LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
LETTER TO SHAREHOLDERS AUGUST 1998
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to report that the Fund gained 17.91% for the first half
of the year, outperforming the Lipper General U.S. Stock Fund average return of
11.59%, the Lipper Growth Funds average return of 14.92%, and the S&P 500 return
of 17.71%.
The wide divergence of performance over the past several years between
large-capitalization stocks and small-capitalization stocks continued in 1998,
with the S&P 500 large stock index outperforming the Russell 2000 small stock
index by over 12%. This wide divergence in performance can best be explained by
the capitalization-weighted structure of the major indexes. The 25 largest
stocks in the S&P 500 represent over one-third of the capitalization weight of
the index and account for 69% of the total return through mid-August. The top 5
largest stocks represent 29% of the total return. Only 20% of the DJIA stocks
and 41% of the S&P 500 stocks were down through July. In contrast, a recent
study by Merrill Lynch showed that 74% of all stocks are down 20% or more from
their 52-week highs and 55% of all stocks are down over 30% from their 52-week
highs. Based on these statistics, one could conclude that most stocks are not
enjoying the same success as the major capitalization-weighted indexes.
Large growth stocks also outperformed large value stocks by over 8%
during the first half of 1998. The divergence between growth stocks and value
stocks can best be explained by the duration and strength of this long bull
market. Investors are focusing on large, high quality stocks with a global
business franchise that are typically not effected by a global economic
slowdown.
The Fund's performance was enhanced by our philosophy of buying high
quality mid- and large-capitalization growth stocks. Stock and sector selection
were both additive to performance. Performance was enhanced by overweighting
healthcare, technology, and consumer stocks, and underweighting economy
sensitive sectors such as energy, producer durables and materials & processing.
MARKET REVIEW & OUTLOOK
While we believe that Federal Reserve policy will remain stable and
inflation benign, we are concerned about the global economic slowdown resulting
from the Asian crisis and its effect on corporate earnings. S&P 500 earnings
growth peaked in the second quarter of 1995 above 20% and has decelerated over
the last three years; growth was approximately 3.8% for the first quarter of
1998 and an estimated 3.3% for the second quarter of 1998. While some economists
are forecasting a modest reacceleration in 1999, recent forecasts have been
revised downward as the global economic environment continues to deteriorate.
With price-earnings ratios at historically high levels, the lack of corporate
earnings growth would not bode well for stock prices.
<PAGE>
While we remain bullish on the long-term outlook for U.S. equities, we
are concerned about the impact of a global economic slowdown on corporate
earnings. Our philosophy, however, continues to focus on individual companies
whose earnings are growing faster than the general market, with a leading
industry position that we can purchase at a reasonable price.
Sincerely,
/s/ Louis A. Holland
Louis A. Holland
President
CHART:
Growth Fund S&P 500 Russell 1000 Growth
4/29/96 10000 10000 10000
6/30/96 10520 10297 10363
9/30/96 10910 10615 10737
12/31/96 11462 11500 11385
3/31/97 11329 11809 11447
6/30/97 13355 13870 13611
9/30/97 14210 14909 14635
12/31/97 14663 15337 14857
6/30/98 17290 18054 17885
- --------------------------------------------------------------------------------
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.
RUSSELL 1000 GROWTH INDEX - An unmanaged index which measures the performance of
those companies within the 1,000 largest U.S. market capitalization companies
with higher price-to-book and higher forecasted earning growth rates.
RUSSELL MID-CAP GROWTH INDEX - An unmanaged index which measures the performance
of those Russell Mid-Cap companies with higher price-to-book ratios and higher
forecasted earnings growth rates. These stocks are also members of the Russell
1000 Growth Index.
S&P 500 INDEX - An unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of the 500 stocks which represent all major
industries.
<TABLE>
<CAPTION>
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Average Annual Rate of Return for the Periods Ended June 30, 1998
FISCAL YEAR-TO-DATE 1 YEAR SINCE INCEPTION 4/29/96
<S> <C> <C> <C>
Lou Holland Growth Fund 17.91% 29.46% 28.70%
S&P 500 17.71% 30.16% 31.29%
Russell 1000 Growth Index 20.38% 31.39% 30.72%
Russell Mid-Cap Growth Index 11.87% 24.02% 18.42%
</TABLE>
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
ASSETS:
Investments, at value
(cost $5,284,543) $7,449,127
Receivable from Investment
Manager 4,508
Deferred organization charges 43,404
Dividends and interest receivable 8,532
Other assets 11,380
----------
Total Assets 7,516,951
----------
LIABILITIES:
Payable for securities purchased 87,335
Accrued expenses and other
liabilities 32,393
----------
Total Liabilities 119,728
----------
NET ASSETS $7,397,223
==========
NET ASSETS CONSIST OF:
Capital stock $5,101,460
Undistributed net investment
income 549
Undistributed net realized
gain on investments 130,630
Net unrealized appreciation
on investments 2,164,584
----------
Total Net Assets $7,397,223
==========
Shares outstanding (no par,
unlimited shares authorized) 442,363
Net Asset Value, Redemption
Price and Offering Price
Per Share $ 16.72
==========
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
INVESTMENT INCOME:
Dividend income* $ 32,593
Interest income 5,794
-----------
Total Investment Income 38,387
-----------
EXPENSES:
Investment management fee 27,080
Administration fee 14,480
Shareholder servicing and
accounting costs 23,349
Custody fees 4,344
Federal and state registration 3,620
Professional fees 9,774
Amortization of deferred
organization charges 7,606
Reports to shareholders 6,516
Other 4,706
-----------
Total expenses before
reimbursement 101,475
Less: Reimbursement from
Investment Manager (58,465)
-----------
Net Expenses 43,010
-----------
NET INVESTMENT LOSS (4,623)
-----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 143,114
Change in unrealized appreciation
on investments 885,667
-----------
Net realized and unrealized gain
on investments 1,028,781
-----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS $ 1,024,158
===========
* Net of foreign taxes withheld $ 699
===========
See notes to the financial statements.
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
----------- -----------
(UNAUDITED)
OPERATIONS:
Net investment income (loss) $ (4,623) $ 742
Net realized gain on investments 143,114 29,248
Change in unrealized
appreciation on investments 885,667 944,164
----------- -----------
Net increase in net assets
from operations 1,024,158 974,154
----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income -- (12,160)
From net realized gains -- (76,341)
----------- -----------
-- (88,501)
----------- -----------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares sold 1,383,785 1,781,372
Shares issued to holders in
reinvestment of dividends -- 88,056
Cost of shares redeemed (310,636) (315,836)
----------- -----------
Net increase in net assets from
capital share transactions 1,073,149 1,553,592
----------- -----------
TOTAL INCREASE IN
NET ASSETS 2,097,307 2,439,245
----------- -----------
NET ASSETS:
Beginning of period 5,299,916 2,860,671
----------- -----------
End of period $ 7,397,223 $ 5,299,916
=========== ===========
CHANGES IN SHARES OUTSTANDING:
Shares sold 88,871 139,462
Shares issued to holders in
reinvestment of dividends -- 6,290
Shares redeemed (20,209) (25,637)
----------- -----------
Net increase 68,662 120,115
=========== ===========
See notes to the financial statements.
<PAGE>
<TABLE>
LOU HOLLAND
- --------------------------------------------------------------------------------------------------------
GROWTH FUND
<CAPTION>
FINANCIAL HIGHLIGHTS
SIX MONTHS APRIL 29, 1996 (1)
ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Per Share Data:
Net asset value, beginning of period $ 14.18 $ 11.28 $ 10.00
------------- ------------- -------------
Income from investment operations:
Net investment income 0.00 0.00(2) 0.00(3)
Net realized and unrealized
gains on investments 2.54 3.14 1.46
------------- ------------- -------------
Total from investment operations 2.54 3.14 1.46
------------- ------------- -------------
Less distributions:
Dividends from net
investment income -- (0.03) (0.05)
Dividends from capital gains -- (0.21) (0.13)
------------- ------------- -------------
Total distributions -- (0.24) (0.18)
------------- ------------- -------------
Net asset value, end of period $ 16.72 $ 14.18 $ 11.28
============= ============= =============
Total return 17.91%(4) 27.92% 14.62%(4)
Supplemental data and ratios:
Net assets, end of period $ 7,397,223 $ 5,299,916 $ 2,860,671
Ratios of expenses to average net assets
Before expense reimbursement 3.18%(5) 4.19% 6.50%(5)
After expense reimbursement 1.35%(5) 1.35% 1.35%(5)
Ratio of net investment income (loss)
to average net assets
Before expense reimbursement (1.97)(5) (2.83)% (5.11)%(5)
After expense reimbursement (0.14)(5) 0.02% 0.04%(5)
Portfolio turnover rate 11.36% 34.29% 30.48%
(1) Commencement of operations
(2) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the year.
(3) Net investment income per share is calculated using the ending balance of
undistributed net investment income prior to consideration of adjustments
for permanent book and tax differences.
(4) Not annualized.
(5) Annualized.
See notes to the financial statements.
</TABLE>
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SHARES VALUE
- --------- --------
COMMON STOCKS - 95.1%
AUTO & TRANSPORTATION - 1.0%
1,100 Magna International, Inc. F $ 75,488
----------
CONSUMER DISCRETIONARY - 11.2%
1,175 American Management
Systems, Inc. # 35,177
3,600 Carnival Corporation 142,650
2,550 First Brands Corporation 65,344
1,175 Home Depot, Inc. 97,598
2,000 Lowe's Companies, Inc. 81,125
2,825 Service Corporation
International 121,122
2,600 Stewart Enterprises, Inc. 69,225
4,275 Sunglass Hut
International, Inc. # 47,292
2,250 Toll Brothers, Inc. # 64,547
1,700 Wal-Mart Stores, Inc. 103,275
----------
827,355
----------
CONSUMER STAPLES - 15.8%
1,225 Albertson's Inc. 63,470
1,150 Clorox Company 109,681
875 Colgate-Palmolive Company 77,000
1,850 CVS Corporation 72,034
2,600 Gillette Company 147,387
1,200 International Flavors
& Fragrances, Inc. 52,125
1,975 PepsiCo, Inc. 81,345
4,700 Philip Morris Companies, Inc. 185,062
1,300 Procter & Gamble Company 118,381
2,800 Safeway Inc. # 113,925
3,525 Walgreen Company 145,627
----------
1,166,037
----------
SHARES VALUE
- --------- --------
FINANCIAL SERVICES - 13.9%
1,125 American International
Group, Inc. $ 164,250
1,725 Automatic Data
Processing, Inc. 125,709
2,437 Concord EFS, Inc. # 63,667
2,150 Fannie Mae 130,612
1,650 Federal Home Loan
Mortgage Corporation 77,653
700 First Chicago NBD
Corporation 62,038
1,600 MBIA, Inc. 119,800
1,725 MGIC Investment Corporation 98,433
950 Northern Trust Corporation 72,438
3,150 Norwest Corporation 117,731
----------
1,032,331
----------
HEALTH CARE - 23.9%
2,400 Abbott Laboratories 98,100
1,275 Elan Corporation PLC ADR # 81,998
1,275 Eli Lilly and Company 84,230
500 Guidant Corporation 35,656
1,825 Johnson & Johnson 134,594
2,500 Medtronic, Inc. 159,375
1,050 Merck & Co., Inc. 140,437
1,300 Novartis AG ADR 108,161
1,950 Pfizer, Inc. 211,941
1,475 Pharmacia & Upjohn, Inc. 68,034
500 R.P. Scherer Corporation # 44,313
1,650 Schering-Plough Corporation 151,181
2,050 Smithkline Beecham PLC ADR 124,025
2,400 Sola International, Inc. # 78,450
1,500 United HealthCare Corporation 95,250
2,175 Warner-Lambert Company 150,891
----------
1,766,636
----------
See notes to the financial statements.
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SHARES VALUE
- --------- --------
INTEGRATED OILS - 3.4%
1,100 Amoco Corporation $ 45,788
1,400 Enron Corporation 75,688
800 Mobil Corporation 61,300
1,200 Royal Dutch Petroleum
Company ADR 65,775
--------
248,551
--------
MATERIALS & PROCESSING - 2.6%
2,000 Jacobs Engineering Group, Inc. # 64,250
1,350 Kimberly-Clark Corporation 61,931
1,725 Valspar Corporation 68,353
--------
194,534
--------
OTHER - 3.2%
2,600 General Electric Company 236,600
--------
OTHER ENERGY- 1.7%
1,800 Schlumberger Limited 122,962
--------
PRODUCER DURABLES - 0.8%
1,200 Grainger (W.W.), Inc. 59,775
--------
TECHNOLOGY - 16.1%
950 Affiliated Computer
Services, Inc.- Class A # 36,575
1,125 CISCO Systems, Inc. # 103,570
3,400 Danka Business Systems
PLC, ADR 40,163
1,850 EMC Corporation # 82,903
1,900 Hewlett-Packard Company 113,763
2,000 Intel Corporation 148,250
750 International Business
Machines Corporation 86,109
1,800 Lucent Technologies, Inc. 149,737
1,200 Microsoft Corporation # 130,050
1,350 Network Associates, Inc. # 64,631
3,875 Oracle Corporation # 95,180
SHARES VALUE
- --------- --------
TECHNOLOGY (CONTINUED)
3,300 Telefonaktiebolaget
LM Ericsson- ADR $ 94,463
1,600 3Com Corporation # 49,100
-----------
1,194,494
-----------
UTILITIES - 1.5%
2,000 GTE Corporation 111,250
-----------
Total common stocks
(cost $4,871,429) 7,036,013
-----------
PRINCIPAL
AMOUNT VALUE
- --------- --------
SHORT-TERM
INVESTMENTS - 5.6%
VARIABLE RATE
DEMAND NOTES - 5.6%
$119,739 General Mills, Inc. 119,739
159,556 Johnson Controls, Inc. 159,556
133,819 Pitney Bowes, Inc. 133,819
-----------
Total variable rate demand
notes (cost $413,114) 413,114
-----------
Total investments - 100.7%
(cost $5,284,543) 7,449,127
-----------
Liabilities in excess
of other assets - (0.7%) (51,904)
-----------
TOTAL NET ASSETS -
100.0% $7,397,223
===========
# Non-income producing security.
F Foreign security.
See notes to the financial statements.
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Lou Holland Trust (the "Trust") was organized on December 20, 1995,
as a Delaware business trust and is registered as a no-load, open-end
diversified 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 aggregated $76,688. 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 Holland Capital Management, L.P. (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) Foreign Currency Translations - The books and records of the Fund
are maintained in U.S. dollars. Foreign currency transactions are translated
into U.S. dollars on the following basis:(i) market value of investment
securities, assets and liabilities at the daily rates of exchange, and (ii)
purchases and sales of investment securities, dividend and interest income and
certain expenses at the rates of exchange prevailing on the respective dates of
such transactions. For financial reporting purposes, the Fund does not isolate
changes in the exchange rate of investment securities from the fluctuations
arising from changes in the market prices of securities. However, for federal
income tax purposes the Fund does isolate and treat as ordinary income the
effect of changes in foreign exchange rates on realized gain or loss from the
sale of investment securities and payables and receivables arising from trade
date and settlement date differences.
g) 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.
- --------------------------------------------------------------------------------
2. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-term
investments, by the Fund for the six months ended June 30, 1998, were $1,406,870
and $700,114, respectively. There were no purchases or sales of long-term U.S.
Government securities.
<PAGE>
At June 30, 1998, gross unrealized appreciation and depreciation of investments
for tax purposes were as follows:
Appreciation $2,455,829
(Depreciation) (124,586)
----------
Net appreciation on investments $2,331,243
==========
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, 1998, the Fund realized $66,300 of the appreciation.
At June 30, 1998, the cost of investments for federal income tax purposes
was $5,117,884.
- --------------------------------------------------------------------------------
3. 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 may be terminated 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>
- --------------------------------------------------------------------------------
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
President and Managing Partner
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
Jorden Burt Boros Cicchetti Berenson & Johnson
Washington, D.C.
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
June 30, 1998
<PAGE>
