LOU HOLLAND
GROWTH FUND
Annual Report
December 31, 1996
<PAGE>
LOU HOLLAND
- ------------------------------------------------------------------------------
GROWTH FUND
LETTER TO Dear Shareholder:
SHAREHOLDERS
FEBRUARY 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.
The Lou Holland Growth Fund primarily invests in
common stocks of medium and large growth companies,
with the receipt of dividend income as a secondary
consideration. Our focus is on companies whose
earnings are growing faster than the general market
and can be purchased at a reasonable price or
valuation. We believe that our valuation
disciplines will help us achieve superior
performance in a difficult market environment.
"It doesn't get any better than this." The U.S.
equity market as represented by the S&P 500 had
a 1996 total return of 23% and a two year
cumulative return of almost 70%. During
the year, the total valuation of the U.S. stock
market rose to 9 trillion dollars and thus exceeded
the size of the U.S. gross domestic product for the
first time. This is only the sixth time since 1900
that stocks have returned 20% or more in two
consecutive years. In the year following each of
these strong periods, however, the market was
either flat or down, with an average net loss of
almost 8%. The magnitude of the 1996 stock market
advance was particularly impressive because it
occurred in an environment of rising interest rates
and a weak bond market.
The divergence of performance between large and
small stocks continued in 1996 with the 50 largest
market capitalization stocks in the S&P 500
representing approximately 50% of the total return
of the index. This concentration of performance is
reminiscent of the early 1970's when these same
stocks were referred to as the "nifty-fifty". The
conventional wisdom of the time was that these
stocks would not decline because they were in
"strong hands", referring to the largest
institutions of the time. When the correction came
in 1973 and 1974 these stocks declined 30-40% over
a two year period. While history does not forecast
the future, we should reflect on historical
information to help control our enthusiasm and to
dispel the notion that it's different this time. If
nothing else, it should help us recognize that
these are not ordinary times.
As we look forward to 1997, we expect the
environment for stocks to be favorable, with
moderate economic activity, low inflation, good
corporate earnings, and strong demand for U.S.
equities.
During 1997, we expect corporate earnings to be the
main driver of stock market performance. With
current price-earnings ratios of 20 times 1996
earnings and almost 19 times 1997 earnings, we
would expect little multiple expansion during the
year. These price-earnings ratios are high when
compared to average historical multiples of
approximately 15 times. We expect corporate
earnings to increase 8-10% which would coincide
with our 1997 performance expectation for the stock
market. It is important to note that the U.S. stock
market has enjoyed five years of solid earnings
growth. This has not been seen since the mid-1960's
and is one of the longest in postwar history.
<PAGE>
While we expect strong demand for domestic equity
mutual funds during 1997, we are doubtful that the
inflows will exceed the record $225 billion that
went into equity mutual funds during 1996. Foreign
demand for U.S. equities may also decline somewhat
because of a potentially weaker U.S. dollar in the
second half of 1997 and high valuation levels of
large capitalization U.S. equities.
With increasing stock market volatility as we
proceed through 1997, we hope investors will share
our view that common stocks are the asset class of
choice over the next 10 years. However, investors
should reduce their return expectations to
long-term historical levels.
Sincerely,
/s/ Louis A. Holland
Louis A. Holland
President
<TABLE>
<CAPTION>
LOU HOLLAND GROWTH FUND'S TOTAL RETURN VS. THE S&P 500
- ------------------------------------------------------------------------------
Growth Fund S&P 500
<S> <C> <C>
4/29/96 10000 10000
6/30/96 10520 10296
9/30/96 10910 10615
12/31/96 11462 11500
- ------------------------------------------------------------------------------
FOR THE PERIOD ENDING DECEMBER 31, 1996
Cumulative Since
Commencement Operations
Grpwth Fund 14.62%
S&P 500 15.00%
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value
(cost $2,450,418) $2,785,171
Receivable for investments sold 41,993
Deferred organization charges 67,793
Dividends receivable 3,204
Interest receivable 240
Other assets 3,414
----------
Total Assets 2,901,815
----------
LIABILITIES:
Payable to Investment Manager 15,268
Accrued expenses and other
liabilities 25,876
----------
Total Liabilities 41,144
----------
NET ASSETS $2,860,671
==========
NET ASSETS CONSIST OF:
Capital stock $2,520,923
Undistributed net realized
gain on investments 4,995
Net unrealized appreciation
on investments 334,753
----------
Total Net Assets $2,860,671
==========
Shares outstanding 253,586
Net Asset Value, Redemption
Price and Offering Price
Per Share $11.28
==========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
APRIL 29, 1996 (1) THROUGH DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Dividend income $ 20,497
Interest income 2,521
---------
Total investment income 23,018
---------
EXPENSES:
Investment management fee 14,062
Administration fee 18,936
Shareholder servicing and
accounting costs 27,743
Custody fees 5,685
Federal and state registration 8,834
Professional fees 12,275
Amortization of deferred
organization charges 8,895
Reports to shareholders 6,508
Other 4,952
---------
Total expenses before
reimbursement 107,890
Less: Reimbursement from
Investment Manager (85,484)
---------
Net Expenses 22,406
---------
NET INVESTMENT INCOME 612
---------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 7,076
Change in unrealized appreciation
on investments 334,753
---------
Net realized and unrealized gain
on investments 341,829
---------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS $342,441
=========
<FN>
(1) Commencement of operations.
</FN>
See notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
APRIL 29, 1996 (1) THROUGH DECEMBER 31, 1996
<S> <C>
OPERATIONS:
Net investment income $ 612
Net realized gain on investments 7,076
Change in unrealized
appreciation on investments 334,753
----------
Net increase in net assets
from operations 342,441
----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income (12,338)
From net realized gains (33,089)
----------
(45,427)
----------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares sold 2,879,746
Shares issued to holders in
reinvestment of dividends 45,427
Cost of shares redeemed (361,516)
----------
Net increase in net assets from
capital share transactions 2,563,657
----------
TOTAL INCREASE IN
NET ASSETS 2,860,671
----------
NET ASSETS:
Beginning of period 0
----------
End of period $2,860,671
==========
<FN>
(1) Commencement of operations.
</FN>
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
APRIL 29, 1996 (1)
THROUGH
DECEMBER 31, 1996
------------------
<S> <C>
Per Share Data:
Net asset value, beginning
of period $10.00
------
Income from investment operations:
Net investment income 0.00
Net realized and unrealized
gains on investments 1.46
------
Total from investment operations 1.46
------
Less distributions:
Dividends from net
investment income (0.05)
Dividends from capital gains (0.13)
------
Total distributions (0.18)
------
Net asset value, end of period $11.28
======
Total return (2) 14.62%
Supplemental data and ratios:
Net assets, end of period $2,860,671
Ratio of expenses to average
net assets (3) 1.35%
Ratio of net investment income
to average net assets (3) 0.04%
Portfolio turnover rate 30.48%
Average commission rate paid $0.0610
<FN>
(1) Commencement of operations.
(2) Not annualized for the period April 29, 1996 through December 31, 1996.
(3) Annualized for the period April 29, 1996 through December 31, 1996. Without
expense waivers of $85,484 for the period April 29, 1996 through
December 31, 1996, the ratio of expenses to average net assets would have
been 6.50% and the ratio of net investment (loss) to average net assets
would have been (5.11)%.
</FN>
See notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
NUMBER MARKET
OF SHARES VALUE
--------- --------
<S> <C>
COMMON STOCKS - 96.9%
AUTO & TRANSPORTATION - 1.4%
700 Magna International, Inc. $ 39,025
--------
CONSUMER DISCRETIONARY - 14.5%
1,175 American Management
Systems, Inc. # 28,787
1,450 Brinker International, Inc. # 23,200
1,250 Carnival Corporation 41,250
1,537 CUC International, Inc. # 36,504
300 Walt Disney Company 20,887
500 Home Depot, Inc. 25,063
250 Interpublic Group of
Companies, Inc. 11,875
800 Kohl's Corporation # 31,400
700 Lowe's Companies, Inc. 24,850
1,775 Service Corporation
International 49,700
4,275 Sunglass Hut International,
Inc. # 30,994
1,150 Viking Office Products, Inc. # 30,691
825 Wal-Mart Stores, Inc. 18,872
1,950 Wendy's International, Inc. 39,975
--------
414,048
--------
CONSUMER STAPLES - 8.0%
825 Albertson's Inc. 29,391
375 Colgate-Palmolive Company 34,594
825 Gillette Company 64,144
925 PepsiCo, Inc. 27,056
275 Proctor & Gamble Company 29,562
1,125 Walgreen Company 45,000
--------
229,747
--------
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- --------
<S> <C>
FINANCIAL SERVICES - 16.6%
425 American International
Group, Inc. $ 46,006
1,000 Automatic Data Processing, Inc. 42,875
500 Chase Manhattan Corporation 44,625
425 Citicorp 43,775
925 Concord EFS, Inc. # 26,131
300 Federal Home Loan Mortgage
Corporation 33,036
1,150 Federal National Mortgage
Association 42,837
675 First Commerce Corporation 26,241
1,175 First Data Corporation 42,888
500 MBIA, Inc. 50,625
1,125 Norwest Corporation 48,938
350 Reuters Holding PLC ADR 26,775
--------
474,752
--------
HEALTH CARE - 19.2%
500 Abbott Laboratories 25,375
1,650 Elan Corporation PLC ADR # 54,862
575 Eli Lilly & Company 41,975
1,200 Johnson & Johnson 59,700
625 Medtronic, Inc. 42,500
850 Merck & Co., Inc. 67,362
1,600 Nellcor Puritan Bennett, Inc. # 35,000
600 Pfizer, Inc. 49,725
800 Pharmacia & Upjohn, Inc. 31,700
600 Schering-Plough Corporation 38,850
625 Smithkline Beecham PLC ADR 42,500
900 Sola International, Inc. # 34,200
350 Warner-Lambert Company 26,250
--------
549,999
--------
See notes to the financial statements.
<PAGE>
<CAPTION>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
NUMBER MARKET
OF SHARES VALUE
--------- --------
<S> <C>
INTEGRATED OILS - 4.0%
325 Amoco Corporation $ 26,162
950 Enron Corporation 40,969
100 Mobil Corporation 12,225
200 Royal Dutch Petroleum
Company ADR 34,150
--------
113,506
--------
MATERIALS & PROCESSING - 3.7%
525 Fluor Corporation 32,944
1,200 Jacobs Engineering Group,
Inc. # 28,350
275 Kimberly-Clark Corporation 26,194
350 Valspar Corporation 19,819
--------
107,307
--------
OTHER - 4.3%
1,650 Federal Signal Corporation 42,694
800 General Electric Company 79,100
--------
121,794
--------
PRODUCER DURABLES - 3.6%
450 Boeing Company 47,869
350 Grainger (W.W.), Inc. 28,087
875 Verifone, Inc. 25,813
--------
101,769
--------
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- --------
<S> <C>
TECHNOLOGY - 18.2%
650 CISCO Systems, Inc. # $ 41,356
525 Computer Associates
International, Inc. 26,119
1,150 Telefonaktiebolaget LM
Ericsson ADR 34,716
800 Hewlett-Packard Company 40,200
800 Intel Corporation 104,750
800 Linear Technology
Corporation 35,100
1,050 Loral Space &
Communications # 19,294
1,250 LSI Logic Corporation # 33,437
571 Lucent Technologies, Inc. 26,409
675 Microsoft Corporation # 55,772
1,175 Oracle Corporation # 49,056
375 U.S. Robotics Corporation # 27,000
375 3Com Corporation # 27,516
-----------
520,725
-----------
UTILITIES - 3.4%
750 Frontier Corporation 16,969
675 GTE Corporation 30,712
775 MCI Communications
Corporation 25,333
975 WorldCom, Inc. # 25,411
-----------
98,425
-----------
Total common stocks
(cost $2,436,344) 2,771,097
-----------
See notes to the financial statements.
<PAGE>
<CAPTION>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
PRINCIPAL MARKET
AMOUNT VALUE
--------- --------
SHORT-TERM
INVESTMENTS - 0.5%
VARIABLE RATE DEMAND
NOTES - 0.5%
$ 192 Johnson Controls, Inc. $ 192
13,882 Wisconsin Electric Power Co. 13,882
-----------
Total variable rate demand
notes (cost $14,074) 14,074
-----------
Total investments - 97.4%
(cost $2,450,418) 2,785,171
-----------
Other assets in excess of
liabilities - 2.6% 75,500
-----------
TOTAL NET ASSETS - 100% $ 2,860,671
===========
<FN>
# Non-income producing security.
</FN>
See notes to the financial statements.
</TABLE>
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. ORGANIZATION The Lou Holland Trust (the "Trust") was organized
AND SIGNIFICANT on December 20, 1995, as a Delaware business trust
ACCOUNTING and 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) Other - Investment and shareholder transactions
are recorded no later than the first business day
after 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.
2. CAPITAL Transactions in shares of the Fund for the period
SHARE April 29, 1996 through December 31, 1996
TRANSACTIONS
Shares sold 281,119
Shares issued to holders in
reinvestment of dividends 4,027
Shares redeemed (31,560)
-------
Net increase 253,586
=======
3. INVESTMENT The aggregate purchases and sales of investments,
TRANSACTIONS excluding short-term investments, by the Fund for
the period April 29, 1996 through December 31,
1996, were $3,119,353 and $690,102, respectively.
At December 31, 1996, gross unrealized appreciation
and depreciation of invest ments for tax purposes
were as follows:
Appreciation $613,871
(Depreciation) (72,083)
---------
Net appreciation on investments $541,788
==========
<PAGE>
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
December 31, 1996, the Fund realized $31,690 of the
appreciation.
At December 31, 1996, the cost of investments for
federal income tax purposes was $2,243,383.
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.
5. DISTRIBUTION On February 24, 1997, a long-term
capital gain distribution of $0.02026153 per share
aggregating $5,677 was declared. The distribution
was paid on February 24, 1997, to shareholders of
record on February 21, 1997.
<PAGE>
INDEPENDENT To the Board of Trustees and Shareholders
AUDITORS' of the Lou Holland Growth Fund:
REPORT
We have audited the accompanying statement of
assets and liabilities of the Lou Holland Growth
Fund (the "Fund"), including the schedule of
investments, as of December 31, 1996, and the
related statement of operations, statement of
changes in net assets and the financial highlights
for the period from April 29, 1996 to December 31,
1996. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an
opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with general
accepted auditing standards. Those standards
require that we plan and perform the audit
to obtain reasonable assurance about
whether the financial statements and
financial highlights are free of material
misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements. Our
procedures included confirmation of securities
owned at December 31, 1996 by correspondence with
the custodian. An audit includes assessing the
accounting principles used and significant
estimates made by management, as well as evaluating
the overall financial statement presentation. We
believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements and
financial highlights present fairly, in all
material respects, the financial position of the
Lou Holland Growth Fund as of December 31, 1996,
the results of its operations, changes in net
assets and the financial highlights for the period
from April 29, 1996 to December 31, 1996 in
conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 7, 1997 (February 24, 1997 as to Note 5.)
<PAGE>
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.
