funds'
principal underwriter in a continuous public offering of the Funds' shares. The
Distributor is an affiliate of the Advisor.
Certain officers and trustees of the Trust are also officers and/or
directors of the Administrator.
20
<PAGE>
MATRIX GROWTH FUND
MATRIX EMERGING GROWTH FUND
NOTES TO FINANCIAL STATEMENTS at December 31, 1998, Continued
- --------------------------------------------------------------------------------
NOTE 4 - DISTRIBUTION COSTS
The Funds have adopted a Distribution Plan (the "Plan") in accordance with
Rule 12b-1 under the 1940 Act. The Plan provides that the Funds will pay a fee
to the Advisor as Distribution Coordinator at an annual rate of up to 0.25% of
the average daily net assets of the Funds. The fee is paid to the Advisor as
reimbursement for, or in anticipation of, expenses incurred for
distribution-related activity. For the year ended December 31, 1998, the Matrix
Growth Fund and the Matrix Emerging Growth Fund, paid fees of $32,909 and
$17,952, respectively, to the Advisor.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, other
than short-term investments, were $123,000 and $1,829,686, respectively, for the
Matrix Growth Fund and $1,672,168 and $1,777,720, respectively, for the Matrix
Emerging Growth Fund.
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Professionally Managed Portfolios
We have audited the accompanying statement of assets and liabilities of the
Matrix Growth Fund and of the Matrix Emerging Growth Fund, each a series of
shares of the Professionally Managed Portfolios, including the schedules of
investments as of December 31, 1998, and the related statements of operations
for the year then ended and changes in net assets and the financial highlights
for each of the two years in the period then ended. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights presented for
the year ended December 31, 1996 and prior were audited by other auditors whose
report dated February 9, 1997, expressed an unqualified opinion.
We conducted our audits 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
December 31, 1998, by correspondence with the custodian. Our 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 audits provide a reasonable basis for our opinion.
In our opinion the 1998 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Matrix Growth Fund and Matrix Emerging Growth Fund as of December 31, 1998, the
results of their operations for the year then ended, the changes in their net
assets and their financial highlights for each of the two years in the period
then ended, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 13, 1999
22
<PAGE>
Advisor
Sena Weller Rohs Williams, Inc.
300 Main Street
Cincinnati, Ohio 45202
(513) 621-2875
(800) 877-3344
+
Distributor
Reynolds DeWitt Securities Company
a division of Sena Weller Rohs Williams, Inc.
300 Main Street
Cincinnati, Ohio 45202
(513) 621-2875
(800) 877-3344
+
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
+
Transfer Agent
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132
+
Auditors
Tait, Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, Pennsylvania 19103
+
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, California 94104
0
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.
