LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
LETTER TO SHAREHOLDERS FEBRUARY 2000
- --------------------------------------------------------------------------------
Dear Shareholder:
The large-capitalization Dow Jones Industrial Average and S&P 500 Index have
advanced for nine consecutive years, the longest period in this century. The S&P
500 has also achieved an unprecedented five consecutive years of 20% plus
returns with a 5-year annualized return of 28.6%. The factors contributing to
the most powerful bull market in history are: the longest economic expansion in
history, declining inflation and interest rates caused by dramatic increases in
productivity, the restructuring of corporate America, unprecedented merger and
acquisition activity, and last but not least, the insatiable demand for common
stocks as baby boomers shift from consumption to savings and investment. It
doesn't get any better than this.
With the S&P 500 and the Dow Jones Industrial Average up 20-25% and the Nasdaq
Composite up over 86%, how could 61% of New York Stock Exchange, 52% of S&P 500
and 48% of Nasdaq stocks be down for the year? Not only were the majority of
stocks down for the year but 36% of New York Stock Exchange and 31% of Nasdaq
stocks were down 20% or more. The equal weighted Value Line Index of 1700 stocks
declined 1.4%.
During 1999 there was a historically wide divergence of performance between
large growth stocks and large value stocks with the Russell 1000 Growth Index
outperforming the Russell 1000 Value Index by 25.8%. The Russell 2000 small
stock growth index outperformed the Russell 2000 small stock value index by
47.8%. The superior performance of growth over value can best be explained by
the increasing dominance of technology in the various indexes. At the end of
1999, technology represented 25% of the weight of the S&P 500 Index and 40% of
the weight of the Russell 1000 Growth Index, versus 11% and 19% respectively, in
1994. The Russell 2000 small stock growth index contained 34.1% in technology at
the end of 1999.
The number of stocks contributing positively to performance last year was very
small. The top 25 stocks in the S&P 500 represented almost 43% of the index
weight and more than 100% of the return of the entire 500 stock index. The ten
largest stocks in the 4600-stock Nasdaq Composite constituted 41% of the weight
of the index and contributed more than 100% of the 1999 return of 86%. A good
example of the impact of technology on performance is the emergence of Qualcomm
(QCOM), a provider of digital wireless communications products. Qualcomm which
represents 2.3% of the weight of the Nasdaq Composite returned 2,619% in 1999,
representing almost 70% of the entire index return of 86%.
PERFORMANCE REVIEW
The Lou Holland Growth Fund gained 9.01% for the year, underperforming the
Lipper General U.S. Stock Funds average return of 27.11%, the Lipper
Large-Capitalization Core average return of 22.35%, and the S&P 500 return of
21.04%.
During 1999, the best performing market sectors were technology, producer
durables, and other energy, while the worst performing market sectors were
consumer staples, healthcare, autos & transportation, and financial services.
The poor market performance of financial services, healthcare, and consumer
staples issues hurt our portfolio throughout 1999 since we were overweighted in
these sectors. Tech nol ogy was the best performing market sector during the
year. While we were generally market weighted in the sector versus the S&P 500
Index, we were significantly underweighted relative to the Russell 1000 Growth
Index and most other large-capitalization growth indexes. Many technology issues
that performed well during the year did not meet our fundamental criteria. Our
focus is to buy companies whose earnings are growing faster than the general
market that we can buy at a reasonable price. During 1999 many stocks with
little or no earnings had a significant impact on index performance. While our
exposure to technology issues benefited performance during the year, this
performance was partially offset by the negative impact of overweightings in the
underperforming market sectors of consumer staples, healthcare, and financial
services.
MARKET OUTLOOK
Our outlook for the U.S. economy and the stock market remains optimistic. The
recent improvement in foreign economic activity should continue to support
domestic economic growth and U.S. corporate earnings. Yet, we are concerned
about the Federal Reserve Board's policy of raising interest
1
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LOU HOLLAND
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GROWTH FUND
rates to curb the speculation in the stock market. While there have been some
upticks in commodity prices and employment costs, we believe that increasing
productivity and the inability of companies to pass along these costs in the
form of price increases will keep inflation in check. We do, however, believe
that we have reached a secular low for inflation. With price earnings ratios at
historically high levels and the Federal Reserve Board raising interest rates,
we do not expect to see further expansion in price earnings ratios. Rising
interest rates also will have the effect of slowing corporate earnings as
economic activity begins to decline. First Call earnings estimates for year 2000
are currently 10%, down from the 17-18% achieved in 1999. If interest rates
continue to rise, both price earnings ratios and corporate earnings will likely
decline further.
We continue to be optimistic about the U.S. stock market. Nevertheless,
investors should expect stock market gains to return to 100 year historical
norms of approximately 10%.
Thank you for your continued interest in the Lou Holland Growth Fund.
Sincerely,
/s/ Louis A. Holland
Louis A. Holland
President
LINE CHART:
RUSSELL 1000 RUSSELL MID-CAP
DATE GROWTH FUND S&P 500 GROWTH INDEX GROWTH INDEX
4/29/96 10000 10000 10000 10000
6/30/96 10520 10297 10363 9896
9/30/96 10910 10615 10737 10232
12/31/96 11462 11500 11385 10528
3/31/97 11329 11809 11447 10144
6/30/97 13355 13870 13611 11637
9/30/97 14210 14909 14635 13265
12/31/97 14663 15337 14857 12901
3/31/98 16783 17477 17108 14441
6/30/98 17290 18054 17885 14432
9/30/98 16049 16257 16261 12024
12/31/98 19905 19720 20609 15206
3/31/99 20071 20702 21920 15726
6/30/99 20807 22162 22763 17365
9/30/99 19347 20779 21930 16495
12/31/99 21701 23871 27446 23005
- --------------------------------------------------------------------------------
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
a subset of approximately 523 of those Russell 1000 companies (that is, the
1,000 largest U.S. companies in terms of market capitalization) with higher
price-to-book ratios and higher forecasted earnings growth rates.
RUSSELL MID-CAP GROWTH INDEX - An unmanaged index which measures the performance
of a subset of approximately 396 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.
- --------------------------------------------------------------------------------
Average Annual Rate of Return for the Periods Ended December 31, 1999
Year-to-Date Since Inception 4/29/96
Lou Holland Growth Fund 9.01% 23.47%
S&P 500 21.04% 26.72%
Russell 1000 Growth Index 33.16% 31.63%
Russell Mid-Cap Growth Index 51.29% 25.45%
2
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LOU HOLLAND
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GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS:
Investments, at value
(cost $6,865,902) $ 11,086,987
Deferred organization charges 10,631
Receivable for investments sold 313,197
Dividends receivable 7,754
Interest receivable 1,446
Receivable from Investment
Manager 6,368
Other assets 12,866
------------
Total Assets 11,439,249
------------
LIABILITIES:
Payable for securities purchased 225,861
Accrued expenses and
other liabilities 41,728
------------
Total Liabilities 267,589
------------
NET ASSETS $ 11,171,660
============
NET ASSETS CONSIST OF:
Capital stock $ 6,857,535
Undistributed net realized
gain on investments 93,040
Net unrealized appreciation
on investments 4,221,085
------------
Total Net Assets $ 11,171,660
============
Shares outstanding 535,245
Net Asset Value, Redemption
Price and Offering Price
Per Share $ 20.87
============
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME:
Dividend income
(net of withholding tax $1,338) $ 88,021
Interest income 31,968
------------
Total Investment Income 119,989
------------
EXPENSES:
Investment management fee 85,984
Administration fee 28,971
Shareholder servicing and
accounting costs 49,426
Custody fees 3,672
Federal and state registration 6,769
Professional fees 37,097
Amortization of deferred
organization charges 8,634
Reports to shareholders 18,458
Director Fees 2,592
Other 9,482
------------
Total expenses before
reimbursement 251,085
Less: Reimbursement from
Investment Manager (114,522)
------------
Net Expenses 136,563
------------
NET INVESTMENT LOSS (16,574)
------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 90,771
Change in unrealized appreciation
(depreciation) on investments 864,957
------------
Net realized and unrealized gain
on investments 955,728
------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS $ 939,154
============
See Notes to the Financial Statements.
3
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LOU HOLLAND
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GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
OPERATIONS:
Net investment loss $ (16,574) $ (7,673)
Net realized gain on investments 90,771 57,854
Change in unrealized appreciation
(depreciation) on investments 864,957 2,077,211
------------ ------------
Net increase in net assets
from operations 939,154 2,127,392
------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income -- (2,756)
From net realized gains (37,974) (15,843)
------------ ------------
(37,974) (18,599)
------------ ------------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares sold 3,137,338 2,594,987
Shares issued to holders in
reinvestment of dividends 37,859 18,575
Cost of shares redeemed (2,039,620) (887,368)
------------ ------------
Net increase in net assets from
capital share transactions 1,135,577 1,726,194
------------ ------------
TOTAL INCREASE IN
NET ASSETS 2,036,757 3,834,987
------------ ------------
NET ASSETS:
Beginning of period 9,134,903 5,299,916
------------ ------------
End of period $ 11,171,660 $ 9,134,903
============ ============
CHANGES IN
SHARES OUTSTANDING:
Shares sold 161,143 157,598
Shares issued to holders in
reinvestment of dividends 1,822 967
Shares redeemed (103,224) (56,762)
------------ ------------
Net increase 59,741 101,803
============ ============
See Notes to the Financial Statements.
4
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LOU HOLLAND
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GROWTH FUND
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
APRIL 29, 1996 (1)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
Per Share Data:
Net asset value, beginning of period $19.21 $14.18 $11.28 $10.00
------ ------ ------ ------
Income from investment operations:
Net investment income (loss) (0.03)(2) (0.02)(2) 0.00(2) 0.00(2)
Net realized and unrealized
gains on investments 1.76 5.09 3.14 1.46
------ ------ ------ ------
Total from investment operations 1.73 5.07 3.14 1.46
------ ------ ------ ------
Less distributions:
Dividends from net
investment income -- (0.01) (0.03) (0.05)
Dividends from capital gains (0.07) (0.03) (0.21) (0.13)
------ ------ ------ ------
Total distributions (0.07) (0.04) (0.24) (0.18)
------ ------ ------ ------
Net asset value, end of period $20.87 $19.21 $14.18 $11.28
====== ====== ====== ======
Total return 9.01% 35.75% 27.92% 14.62%(3)
Supplemental data and ratios:
Net assets, end of period $11,171,660 $9,134,903 $5,299,916 $2,860,671
Ratios of expenses to average net assets
Before expense reimbursement 2.48% 2.84% 4.19% 6.50%(4)
After expense reimbursement 1.35% 1.35% 1.35% 1.35%(4)
Ratio of net investment income (loss)
to average net assets
Before expense reimbursement (0.97)% (1.60)% (2.83)% (5.11)%(4)
After expense reimbursement 0.16% (0.11)% 0.02% 0.04%(4)
Portfolio turnover rate 24.13% 32.84% 34.29% 30.48%
(1) Commencement of operations
(2) 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 total differences.
(3) Not annualized.
(4) Annualized.
See Notes to the Financial Statements.
</TABLE>
5
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
NUMBER OF MARKET
SHARES VALUE
- --------- ---------
COMMON STOCKS - 99.1%
AUTO & TRANSPORTATION - 0.5%
1,400 Magna International, Inc. F $ 59,325
---------
CONSUMER DISCRETIONARY - 9.3%
1,625 American Management
Systems, Inc.* 50,984
4,750 Carnival Corporation 227,109
1,900 Costco Wholesale Corporation 173,375
2,663 Home Depot, Inc. 182,548
1,625 Lowe's Companies 97,094
4,400 Wal-mart Stores, Inc. 304,150
---------
1,035,260
---------
CONSUMER STAPLES - 11.1%
2,425 CVS Corporation 96,848
3,300 Clorox Company 166,238
2,450 Coca-Cola Company 142,713
2,150 Colgate-Palmolive Company 139,750
2,350 Gillette Company 96,791
3,900 PepsiCo, Inc. 137,475
1,650 The Procter & Gamble
Company 180,778
1,650 Safeway, Inc.* 58,678
4,950 Walgreen Company 144,787
6,050 Whitman Corporation 81,297
---------
1,245,355
---------
FINANCIAL SERVICES - 16.7%
2,677 American International
Group, Inc. 289,451
4,350 Automatic Data
Processing, Inc. 234,356
1,600 Bank One Corporation 51,300
NUMBER OF MARKET
SHARES VALUE
- --------- ---------
FINANCIAL SERVICES - 16.7% (CONTINUED)
4,650 Citigroup, Inc. $ 258,366
3,655 Concord EFS, Inc.* 94,116
1,600 Fannie Mae 99,900
3,150 Federal Home Loan
Mortgage Corporation 148,247
2,000 MBIA, Inc. 105,625
4,300 Mellon Financial Corporation 146,469
3,200 Northern Trust Corporation 169,600
3,625 Washington Mutual, Inc. 94,250
4,350 Wells Fargo Company 175,903
---------
1,867,583
---------
HEALTH CARE - 13.6%
1,475 Abbott Laboratories 53,561
1,500 American Home Products
Corporation 59,156
6,975 Elan Corporation PLC - ADR* 205,763
1,300 Guidant Corporation 61,100
2,075 Johnson & Johnson Company 193,234
800 Eli Lilly & Company 53,200
4,250 Medtronic, Inc. 154,859
2,650 Merck & Co., Inc. 177,716
6,450 Pfizer, Inc. 209,222
925 Pharmacia & Upjohn, Inc. 41,625
2,600 Schering-Plough Corporation 109,687
2,400 Warner-Lambert Company 196,650
---------
1,515,773
---------
INTEGRATED OILS - 4.1%
1,754 BP Amoco Corporation - ADR 104,034
3,800 Enron Corporation 168,625
1,122 Exxon Mobil Corporation 90,391
1,500 Royal Dutch Petroleum
Company - ADR 90,656
---------
453,706
---------
See Notes to the Financial Statements.
6
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LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
NUMBER OF MARKET
SHARES VALUE
- ----------- -----------
MATERIALS & PROCESSING - 1.9%
3,775 Jacobs Engineering
Group, Inc.* $ 122,688
1,125 Tyco International Ltd 43,734
1,050 Valspar Corporation 43,969
-----------
210,391
-----------
OTHER - 5.4%
6,550 Federal Signal Corporation 105,209
3,200 General Electric Company 495,200
-----------
600,409
-----------
OTHER ENERGY - 1.7%
2,950 Schlumberger LTD F 165,937
571 Transocean Sedco Forex, Inc. 19,240
-----------
185,177
-----------
PRODUCER DURABLES - 1.0%
2,400 Grainger (W.W.), Inc. 114,750
-----------
TECHNOLOGY - 23.9%
2,300 Affiliated Computer
Services - A* 105,800
4,574 Cisco Systems, Inc.* 489,990
3,000 EMC Corporation* 327,750
1,575 Hewlett-Packard Company 179,452
2,950 Intel Corporation 242,822
1,425 International Business Machines
Corporation 153,900
1,575 Linear Technology Corporation 112,711
4,400 Lucent Technologies, Inc. 329,175
5,300 Microsoft Corporation* 618,775
1,025 Oracle Systems 114,864
-----------
2,675,239
-----------
NUMBER OF MARKET
SHARES VALUE
- ----------- -----------
UTILITIES - 9.9%
2,750 AES Corporation* $ 205,563
2,700 American Telephone &
Telegraph Company 137,025
4,200 Centurytel Inc. 198,975
7,650 MCI Worldcom Inc.* 405,928
3,250 SBC Communications, Inc 158,437
-----------
1,105,928
-----------
Total common stocks
(cost $6,847,811) $11,068,896
===========
PRINCIPAL
AMOUNT VALUE
- ----------- -----------
SHORT-TERM
INVESTMENTS - 0.2%
VARIABLE RATE
DEMAND NOTES# - 0.2%
$ 7,877 Warner Lambert, 6.044% $ 7,877
10,214 Wisconsin Corp. Cent Cr
Union D Notes, 6.160% 10,214
-----------
Total variable rate demand
notes (cost $18,091) 18,091
-----------
Total investments - 99.3%
(cost $6,865,902) 11,086,987
Other assets in excess
of liabilities - 0.7% 84,673
-----------
TOTAL NET ASSETS -
100.0% $11,171,660
===========
* Non-income producing security.
F Foreign security.
# Variable rate demand notes, are payable on demand. The rate listed is as of
December 31, 1999.
See Notes to the Financial Statements.
7
<PAGE>
LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Lou Holland Trust (the "Trust") was organized on December 20, 1995, as 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 principal 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. These costs are being amortized
over the period of benefit, but not to exceed sixty months from the Fund's
commencement of operations. The proceeds of any redemption of the initial shares
(seed money) by the original stockholder or any transferee will be reduced by a
pro-rata portion of any then unamortized organizational expenses at the time of
such redemption.
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 - Provision for federal income taxes or excise taxes has
not been made since the Fund has elected to be taxed as a "regulated investment
company" and intends to distribute substantially all taxable income to its
shareholders and otherwise comply with the provisions of the Internal Revenue
Code applicable to regulated investment companies. Generally accepted accounting
8
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LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
principles require that permanent differences between financial reporting and
tax reporting be reclassified between various components of net assets. On the
Statement of Assets and Liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased by $16,574,
undistributed net realized gains on investments has increased by $6,501, and
capital stock has been decreased by $23,075. These differences relate to the
exclusion of certain organization costs, the reclass of net operating loss and
the inclusion of realized gains related to the Holland L.P. conversion for tax
purposes.
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. For the fiscal year ended December 31, 1999 the Fund
designated and paid $37,974 as a 20% long term capital gain distribution.
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.
9
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LOU HOLLAND
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GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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-divided 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 securities, excluding short-term
investments, by the Fund for the year ended December 31, 1999, were as follows:
PURCHASES SALES
--------------- ---------------
U.S. Government $ -- $ --
Other $ 3,976,915 $ 2,282,996
At December 31, 1999, gross unrealized appreciation and depreciation of invest
ments for tax purposes were as follows:
Appreciation $4,242,119
(Depreciation) (195,038)
----------
Net appreciation on investments $4,047,081
==========
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 $244,079 of unrealized appreciation for tax purposes. As of
December 31, 1999, the Fund has realized $77,322 of the appreciation.
At December 31, 1999, the cost of investments for federal income tax purposes
was $7,039,906.
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.
10
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LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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. Accordingly, for the year ended December 31, 1999, the
Investment Manager has waived and reimbursed the Fund $114,522.
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 Mutual Fund Services, LLC, serves as transfer agent, administrator and
accounting services agent for the Fund. Firstar Bank Milwaukee, N.A. serves as
custodian for the Fund.
11
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LOU HOLLAND
- --------------------------------------------------------------------------------
GROWTH FUND
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees of Lou Holland Trust:
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, 1999, and the related statements of operations for the year then
ended, and the statement of changes in net assets and financial highlights for
each of the two years in the period then ended. 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 audits. The accompanying financial highlights
of the Lou Holland Growth Fund for each of the years in the two year period
ended December 31, 1997 were audited by other auditors whose report thereon,
dated February 13, 1998, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1999 and the results of its operations for the year then
ended, and the changes in its net assets and its financial highlights for each
of the two years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Chicago, Illinois
February 4, 2000
12
<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
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 Bank Milwaukee, N.A.
Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
Telephone (800) 295-9779
INDEPENDENT AUDITOR
KPMG LLP
Chicago, IL
LEGAL COUNSEL
Jorden Burt Boros Cicchetti Berenson & Johnson
Washington, D.C.
LOGO: LOU HOLLAND GROWTH FUND
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ANNUAL REPORT
December 31, 1999
