LOU HOLLAND
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GROWTH FUND
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LETTER TO Dear Shareholder:
SHAREHOLDERS
AUGUST 1997 Thank you for your investment in the Lou Holland Growth
Fund. We are dedicated to achieving high quality service and
superior long-term performance.
FUND REVIEW
We are pleased to report that the Fund returned 16.51%
during the first half of 1997, trailing the performance of
the S&P 500 index of 20.6%, but outperforming the Lipper
General U.S. Equity Funds average return of 12.99%, and the
Lipper Growth Funds average return of 14.28%. The majority
of the underperformance year-to-date and since inception
occurred during the first quarter when the total net asset
value declined 1.2% compared to a gain of 2.7% for the S&P
500 index. Over the last several years there has been a wide
divergence of performance between large stocks and small
stocks, with the 50 largest market capitalization stocks in
the S&P 500 index representing more than half of the weight
in the index and a significant percentage of the total
return. First quarter performance was impaired by a lack of
concentration in large stocks and underperformance in
technology, finance, and consumer stocks. In the second
quarter, interest rates declined sparking a rally in
financial, healthcare, and small stocks, and the Fund
returned 17.9% vs. 17.5% for the S&P 500 index.
MARKET REVIEW AND OUTLOOK
I commented in our February shareholder letter that, "It
doesn't get any better than this." Well, I happily erred in
my judgment. The market has gotten better with the S&P 500
index gaining 30% through July, all of which occurred since
the mid-April correction of 9-10%. The cumulative total
return for the S&P 500 index over the last 3 years through
July is 123% (30.7% annualized). If the market ends the year
up 20% or more, this will be the first time in the history
of the U.S. stock market that stocks have returned 20% or
more for three consecutive years. The secular bull market
that began in 1982 by most measures is the most powerful in
history with only one negative return year (-3.1% in 1990).
Why have the U.S. financial markets prospered since the
early 1980's? We have dramatically changed our focus from
consumption and non-strategic alliances, to savings,
investment, restructuring, and strategic alliances in order
to be globally competitive. In the mid-1980's the U.S. was
the global high cost producer and today it is the global low
cost producer. This dramatic increase in productivity is
probably the single most important factor contributing to
this long economic expansion and prolonged period of low
inflation. The economy has had only one mild economic
recession since 1982 that lasted only eight months.
While corporate earnings have been good since early 1992,
they have been somewhat slower than previous economic
expansions. The sub par performance was caused primarily by
the lack of pricing power in a low inflationary, globally
competitive environment.
The principal driver of stock price performance since 1982
has been the dramatic increase in price earnings ratios from
less than 8 times in 1982 to over 20 times in 1997. During
periods of low inflation, stocks have historically sold at
high multiples. The last prolonged period of inflation below
3%, was back in the late 1950's and early 1960's with price
earnings ratios peaking at 22-23 times earnings just in
advance of the 1962 bear market.
<PAGE>
LOU HOLLAND
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GROWTH FUND
What are our current views? We believe that with the U.S.
Government becoming fiscally more responsible and corporate
America getting its house in order, moderate economic
growth, good corporate earnings, and low inflation will
continue. We do not believe, however, that the compound
annual rate of return of 19.7% achieved since August of 1982
is achievable into the next millennium. While we expect the
stock market to be volatile over the next 6-18 months, we
reaffirm our long-term bullish outlook for stocks, but
believe investors will have to reduce their performance
expectations to historical rates of return versus the high
rates of returns achieved over the last 15 years.
Sincerely,
/s/Louis A. Holland
Louis A. Holland
President
Line Chart:
LOU HOLLAND GROWTH FUND'S TOTAL RETURN VS. THE S&P 500
Growth Fund S&P 500
4/29/96 10000 10000
6/30/96 10520 10296
9/30/96 10910 10615
12/31/96 11462 11500
3/31/97 11329 11809
6/30/97 13335 13870
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Average Annual Rate of Return
for Periods Ended June 30, 1997
Since Inception
FISCAL YEAR-TO-DATE 1 YEAR 4/29/96
Growth Fund 16.51% 26.94% 28.05%
S&P 500 20.61% 34.70% 32.35%
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THE S&P 500 STOCK INDEX IS AN UNMANAGED BUT COMMONLY USED MEASURE OF COMMON
STOCK TOTAL RETURN PERFORMANCE. THIS CHART ASSUMES AN INITIAL GROSS INVESTMENT
OF $10,000 MADE ON 4/29/96 (COMMENCEMENT OF OPERATIONS). RETURNS SHOWN INCLUDE
THE REINVESTMENT OF ALL DIVIDENDS. IN THE ABSENCE OF FEE WAIVERS AND
REIMBURSEMENTS, TOTAL RETURN WOULD BE REDUCED. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THE ORIGINAL COST.
<PAGE>
LOU HOLLAND
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GROWTH FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
<S> <C>
ASSETS:
Investments, at value
(cost $3,181,349) $4,061,197
Deferred organization charges 58,742
Dividends receivable 3,383
Interest receivable 683
Other assets 9,062
----------
Total assets 4,133,067
----------
LIABILITIES:
Payable to Investment Manager 2,898
Accrued expenses and other
liabilities 26,579
----------
Total Liabilities 29,477
----------
NET ASSETS $4,103,590
==========
NET ASSETS CONSIST OF:
Capital stock $3,223,965
Undistributed net investment
income 573
Undistributed net realized
loss on investments (796)
Net unrealized appreciation
on investments 879,848
----------
Total Net Assets $4,103,590
==========
Shares outstanding (no par,
unlimited shares authorized) 312,800
Net Asset Value, Redemption
Price and Offering Price
Per Share $13.12
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<S> <C>
INVESTMENT INCOME:
Dividend income* $19,538
Interest income 4,290
---------
Total Investment Income 23,828
---------
EXPENSES:
Investment management fee 14,642
Administration fee 13,539
Shareholder servicing and
accounting costs 21,781
Custody fees 8,387
Federal and state registration 3,691
Professional fees 7,828
Amortization of deferred
organization charges 9,051
Reports to shareholders 8,209
Other 3,138
---------
Total expenses before
reimbursement 90,266
Less: Reimbursement from
Investment Manager (67,011)
---------
Net Expenses 23,255
---------
NET INVESTMENT INCOME 573
---------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized (loss) on investments (114)
Change in unrealized appreciation
on investments 545,095
---------
Net realized and unrealized gain
on investments 544,981
---------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS $545,554
=========
* NET OF FOREIGN TAXES WITHHELD $ 264
=========
</TABLE>
<PAGE>
LOU HOLLAND
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GROWTH FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS APRIL 29, 1996 (1)
ENDED THROUGH
JUNE 30, 1997 DECEMBER 31, 1996
------------- ------------------
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income $ 573 $ 612
Net realized gain (loss) on investments (114) 7,076
Change in unrealized
appreciation on investments 545,095 334,753
---------- ----------
Net increase in net assets
from operations 545,554 342,441
---------- ----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income -- (12,338)
From net realized gains (5,677) (33,089)
---------- ----------
(5,677) (45,427)
---------- ----------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares sold 915,964 2,879,746
Shares issued to holders in
reinvestment of dividends 5,677 45,427
Cost of shares redeemed (218,599) (361,516)
---------- ----------
Net increase in net assets from
capital share transactions 703,042 2,563,657
---------- ----------
TOTAL INCREASE IN
NET ASSETS 1,242,919 2,860,671
---------- ----------
NET ASSETS:
Beginning of period 2,860,671 0
---------- ----------
End of period (including undistributed
net investment income of $573 and
$0, respectively) $4,103,590 $2,860,671
========== ==========
(1) Commencement of operations.
See notes to the financial statements.
</TABLE>
<PAGE>
LOU HOLLAND
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GROWTH FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
JANUARY 1, 1997 APRIL 29, 1996 (1)
THROUGH THROUGH
JUNE 30, 1997 DECEMBER 31, 1996
------------- ------------------
(UNAUDITED)
Per Share Data:
<S> <C> <C>
Net asset value, beginning of period $11.28 $10.00
------ ------
Income from investment operations:
Net investment income 0.00 0.00
Net realized and unrealized
gains on investments 1.86 1.46
------ ------
Total from investment operations 1.86 1.46
------ ------
Less distributions:
Dividends from net
investment income -- (0.05)
Dividends from capital gains (0.02) (0.13)
------ ------
Total distributions (0.02) (0.18)
------ ------
Net asset value, end of period $13.12 $11.28
====== ======
Total return (2) 16.51% 14.62%
Supplemental data and ratios:
Net assets, end of period $4,103,590 $2,860,671
Ratios of expenses to average net assets (3)
Before expense reimbursement 5.23% 6.50%
After expense reimbursement 1.35% 1.35%
Ratio of net investment income (loss)
to average net assets (3)
Before expense reimbursement (3.85)% (5.11)%
After expense reimbursement 0.03% 0.04%
Portfolio turnover rate 14.41% 30.48%
Average commission rate paid $0.0625 $0.0610
<FN>
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
</FN>
</TABLE>
See notes to the financial statements.
<PAGE>
LOU HOLLAND
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GROWTH FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
NUMBER MARKET
OF SHARES VALUE
- --------- --------
<S> <C> <C>
COMMON STOCKS - 95.3%
AUTO & TRANSPORTATION - 1.2%
825 Magna International, Inc. $ 49,655
--------
CONSUMER DISCRETIONARY - 12.3%
2,025 American Management
Systems, Inc. # 54,169
2,875 Brinker International, Inc. # 40,969
1,500 Carnival Corporation 61,875
1,862 CUC International, Inc. # 48,063
425 Walt Disney Company 34,106
650 Home Depot, Inc. 44,809
850 Lowe's Companies, Inc. 31,556
2,125 Service Corporation
International 69,859
4,275 Sunglass Hut International,
Inc. # 26,986
2,250 Viking Office Products, Inc. # 42,750
1,425 Wal-Mart Stores, Inc. 48,183
--------
503,325
--------
CONSUMER STAPLES - 11.3%
1,225 Albertson's, Inc. 44,712
950 Colgate-Palmolive Company 61,988
1,000 Gillette Company 94,750
1,500 PepsiCo, Inc. 56,344
1,400 Philip Morris Companies, Inc. 62,125
500 The Proctor & Gamble
Company 70,625
1,350 Walgreen Company 72,394
--------
462,938
--------
<PAGE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- --------- --------
<S> <C> <C>
FINANCIAL SERVICES - 15.6%
575 American International
Group, Inc. $ 85,891
1,325 Automatic Data Processing, Inc. 62,275
575 Chase Manhattan Corporation 55,811
550 Citicorp 66,309
1,625 Concord EFS, Inc. # 42,047
1,375 Fannie Mae 59,984
850 First Commerce Corporation 37,400
975 First Data Corporation 42,839
1,375 Freddie Mac 47,266
600 MBIA, Inc. 67,686
1,325 Norwest Corporation 74,531
--------
642,039
--------
HEALTH CARE - 19.4%
850 Abbott Laboratories 56,737
975 Elan Corporation PLC ADR # 44,119
675 Eli Lilly & Company 73,786
1,450 Johnson & Johnson 93,344
875 Medtronic, Inc. 70,875
825 Merck & Co., Inc. 85,388
1,925 Nellcor Puritan Bennett, Inc. # 34,891
750 Pfizer, Inc. 89,625
1,450 Schering-Plough Corporation 69,419
750 Smithkline Beecham PLC ADR 68,719
1,400 Sola International, Inc. # 46,900
500 Warner-Lambert Company 62,125
--------
795,928
--------
<PAGE>
LOU HOLLAND
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GROWTH FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- --------- --------
<S> <C> <C>
INTEGRATED OILS - 5.1%
425 Amoco Corporation $ 36,948
1,150 Enron Corporation 46,934
550 Mobil Corporation 38,431
900 Royal Dutch Petroleum
Company ADR 48,937
300 Schlumberger N.V. 37,500
--------
208,750
--------
MATERIALS & PROCESSING - 4.0%
650 Fluor Corporation 35,872
1,650 Jacobs Engineering Group, Inc. # 44,344
1,025 Kimberly-Clark Corporation 50,994
1,050 Valspar Corporation 31,106
--------
162,316
--------
OTHER - 4.2%
1,950 Federal Signal Corporation 48,994
1,900 General Electric Company 124,212
--------
173,206
--------
PRODUCER DURABLES - 2.6%
1,500 Boeing Company 79,594
350 W.W. Grainger, Inc. 27,366
--------
106,960
--------
<PAGE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- --------- --------
<S> <C> <C>
TECHNOLOGY - 16.4%
1,375 Cisco Systems, Inc. # $ 92,297
875 Computer Associates
International, Inc. 48,727
475 EMC Corporation # 18,525
700 Electronic Data Systems
Corporation 28,700
1,375 Telefonaktiebolaget LM
Ericsson ADR 54,141
1,850 Hewlett-Packard Company 103,600
675 Intel Corporation 95,723
625 LSI Logic Corporation # 20,000
900 Lucent Technologies, Inc. 64,856
600 Microsoft Corporation # 75,825
1,425 Oracle Corporation # 71,784
-----------
674,178
-----------
UTILITIES - 3.2%
1,250 GTE Corporation 54,844
975 MCI Communications
Corporation 37,324
1,250 WorldCom, Inc. # 40,000
-----------
132,168
-----------
Total common stocks
(cost $3,031,615) 3,911,463
-----------
<PAGE>
LOU HOLLAND
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GROWTH FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
<PAGE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- --------- --------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 3.7%
VARIABLE RATE DEMAND
NOTES - 3.7%
$119,230 Johnson Controls, Inc. $ 119,230
30,504 Wisconsin Electric Power Co. 30,504
----------
Total variable rate demand
notes (cost $149,734) 149,734
----------
Total investments - 99.0%
(cost $3,181,349) 4,061,197
----------
Other assets in excess of
liabilities - 1.0% 42,393
----------
TOTAL NET ASSETS -
100.0% $4,103,590
==========
<FN>
# Non-income producing security.
</FN>
See notes to the financial statements.
</TABLE>
<PAGE>
LOU HOLLAND
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GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION The Lou Holland Trust (the "Trust") was organized on
AND SIGNIFICANT December 20, 1995, as a Delaware business trust and
ACCOUNTING is registered as a no-load, open-end diversified
POLICIES management investment company under the Investment
Company Act of 1940 (the "1940 Act"). The Trust is
organized as a series company and currently consists
of one series, the Growth Fund (the "Fund").
The principle investment objective of the Fund is to
seek 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 Fund commenced operations on
April 29, 1996.
The costs incurred in connection with the
organization, initial registration and public
offering of shares, aggregating $76,688, have been
paid by Holland Capital Management, L.P. (the
"Investment Manager"). These costs are being
amortized over the period of benefit, but not to
exceed sixty months from the Fund's commencement of
operations.
The following is a summary of significant accounting
policies consistently followed by the Fund.
a) Investment Valuation - Common stocks and other
equity-type securities that are listed on a
securities exchange are valued at the last quoted
sales price on the day the valuation is made. Price
information on listed stocks is taken from the
exchange where the security is primarily traded.
Securities which are listed on an exchange but which
are not traded on the valuation date are valued at
the most recent bid prices. Unlisted securities for
which market quotations are readily available are
valued at the latest quoted bid price. Debt
securities are valued at the latest bid prices
furnished by independent pricing services. Other
assets and securities for which no quotations are
readily available are valued at fair value as
determined in good faith by the Investment Manager
under the supervision of the Board of Trustees.
Short-term instruments (those with remaining
maturities of 60 days or less) are valued
at amortized cost, which approximates market.
b) Federal Income Taxes - It is the Fund's policy to
meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and the
Fund intends to distribute investment company net
taxable income and net capital gains to shareholders.
Therefore, no federal income tax provision is
required.
c) Distributions to Shareholders - Dividends from net
investment income and distributions of net realized
capital gains, if any, will be declared and paid at
least annually.
<PAGE>
d) Use of Estimates - The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
e) Foreign Securities - Investing in securities of
foreign companies and foreign governments involves
special risks and considerations not typically
associated with investing in U.S. companies and the
U.S. government. These risks include revaluation of
currencies and future adverse political and
economic developments. Moreover, securities of many
foreign companies and foreign governments and their
markets may be less liquid and their prices
more volatile than those of securities of comparable
U.S. companies and the U.S. government.
f) Other - Investment and shareholder transactions
are recorded on the trade date. The Fund determines
the gain or loss realized from the investment
transactions by comparing the original cost of the
security lot sold with the net sales proceeds.
Dividend income is recognized on the ex-dividend date
or as soon as information is available to the Fund,
and interest income is recognized on an accrual
basis. Generally accepted accounting principles
require that permanent financial reporting and tax
differences be reclassified to capital stock.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2. CAPITAL SHARE Transactions in shares of the Fund were as follows:
TRANSACTIONS SIX MONTHS APRIL 29, 1996
ENDED THROUGH
JUNE 30, 1997 DECEMBER 31, 1996
------------- ------------------
<S> <C> <C>
Shares sold 77,435 281,119
Shares issued to holders in
reinvestment of dividends 480 4,027
Shares redeemed (18,701) (31,560)
------- --------
Net increase 59,214 253,586
======= ========
</TABLE>
<PAGE>
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3. INVESTMENT The aggregate purchases and sales of investments,
TRANSACTIONS excluding short-term investments, by the Fund for
the six months ended June 30, 1997, were
$1,065,360 and $469,975, respectively.
At June 30, 1997, gross unrealized appreciation and
depreciation of invest ments for tax purposes were as
follows:
Appreciation $1,141,248
(Depreciation) (66,957)
----------
Net appreciation on investments $1,074,291
===========
At the close of business on May 2, 1996, the partners
of The Holland Fund, L.P. transferred their assets to
the Fund. As a result of the tax-free transfer the
Fund acquired $243,721 of unrealized appreciation for
tax purposes. As of June 30, 1997, the Fund realized
$44,382 of the appreciation.
At June 30, 1997, the cost of investments for federal
income tax purposes was $2,986,906.
- --------------------------------------------------------------------------------
4. AGREEMENTS The Fund has entered into an Investment Management
and Administration Agreement with Holland Capital
Management, L.P. Pursuant to its management agreement
with the Fund, the Investment Manager is entitled to
receive a fee, calculated daily and payable monthly,
at the annual rate of 0.85% as applied to the Fund's
daily net assets up to $500 million. The fee
declines at specified breakpoints as assets increase.
The Investment Manager voluntarily agrees to
reimburse its management fee and other expenses to
the extent that total operating expenses (exclusive
of interest, taxes, brokerage commissions and other
costs incurred in connection with the purchase or
sale of portfolio securities, and extraordinary
items) exceed the annual rate of 1.35% of the net
assets of the Fund, computed on a daily basis. This
voluntary reimbursement shall be in effect for a
period of one year from the Fund's commencement of
operations and may be terminated thereafter under the
approval of the Board of Trustees.
HCM Investments, Inc. serves as principal underwriter
and the Distributor of the shares of the Fund
pursuant to a Distribution Agreement between the
Distributor and the Trust. The Distributor is an
affiliate of the Investment Manager. The Fund'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 Fund. The Fund has
not currently entered into any plan or agreement for
the payment of fees pursuant to Rule 12b-1 under the
1940 Act.
Firstar Trust Company, a subsidiary of Firstar
Corporation, a publicly held bank holding company,
serves as custodian, transfer agent, administrator
and accounting services agent for the Fund.
<PAGE>
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TRUSTEES AND OFFICERS
LOUIS A. HOLLAND, President, Trustee, and
Chairman of the Board of Trustees
Managing Partner and Chief Investment Officer,
Holland Capital Management, L.P. and President,
Treasurer, and Director, HCM Investments, Inc.
MONICA L. WALKER, Secretary and Trustee
Portfolio Manager, Holland Capital Management, L.P.
Vice President, HCM Investments, Inc.
LAURA J. JANUS, Treasurer
Portfolio Manager, Holland Capital Management, L.P.
Vice President, HCM Investments, Inc.
LESTER H. MCKEEVER, JR., Trustee
Managing Partner, Washington, Pittman & McKeever
Certified Public Accountants & Management Consultants
KENNETH R. MEYER, Trustee
Executive Vice President and Managing Director
Lincoln Capital Management Company
JOHN D. MABIE, Trustee
President, Mid-Continent Capital
MANAGER
Holland Capital Management, L.P.
35 West Wacker Drive, Suite 3260
Chicago, IL 60601
Telephone (312) 553-1000
CUSTODIAN AND TRANSFER AGENT
Firstar Trust Company
Mutual Fund Services
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
Telephone (800) 295-9779
INDEPENDENT AUDITOR
Deloitte & Touche LLP
Chicago, IL
LEGAL COUNSEL
Katten Muchin & Zavis
Washington, D.C.
LOU HOLLAND
GROWTH FUND
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SEMI-ANNUAL REPORT
June 30, 1997
