<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
PROSPECTUS
MARCH 29, 1996
------------------------------------------------------------
ABOUT THIS The Lou Holland Trust currently consists of one portfolio,
PROSPECTUS the Growth Fund, which primarily seeks long-term growth of
capital and invests primarily in common stocks of growth
companies, with the receipt of dividend income as a
secondary consideration.
This Prospectus sets forth concisely the information about
the Trust and the Growth Fund that you should know before
investing. It should be retained for future reference. A
Statement of Additional Information, dated March 29, 1996,
about the Trust has been filed with the Securities and
Exchange Commission and is incorporated herein by
reference. You may obtain a copy of the Statement of
Additional Information at no charge by calling the Trust
at 1-800-295-9779.
---------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
TABLE OF CONTENTS Introduction.................. 1 How to Redeem Shares.......... 9
How The Trust is Managed...... 11
Expense Summary............... 2
Risk Factors, Other Investment
Practices, and Policies of
The Growth Fund............... 3 the Growth
How to Purchase Shares........ 4 Fund......................... 13
Shareholder Services.......... 5
Portfolio Transactions and
Brokerage
Retirement Plans.............. 7 Practices.................... 20
How the Growth Fund's Net
Asset
Value is Determined.......... 8 Organization of The Trust..... 20
Dividends, Distributions, and
Taxes........................ 8
</TABLE>
THE LOU HOLLAND TRUST
Suite 3260
35 West Wacker Drive
Chicago, Illinois 60601
------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
------------------------------------------------------------
INTRODUCTION The Lou Holland Trust (the "Trust") is a Delaware business
trust registered with the Securities and Exchange
Commission ("SEC") as a no-load, open- end diversified
management investment company, commonly known as a "mutual
fund." The Trust is organized as a series company and
currently consists of one series, the Growth Fund (the
"Growth Fund" or "Fund"). In the future, the Trust may
establish additional series or classes of shares of any
series. The Fund is managed by Holland Capital Management
(the "Investment Manager"), an investment adviser
registered with the SEC that directs the day-to-day
operations of the Fund and provides certain adminis-
trative services to the Trust. HCM Investments, Inc. (the
"Distributor"), a broker-dealer registered with the SEC,
serves as the distributor of the shares of the Trust.
No sales charges or redemption fees or penalties are charged
by the Trust with respect to an investment in the Growth
Fund. This means that all of the money you invest will be
credited to your account(s) in the Fund and immediately go
to work for you.
The Growth Fund primarily seeks long-term growth of capital
and invests primarily in common stocks of growth companies,
with the receipt of dividend income as a secondary
consideration. There can be no assurance that the investment
objective of the Fund will be realized. For general
information, please call the Trust, toll-free at
1-800-295-9779.
- --------------------------------------------------------------------------------
1
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
------------------------------------------------------------
The Expense Summary, including the Examples below, is
included to assist in understanding of the various costs and
expenses to which an investment in the Growth Fund would be
subject. Certain fees and expenses of the Fund stated below
are estimated. Actual fees and expenses for the Growth Fund
for the current year may be more or less than those shown
below. A more complete description of all fees and expenses
is included in this prospectus under the section "How The
Trust is Managed."
<TABLE>
<CAPTION>
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES Growth Fund
---------------
<S> <C> <C>
Sales Load Imposed on Purchase.......................................... None
Sales Load Imposed on Reinvested Dividends.............................. None
Deferred Sales Load Imposed on Redemptions.............................. None
Redemption Fee.......................................................... None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Investment Management Fee............................................... .85%*
12b-1 Fees.............................................................. -0-
Other Expenses (After Expense Reimbursements)........................... .50%**
-----
Total Fund Operating Expenses........................................... 1.35%
</TABLE>
* The Investment Management Fee declines at specified
breakpoints as assets increase.
** Other Expenses are based on estimated amounts for the
current fiscal year. The Investment Manager has agreed to
reimburse the Growth Fund to the extent that Other Expenses
actually exceed .50% of the net assets of shares of the
Fund during the first year of the Fund's operations. The
Investment Manager estimates that absent any reimbursements
Other Expenses and Total Operating Expenses would be 1.25%
and 2.10%, respectively.
EXAMPLES: An investor in the Growth Fund would pay the
following expenses on a $1,000 investment, assuming (i) a 5%
annual return and (ii) redemption at the end of each future
time period:***
<TABLE>
<CAPTION>
1 Year 3 Years
----------- -----------
<S> <C> <C> <C>
$ 14 $ 44
</TABLE>
*** There are no charges imposed upon redemption.
THESE EXAMPLES SHOULD NOT BE CONSIDERED TO BE A
REPRESENTATION OF PAST OR FUTURE FEES OR EXPENSES FOR THE
GROWTH FUND. ACTUAL FEES AND EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN ABOVE. Similarly, the annual rate of return
assumed in the Example is not an estimate or guarantee of
future investment performance, but is included for
illustrative purposes.
- --------------------------------------------------------------------------------
2
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
------------------------------------------------------------
INVESTMENT OBJECTIVE: The Growth Fund primarily seeks
long-term growth of capital by investing primarily in common
stocks of growth companies, with the receipt of dividend
income as a secondary consideration.
THE GROWTH FUND
INVESTMENT PROGRAM: The policy of the Growth Fund is to
invest substantially all of its assets in equity securities
under normal market conditions. It invests primarily in the
common stocks of a diversified group of companies: (i) that
have demonstrated historical growth of earnings faster than
the general market; (ii) that have earnings growth
stability; (iii) whose return on equity is higher than the
general market; and (iv) whereby the dividend growth of the
portfolio is typically greater than that of the market,
while dividend yield is typically less.
Equity securities include common stocks, securities which
are convertible into common stocks and readily marketable
securities, such as rights and warrants, which derive their
value from common stock. Investments in rights and warrants
will be for the purpose of participating in particular
market sectors.
The Growth Fund also may on occasion invest in various
income producing securities including, but not limited to,
dividend-paying equity securities and investment grade
bonds. (SEE "Description of Certain Corporate Bond Ratings"
in the Statement of Additional Information.)
Investments in common stock in general are subject to market
risks that may cause their prices to fluctuate over time. In
addition, the amount of income generated by the Fund will
fluctuate depending, among other things, on the composition
of the Fund's holdings and the level of interest and
dividend income paid on those holdings. Therefore, an
investment in the Fund may be more suitable for long-term
investors who can bear the risk of these fluctuations.
The Growth Fund may also invest in common stocks of foreign
issuers. Investments in common stocks of foreign issuers
will be made primarily through the use of U.S.
dollar-denominated American Depository Receipts ("ADRs"),
although direct market purchases also may be made. ADRs are
issued by domestic banks and evidence ownership of
underlying foreign securities.
The Growth Fund may establish and maintain reserves for
temporary, defensive purposes or to enable it to take
advantage of buying opportunities. The Fund's reserves will
be invested in high-grade domestic and foreign
- --------------------------------------------------------------------------------
3
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
money market instruments including, but not limited to, U.S.
government obligations, certificates of deposit, bankers'
acceptances, commercial paper, short-term corporate debt
issues and repurchase agreements.
To facilitate the Growth Fund's investment program, the Fund
may lend portfolio securities and purchase securities on a
forward-commitment or when-issued basis.
------------------------------------------------------------
The initial minimum investment is $2,000 for the Growth
Fund. Such minimum investment amount may, in certain cases,
be waived or lowered by the Trust.
HOW TO PURCHASE
SHARES
OPENING AN ACCOUNT. Shareholders may make an initial
purchase of shares of the Growth Fund by mail or by wire.
Shares of the Fund may be purchased on any day the Trust is
open for business.
A COMPLETED AND SIGNED PURCHASE APPLICATION FORM
("APPLICATION") IS REQUIRED FOR EACH NEW ACCOUNT OPENED WITH
THE GROWTH FUND REGARDLESS OF HOW THE INITIAL PURCHASE OF
SHARES IS MADE.
BY MAIL. Shares of the Growth Fund may be purchased by
mailing the completed Application, with a check made payable
to the Trust, c/o Firstar Trust Company ("Firstar"), Post
Office Box 701, Milwaukee, Wisconsin 53201-0701.
Correspondence sent by overnight delivery services should be
sent to Firstar Trust Company, 3rd Floor, 615 East Michigan
Street, Milwaukee, Wisconsin 53202.
BY WIRE. Shares of the Growth Fund also may be purchased by
wiring funds to the wire bank account for the Fund. Before
wiring funds, please call the Trust toll free at
1-800-295-9779 to advise the Trust of the intention to
invest in the Growth Fund and to receive instructions as to
how and where to wire the investment. Please remember to
return the completed Application to the Trust as described
in the prior paragraph. The bank that wires the funds may
charge a fee.
SUBSEQUENT INVESTMENTS. The minimum subsequent investment
for the Growth Fund is $250. Subsequent purchases of shares
of the Fund may be made by mail or by wire (see instructions
above), or through means of the Telephone Investment
Privilege described below under "Shareholder Services."
SHARE PRICE. To make an initial purchase of shares of the
Growth Fund, except by wire transfer, a completed and signed
Application in good order,
- --------------------------------------------------------------------------------
4
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
as described below, must first be received and accepted.
Shares in the Fund will be priced at the net asset value per
share of the Fund next determined after a purchase order has
been received by Firstar as transfer agent in good order, as
described below.
CONDITIONS OF PURCHASE. The Trust and the Distributor each
reserve the right to reject any purchase for any reason and
to cancel any purchase due to nonpayment. Purchases are not
binding on the Trust or the Investment Manager or considered
received until such purchase orders are received by Firstar
in good order. Good order requires that all purchases must
be made in U.S. dollars and, to avoid fees and delays, all
checks must be drawn only on U.S. banks. No cash or third
party checks will be accepted. As a condition of this
offering, if a purchase is canceled due to nonpayment or
because a check does not clear (and, therefore, the account
is required to be redeemed), the purchaser will be
responsible for any loss the Fund incurs. The transfer agent
charges a $15 fee against a shareholder's account for any
checks that do not clear.
Shares may be purchased by rendering payment in-kind in the
form of marketable securities, including but not limited to
shares of common stock and debt instruments, provided the
acquisition of such securities is consistent with the Growth
Fund's investment objective and otherwise acceptable to the
Investment Manager.
SHARE CERTIFICATES. Share certificates will not be issued
for shares unless the shareholder has held them for at least
thirty (30) days and has specifically requested them. Most
shareholders elect not to receive share certificates.
Certificates for full shares only will be issued.
Shareholders who lose a share certificate may incur an
expense to replace it.
------------------------------------------------------------
SHAREHOLDER INQUIRIES AND SERVICES OFFERED. If there are
any questions about the following services, please call the
Trust at 1-800-295-9779 or write the Trust, c/o Firstar
Trust Company, Post Office Box 701, Milwaukee, Wisconsin
53201-0701. The Trust reserves the right to amend the
shareholder services described below or to change their
terms or conditions upon sixty (60) days' notice to
shareholders.
SHAREHOLDER
SERVICES
SHAREHOLDER STATEMENTS AND REPORTS. Each time a shareholder
buys or sells shares or reinvests a dividend or distribution
in the Growth Fund, the shareholder will receive a statement
confirming such transaction and listing
- --------------------------------------------------------------------------------
5
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
the current share balance with the Fund. The Trust also will
send shareholders annual and semi-annual reports, as well as
year-end tax information about the accounts with the Fund.
TELEPHONE PRIVILEGES. For convenience, the Trust provides
telephone privileges that allow telephone authorization to
(i) purchase shares in the Growth Fund, and (ii) redeem
shares in the Fund. Initial purchases of shares may not be
made by telephone. To utilize these telephone privileges,
check the appropriate boxes on the Application and supply
the Trust with the information required. Procedures have
been established by the Trust and Firstar that are
considered to be reasonable and are designed to confirm
personal identification information prior to acting on
telephone instructions, including tape recording telephone
communications and providing written confirmation of
instructions communicated by telephone. If the Investment
Manager does not employ reasonable procedures to confirm
that instructions communicated by telephone are genuine, it
may be liable for any losses arising out of any action on
its part or any failure or omission to act as a result of
its own negligence, lack of good faith, or willful
misconduct. In light of the procedures established, the
Trust will not be liable for following telephone
instructions that it or Firstar, as transfer agent, believes
to be genuine. During periods of extreme economic conditions
or market changes, requests by telephone may be difficult to
make due to heavy volume. During such times, shareholders
should consider placing orders by mail.
The telephone privileges are not available with respect to
shares for which certificates have been issued or with
respect to redemptions for accounts requiring supporting
legal documents.
TELEPHONE INVESTMENT PRIVILEGE. After an account with the
Trust has been opened, additional investments in the amount
of $1,000 or more may be made by telephoning the Trust at
1-800-295-9779 between 9:00 a.m. and 4:00 p.m. Eastern Time
on any day the Trust is open. Telephone investment requests
made after 4:00 p.m. Eastern Time will be processed as of
the close of business on the next business day. In
accordance with a shareholder's instructions, the Trust will
electronically transfer monies from a shareholder's bank
account designated on the Application to the shareholder's
account with the Trust. The designated bank must be a member
of the Automated Clearing House ("ACH") network and able to
make electronic transfers in order for a shareholder to use
this privilege. Most electronic fund transfers are completed
within two business days after the call requesting the
transfers.
- --------------------------------------------------------------------------------
6
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
TELEPHONE REDEMPTION PRIVILEGE. The Telephone Redemption
Privilege permits a shareholder to authorize the redemption
of some or all of the shares in his or her account with the
Trust by telephoning the Trust at 1-800-295-9779 between
9:00 a.m. and 4:00 p.m. Eastern Time on any day the Trust is
open. In accordance with telephone instructions, we will
redeem shares of the Growth Fund at their net asset value
next determined after a telephone redemption request is
received. Telephone redemption requests made after 4:00 p.m.
Eastern Time will be processed as of the close of business
on the next business day. Redemption proceeds will, in
accordance with any prior election made by a shareholder, be
mailed to the shareholder's current address, or transmitted
by wire to the shareholder's designated bank account. The
bank transmitting the wire may charge a $10 fee for the
service. The designated bank must be a member of the ACH
network and able to receive electronic transfers in order to
use this privilege. Telephone redemption requests will not
be processed if the shareholder has changed his or her
address within the preceding fifteen (15) days.
After an account has been opened, a written request must be
sent to the transfer agent in order to arrange for telephone
redemptions or to make changes in the bank or account
receiving the proceeds. The request must be signed by each
shareholder of an account and the signature guaranteed.
AUTOMATIC INVESTMENT PLAN (AIP). The Trust offers an AIP
whereby a shareholder may purchase shares on a regular
scheduled basis ($50 minimum per transaction up to four
times per month). Under the AIP, the shareholder's
designated bank account is debited a preauthorized amount
and applied to purchase shares. The financial institution
must be a member of the ACH network. There is no charge for
this service. A $15 fee will be charged by the transfer
agent if there are insufficient funds in the account at the
time of the scheduled transaction. The program will
automatically terminate upon redemption of all shares in an
account.
------------------------------------------------------------
Trust shares are available in connection with tax benefitted
retirement plans established under Section 401(a) or Section
403(b) of the Internal Revenue Code of 1986, as amended
("Code"), IRAs and SEP-IRAs under Section 408 of the Code,
corporate sponsored profit-sharing plans, and deferred
compensation plans of state and local governments and
tax-exempt organizations that comply with the provisions of
Section 457 of the Code. Various initial, annual maintenance
and participant fees may apply to these
- --------------------------------------------------------------------------------
RETIREMENT PLANS
7
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
retirement plans. Applicable forms and information regarding
plan administration, all fees, and other plan provisions are
available from the Trust or Firstar, as transfer agent.
---------------------------------------------------------------------
The net asset value per share of the Growth Fund is normally
calculated as of the close of regular trading on the New
York Stock Exchange ("Exchange"), currently 4:00 p.m.
Eastern Time, every day the Exchange is open for trading.
The per share net asset value, calculated as described
below, is effective for all orders received in good order
(as previously described) prior to the close of trading on
the Exchange for that day. Orders received after the close
of trading on the Exchange or on a day when the Exchange is
not open for business will be priced at the per share net
asset value next computed.
HOW THE GROWTH
FUND'S NET ASSET
VALUE IS DETERMINED
The net asset value of the Growth Fund's shares is
determined by adding the value of all securities, cash and
other assets of the Fund, subtracting the liabilities
(including accrued expenses and dividends payable), and
dividing the result by the total number of outstanding
shares in the Fund. Portfolio securities are valued
primarily based on market quotations, or if market
quotations are not available, by a method that the Board of
Trustees of the Trust (the "Board") believes accurately
reflects fair value.
------------------------------------------------------------
The Growth Fund intends to elect to be treated and to
qualify as a "regulated investment company" under Subchapter
M of the Code in which case it will not be subject to
federal income tax on any income and capital gains
distributed to its shareholders.
DIVIDENDS,
DISTRIBUTIONS, AND
TAXES
As a result, it is the policy of the Growth Fund to declare
and distribute to its shareholders as income dividends or
capital gains distributions, at least annually,
substantially all of its ordinary income and capital gains
realized from the sale of its portfolio securities, if any.
Distributions will be made in the form of additional shares
unless the shareholder elects to receive them in cash.
Income dividends for the Growth Fund will be declared and
paid annually, and all distributions of capital gains of the
Fund, if any, realized during the fiscal year, will be
declared and distributed annually. Income dividends are
derived from the Fund's net investment income, including any
net short-term capital gains and dividends received by the
Fund, and are taxable to shareholders as ordinary income.
Distributions of capital gains by the Fund are derived from
the Fund's long-term capital gains and are taxable to
- --------------------------------------------------------------------------------
8
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
shareholders as long-term capital gains, regardless of how
long the shares are held. Income dividends and distributions
of capital gains declared in October, November or December
and paid in January are taxable in the year they are
declared. The Trust will mail shareholders a Form 1099 by
the end of January indicating the federal tax status of
income dividends and capital gains distributions.
BACKUP WITHHOLDING. The Trust is required by federal law to
withhold 31% of reportable payments (which may include
income dividends, capital gains distributions, and share
redemption proceeds) paid to shareholders who have not
complied with IRS regulations. In order to avoid this backup
withholding requirement, certification is required on the
Application, or on a separate W-9 Form supplied by Firstar,
as transfer agent, that the Social Security or Taxpayer
Identification Number is correct (or that the shareholder
has applied for such a number and is waiting for it to be
issued), and that the shareholder is not currently subject
to, or exempt from, backup withholding.
REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS. Unless elected otherwise, as permitted on the
Application, income dividends and distributions of capital
gains income with respect to the Growth Fund will be
reinvested in additional shares of the Fund and will be
credited to the shareholder's account with the Fund at the
net asset value per share next determined as of the
ex-dividend date. Both income dividends and distributions of
capital gains income are paid by the Fund to each
shareholder on the basis of the shareholder's relative net
assets. As a result, at the time of such payment, the net
asset value per share of the Fund will be reduced by the
amount of such payment. Payments from the Fund to
shareholders of income dividends and capital gains
distributions are taxable to shareholders of the Fund when
such dividends and distributions are declared, regardless of
whether they are taken in cash or reinvested in shares of
the Fund.
------------------------------------------------------------
Shareholders have the right to redeem (subject to the
restrictions outlined below) all or any part of their shares
in the Growth Fund at a price equal to the net asset value
of such shares next computed following receipt and
acceptance of the redemption request by the Trust. Unless a
shareholder has selected the Telephone Redemption Privilege
and provided the required information, in order to redeem
shares in the Fund, a written request in "proper form" (as
explained below) must be sent to Firstar Trust Company, Post
Office Box 701, Milwaukee, Wisconsin 53201-0701.
Correspondence
- --------------------------------------------------------------------------------
HOW TO REDEEM
SHARES
9
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
sent by overnight delivery services should be sent to
Firstar Trust Company, 3rd Floor, 615 East Michigan Street,
Milwaukee, Wisconsin 53202. A shareholder cannot redeem
shares by telephone unless the shareholder is eligible to
use the Telephone Redemption Privilege. In addition, the
Trust cannot accept requests which specify a particular date
for redemption or which specify any other special
conditions.
PROPER FORM FOR ALL REDEMPTION REQUESTS. A redemption
request must be in proper form. To be in proper form, a
redemption request must include: (i) share certificates, if
any, endorsed by all registered shareholders for the account
exactly as the shares are registered and the signature(s)
must be guaranteed, as described below; (ii) for written
redemption requests, a "letter of instruction," which is a
letter specifying the Growth Fund by name, the number of
shares to be sold, the name(s) in which the account is
registered, and the account number. The letter of
instruction must be signed by all registered shareholders
for the account using the exact names in which the account
is registered; (iii) other supporting legal documents, as
may be necessary, for redemption requests by corporations,
trusts, and partnerships; and (iv) any signature guarantees
that are required as described above in (i), or required by
the Trust where the value of the shares being redeemed is
$10,000 or greater, or where the redemption proceeds are to
be sent to an address other than the address of record or to
a person other than the registered shareholder(s) for the
account. Signature guarantees are required if the amount
being redeemed is $10,000 or more but generally are not
required for redemptions made using the Telephone Redemption
Privilege. If proceeds from a redemption made using the
Telephone Redemption Privilege are to be sent to a person
other than the registered shareholders for the account or to
an address or account other than that of record for a period
no less than fifteen (15) days prior to the date of the
request, then a signature guarantee would be required.
Signature guarantees, when required, can be obtained from
any one of the following institutions: (i) a bank; (ii) a
securities broker or dealer, including a Government or
municipal securities broker or dealer, that is a member of a
clearing corporation or has net capital of at least
$100,000; (iii) a credit union having authority to issue
signature guarantees; (iv) a savings and loan association, a
building and loan association, a cooperative bank, a federal
savings bank or association; or (v) a national securities
exchange, a registered securities exchange or a clearing
agency. Notaries public are not acceptable guarantors.
- --------------------------------------------------------------------------------
10
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
A redemption request will not be processed and will be held
until it is in proper form, as described above.
RECEIVING A REDEMPTION PAYMENT. Except under certain
emergency conditions, a redemption payment will be sent to
the shareholder within seven (7) days after receipt of the
corresponding telephone or written redemption request, in
proper form, by the Trust. No charge of any kind is imposed
on any redemption request.
If a redemption request is with respect to shares purchased
by a personal, corporate, or government check within ten
(10) days of the purchase date, the redemption payment will
be held until the purchase check has cleared (which may take
up to ten (10) days from the purchase date), although the
shares redeemed will be priced for redemption upon receipt
of the redemption request. The inconvenience of this ten
(10) day check clearing period can be avoided by purchasing
shares with a certified, treasurer's or cashier's check, or
with a federal Fund or bank wire.
MINIMUM ACCOUNT SIZE. Due to the relatively high cost of
maintaining accounts, the Trust reserves the right to redeem
shares in any account if, as the result of the redemptions,
the value of that account drops below $2,000. A shareholder
is allowed at least sixty (60) days, after written notice by
the Trust, to make an additional investment to bring the
account value up to at least $2,000 before the redemption is
processed.
------------------------------------------------------------
BOARD OF TRUSTEES. The management of the Trust's business
and affairs is the responsibility of its Board. Although the
Board is not involved in the day-to-day operations of the
Trust, the Board has the responsibility for establishing
broad operating policies and supervising the overall
performance of the Trust.
HOW THE TRUST IS
MANAGED
INVESTMENT MANAGER. The Trust is managed by Holland Capital
Management, a Delaware limited partnership whose principal
place of business is Suite 3260, 35 West Wacker Drive,
Chicago, Illinois 60601. The Investment Manager has not
previously served as investment manager to any other
registered investment company. However, the executives and
members of the investment management staff have extensive
experience in managing investments. In addition, Louis A.
Holland, the Managing Partner and Chief Investment Officer
of the Investment Manager, has served as an investment
adviser for the past 25 years.
Subject to the authority of the Board, the Investment
Manager supervises and directs the day-to-day investments
and operation of the Growth Fund in
- --------------------------------------------------------------------------------
11
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
accordance with the Fund's investment objective, investment
program, policies, and restrictions. The Investment Manager
also supervises the overall administration of the Trust,
which includes, among other activities, preparing and filing
documents required for compliance of the Trust with
applicable laws and regulations, preparing agendas and other
supporting documents for the meetings of the Board,
maintaining the corporate records and books of the Trust,
and serving as the Trust's liaison with its independent
public accountant and any service providers such as the
custodian, transfer agent, and administrator.
The persons employed by or associated with the Investment
Manager who are primarily responsible for the day-to-day
management of the Growth Fund's portfolio, are Louis A.
Holland, Monica L. Walker and Laura J. Janus. Their business
experience for the past five years is as follows: Mr.
Holland has served as Managing Partner and Chief Investment
Officer of the Investment Manager, and President, Treasurer
and Director of the Distributor and of Holland Capital
Management, Inc., the General Partner of the Investment
Manager; Ms. Walker has served as portfolio manager with
respect to the Investment Manager's account clients, and as
Trust Funds Administration Manager of the retirement and
thrift and savings plans of Texas Utilities Company; and Ms.
Janus has served as portfolio manager with respect to the
Investment Manager's account clients, and as Treasurer/
Analyst for Mutual Trust Life Insurance Company.
The Trust pays the Investment Manager, on a monthly basis,
an investment management fee based on the Growth Fund's
average daily net assets at the following annualized rates:
with respect to the Fund, .85% of the average daily net
assets up to $500 million, .75% of the average daily net
assets up to the next $500 million, and .65% of the average
daily net assets in excess of $1 billion.
The Trust bears all expenses of its operation, other than
those assumed by the Investment Manager. Such expenses
include payment for distribution services, transfer agent
services, accounting services, certain administrative
services, legal fees, and payment of taxes. In addition, the
expense of organizing the Trust and registering and
qualifying its initial shares under federal and state
securities laws will be charged to the Trust's operations,
as an expense, and amortized over a period not to exceed
five years.
DISTRIBUTOR. HCM Investments, Inc. serves as principal
underwriter and the Distributor of the shares of the Growth
Fund pursuant to a Distribution Agreement between the
Distributor and the Trust. The Distributor is a
- --------------------------------------------------------------------------------
12
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
Delaware corporation whose principal place of business is
Suite 3260, 35 West Wacker Drive, Chicago, Illinois 60601.
The Distributor is an affiliate of the Investment Manager,
as both the Distributor and the Investment Manager are
controlled by Louis A. Holland.
The Trust's shares are sold on a no-load basis and,
therefore, the Distributor receives no sales commission or
sales load for providing services to the Trust under the
Distribution Agreement. The Trust has not currently entered
into any plan or agreement for the payment of fees pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"), but reserves the right to do so with respect to
any future classes of shares of any series.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING
AGENT. Pursuant to written agreements between it and
Firstar Trust Company ("Firstar"), Firstar will serve as
custodian, transfer agent and dividend disbursing agent for
the Trust. Firstar also will provide fund accounting and
certain administrative services to the Trust. The principal
business address of Firstar is 615 East Michigan Street,
Post Office Box 701, Milwaukee, Wisconsin 53201-0701.
------------------------------------------------------------
REPURCHASE AGREEMENTS. The Growth Fund may utilize
repurchase agreements through which it may purchase a
security (the "underlying security") from a well established
domestic securities dealer or bank that is a member of the
Federal Reserve System and the seller of the repurchase
agreement (i.e., the securities dealer or bank) agrees to
repurchase the underlying security at a mutually agreed upon
time and price. In these repurchase transactions, the
underlying security is held in custody for the Fund through
the federal book entry system as collateral and
marked-to-market on a daily basis to ensure full
collateralization of the repurchase agreement. The
underlying security must be a high-quality debt security and
must be determined to present minimal credit risks. In the
event of bankruptcy or default of certain sellers of
repurchase agreements, the Fund could experience costs and
delays in liquidating the underlying security held as
collateral and might incur a loss if such collateral
declines in value during this period.
RISK FACTORS, OTHER
INVESTMENT
PRACTICES, AND
POLICIES OF THE
GROWTH FUND
SECURITIES OF FOREIGN ISSUERS. The Growth Fund may invest
up to 20% of its total assets in securities of foreign
issuers. As stated above, investments in common stocks of
foreign issuers will be made primarily through the use of
U.S. dollar-denominated American Depository Receipts
("ADRs"), although direct market purchases also may be made.
ADRs are U.S. dollar-denominated certificates issued by a
U.S. bank or trust company and
- --------------------------------------------------------------------------------
13
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
represent the right to receive securities of a foreign
issuer deposited in a domestic bank or foreign branch of a
U.S. bank and traded on a U.S. exchange or in an
over-the-counter market.
Investing in securities of foreign issuers involves
considerations not typically associated with investing in
securities of companies organized and operated in the U.S.
Foreign securities generally are denominated and pay
dividends or interest in foreign currencies. The Growth Fund
may from time to time hold various foreign currencies
pending their investment in foreign securities or their
conversion into U.S. dollars. The value of the assets of the
Fund as measured in U.S. dollars may therefore be affected
favorably or unfavorably by changes in exchange rates. There
may be less publicly available information concerning
foreign issuers than is available with respect to U.S.
issuers. Foreign securities may not be registered with the
SEC, and generally, reporting requirements comparable to
those applicable to U.S. issuers.
ILLIQUID SECURITIES. The Growth Fund will not invest more
than 15% of its net assets in illiquid securities, including
securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual
restrictions on resale. Securities that have legal or
contractual restrictions on resale but have a readily
available market are not deemed illiquid for purposes of
this limitation. The Investment Manager will monitor the
liquidity of such restricted securities under the
supervision of the Board.
The Growth Fund may invest in commercial paper issued in
reliance on the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 (the "1933 Act").
Commercial paper is restricted as to disposition under
federal securities law, and is generally sold to
institutional investors, such as the Fund, who agree that
they are purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Commercial paper
is normally resold to other institutional investors like the
Fund through or with the assistance of the issuer or
investment dealers who make a market in commercial paper,
thus providing liquidity. The Fund believes that commercial
paper and possible certain other restricted securities which
meet the criteria for liquidity established by the Board are
quite liquid. The Fund intends, therefore, to treat the
restricted securities which meet the criteria for liquidity
established by the Board, including commercial paper, as
determined by the Investment Manager, as liquid and not
subject to the investment limitations applicable to illiquid
securities.
- --------------------------------------------------------------------------------
14
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
Rule 144A adopted by the SEC allows for a broader
institutional trading market for securities otherwise
subject to a restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain
securities to qualified institutional buyers. The Investment
Manager anticipates that the market for certain restricted
securities such as institutional commercial paper may expand
further as a result of this regulation and use of automated
systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers,
such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc.
OPTIONS AND FUTURES CONTRACTS. The Growth Fund may write
covered call options, buy put options, buy call options and
write put options, without limitation except as noted in
this paragraph and the Statement of Additional Information.
Such options may relate to particular securities or to
various indexes and may or may not be listed on a national
securities exchange and issued by the Options Clearing
Corporation. The Fund may also invest in futures contracts
and options on futures contracts (index futures contracts or
interest rate futures contracts, as applicable) for hedging
purposes or for other purposes so long as aggregate initial
margins and premiums required for non-hedging positions do
not exceed 5% of its net assets, after taking into account
any unrealized profits and losses on any such contracts it
has entered into. However, the Fund may not write put
options or purchase or sell futures contracts or options on
futures contracts to hedge more than its total assets unless
immediately after any such transaction the aggregate amount
of premiums paid for put options and the amount of margin
deposits on its existing futures positions do not exceed 5%
of its total assets.
Options trading is highly specialized activity which entails
greater than ordinary investment risks. A call option for a
particular security gives the purchaser of the option the
right to buy, and a writer the obligation to sell, the
underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the
market price of the security. The premium paid to the writer
is in consideration for undertaking the obligations under
the option contract. A put option for a particular security
gives the purchaser the right to sell the underlying
security at the stated exercise price at any time prior to
the expiration date of the option, regardless of the market
price of the security. In contrast to an option on a
particular security, an option on an index provides the
holder with the right to make or receive a cash settlement
upon exercise of the option. The
- --------------------------------------------------------------------------------
15
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
amount of this settlement will be equal to the difference
between the closing price of the index at the time of
exercise and the exercise price of the option expressed in
dollars, times a specified multiple.
The Growth Fund may invest in unlisted over-the-counter
options only with broker-dealers deemed creditworthy by the
Investment Manager. Closing transactions in certain options
are usually effected directly with the same broker-dealer
that effected the original option transaction. The Fund
bears the risk that the broker-dealer will fail to meet its
obligations. There is no assurance that the Fund will be
able to close an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded
purchasers of listed options by the Options Clearing
Corporation, which performs the obligations of its members
who fail to do so in connection with the purchase or sale of
options.
To enter into a futures contract, the Growth Fund must make
a deposit of an initial margin with its custodian in a
segregated account in the name of its futures broker.
Subsequent payments to or from the broker, called variation
margin, will be made on a daily basis as the price of the
underlying security or index fluctuates, making the long and
short positions in the futures contracts more or less
valuable.
The risks related to the use of options and futures
contracts include: (i) the correlation between movements in
the market price of a portfolio's investments (held or
intended for purchase) being hedged and in the price of the
futures contract or option may be imperfect; (ii) possible
lack of a liquid secondary market for closing out options or
futures positions; (iii) the need for additional portfolio
management skills and techniques; and (iv) losses due to
unanticipated market movements.
Successful use of options and futures by the Growth Fund is
subject to the Investment Manager's ability to correctly
predict movements in the direction of the market. For
example, if the Fund uses future contracts as a hedge
against the possibility of a decline in the market adversely
affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the
benefit of the increased value of its securities which it
has hedged because it will have approximately equal
offsetting losses in its futures positions. The risk of loss
in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required,
and the extremely high degree of leverage involved in future
pricing. As a result, a relatively small price movement in a
futures contract may result in
- --------------------------------------------------------------------------------
16
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
immediate and substantial loss or gain to the investor.
Thus, a purchase or sale of a futures contract may result in
losses or gains in excess of the amount invested in the
contract.
WARRANTS. The Growth Fund may invest in warrants, which are
certificates that give the holder the right to buy a
specific number of shares of a company's stock at a
stipulated price within a certain time limit (generally, two
or more years). Because a warrant does not carry with it the
right to dividends or voting rights with respect to the
securities which it entitles a holder to purchase, and
because it does not represent any rights in the assets of
the issuer, warrants may be considered more speculative than
certain other types of investments. Also, the value of a
warrant does not necessarily change with the value of the
underlying securities, and a warrant ceases to have value if
it is not exercised prior to its expiration date.
LENDING OF PORTFOLIO SECURITIES. In order to generate
income, the Growth Fund may lend portfolio securities on a
short-term or a long-term basis, up to one-third of the
value of its total assets to broker-dealers, banks, or other
institutional borrowers of securities. Since this technique
may be considered a form of leverage, the Fund will only
enter into loan arrangements with broker-dealers, banks, or
other institutions which the Investment Manager for the Fund
has determined are creditworthy under guidelines established
by the Trustees, and will receive collateral in the form of
cash (which may be invested in accordance with the Fund's
investment program) or U.S. Government securities, equal to
at least 100% of the value of the securities loaned at all
times. The Fund will continue to receive the equivalent of
the interest or dividends paid by the issuer of the
securities lent. The Fund may also receive interest on the
investment of the collateral or a fee from the borrower as
compensation for the loan. The Fund will retain the right to
call, upon notice, the securities lent. The principal risk
is the potential insolvency of the broker-dealer or other
borrower. As a result there may be delays in recovery, or
even loss of rights in the collateral should the borrower
fail financially. The Investment Manager reviews the
creditworthiness of the entities to which loans are made to
evaluate those risks.
WHEN-ISSUED SECURITIES. The Growth Fund may utilize up to
5% of its total assets to purchase securities on a
"when-issued" basis, which normally settle within 30 to 45
days. The Fund will enter into a when-issued transaction for
the purpose of acquiring portfolio securities and not for
the purpose of leverage, but may sell the securities before
the settlement date if the Investment Manager deems it
advantageous to do so. The payment obligation and the
interest rate that will be received on when-issued
- --------------------------------------------------------------------------------
17
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities
purchased or sold on a when-issued basis, the yields
obtained may be higher or lower than the yields available in
the market on the dates when the investments are actually
delivered to the buyers. When the Fund agrees to purchase
when-issued securities, its custodian will set aside in a
segregated account cash, U.S. government securities or other
liquid high-grade debt obligations or other securities that
are acceptable as collateral to the appropriate regulatory
authority equal to the amount of the commitment. Normally,
the custodian will set aside portfolio securities to satisfy
a purchase commitment, and in such a case the Fund may be
required subsequently to place additional assets in the
segregated account in order to ensure that the value of the
account remains equal to the amount of the Fund's
commitment. It may be expected that the Fund's net assets
will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than
when it sets aside cash. When the Fund engages in
when-issued transactions, it relies on the other party to
consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
OTHER INVESTMENT COMPANIES. The Growth Fund may also invest
up to 10% of its total assets in the securities of other
investment companies, including closed-end investment
companies, in accordance with Section 12(d)(1)(A) of the
1940 Act. Such investment in other investment companies will
take into consideration the operating expenses and fees of
these companies, including advisory fees, as such expenses
may reduce investment return.
CERTAIN POLICIES TO REDUCE RISK. The Growth Fund has
adopted certain fundamental investment policies in managing
its portfolio that are designed to maintain the portfolio's
diversity and reduce risk. The Fund will (i) not purchase
the securities of any company if, as a result, the Fund's
holdings of that issue would amount to more than 5% of the
value of the Fund's total assets, or more than 25% of the
value of total assets would be invested in any one industry;
and (ii) not borrow money except for temporary purposes and
then only in amounts not exceeding 15% of the value of its
total assets. The Fund will not borrow in order to increase
income, but only to facilitate redemption requests that
might otherwise require untimely disposition of portfolio
securities. If the Fund borrows money, its share price may
be subject to greater fluctuation until the borrowing is
paid off. Limitation (i) does not apply to obligations
issued or guaranteed by the U.S.
- --------------------------------------------------------------------------------
18
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
Government, its agencies, and instrumentalities. These
investment policies are fundamental and may be changed for
the Fund only by approval of the Fund's shareholders.
If the Fund makes additional investments while borrowings
are outstanding, this may be considered a form of leverage.
The 1940 Act requires the Fund to maintain continuous asset
coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount
borrowed. If the 300% asset coverage should decline as a
result of market fluctuations or other reasons, the Fund may
be required to sell some of its portfolio holdings within
three days to reduce its borrowings and restore the 300%
asset coverage, even though it may be disadvantageous from
an investment standpoint to sell securities at that time. To
avoid the potential leveraging effects of the Fund's
borrowings, additional investments will not be made while
borrowings are in excess of 5% of the Fund's total assets.
In addition, it is a fundamental investment policy that the
Growth Fund may invest only up to 20% of its total assets in
securities of foreign issuers.
These fundamental investment policies may be changed only
with the consent of a "majority of the outstanding voting
securities" of the Growth Fund. As used in this Prospectus
and Statement of Additional Information, the term "majority
of the outstanding voting shares" means the lesser of (i)
67% of the shares of the Fund present at a meeting where the
holders if more than 50% of the outstanding shares of the
Fund are present in person or by proxy, or (ii) more than
50% of the outstanding shares of the Fund.
FURTHER INFORMATION. The Growth Fund's investment program
is subject to further restrictions as described in the
Statement of Additional Information. The Fund's investment
program, unless otherwise specified, is not fundamental and
may be changed without shareholder approval by the Board.
The Fund's investment objective is fundamental and may be
changed only with approval of the Fund's shareholders.
INVESTMENT PERFORMANCE. The Growth Fund may illustrate in
advertisements its average annual total return, which is the
rate of growth that would be necessary to achieve the ending
value of an investment kept in the Fund for the period
specified and is based on the following assumptions: (i) all
dividends and distributions by the Fund are reinvested in
shares of the Fund at net asset value, and (ii) all
recurring fees are included for applicable periods.
- --------------------------------------------------------------------------------
19
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
The Growth Fund may also illustrate in advertisements its
cumulative total return for several time periods throughout
the Fund's life based on an assumed initial investment of
$1,000. Any such cumulative total return will assume the
reinvestment of all income dividends and capital gains
distributions for the indicated periods and will include all
recurring fees.
------------------------------------------------------------
The Distributor may act as a broker for the Growth Fund in
conformity with the securities laws and rules thereunder.
Allocations of portfolio transactions for the Fund,
including their frequency, to various brokers is determined
by the Investment Manager in its best judgment and in a
manner deemed fair and reasonable to shareholders. The
primary consideration is prompt and efficient execution of
orders in an effective manner at the most favorable price.
The Investment Manager may also consider sales of the Fund's
shares as a factor in the selection of broker-dealers,
subject to the policy of obtaining best price and execution.
For further information regarding the allocation of
portfolio transactions and brokerage, see the Statement of
Additional Information.
PORTFOLIO
TRANSACTIONS AND
BROKERAGE PRACTICES
------------------------------------------------------------
The Trust, a Delaware business trust, organized on December
20, 1995, currently consists of one portfolio, the Growth
Fund. Shareholders having at least two-thirds of the
outstanding shares of the Trust may remove a Trustee from
office by a vote cast in person or by proxy at a meeting of
shareholders called for that purpose at the request of
holders of 10% or more of the outstanding shares of the
Trust. The Trust has an obligation to assist in such
shareholder communications. The Trust does not routinely
hold annual meetings of shareholders. Each share of the Fund
is entitled to one vote on all matters submitted to a vote
of all shareholders of the Fund. Fractional shares, when
issued, have the same rights, proportionately, as full
shares. All shares are fully paid and nonassessable when
issued and have no preemptive, conversion or cumulative
voting rights.
ORGANIZATION OF THE
TRUST
As of the date of this Prospectus, the Investment Manager
has provided the initial seed capital for the Trust and owns
100% of the outstanding voting shares of the Growth Fund.
Furthermore, as ownership of more than 25% of the
outstanding voting securities of the Fund may result in a
person being deemed a controlling entity of the Fund, the
Investment Manager may be initially deemed a controlling
person of the Fund. Such control by the Investment Manager
will dilute the effect of the votes of other shareholders.
- --------------------------------------------------------------------------------
20
<PAGE>
THE LOU HOLLAND TRUST
Suite 3260
35 West Wacker Drive
Chicago, Illinois 60601
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the Prospectus for the Trust dated March 29, 1996, which
may be obtained by telephoning the Trust at 1-800-295-9779. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
The date of this Statement of Additional Information is March 29, 1996.
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
General Information and History B-2
Investment Restrictions B-2
Description of Certain Investments B-5
Management of The Trust B-8
Committees of the Board of Trustees B-10
Principal Holders of Securities B-11
Investment Management and Other Services B-11
Brokerage Allocation and Other Practices B-12
Purchase and Redemption of Securities Being Offered B-14
Determination of Net Asset Value B-15
Taxes B-16
Organization of The Trust B-17
Performance Information About the Growth Fund B-18
Independent Auditors B-19
Legal Matters B-19
Financial Statements B-20
Appendix B-22
<PAGE>
GENERAL INFORMATION AND HISTORY
The Trust is a Delaware business trust registered with the SEC as a no-load,
open-end diversified management investment company, commonly known as a "mutual
fund." The Trust is organized as a series company and currently consists of one
series, the Growth Fund. In the future, the Trust may establish additional
series.
The Growth Fund is a separate investment portfolio with a distinct investment
objective, investment programs, policies, and restrictions. The Fund is managed
by Holland Capital Management (the "Investment Manager"), which directs the day-
to-day operations of the Fund. Shares of the Fund will be initially offered
principally to the Investment Manager. The Investment Manager also provides
administrative services to the Trust. HCM Investments, Inc. (the
"Distributor"), an affiliate of the Investment Manager, serves as distributor
for the shares of the Fund.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions apply to the Growth Fund and
may be changed only by approval of the Fund's shareholders. Except with respect
to borrowing money, as described in (2) below, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in that
percentage amount resulting from any change in value of the portfolio securities
or the Fund's net assets will not result in a violation of such investment
restriction.
The Growth Fund will not:
(1) MARGIN AND SHORT SALES: Purchase securities on margin or sell securities
short, except that the Growth Fund may make margin deposits in connection with
permissible options and futures transactions subject to (5) and (8) below, may
make short sales against the box and may obtain short-term credits as may be
necessary for clearance of transactions.
(2) SENIOR SECURITIES AND BORROWING: Issue any class of securities senior to
any other class of securities, although the Growth Fund may borrow from a bank
for temporary, extraordinary or emergency purposes or through the use of reverse
repurchase agreements. The Fund may borrow up to 15% of the value of its total
assets in order to meet redemption requests. No securities will be purchased
when borrowed money exceeds one-third of the value of the Fund's total assets.
The Fund may enter into futures contracts subject to (5) below;
(3) REAL ESTATE: Purchase or sell real estate, or invest in real estate
limited partnerships, except the Growth Fund may, as appropriate and consistent
with its investment objective, investment program, policies and other investment
restrictions, buy
B-2
<PAGE>
securities of issuers that engage in real estate operations and securities that
are secured by interests in real estate (including shares of real estate
mortgage investment conduits, mortgage pass-through securities, mortgage-backed
securities and collateralized mortgage obligations) and may hold and sell real
estate acquired as a result of ownership of such securities;
(4) CONTROL OF PORTFOLIO COMPANIES: Invest in portfolio companies for the
purpose of acquiring or exercising control of such companies;
(5) COMMODITIES: Purchase or sell commodities and invest in commodities
futures contracts, except that the Growth Fund may enter into futures contracts
and options thereon where, as a result thereof, no more than 5% of the total
assets for the Fund (taken at market value at the time of entering into the
futures contracts) would be committed to margin deposits on such futures
contracts and premiums paid for unexpired options on such futures contracts;
provided that, in the case of an option that is "in-the-money" at the time of
purchase, the "in-the-money" amount, as defined under Commodity Futures Trading
Commission regulations, may be excluded in computing such 5% limit.
(6) INVESTMENT COMPANIES: Invest in the securities of other open-end
investment companies, except that the Growth Fund may purchase securities of
other open-end investment companies provided that such investment is in
connection with a merger, consolidation, reorganization, or acquisition or by
purchase in the open market of such securities where no sponsor or dealer
commission or profit, other than a customary brokerage commission, is involved
and only if immediately thereafter the Fund (i) owns no more than 3% of the
total outstanding voting securities of any one investment company and (ii)
invests no more than 10% of its total assets (taken at market value) in the
securities of any one investment company or all other investment companies in
the aggregate;
(7) UNDERWRITING: Underwrite securities issued by other persons, except to the
extent that the Growth Fund may be deemed to be an underwriter, within the
meaning of the 1933 Act, in connection with the purchase of securities directly
from an issuer in accordance with the Fund's investment objective, investment
program, policies, and restrictions;
(8) OPTIONS AND SPREADS: Invest in puts, calls, straddles, spreads or any
combination thereof, except that the Growth Fund may invest in and commit its
assets to writing and purchasing put and call options to the extent permitted by
the Prospectus and this Statement of Additional Information. In order to comply
with the securities laws of several states, the Fund (as a matter of operating
policy) will not write a covered call option if, as a result, the aggregate
market value of all portfolio securities covering call options or subject to put
options for the Fund
B-3
<PAGE>
exceeds 25% of the market value of the Fund's net assets. The Fund intends to
invest in options primarily to hedge against sudden fluctuations in the
financial markets.
(9) OIL AND GAS PROGRAMS: Invest in interests in oil, gas, or other mineral
exploration or development programs or oil, gas and mineral leases, although
investments may be made in the securities of issuers engaged in any such
businesses;
(10) OWNERSHIP OF PORTFOLIO SECURITIES BY OFFICERS AND TRUSTEES: Purchase
or retain the securities of any issuer if the officers and Trustees or the
Investment Manager who individually own more than 1/2 of 1% of the securities of
such issuer collectively own more than 5% of the securities of such issuer;
(11) LOANS: Make loans, except that the Growth Fund in accordance with its
investment objective, investment program, policies, and restrictions may: (i)
invest in a portion of an issue of publicly issued or privately placed bonds,
debentures, notes, and other debt securities for investment purposes; (ii)
purchase money market securities and enter into repurchase agreements, provided
such repurchase agreements are fully collateralized and marked to market daily;
and (iii) lend its portfolio securities in an amount not exceeding one-third the
value of the Fund's total assets.
(12) UNSEASONED ISSUERS: Invest more than 5% of its total assets in
securities of issuers, including their predecessors and unconditional
guarantors, which, at the time of purchase, have been in operation for less than
three years, other than obligations issued or guaranteed by the U.S. Government,
its agencies, and instrumentalities;
(13) RESTRICTED SECURITIES, ILLIQUID SECURITIES AND SECURITIES NOT READILY
MARKETABLE: Knowingly purchase or otherwise acquire any security or invest in
a repurchase agreement if, as a result, more than 15% of the net assets of the
Growth Fund would be invested in securities that are illiquid or not readily
marketable, including repurchase agreements maturing in more than seven days and
non-negotiable fixed time deposits with maturities over seven days. The Fund
may invest without limitation in restricted securities provided such securities
are considered to be liquid. As a matter of operating policy, in compliance
with certain state regulations, no more than 15% of any Fund's total assets will
be invested in restricted securities;
(14) MORTGAGING: Mortgage, pledge, or hypothecate in any other manner, or
transfer as security for indebtedness any security owned by the Growth Fund,
except as may be necessary in connection with (i) permissible borrowings (in
which event such mortgaging, pledging, and hypothecating may not exceed 15% of
the Fund's total
B-4
<PAGE>
assets in order to secure such borrowings) and (ii) the use of options and
futures contracts.
(15) DIVERSIFICATION: Make an investment unless 75% of the value of the
Growth Fund's total assets is represented by cash, cash items, U.S. Government
securities, securities of other investment companies and other securities. For
purposes of this restriction, the purchase of "other securities" is limited so
that no more than 5% of the value of the Fund's total assets would be invested
in any one issuer. As a matter of operating policy, the Fund will not consider
repurchase agreements to be subject to the above-stated 5% limitation if all the
collateral underlying the repurchase agreements are U.S. Government securities
and such repurchase agreements are fully collateralized.
(16) CONCENTRATION: Invest 25% or more of the value of its total assets in
any one industry, except that the Growth Fund may invest 25% or more of the
value of its total assets in cash or cash items, securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities or instruments secured
by these money market instruments, such as repurchase agreements.
DESCRIPTION OF CERTAIN INVESTMENTS
The following is a description of certain types of investments which may be made
by the Growth Fund.
MONEY MARKET INSTRUMENTS
The Growth Fund may invest in high-quality money market instruments in order to
enable it to: (i) take advantage of buying opportunities; (ii) meet redemption
requests or ongoing expenses; or (iii) take defensive action as necessary, or
for other temporary purposes. The money market instruments that may be used by
the Fund include:
U.S. GOVERNMENT OBLIGATIONS: These consist of various types of marketable
securities issued by the U.S. Treasury, i.e., bills, notes and bonds. Such
securities are direct obligations of the U.S. Government and differ mainly in
the length of their maturity. Treasury bills, the most frequently issued
marketable Government security, have a maturity of up to one year and are issued
on a discount basis.
U.S. GOVERNMENT AGENCY SECURITIES: These consist of debt securities issued by
agencies and instrumentalities of the U.S. Government, including the various
types of instruments currently outstanding or which may be offered in the
future. Agencies include, among others, the Federal Housing Administration,
Government National Mortgage Association ("GNMA"), Farmer's Home Administration,
Export-Import Bank of the United States, Maritime Administration, and General
Services Administration.
B-5
<PAGE>
Instrumentalities include, for example, each of the Federal Home Loan Banks, the
National Bank for Cooperatives, the Federal Home Loan Mortgage Corporation
("FHLMC"), the Farm Credit Banks, the Federal National Mortgage Association
("FNMA"), and the U.S. Postal Service. These securities are either: (i) backed
by the full faith and credit of the U.S. Government (e.g., U.S. Treasury Bills);
(ii) guaranteed by the U.S. Treasury (e.g., GNMA mortgage-backed securities);
(iii) supported by the issuing agency's or instrumentality's right to borrow
from the U.S. Treasury (e.g., FNMA Discount Notes); or (iv) supported only by
the issuing agency's or instrumentality's own credit (e.g., each of the Federal
Home Loan Banks).
BANK AND SAVINGS AND LOAN OBLIGATIONS: These include, among others,
certificates of deposit, bankers' acceptances, and time deposits. Certificates
of deposit generally are short-term, interest-bearing negotiable certificates
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Bankers' acceptances are time drafts
drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction (e.g., to finance the import, export,
transfer, or storage of goods). With bankers' acceptances, the borrower is
liable for payment as is the bank, which unconditionally guarantees to pay the
draft at its face amount on the maturity date. Most bankers' acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are generally short-term, interest-bearing negotiable
obligations issued by commercial banks against funds deposited in the issuing
institutions. In the case of domestic banks, the Growth Fund will not invest in
any security issued by a commercial bank or a savings and loan association
unless the bank or savings and loan association is a member of the Federal
Deposit Insurance Corporation ("FDIC"), or in the case of savings and loan
associations, insured by the FDIC; provided, however, that such limitation will
not prohibit investments in foreign branches of domestic banks which meet the
foregoing requirements. The Fund will not invest in time-deposits maturing in
more than seven days.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE DEBT INSTRUMENTS: These include
commercial paper (i.e., short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs). Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Also included are non-convertible corporate debt
securities (e.g., bonds and debentures). Corporate debt securities with a
remaining maturity of less than 13 months are liquid (and tend to become more
liquid as their maturities lessen) and are traded as money market securities.
The Growth Fund may purchase corporate debt securities having no more than 13
months remaining to maturity at the date of settlement.
B-6
<PAGE>
REPURCHASE AGREEMENTS: The Growth Fund may invest in repurchase agreements. A
repurchase agreement is an instrument under which the investor (such as the
Fund) acquires ownership of a security (known as the "underlying security") and
the seller (i.e., a bank or primary dealer) agrees, at the time of the sale, to
repurchase the underlying security at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This results in
a fixed rate of return insulated from market fluctuations during such period,
unless the seller defaults on its repurchase obligations. The underlying
securities will consist of high-quality debt securities and must be determined
to present minimal credit risks. Repurchase agreements are, in effect,
collateralized by such underlying securities, and, during the term of a
repurchase agreement, the seller will be required to mark to market such
securities every business day and to provide such additional collateral as is
necessary to maintain the value of all collateral at a level at least equal to
the repurchase price. Repurchase agreements usually are for short periods,
often under one week, and will not be entered into by the Fund for a duration of
more than seven days if, as a result, more than 15% of the net asset value of
the Fund would be invested in such agreements or other securities which are not
readily marketable.
The Growth Fund will assure that the amount of collateral with respect to any
repurchase agreement is adequate. As with a true extension of credit, however,
these is risk of delay in recovery or the possibility of inadequacy of the
collateral should the seller of the repurchase agreement fail financially. In
addition, the Fund could incur costs in connection with the disposition of the
collateral if the seller were to default. The Fund will enter into repurchase
agreements only with sellers deemed to be creditworthy by the Board and only
when the economic benefit to the Fund is believed to justify the attendant
risks. The Fund has adopted standards for the sellers with whom they will enter
into repurchase agreements. The Board believes these standards are designed to
reasonably assure that such sellers present no serious risk of becoming involved
in bankruptcy proceedings within the time frame contemplated by the repurchase
agreement. The Fund may enter into repurchase agreements only with member banks
of the Federal Reserve System or primary dealers in U.S. Government securities.
SECURITIES OF FOREIGN ISSUERS: As described in the Prospectus, the Growth Fund
also may purchase equity and equity-related securities of foreign issuers. Also
as described in the Prospectus, the Fund may purchase American Depositary
Receipts ("ADRs"). ADRs are U.S. dollar-denominated certificates issued by a
U.S. bank or trust company and represent the right to receive securities of a
foreign issuer deposited in a domestic bank or foreign branch of a U.S. bank and
traded on a U.S. exchange or in an over-the-counter market. Generally, ADRs are
in registered form. There are no fees imposed on the purchase or sale of ADRs
when purchased from the issuing bank or trust company in the initial
underwriting, although
B-7
<PAGE>
the issuing bank or trust company may impose charges for the collection of
dividends and the conversion of ADRs into the underlying securities. Investments
in ADRs have certain advantages over direct investment in the underlying foreign
securities since: (i) ADRs are U.S. dollar-denominated investments that are
registered domestically, easily transferable and for which market quotations are
readily available; and (ii) issuers whose securities are represented by ADRs are
subject to the same auditing, accounting, and financial reporting standards as
domestic issuers.
Investments in foreign securities involve certain risks that are not typically
associated with investing in domestic issuers, including: (i) less publicly
available information about the securities and about the foreign company or
government issuing them; (ii) less comprehensive accounting, auditing, and
financial reporting standards, practices, and requirements; (iii) stock markets
outside the U.S. may be less developed or efficient than those in the U.S. and
government supervision and regulation of those stock markets and brokers and the
issuers in those markets is less comprehensive than that in the U.S.; (iv) the
securities of some foreign issuers may be less liquid and more volatile than
securities of comparable domestic issuers; (v) settlement of transactions with
respect to foreign securities may sometimes be delayed beyond periods customary
in the U.S.; (vi) fixed brokerage commissions on certain foreign stock exchanges
and custodial costs with respect to securities of foreign issuers generally
exceed domestic costs; (vii) with respect to some countries, there is the
possibility of unfavorable changes in investment or exchange control
regulations, expropriation, or confiscatory taxation, taxation at the source of
the income payment or dividend distribution, limitations on the removal of funds
or other assets of the Fund, political or social instability, or diplomatic
developments that could adversely affect U.S. investments in those countries;
and (viii) foreign securities denominated in foreign currencies may be affected
favorably or unfavorably by changes in currency exchange rates and exchange
control regulations and the Fund may incur costs in connection with conversions
between various currencies. Specifically, to facilitate its purchase of
securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions to convert currencies to or from U.S. dollars. The Fund
does not intend to hedge its foreign currency risks and will engage in currency
exchange transactions on a spot (i.e., cash) basis only at the spot rate
prevailing in the foreign exchange market.
EQUITY SECURITIES. As stated in the Prospectus, the Growth Fund invests
primarily in the common stocks of a diversified group of companies that have (i)
demonstrated historical growth of earnings faster than the general market, (ii)
earnings growth stability, (iii) a return on equity higher than the general
market, and (iv) dividend growth of the portfolio is typically greater than that
of the market, while dividend yield is typically less.
B-8
<PAGE>
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, together with information as to their
principal business occupations during the last five years, are shown below. Any
Trustee who is considered an "interested person" of the Trust (as defined in
Section 2(a)(19) of the 1940 Act) is indicated by an asterisk next to his or her
name. The address for all interested persons, unless otherwise indicated, is
Suite 3260, 35 West Wacker Drive, Chicago, Illinois 60601:
<TABLE>
<CAPTION>
POSITION WITH THE TRUST AND
PRINCIPAL OCCUPATION WITH THE
NAME AGE PAST FIVE YEARS
<S> <C> <C>
*Louis A. Holland 54 President, Trustee and Chairman of the Board of
Trustees. Managing Partner and Chief Investment
Officer of Holland Capital Management, L.P.
President, Treasurer and Director, HCM
Investments, Inc.
*Monica L. Walker 37 SECRETARY AND TRUSTEE. Portfolio Manager, Holland
Capital Management, L.P.; Vice President, HCM
Investments, Inc.
*Laura J. Janus 48 TREASURER. Portfolio Manager, Holland Capital
Management, L.P.; Vice President, HCM Investments,
Inc.
Lester H. McKeever, Jr. 61 TRUSTEE. Managing Partner, Washington, Pittman &
McKeever, Certified Public Accountants &
Management Consultants.
Kenneth R. Meyer 51 TRUSTEE. Executive Vice President and Managing
Director, Lincoln Capital Management Co.
John E. Mabie 64 TRUSTEE. President, Mid-Continent Capital.
</TABLE>
B-9
<PAGE>
Of the persons listed in the table above, the following describes any position
held with any affiliated persons or principal underwriters of registrant: Louis
A. Holland is Managing Partner and Chief Investment Officer of the Investment
Manager and President, Treasurer and Director of the Distributor; Monica L.
Walker and Laura J. Janus each is a Vice President of the Distributor and a
partner of, and member of the Investment Policy Committee of, the Investment
Manager.
The following table describes the compensation provided by the Trust:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------- (1) (2)
(3) (4) (5)
NAME OF PERSON, POSITION AGGREGATE COMPENSATION PENSION OR RETIREMENT ESTIMATED BENEFITS TOTAL COMPENSATION
FROM THE TRUST(*) BENEFITS ACCRUED AS PART UPON RETIREMENT FROM THE TRUST PAID
OF TRUST EXPENSES TO TRUSTEES
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lester H. McKeever,
Trustee and Member of $2,100/year 0 0 $2,100/year
Audit Committee
- --------------------------------------------------------------------------------------------------------------------------------
Kenneth R. Meyer,
Trustee and Member of $2,100/year 0 0 $2,100/year
Audit Committee
- --------------------------------------------------------------------------------------------------------------------------------
John D. Mabie,
Trustee and Member of $2,100/year 0 0 $2,100/year
Audit Committee
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(*)Estimated future payments
Trustees who are interested persons of the Trust, as that term is defined by
the 1940 Act, do not receive compensation from the Trust.
COMMITTEES OF THE BOARD OF TRUSTEES
The Board has an Audit Committee and an Executive Committee. The duties of
these two committees and their present membership are as follows:
AUDIT COMMITTEE: The members of the Audit Committee will consult with the
Trust's independent public accountants if the accountants deem it desirable, and
will meet with the Trust's independent public accountants at least once annually
to discuss the scope and results of the annual audit of the Growth Fund and such
other
B-10
<PAGE>
matters as the Audit Committee members may deem appropriate or desirable.
Lester H. McKeever, Jr., Kenneth R. Meyer and John D. Mabie are the
members of the Audit Committee.
EXECUTIVE COMMITTEE: During intervals between meetings of the Board, the
Executive Committee possesses and may exercise all of the powers of the Board in
the management of the Trust except as to matters where action of the full Board
is specifically required. Included within the scope of such powers are matters
relating to valuation of securities held in the Growth Fund's portfolio and the
pricing of the Fund's shares for purchase and redemption. Louis A. Holland and
Monica L. Walker are the members of the Executive Committee.
PRINCIPAL HOLDERS OF SECURITIES
The Investment Manager held all of the outstanding voting securities of the
Trust as of the date of this Statement of Additional Information. The address
of the Investment Manager is Suite 3260, 35 West Wacker Drive, Chicago, Illinois
60601. Trustees and officers of the Trust, as a group, owned less than 1% of
the Growth Fund's outstanding voting securities as of the date of this Statement
of Additional Information.
INVESTMENT MANAGEMENT AND OTHER SERVICES
THE INVESTMENT MANAGER
Holland Capital Management, Suite 3260, 35 West Wacker Drive, Chicago, Illinois
60601, serves as Investment Manager of the Trust pursuant to an Investment
Management and Administration Agreement that has been approved by the Board,
including a majority of independent Trustees.
The controlling persons of the Investment Manager are: Holland Capital
Management, Inc., the General Partner of the Investment Manager; Louis A.
Holland, Managing Partner and Chief Investment Officer of the Investment
Manager; and Catherine E. Lavery, Chief Accounting Officer, Secretary and
Director of Holland Capital Management, Inc.
Investment management fees are paid to the Investment Manager monthly at the
following annualized rates based on a percentage of the average daily net asset
value of the Growth Fund: .85% of average daily net assets up to $500 million,
.75% of average daily net assets up to the next $500 million, and .65% of
average daily net assets in excess of $1 billion.
In addition to the duties set forth in the Prospectus, The Investment Manager,
in furtherance of such duties and responsibilities, is authorized in its
discretion to engage in the following activities: (i) buy, sell, exchange,
convert, lend, or
B-11
<PAGE>
otherwise trade in portfolio securities and other assets; (ii) place orders and
negotiate the commissions (if any) for the execution of transactions in
securities with or through broker-dealers, underwriters, or issuers; (iii)
prepare and supervise the preparation of shareholder reports and other
shareholder communications; and (iv) obtain and evaluate business and financial
information in connection with the exercise of its duties.
The Investment Manager will also furnish to or place at the disposal of the
Trust such information and reports as requested by or as the Investment Manager
believes would be helpful to the Trust. The Investment Manager has agreed to
permit individuals who are among its officers or employees to serve as Trustees,
officers, and members of any committee or advisory board of the Trust without
cost to the Trust. The Investment Manager has agreed to pay all salaries,
expenses, and fees of any Trustees or officers of the Trust who are affiliated
with the Investment Manager.
In its administration of the Trust, the Investment Manager is responsible for:
(i) maintaining the Trust's books and records; (ii) overseeing the Trust's
insurance relationships; (iii) preparing or assisting in the preparation of all
required tax returns, proxy statements and reports to the Trust's shareholders
and Trustees and reports to and filings with the SEC and any other governmental
agency; (iv) preparing such applications and reports as may be necessary to
register or maintain the registration of the Trust's shares under applicable
state securities laws; (v) responding to all inquiries or other communications
of shareholders which are directed to the Investment Manager; and (vi)
overseeing all relationships between the Trust and its agents.
In addition to the administrative services provided by the Investment Manager,
Firstar Trust Company, pursuant to agreements between it and the Trust, performs
certain accounting, administrative, recordkeeping, tax related and other
reporting services for the Trust.
THE DISTRIBUTOR AND DISTRIBUTION SERVICES
The Distributor serves as the distributor of the shares of the Growth Fund
pursuant to a Distribution Agreement between the Distributor and the Trust. The
Fund's shares are sold on a no-load basis and, therefore, the Distributor
receives no sales commission or sales load for providing such services. The
Trust has not currently entered into any plan or agreement for the payment of
fees pursuant to Rule 12b-1 under the 1940 Act, but reserves the right to do so
with respect to any future classes of shares of any series.
CUSTODIAN. Firstar Trust Company serves as custodian of the assets of the
Trust. Pursuant to separate agreements with the Trust, Firstar also provides
certain
B-12
<PAGE>
administrative, accounting and transfer agent services.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Subject to the general supervision of the Board, the Investment Manager is
responsible for making decisions with respect to the purchase and sale of
portfolio securities on behalf of the Trust, including the selection of broker-
dealers to effect portfolio transactions, the negotiation of commissions, and
the allocation of principal business and portfolio brokerage.
The purchase of any money market instruments and any other debt securities
traded in the over-the-counter market usually will be on a principal basis
directly from issuers or dealers serving as primary market makers. The price of
such money market instruments and debt securities is usually negotiated, on a
net basis, and no brokerage commissions are paid. Although no stated
commissions are paid for securities traded in the over-the-counter market,
transactions in such securities with dealers usually include the dealer's "mark-
up" or "mark-down." Money market instruments and other debt securities may also
be purchased in underwritten offerings, which include a fixed amount of
compensation to the underwriter, generally referred to as the underwriting
discount or concession.
In selecting brokers and dealers to execute transactions for the Growth Fund,
the primary consideration is to seek to obtain the best execution of the
transactions, at the most favorable overall price, and in the most effective
manner possible, considering all the circumstances. Such circumstances include:
the price of the security; the rate of the commission or broker-dealer's
"spread;" the size and difficulty of the order; the reliability, integrity,
financial condition, general execution and operational capabilities of competing
broker-dealers; and the value of research and other services provided by the
broker-dealer. The Investment Manager may also rank broker-dealers based on the
value of their research services and may use this ranking as one factor in its
selection of broker-dealers. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and subject to the policy of
seeking the best price and execution as stated above, sales of shares of the
Fund by a broker-dealer may be considered by the Investment Manager in the
selection of broker-dealers to execute portfolio transactions for the Fund.
Under no circumstances will the Trust deal with the Investment Manager or its
affiliates in any transaction in which the Investment Manager or its affiliates
act as a principal.
In placing orders for the Trust, the Investment Manager, subject to seeking best
execution, is authorized to cause the Trust to pay broker-dealers that furnish
brokerage and research services (as
B-13
<PAGE>
such services are defined under Section 28(e) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) a higher commission than that which might be
charged by another broker-dealer that does not furnish such brokerage and
research services or who furnishes services of lesser value. However, such
higher commissions must be deemed by the Investment Manager as reasonable in
relation to the brokerage and research services provided by the broker-dealer,
viewed in terms of either that particular transaction or the overall decision-
making responsibilities of the Investment Manager with respect to the Trust or
other accounts, as to which it exercises investment discretion (as such term is
defined under Section 3(a)(35) of the 1934 Act).
The Investment Manager currently provides investment advice to other entities
and advisory accounts that have investment programs and an investment objective
similar to the Growth Fund. Accordingly, occasions may arise when the
Investment Manager may engage in simultaneous purchase and sale transactions of
securities that are consistent with the investment objective and programs of the
Fund, and other accounts. On those occasions, the Investment Manager will
allocate purchase and sale transactions in an equitable manner according to
written procedures approved by the Board. Specifically, such written procedures
provide that, in allocating purchase and sale transactions made on a combined
basis, the Investment Manager will seek to achieve the same average unit price
of securities for each entity and will seek to allocate, as nearly as
practicable, such transactions on a pro-rata basis substantially in proportion
to the amounts ordered to be purchased or sold by each entity. Such procedures
may, in certain instances, be either advantageous or disadvantageous to the
Fund.
It is expected that the Distributor, a registered broker-dealer, may act as
broker for the Growth Fund, in conformity with the securities laws and rules
thereunder. The Distributor is an affiliated person of the Investment Manager.
In order for the Distributor to effect any portfolio transactions for the Fund
on an exchange or board of trade, the commissions received by the Distributor
must be reasonable and fair compared to the commission paid to other brokers in
connection with comparable transactions involving similar securities or futures
being purchased or sold on an exchange of board of trade during a comparable
period of time. This standard would allow the Distributor to receive no more
than the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arm's-length transaction. The Board will approve
procedures for evaluating the reasonableness of commissions paid to the
Distributor and periodically will review these procedures. The Distributor will
not act as principal in effecting any portfolio transactions for the Fund.
B-14
<PAGE>
PURCHASE AND REDEMPTION OF SECURITIES BEING OFFERED
The shares of the Growth Fund are offered to the public for purchase directly
through the Distributor. The offering and redemption price of the shares of the
Fund is based upon the Fund's net asset value per share next determined after a
purchase order or redemption request has been received in good order by the
Fund. See "Determination of Net Asset Value" below. The Trust intends to pay
all redemptions of the shares of the Fund in cash. However, the Trust may make
full or partial payment of any redemption request by the payment to shareholders
of portfolio securities (i.e., by redemption-in-kind), at the value of such
securities used in determining the redemption price. The Trust, nevertheless,
pursuant to Rule 18f-1 under the 1940 Act, will file a notification of election
under which the Fund will be committed to pay in cash to any shareholder of
record of the Fund, all such shareholder's requests for redemption made during
any 90-day period, up to the lesser of $250,000 or 1% of the Fund's net asset
value at the beginning of such period. The securities to be paid in-kind to any
shareholders will be readily marketable securities selected in such manner as
the Board deems fair and equitable. If shareholders were to receive
redemptions-in-kind, they would incur brokerage costs should they wish to
liquidate the portfolio securities received in such payment of their redemption
request. The Trust does not anticipate making redemptions-in-kind.
The right to redeem shares or to receive payment with respect to any redemption
of shares of the Growth Fund may only be suspended (i) for any period during
which trading on the New York Stock Exchange ("Exchange") is restricted or such
Exchange is closed, other than customary weekend and holiday closings, (ii) for
any period during which an emergency exists as a result of which disposal of
securities or determination of the net asset value of the Fund is not reasonably
practicable, or (iii) for such other periods as the SEC may by order permit for
protection of shareholders of the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of the Growth Fund is normally calculated as of
the close of trading on the Exchange on every day the Exchange is open for
trading, except (i) on days where the degree of trading in the Fund's portfolio
securities would not materially affect the net asset value of the Fund's shares
and (ii) on days during which no shares of the Fund were tendered for redemption
and no purchase orders were received. The Exchange is open Monday through
Friday except on the following national holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The assets of the Growth Fund are valued as follows:
B-15
<PAGE>
Equity assets are valued based on market quotations, or if market quotations are
not available, by a method that the Board believes accurately reflects fair
value.
All money market instruments held by the Growth Fund are valued on an amortized
cost basis. Amortized cost valuation involves initially valuing a security at
its cost, and thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the security. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the security.
Short-term debt instruments with a remaining maturity of more than 60 days,
intermediate and long-term bonds, convertible bonds, and other debt securities
are generally valued at prices obtained from an independent pricing service.
Where such prices are not available, valuations will be obtained from brokers
who are market makers for such securities. However, in circumstances where the
Investment Manager deems it appropriate to do so, the mean of the bid and asked
prices for over-the-counter securities or the last available sale price for
exchange-traded debt securities may be used. Where no last sale price for
exchange traded debt securities is available, the mean of the bid and asked
prices may be used.
Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided, as described above, are
valued in good faith by the Board using its best judgment.
TAXES
The Trust intends to continue to qualify as a "regulated investment company"
("RIC") under Subchapter M of the Code, and as such must satisfy certain
requirements regarding the character of investments in the Trust, investment
diversification, and distribution.
In general, to qualify as a RIC, at least 90% of the gross income of the Trust
for the taxable year must be derived from dividends, interest, and gains from
the sale or other disposition of securities, and less than 30% of its gross
income for the taxable year can be attributable to gains (without deductions for
losses) from the sale or other disposition of securities held for less than
three months.
A RIC must distribute to its shareholders 90% of its ordinary income and net
short-term capital gains. Moreover, undistributed net income may be subject to
tax at the RIC level.
In addition, the Trust must declare and distribute dividends equal to at least
98% of its ordinary income (as of the twelve months
B-16
<PAGE>
ended December 31) and distributions of at least 98% of its capital gains net
income (as of the twelve months ended October 31), in order to avoid a federal
excise tax. The Trust intends to make the required distributions, but cannot
guarantee that it will do so. Dividends attributable to the Trust's ordinary
income are taxable as such to shareholders in the year in which they are
received.
A corporate shareholder may be entitled to take a deduction for income dividends
received by it that are attributable to dividends received from a domestic
corporation, provided that both the corporate shareholder retains its shares in
the Growth Fund for more than 45 days and the Trust retains its shares in the
issuer from whom it received the income dividends for more than 45 days. A
distribution of capital gains net income reflects the Trust's excess of net
long-term gains over its net short-term losses. The Trust must designate income
dividends and distributions of capital gains net income and must notify
shareholders of these designations within sixty days after the close of the
Trust's taxable year. A corporate shareholder of the Trust cannot use a
dividends-received deduction for distributions of capital gains net income.
If, in any taxable year, the Trust should not qualify as a RIC under the Code:
(i) the Trust would be taxed at normal corporate rates on the entire amount of
its taxable income without deduction for dividends or other distributions to its
shareholders, and (ii) the Trust's distributions to the extent made out of the
Trust's current or accumulated earnings and profits would be taxable to its
shareholders (other than shareholders in tax deferred accounts) as ordinary
dividends (regardless of whether they would otherwise have been considered
capital gains dividends), and may qualify for the deduction for dividends
received by corporations.
If the Trust purchases shares in certain foreign investment entities, called
"passive foreign investment companies" ("PFICs"), the Trust may be subject to
U.S. federal income tax on a portion of any "excess distribution" or gain from
the disposition of the shares even if the income is distributed as a taxable
dividend by the Trust to its shareholders. Additional charges in the nature of
interest may be imposed on either the Trust or its shareholders with respect to
deferred taxes arising from the distributions or gains. If the Trust were to
purchase shares in a PFIC and (if the PFIC made the necessary information
available) elected to treat the PFIC as a "qualified electing fund" under the
Code, in lieu of the foregoing requirements, the Trust might be required to
include in income each year a portion of the ordinary earnings and net capital
gains of the PFIC, even if not distributed to the Trust, and the amounts would
be subject to the 90% and calendar year distribution requirements described
above.
B-17
<PAGE>
ORGANIZATION OF THE TRUST
As a Delaware business trust entity, the Trust need not hold regular annual
shareholder meetings and, in the normal course, does not expect to hold such
meetings. The Trust, however, must hold shareholder meetings for such purposes
as, for example: (i) electing the initial Board; (ii) approving certain
agreements as required by the 1940 Act; (iii) changing the fundamental
investment objective, policies, and restrictions of the Growth Fund; and (iv)
filling vacancies on the Board in the event that less than a majority of the
Trustees were elected by shareholders. The Trust expects that there will be no
meetings of shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders. At such time, the Trustees then in office will call a
shareholders meeting for the election of Trustees. In addition, holders of
record of not less than two-thirds of the outstanding shares of the Trust may
remove a Trustee from office by a vote cast in person or by proxy at a
shareholder meeting called for that purpose at the request of holders of 10% or
more of the outstanding shares of the Trust. The Trust has the obligation to
assist in such shareholder communications. Except as set forth above, Trustees
will continue in office and may appoint successor Trustees.
PERFORMANCE INFORMATION ABOUT THE GROWTH FUND
TOTAL RETURN CALCULATIONS
The Growth Fund may provide average annual total return information calculated
according to a formula prescribed by the SEC. According to that formula,
average annual total return figures represent the average annual compounded rate
of return for the stated period. Average annual total return quotations reflect
the percentage change between the beginning value of a static account in the
Fund and the ending value of that account measured by then current net asset
value of the Fund, and assuming that all dividends and capital gains
distributions during the stated period were reinvested in shares of the Fund
when paid. Total return is calculated by finding the average annual compounded
rates of return of a hypothetical investment that would equate the initial
amount invested to the ending redeemable value of such investment, according to
the following formula:
B-18
<PAGE>
1/n
T = (ERV/P) - 1
where T equals average annual total return; where ERV, the ending redeemable
value, is the value at the end of the applicable period of a hypothetical $1,000
payment made at the beginning of the applicable period; where P equals a
hypothetical initial payment of $1,000; and where n equals the number of years.
The Growth Fund, from time to time, also may advertise its cumulative total
return figures. Cumulative total return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of the Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in shares of the Fund. Cumulative total return is calculated by
finding the compound rates of a hypothetical investment over such period,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value; ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made
at the beginning of the applicable period.
From time to time, in reports and promotional literature, the performance of the
Growth Fund may be compared to: (i) other mutual funds or groups of mutual
funds tracked by: (A) Lipper Analytical Services, a widely-used independent
research firm which ranks mutual funds by overall performance, investment
objectives, and asset size; (B) Forbes Magazine's Annual Mutual Fund Survey and
Mutual Fund Honor Roll; or (C) other financial or business publications, such as
Business Week, Money Magazine, and Barron's, which provide similar information;
(ii) the Consumer Price Index (measure for inflation), which may be used to
assess the real rate of return from an investment in the Fund; (iii) other
Government statistics such as Gross Domestic Product, and net import and export
figures derived from Governmental publications, e.g., The Survey of Current
Business, which may be used to illustrate investment attributes of the Fund or
the general economic, business, investment, or financial environment in which
the Fund operates; (iv) Alexander Steele's Mutual Fund Expert, a tracking
service which ranks various mutual funds according to their performance; and
(v) Morningstar, Inc. which ranks mutual funds on the basis of historical risk
and total return. Morningstar's rankings are calculated using the mutual fund's
average annual returns for a certain period and a
B-19
<PAGE>
risk factor that reflects the mutual fund's performance relative to three-month
Treasury bill monthly returns. Morningstar's rankings range from five star
(highest) to one star (lowest) and represent Morningstar's assessment of the
historical risk level and total return of a mutual fund as a weighted average
for 3, 5, and 10-year periods. In each category, Morningstar limits its five
star rankings to 10% of the mutual funds it follows and its four star rankings
to 22.5% of the mutual funds it follows. Rankings are not absolute or
necessarily predictive of future performance.
The Trust may also illustrate the investment returns of the Growth Fund or
returns in general by graphs and charts that compare, at various points in time,
the return from an investment in the Fund (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the same return on a taxable basis.
INDEPENDENT AUDITORS
The Trust's independent auditors are Deloitte & Touche LLP, 2 Prudential Plaza,
Chicago, Illinois 60601.
LEGAL MATTERS
Legal advice regarding certain matters relating to the federal securities law
applicable to the offer and sale of the shares described in the Prospectus has
been provided by Katten Muchin & Zavis, 1025 Thomas Jefferson Street, N.W.,
Washington, DC 20007, which serves as Special Counsel to the Trust.
B-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholder of The Lou Holland Trust:
We have audited the accompanying statement of assets and liabilities of The
Lou Holland Trust (the "Trust") as of March 19, 1996. This financial statement
is the responsibility of the Trust's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
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 statement of assets and liabilities is
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used
and significant estimates made by the Trust's management, as well as evaluating
the overall statement of assets and liabilities presentation. We believe that
our audit of the statement of assets and liabilities provides a reasonable basis
for our opinion.
In our opinion, such statement of assets and liabilities presents fairly,
in all material respects, the financial position of the Trust as of March 19,
1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 20, 1996
B-21
<PAGE>
THE LOU HOLLAND TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 19, 1996
ASSETS
Cash $100,000
Deferred organizational expenses (Note 1) 50,000
--------
Total assets $150,000
--------
LIABILITIES
Organizational expenses payable (Note 1) $50,000
SHAREHOLDER'S EQUITY
10,000 shares issued and outstanding, no par value 100,000
Total liabilities and shareholder's equity $150,000
--------
--------
NET ASSETS $100,000
--------
--------
NET ASSET VALUE PER SHARE $10.00
------
------
NOTE 1 - ORGANIZATION
The Lou Holland Trust (the "Trust"), established on December 20, 1995, is a
Delaware business trust registered with the Securities and Exchange Commission
as a no-load, open-end diversified management investment company, commonly
known as a "mutual fund". The Trust is organized as a series company and
currently consists of one series, the Growth Fund. Costs incurred by the
Trust in connection with its organization are deferred and amortized on a
straight-line basis over five years beginning at the commencement of
operations of the Trust. As of March 19, 1996, organization costs incurred
were estimated at $50,000. In the event that the current shareholder (or any
subsequent holder) redeems any of its original shares prior to the end of
the five-year period, the proceeds of the redemption payable in respect of
such shares shall be reduced by the pro rata share (based on the proportionate
share of the original shares redeemed to the total number of original shares
outstanding at the time of redemption) of the unamortized deferred organization
expenses as of the date of such redemption. In the event that the Trust is
liquidated prior to the end of the five-year period, the current shareholder
(or any subsequent holder) shall bear the unamortized deferred organization
expenses.
The Trust proposes to sell shares to the public pursuant to a Registration
Statement on Form N-1A, under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, as filed on February 13, 1996.
The Trust intends to use the proceeds to operate and carry on the business of
a management investment company through one or more series, investing
primarily in securities, and to carry on such other business as the Trustees
may from time to time determine pursuant to their authority.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The preparation of the financial statement in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liablities at the
date of the financial statement. Actual results could differ from those
estimates.
B-22
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS OF CERTAIN MONEY MARKET SECURITIES
Description of Moody's Investors Service, Inc.'s commercial paper ratings:
Prime-1 (or related institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
1. Leading market positions in well established industries.
High rates of return on funds employed.
2. Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
3. Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
4. Well established access to a range of financial market and assured sources
of alternate liquidity.
Prime-2 (or related supporting institutions) have a strong capacity for
repayment of short term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Description of Standard & Poor's Corporation's commercial paper ratings:
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Description of Fitch Investor's Service, Inc.'s commercial paper ratings:
Fitch-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
B-23
<PAGE>
Fitch-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Description of Duff & Phelps Inc.'s commercial paper ratings:
Duff 1--High certainty of timely payment. Liquidity factors are excellent and
supported by strong fundamental protection factors. Risk factors are minor.
Duff 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing internal funds needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
B-24
<PAGE>
DESCRIPTION OF CERTAIN CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are not likely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities, fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
B-25
