THE LOU HOLLAND TRUST
35 West Wacker Drive
Suite 3260
Chicago, Illinois 60601
PROSPECTUS FOR THE
GROWTH FUND
A "No-Load" Mutual Fund
The Securities and Exchange Commission has not approved or disapproved of these
securities or passed upon the accuracy or adequacy of the disclosure in this
Prospectus. Any representation to the contrary is a criminal offense.
The date of this Prospectus is May 1, 1999
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THE LOU HOLLAND TRUST
GROWTH FUND
Table of Contents
Investment Objective...................................... 1
Principal Investment Strategies............................1
Principal Investment Risks.................................1
Past Performance of the Growth Fund........................3
Fee Table and Expense Example..............................5
Fees and Expenses of the Growth Fund..............5
Example of Expenses You Would Pay as
a Shareholder of the Growth Fun...................5
More Information About the Investment Strategies,
Risks and Practices of the Growth Fund.....................6
Other Investment Strategies, Risks and Practices
of the Growth Fund.........................................7
Share Price................................................8
How to Purchase Shares.....................................9
Shareholder Services......................................10
Retirement Plans..........................................13
Dividends, Capital Gains Distributions and Taxes..........13
How to Redeem Shares......................................14
How the Trust is Managed..................................16
Investment Manager...............................16
Portfolio Managers...............................16
Year 2000.................................................17
Financial Highlights......................................17
Additional Information about
The Lou Holland Trust and the Growth Fund............19
How to Obtain Additional Information......................19
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THE LOU HOLLAND TRUST
GROWTH FUND
The following overview of the Growth Fund is a summary of
more important information you should know before investing.
More detailed information about The Lou Holland Trust (the
"Trust"), the Growth Fund's investment strategies and risks,
and Holland Capital Management, L.P. (the "Investment
Manager"), the Trust's investment adviser, is included
elsewhere in this Prospectus.
INVESTMENT
OBJECTIVE
The Growth Fund primarily seeks long-term growth of capital.
The receipt of dividend income is a secondary consideration.
PRINCIPAL
INVESTMENT
STRATEGIES
The Growth Fund seeks to achieve its investment objective by
investing primarily in common stocks of growth companies. In
pursuing its investment objective, the Growth Fund maintains a
diversified portfolio of equity securities of mid- to
large-capitalization companies that have the following
characteristics:
(i) demonstrated historical growth of earnings faster than the
general market;
(ii) earnings growth stability;
(iii) return on equity that is higher than the general market; and
(iv) dividend growth that is typically greater than that of the
market.
While the Growth Fund invests primarily in U.S. companies, it may seek
companies that are organized in foreign countries that exhibit the
growth characteristics mentioned above.
PRINCIPAL
INVESTMENT
All mutual funds are subject to various risks associated with
investing. The Risks risks associated with investing in a
mutual fund are primarily determined by the securities in
which it invests and the investment strategies it employs. The
ultimate risk to you when you invest in the Growth Fund, or
any other mutual fund for that matter, is that you could
lose money.
You should know that the market value of the Growth Fund's
investments can be expected to fluctuate over time. Similarly,
the amount of income generated by the Fund will fluctuate
based on the composition of the Fund's assets and the level of
interest and dividends paid on those assets. Since the Growth
Fund seeks long-term growth of capital, an investment in the
Growth Fund may be more suitable for long-term investors who
can bear the risk of these fluctuations.
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THE LOU HOLLAND TRUST
GROWTH FUND
The Growth Fund is subject to the following principal
investment risks while pursuing its investment objective:
MARKET RISK: The risk that the market value of a security may
move up and down, sometimes rapidly and unpredictably. This
volatility may cause a security to be worth less than what was
paid for it. Market risk may affect a single issuer, industry,
sector of the economy or the market as a whole.
MANAGER RISK: The risk that a strategy used by the Growth
Fund's Investment Manager may fail to produce the intended
result.
FOREIGN SECURITY RISK: The risk that the market value of a
foreign security or the securities markets of a foreign
country may be more volatile or perform differently than a
security issued by a U.S. company or the U.S. securities
markets due to, for example, adverse political, regulatory,
economic or other developments affecting the particular
foreign country. There is also a risk that a change in
currency exchange rates between U.S. dollars and a foreign
currency may reduce the value of a security valued in, or
based on, that foreign currency.
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THE LOU HOLLAND TRUST
GROWTH FUND
PAST PERFORMANCE
OF THE GROWTH
FUND
The bar chart below shows the Growth Fund's performance for
each full calendar year since the Fund's inception. The table
that follows the bar chart shows average annual total return
for the Growth Fund, the S&P 500 Index, the Russell 1000
Growth Index, and the Russell Mid-Cap Growth Index for the one
year period ended December 31, 1998 and the period since the
Growth Fund's inception on April 29, 1996 until December 31,
1998. This information is intended to give you an indication
of the risks of investing in the Growth Fund by showing you
changes in the Growth Fund's performance from year to year,
and by showing how the Growth Fund's average annual total
returns since its inception compare with those of three broad
measures of stock market performance. Please remember that
past performance is not an indication of how the Growth Fund,
the S&P 500 Index, the Russell 1000 Growth Index or the
Russell Mid-Cap Growth Index will perform in the future.
YEAR-BY-YEAR TOTAL RETURN
12-31-97 12/31/98
27.92% 35.75%
Since its inception on April 29, 1996, the Growth Fund's
highest return for a calendar quarter was 24.03% (quarter
ending December 31, 1998) and its lowest return for a calendar
quarter was -7.18% (quarter ending September 30, 1998).
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THE LOU HOLLAND TRUST
GROWTH FUND
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
SINCE
AVERAGE ANNUAL TOTAL RETURNS PAST INCEPTION
(FOR THE PERIOD ENDING DECEMBER 31, 1998) ONE YEAR (APRIL 29, 1996)
<S> <C> <C>
Lou Holland Growth Fund 35.75% 29.36%
S&P 500 Index 28.58% 28.91%
Russell 1000 Growth Index 38.71% 31.05%
Russell Mid-Cap Growth Index 17.86% 16.97%
</TABLE>
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.
Russell 1000 Growth Index - An unmanaged index which measures
the performance of a subset of approximately 568 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 439 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.
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THE LOU HOLLAND TRUST
GROWTH FUND
FEES AND EXPENSES
OF THE GROWTH
FUND FEE TABLE AND EXPENSE EXAMPLE
When you purchase shares of a mutual fund, you pay the fees
and expenses associated with its operation. This table
describes the fees and expenses that you may pay if you buy
and hold shares of the Growth Fund.
Shareholder Fees (fees paid directly from your investment)
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load Imposed on Redemptions None
Redemption Fee None
Annual Growth Fund Operating Expenses
(expenses that are deducted from Growth Fund assets)
Investment Management Fee .85%*
Distribution (12b-1) Fees None
Other Expenses 2.00%
------
Gross Total Operating Expenses 2.85%
Less Fee Waiver & Expense Reimbursement ** -1.50%
------
Net Total Operating Expenses 1.35%
======
** The Investment Management Fee declines at specified
breakpoints as the Growth Fund's assets increase.
** The Investment Manager has contractually agreed to waive
its fees and reimburse other expenses of the Growth Fund to
the extent that the Fund's "Total Operating Expenses" exceed
1.35%. This agreement may be terminated only by the Trust's
Board of Trustees. As a result of the agreement, the Growth
Fund actually paid 1.35% of Total Operating Expenses during
its fiscal year ended December 31, 1998 and not 2.85%.
EXAMPLE OF
EXPENSES
YOU WOULD PAY AS
A SHAREHOLDER OF
THE GROWTH FUND
This Example is intended to help you compare the cost of
investing in the Growth Fund with the cost of investing in
other mutual funds. The Example assumes that you invest
$10,000 in the Growth Fund for the time periods shown and then
redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each
year and the Growth Fund's operating expenses remain the same.
Since the Growth Fund imposes no charges when you redeem your
shares, the expenses you would pay are the same whether you
redeem your shares or continue to hold them at the end of the
time periods shown. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------- ------- ------- -------
$137 $428 $739 $1624
YOU SHOULD NOT CONSIDER THESE EXAMPLES TO BE A REPRESENTATION
OF PAST OR FUTURE FEES OR EXPENSES FOR THE GROWTH FUND. ACTUAL
FEES AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN
ABOVE. Similarly, the annual rate of return assumed in the
Example is not an estimate or guarantee of future investment
performance, but is included merely for illustrative purposes
only.
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THE LOU HOLLAND TRUST
GROWTH FUND
The Growth Fund is a "no load" mutual fund. This means that
you pay no sales charges or 12b-1 fees when you purchase
shares of the Fund. Therefore, all of the money you invest
will immediately go to work for you.
As with any mutual fund, there is no assurance that the Growth
Fund will achieve its investment objective. You should know
that the Growth Fund's share price will fluctuate and, when
you redeem your shares, they could be worth more or less than
what you paid for them. Thus, like investing in any other
mutual fund, you could lose money.
MORE INFORMATION
ABOUT THE
INVESTMENT
STRATEGIES, RISKS
AND THE GROWTH
EQUITY SECURITIES. Under normal market conditions, the Growth
Fund invests substantially all of its assets in equity
securities. Therefore, as an investor in Fund, the return on
your investment will be based primarily on Practices of the
risks and rewards associated with investing in equity
securities.
The Growth Fund The Growth Fund invests primarily in common
stocks. Other types of equity securities the Fund may acquire
include preferred stocks, securities which are convertible
into common stocks and readily marketable securities, such as
rights and warrants, which derive their value from common
stock. As a general matter, these other types of securities
are subject to many of the same risks as common stocks.
Common stocks represent partial ownership in a company and
entitle stockholders to share in the company's profits (or
losses). Common stocks may also entitle the holder to share in
the company's dividends. Investments in common stocks in
general are subject to market risks that may cause their
prices to fluctuate over time. For example, the value of a
company's stock may fall as a result of factors which directly
relate to that company, such as lower demand for the company's
products or services or poor management decisions. A stock's
price may also fall because of economic conditions which
affect many companies, such as increases in production costs.
The value of a company's stock may also be affected by changes
in financial market conditions that are not directly related
to the company or its industry, such as changes in interest
rates or currency exchange rates.
Foreign Securities. The Growth Fund may invest in common
stocks of foreign companies. These investments will be made
primarily through the use of American Depositary Receipts
("ADRs"), although the Growth Fund may make direct market
purchases of such foreign securities. ADRs are U.S.
dollar-denominated certificates issued by a U.S. bank or trust
company and represent the right to receive securities of a
foreign company deposited in a domestic bank or foreign branch
of a U.S. bank and are traded on a U.S. exchange or in an
over-the-counter market.
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THE LOU HOLLAND TRUST
GROWTH FUND
Investing in securities of foreign issuers involves
considerations not typically associated with investing in
securities of companies organized and operated in the U.S.
Foreign securities generally are denominated and pay dividends
or interest in foreign currencies. The Growth Fund may from
time to time hold various foreign currencies pending
investment in foreign securities or conversion into U.S.
dollars. The value of the assets of the Fund as measured in
U.S. dollars may therefore be affected favorably or
unfavorably by changes in exchange rates. There may be less
publicly available information concerning foreign issuers than
is available with respect to U.S. issuers. Foreign securities
may not be registered with the SEC, and generally, reporting
requirements may not be comparable to those applicable to U.S.
issuers.
OTHER INVESTMENT
STRATEGIES, RISKS
AND PRACTICES OF
THE GROWTH FUND
OPTIONS AND FUTURES CONTRACTS. Options and futures contracts
are types of derivative instruments. They "derive" their value
from an underlying security, index or other financial
instrument. The use of options and futures permits the Growth
Fund to increase or decrease the level of risk associated with
its investments or to change the character of that risk.
Options and futures contracts trading are highly specialized
activities which entail greater than ordinary investment
risks.
The Growth Fund may write covered call options, buy put
options, buy call options and write put options on particular
securities or various indexes. The Fund may also invest in
futures contracts and options on futures contracts. The Fund
may make these investments for the purpose of protecting its
assets (this is known as "hedging") or to generate income. A
call option for a particular security gives the purchaser of
the option the right to buy, and a writer the obligation to
sell, the underlying security at the stated exercise price at
any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the
writer is in consideration for undertaking the obligations
under the option contract. A put option for a particular
security gives the purchaser the right to sell the underlying
security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price
of the security. In contrast to an option on a particular
security, an option on an index provides the holder with the
right to make or receive a cash settlement upon exercise of
the option.
A futures contract is an exchange-traded contract to buy or
sell a standard quantity and quality of a financial instrument
or index at a specified future date and price.
The risks related to the use of options and futures contracts
include: (i) the correlation between movements in the market
price of the Growth Fund's investments (held or intended for
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THE LOU HOLLAND TRUST
GROWTH FUND
purchase) being hedged and in the price of the futures
contract or option may be imperfect; (ii) possible lack of a
liquid secondary market for closing out options or futures
positions; (iii) the need for additional portfolio management
skills and techniques; and (iv) losses due to unanticipated
market movements.
Successful use of options and futures by the Growth Fund is
subject to the Investment Manager's ability to correctly
predict movements in the direction of the market.
For example, if the Fund uses futures contracts as a hedge
against the possibility of a decline in the market adversely
affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit of the
increased value of its securities which it has hedged because
it will have approximately equal offsetting losses in its
futures positions. The risk of loss in trading futures
contracts in some strategies can be substantial, due both to
the low margin deposits required, and the extremely high
degree of leverage involved in future pricing. As a result, a
relatively small price movement in a futures contract may
result in immediate and substantial loss or gain to the
investor. Thus, a purchase or sale of a futures contract may
result in losses or gains in excess of the amount invested in
the contract.
TEMPORARY DEFENSIVE STRATEGY. While the Growth Fund's primary
strategy is to be fully invested in equities, the Fund may
depart from its principal investment strategies in response to
adverse market, economic, political or other conditions.
During these periods, the Fund may engage in a temporary,
defensive strategy that permits it to invest up to 100% of its
assets in high-grade domestic and foreign money market
instruments. It is possible that the Growth Fund will not
achieve its investment objective when it employs a temporary,
defensive strategy.
SHARE PRICE
You pay no sales charges to invest in the Growth Fund. When
you buy or redeem shares, your share price is the Fund's net
asset value per share next-determined after we receive your
purchase or redemption order. We determine the Growth Fund's
net asset value each day that the New York Stock Exchange
("NYSE") is open at the close of trading on that exchange
(normally, 4:00 p.m. Eastern Time). Net asset value will not
be calculated and, therefore, shares will not be priced when
the NYSE is closed.
The Growth Fund's net asset value per share is calculated by
adding the value of all securities, cash and other assets of
the Fund, subtracting the Fund's liabilities (including
accrued expenses and dividends payable), and dividing the
result by the total number of outstanding Fund shares.
The Growth Fund's investments are generally valued based on
market value, or if market quotations are not readily
available, fair value as determined in good faith by the
Fund's board of trustees.
8
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THE LOU HOLLAND TRUST
GROWTH FUND
HOW TO
PURCHASE
SHARES
The initial minimum investment for the Growth Fund is $2,000.
This minimum amount may, in certain cases, be waived or
lowered by the Trust.
Opening An Account. Shareholders may make an initial purchase
of shares of the Growth Fund by mail or by wire. Shares of
the Fund may be purchased on any day the Trust is open
for business.
A COMPLETED AND SIGNED PURCHASE APPLICATION FORM
("APPLICATION") IS REQUIRED FOR EACH NEW ACCOUNT OPENED WITH
THE GROWTH FUND REGARDLESS OF HOW THE INITIAL PURCHASE OF
SHARES IS MADE.
BY MAIL. Shares of the Growth Fund may be purchased by mailing
the completed Application, with a check made payable to the
Trust, c/o Firstar Trust Company ("Firstar"), Post Office Box
701, Milwaukee, Wisconsin 53201-0701. Correspondence sent by
overnight delivery services should be sent to Firstar Trust
Company, 3rd Floor, 615 East Michigan Street, Milwaukee,
Wisconsin 53202.
BY WIRE. Shares of the Growth Fund may also be purchased by
wiring funds to the wire bank account for the Fund. Before
wiring funds, please call the Trust toll free at
1-800-295-9779 to advise the Trust of the intention to invest
in the Growth Fund, to receive instructions as to how and
where to wire the investment, and to obtain a confirmation
number to ensure prompt and accurate handling of funds. Please
remember to return the completed Application to the Trust as
described in the prior paragraph. The Fund and its transfer
agent are not responsible for the consequences of delays
resulting from the banking or Federal Reserve Wire system, or
from incomplete wiring instructions. The bank that wires the
funds may charge a fee. Instruct your bank to use the
following instructions when wiring funds:
Wire To: Firstar Bank Milwaukee, N.A.
ABA 075000022
Credit: Firstar Trust Company
Account 112-952-137
Further Credit: Lou Holland Growth Fund
(Shareholder Account Number)
(Shareholder Registration)
SUBSEQUENT INVESTMENTS. The minimum subsequent investment for
the Growth Fund is $250. Subsequent purchases of shares of the
Fund may be made by mail or by wire (see instructions above),
or through means of the Telephone Investment Privilege
described below under "Shareholder Services."
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THE LOU HOLLAND TRUST
GROWTH FUND
SHARE PRICE. To make an initial purchase of shares of the
Growth Fund, a completed and signed Application in good order,
as described below, must first be received. Shares in the Fund
will be priced at the net asset value per share of the Fund
next determined after a purchase order has been received by
Firstar as transfer agent in good order, as described below.
CONDITIONS OF PURCHASE. The Trust and the Distributor, HCM
Investments, Inc., each reserves the right to reject any
purchase for any reason and to cancel any purchase due to
nonpayment. Purchases are not binding on the Trust or the
Investment Manager or considered received until such purchase
orders are received by Firstar in good order. Good order
requires that purchases must be made in U.S. dollars and, to
avoid fees and delays, all checks must be drawn only on U.S.
banks. No cash or third party checks will be accepted. As a
condition of this offering, if a purchase is canceled due to
nonpayment or because a check does not clear (and therefore,
the account is required to be redeemed), the purchaser will be
responsible for any loss the Fund incurs. The transfer agent
charges a $20 fee against a shareholder's account for any
checks that do not clear.
Shares may be purchased by rendering payment in-kind in the
form of marketable securities, including but not limited to
shares of common stock and debt instruments, provided the
acquisition of such securities is consistent with the Growth
Fund's investment objectives and otherwise acceptable to the
Investment Manager. If you wish to purchase shares with
marketable securities, please call 1-800-295-9779 to determine
whether the particular securities will be accepted as payment
by the Fund and the manner by which they would be transferred
to the Fund.
SHARE CERTIFICATES. Share certificates will not be issued for
shares unless the shareholder has held them for at least
thirty (30) days and has specifically requested them. Most
shareholders elect not to receive share certificates.
Certificates for full shares only will be issued. Shareholders
who lose a share certificate may incur an expense to replace
it.
SHAREHOLDER
SERVICES
SHAREHOLDER INQUIRIES AND SERVICES OFFERED. If there are any
questions about the following services, please call the Trust
at 1-800-295-9779 or write the Trust, c/o Firstar Trust
Company, Post Office Box 701, Milwaukee, Wisconsin 53201-0701.
The Trust reserves the right to amend the shareholder services
described below or to change their terms or conditions upon
sixty (60) days notice to shareholders.
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THE LOU HOLLAND TRUST
GROWTH FUND
SHAREHOLDER STATEMENTS AND REPORTS. Each time a shareholder
buys or sells shares or reinvests a dividend or distribution
in the Growth Fund, the shareholder will receive a statement
confirming such transaction and listing the current share
balance with the Fund. The Trust also will send shareholders
annual and semi-annual reports, as well as year-end tax
information about the accounts with the Fund.
TELEPHONE PRIVILEGES. For convenience, the Trust provides
telephone privileges that allow telephone authorization to (i)
purchase shares in the Growth Fund, and (ii) redeem shares in
the Fund. Initial purchases of shares may not be made by
telephone. To utilize these telephone privileges, check the
appropriate boxes on the Application and supply the Trust with
the information required. Procedures have been established by
the Trust and Firstar that are considered to be reasonable and
are designed to confirm personal identification information
prior to acting on telephone instructions, including tape
recording telephone communications and providing written
confirmation of instructions communicated by telephone. If the
Investment Manager does not employ reasonable procedures to
confirm that instructions communicated by telephone are
genuine, it may be liable for any losses arising out of any
action on its part or any failure or omission to act as a
result of its own negligence, lack of good faith, or willful
misconduct. In light of the procedures established, the Trust
will not be liable for following telephone instructions that
it or Firstar, as transfer agent, believes to be genuine.
During periods of extreme economic conditions or market
changes, requests by telephone may be difficult to make due to
heavy volume. During such times, shareholders should consider
placing orders by mail.
The telephone privileges are not available with respect to
shares for which certificates have been issued or with respect
to redemptions for accounts requiring supporting legal
documents.
TELEPHONE INVESTMENT PRIVILEGE. After an account with the
Trust has been opened, additional investments in the amount of
$1,000 or more may be made by telephoning the Trust at
1-800-295-9779 between 9:00 a.m. and 4:00 p.m. Eastern Time on
any day the Trust is open. Telephone investment requests made
after 4:00 p.m. Eastern Time will be processed as of close of
business on the next business day. In accordance with a
shareholder's instructions, the Trust will electronically
transfer monies from a shareholder's bank account designated
on the Application to the shareholder's account with the
Trust.
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THE LOU HOLLAND TRUST
GROWTH FUND
The designated bank must be a member of the Automated Clearing
House ("ACH") network and able to make electronic transfers in
order for a shareholder to use this privilege. Shares will be
purchased at the net asset value determined on the day the
order is placed, provided the call is received prior to 4:00
p.m. Eastern Time.
TELEPHONE REDEMPTION PRIVILEGE. The Telephone Redemption
Privilege permits a shareholder to authorize the redemption of
any amount from his or her account with the Trust by
telephoning the Trust at 1-800-295-9779 between 9:00 a.m. and
4:00 p.m. Eastern Time on any day the Trust is open. In
accordance with telephone instructions, we will redeem shares
of the Growth Fund at their net asset value next determined
after the telephone redemption request is received. Telephone
redemption requests made after 4:00 p.m. Eastern Time will be
processed as of the close of business on the next business
day. Redemption proceeds will, in accordance with any prior
election made by a shareholder, be mailed to shareholder's
current address, or transmitted by wire to the shareholder's
designated bank account. Firstar will charge a $12 fee for the
service. The designated bank must be a member of the ACH
network and able to receive electronic transfers in order to
use this privilege. Telephone redemption requests will not be
processed if the shareholder has changed his or her address
within the preceding fifteen (15) days.
IRA accounts may not be redeemed via telephone.
After an account has been opened, a written request must be
sent to the transfer agent in order to arrange for telephone
redemptions or to make changes in the bank or account
receiving the proceeds. The request must be signed by each
shareholder of an account and the signature guaranteed.
AUTOMATIC INVESTMENT PLAN (AIP). The Trust offers an AIP
whereby a shareholder may purchase shares on a regular
scheduled basis ($50 minimum per transaction up to four times
per month). Under the AIP, the shareholder's designated bank
account is debited a preauthorized amount and applied to
purchase shares. The financial institution must be a member of
the ACH network. There is no charge for this service. A $15
fee will be charged by the transfer agent if there are
insufficient funds in the account at the time of the scheduled
transaction. The program will automatically terminate upon
redemption of all shares in the account.
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THE LOU HOLLAND TRUST
GROWTH FUND
RETIREMENT PLANS
Trust shares are available in connection with
tax benefited retirement plans established under Section 401
(a) or Section 403 (b) of the Internal Revenue Code of 1986 as
amended ("Code"), IRAs and SEP-IRAs under Section 408 of the
Code, Roth IRAs under Section 408A of the Code, Education IRAs
under Section 530 of the Code, corporate sponsored profit
sharing plans, and deferred compensation plans of state and
local governments and tax-exempt organizations that comply
with the provisions of Section 457 of the Code. Various
initial, annual maintenance and participant fees may apply to
these retirement plans. Applicable forms and information
regarding plan administration, all fees, and other plan
provisions are available from the Trust or Firstar, as
transfer agent.
DIVIDENDS,
CAPITAL
GAINS
DISTRIBUTIONS
AND TAXES
The Growth Fund earns ordinary investment income from
dividends and interest on its investments. The Fund expects to
distribute substantially all of this income, less Fund
expenses, to shareholders annually, or at such other times as
the Fund may elect.
The Fund also realizes capital gains and losses when it sells
securities in its portfolio for more or less than it paid for
them. If total gains on sales exceed total losses (including
losses carried forward from previous years), the Fund has a
net realized capital gain. Net realized capital gains, if any,
are distributed to shareholders at least annually.
Under present federal income tax laws, capital gains may be
taxable at different rates, depending on how long the Growth
Fund has held the underlying investment. Short-term capital
gains which are derived from the sale of assets held one year
or less are taxed as ordinary income. Long-term capital gains
which are derived from the sale of assets held for more than
one year are taxed at the maximum capital gains rate.
Dividends and capital gains distributions will be paid to you
if you hold shares on the record date of the distribution
regardless of how long you have held your shares. These
distributions are paid by the Fund on the basis of each
shareholder's relative net assets. The Fund's net asset value
will decrease by the amount of the distribution on the day the
distribution is made.
Dividends and capital gains distributions by the Growth Fund
are automatically reinvested in additional Fund shares at the
share price on the ex-dividend date, unless you choose to have
them paid to you directly. If you choose to have distribution
checks mailed to you and either the U.S. Postal Service is
unable to deliver the check to you or if the check(s) remain
outstanding for at least six months, the Fund reserves the
right to reinvest the check(s) at the then current net asset
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<PAGE>
value until you notify us with different instructions.
Dividends and other distributions, whether received in cash or
reinvested in additional Fund shares are taxable to you
(unless your investment is in an IRA or other tax-advantaged
account). Dividends and capital gains distributions declared
in October, November or December and paid in January are
taxable in the year in which they are declared.
The Trust is required by federal law to withhold 31% of
reportable payments (which may include dividends, capital
gains distributions, and share redemption proceeds) paid to
shareholders who have not complied with IRS regulations. In
order to avoid this backup withholding requirement, you must
certify that your Social Security or Taxpayer Identification
Number is correct (or that you have applied for such a number
and are waiting for it to be issued), and that you are not
currently subject to, or exempt from, backup withholding.
HOW TO
REDEEM SHARES
Shareholders have the right to redeem (subject to the
restrictions outlined below) all or any part of their shares
in the Growth Fund at a price equal to the net asset value of
such shares next computed following receipt of the redemption
request in proper form by the Trust. Unless a shareholder has
selected the Telephone Redemption Privilege and provided the
required information, in order to redeem shares in the Fund, a
written request in "proper form" (as explained below) must be
sent to Firstar Trust Company, Post office Box 701, Milwaukee,
Wisconsin 53201-0701. Correspondence sent by overnight
delivery services should be sent to Firstar Trust Company, 3rd
Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202. A
shareholder cannot redeem shares by telephone unless the
shareholder is eligible to use the Telephone Redemption
Privilege. In addition, the Trust cannot accept requests which
specify a particular date for redemption or which specify any
other special conditions.
Proper Form for All Redemption Requests. A redemption request
must be in proper form. To be in proper form, a redemption
request must include: (i) share certificates, if any, endorsed
by all registered shareholders for the account exactly as the
shares are registered and the signature(s) must be guaranteed,
as described below; (ii) for written redemption requests, a
14
<PAGE>
"letter of instruction," which is a letter specifying the
Growth Fund by name, the number of shares to be sold, the
name(s) in which the account is registered, and the account
number. The letter of instruction must be signed by all
registered shareholders for the account using the exact names
in which the account is registered; in the case of an IRA
account, the letter of instruction must indicate whether or
not 10% federal income tax should be withheld from the
redemption. Failure to provide a withholding election will
result in 10% being withheld; (iii) other supporting legal
documents, as may be necessary, for redemption requests by
corporations, trusts, and partnerships; and (iv) any signature
guarantees that are required as described above in (i), or
required by the Trust where the value of the shares being
redeemed is $10,000 or greater, or where the redemption
proceeds are to be sent to an address other than the address
of record or to a person other than the registered
shareholder(s) for the account.
Signature guarantees are required if the amount being redeemed
is $10,000 or more but generally are not required for
redemptions made using the Telephone Redemption Privilege. If
proceeds from a redemption made using the Telephone Redemption
Privilege are to be sent to a person other than the registered
shareholders for the account or to an address or account other
than that of record for a period no less than fifteen (15)
days prior to the date of the request, then a signature
guarantee would be required.
Signature guarantees, when required, can be obtained from
any one of the following institutions: (i) a bank; (ii) a
securities broker or dealer, including a Government or
municipal securities broker or dealer, that is a member of
a clearing corporation or has net capital of at least
$100,000; (iii) a credit union having authority to issue
signature guarantees; (iv) a savings and loan association,
a building and loan association, a cooperative bank, a
federal savings bank or association; or (v) a national
securities exchange, a registered securities exchange or a
clearing agency. Notaries public are not acceptable
guarantors. A redemption request will not be processed and
will be held until it is in proper form, as described above.
RECEIVING A REDEMPTION PAYMENT. Except under certain emergency
conditions, a redemption payment will be sent to the
shareholder within seven (7) days after receipt of the
corresponding telephone or written redemption request, in
proper form, by the Trust. There are no redemption fees
imposed on any redemption request. If a redemption request is
with respect to shares purchased by a personal, corporate, or
government check within twelve (12) days of the purchase date,
the redemption payment will be held until the purchase check
has cleared (which may take up to twelve (12) days from the
purchase date), although the shares redeemed will be priced
for redemption upon receipt of the redemption request. The
inconvenience of this twelve (12) day check clearing period
can be avoided by purchasing shares with a certified,
treasurer's or cashier's check, or with a federal funds or
bank wire.
<PAGE>
THE LOU HOLLAND TRUST
GROWTH FUND
MINIMUM ACCOUNT SIZE. Due to the relatively high cost of
maintaining accounts, the Trust reserves the right to redeem
shares in any account if, as the result of the redemptions,
the value of that account drops below $2,000. A shareholder is
allowed at least sixty (60) days, after written notice by the
Trust, to make an additional investment to bring the account
value up to at least $2,000 before the redemption is
processed.
HOW THE TRUST
IS MANAGED
INVESTMENT MANAGER. The Growth Fund is managed by Holland
Capital Management, L.P., a Delaware limited partnership whose
principal place of business is 35 West Wacker Drive, Suite
3260, Chicago, Illinois 60601. The Investment Manager has not
previously served as investment manager to any other
registered investment company. However, the executives and
members of the investment management staff have extensive
experience in managing investments. Louis A. Holland, the
Managing Partner and Chief Investment Officer of the
Investment Manager, has served as an investment adviser for
the past 25 years.
Subject to the authority of the board of trustees, the
Investment Manager supervises and directs the day-to-day
investments and operation of the Growth Fund in accordance
with the Fund's investment objective, investment program,
policies, and restrictions. The Investment Manager also
supervises the overall administration of the Trust, which
includes, among other activities, preparing and filing
documents required for compliance of the Trust with applicable
laws and regulations, preparing agendas and other supporting
documents for the meetings of the Board, maintaining the
corporate records and books of the Trust, and serving as the
Trust's liaison with its independent public accountant and any
service providers such as the custodian, transfer agent, and
administrator.
The Trust pays the Investment Manager, on a monthly basis, an
investment management fee based on the Growth Fund's average
daily net assets at the following annualized rates: with
respect to the Fund, 0.85% of the average daily net assets up
to $500 million, 0.75% of the average daily net assets up to
the next $500 million, and 0.65% of the average daily net
assets in excess of $1 billion. The Investment Manager has
contractually agreed to waive its investment management fee
and reimburse expenses of the Fund so that the Fund's total
annual operating expenses do not exceed more than 1.35%.
PORTFOLIO MANAGERS. The persons employed by or associated with
the Investment Manager who are primarily responsible for the
day-to-day management of the Growth Fund's portfolio, are
Louis A. Holland, Monica L. Walker and Laura J. Janus. Their
16
<PAGE>
THE LOU HOLLAND TRUST
GROWTH FUND
business experience for the past five years is as follows: Mr.
Holland has served as Managing Partner and Chief Investment
Officer of the Investment Manager, and President, Treasurer
and Director of the Distributor and of Holland Capital
Management, Inc., the General Partner of the Investment
Manager; Ms. Walker and Ms. Janus have served as portfolio
managers with respect to the Investment Manager's private
account clients.
YEAR 2000
Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Investment
Manager and the Fund's service providers do not properly
process and calculate date-related information and data from
and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Investment Manager is taking steps that it
believes are reasonably designed to address the Year 2000
Problem with respect to computer systems that it uses and to
obtain reasonable assurance that comparable steps are being
taken by the Fund's other service providers.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you
understand the Growth Fund's financial performance since the
Fund commenced operations. Certain information reflects
financial results for a single Fund share. The total returns
in the table represent the rate that an investor would have
earned on an investment in the Growth Fund (assuming
reinvestment of all dividends and distributions). The
information for year ended December 31, 1998 has been audited
by KPMG LLP and information for year ended December 31, 1997
and the period ended December 31, 1996 has been audited by
Deloitte & Touche LLP, whose reports, along with the Fund's
financial statements, are included in the Fund's Annual
Report, which is available upon request.
<PAGE>
<TABLE>
<CAPTION>
April 29, 1996(1)
Year Ended Year Ended through
December 31, 1998 December 31, 1997 December 31, 1996
Per Share Data: ------------------ ----------------- -------------------
<S> <C> <C> <C>
Net asset value, beginning
of period $14.18 $11.28 $10.00
------- ------- -------
Income From Investment Operations:
Net Investment Income (0.02)(2) 0.00(2) 0.00(2)
Net Gains on Securities (both
realized and unrealized) 5.09 3.14 1.46
------- ------- -------
Total from
investment operations 5.07 3.14 1.46
------- ------- -------
Less Distributions:
Dividends (from net
investment income) (0.01) (0.03) (0.05)
Dividends (from capital gains) (0.03) (0.21) (0.13)
------- ------- -------
Total distributions (0.04) (0.24) (0.18)
------- ------- -------
Net asset value,
end of period $19.21 $14.18 $11.28
======= ======= ========
Total return 35.75% 27.92% 14.62%(3)
Supplemental Data and Ratios:
Net assets, end of period $9,134,903 $5,299,916 $2,860,671
Ratio of expenses to average net assets
Before expense
reimbursement 2.84% 4.19% 6.50%(4)
After expense
reimbursement 1.35% 1.35% 1.35%(4)
Ratio of net investment income (loss)
to average net assets
Before expense
reimbursement (1.60)% (2.83)% (5.11)%(4)
After expense
reimbursement (0.11)% 0.02% 0.04%(4)
Portfolio turnover rate 32.84% 34.29% 30.48%
</TABLE>
(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 tax differences.
(3) Not annualized.
(4) Annualized.
18
<PAGE>
THE LOU HOLLAND TRUST
GROWTH FUND
ADDITIONAL
INFORMATION ABOUT
THE LOU HOLLAND TRUST
AND THE GROWTH FUND
Additional information about The Lou Holland Trust and the
Growth Fund is available from several sources.
Financial Reports. Additional information about the Growth
Fund's investments is available in the Fund's annual and
semi-annual reports. In the annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Growth Fund's performance
during its last fiscal year ended December 31, 1998.
Statement of Additional Information. The SAI, dated May 1,
1999, contains detailed information about The Lou Holland
Trust and the Growth Fund's investment policies and practices.
A current SAI is on file with the Securities and Exchange
Commission and is incorporated in this Prospectus by
reference, which means that the SAI is legally a part of the
Prospectus.
HOW TO OBTAIN
ADDITIONAL
INFORMATION
To obtain a free copy of the current annual report,
semi-annual report or SAI, requests can be made:
By Mail Write to: The Lou Holland Trust c/o Firstar Trust
Company, P.O. Box 701, Milwaukee, Wisconsin 53201-0701.
By Telephone Call: 1-800-295-9779.
By E-Mail Our address is: [email protected]
By Internet Visit our website at: www.hollandcap.com
You also can obtain copies of this information by visiting the
SEC's website at www.sec.gov or by visiting or writing to the
SEC's Public Reference Section at 450 Fifth Street,
Washington, D.C. Information on the Public Reference Section
can be obtained by calling 1-800-SEC-0330. The SEC's Public
Reference Section may impose a copying charge for any
information you request.
The SEC's Investment Company Act File Number for The Lou
Holland Trust is 811-7533.
19
<PAGE>
THE LOU HOLLAND TRUST
GROWTH FUND
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 LLP
Washington, D.C.
PROSPECTUS
MAY 1, 1999
<PAGE>
THE LOU HOLLAND TRUST
35 West Wacker Drive
Suite 3260
Chicago, Illinois 60601
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the Prospectus for the Trust dated May 1, 1999, which may be
obtained by telephoning the Trust at 1-800-295-9779. This Statement of
Additional Information has been incorporated by reference into the Prospectus,
which means that it is legally a part of the Prospectus.
The date of this Statement of Additional Information is May 1, 1999.
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
General Information and History B-
Investment Restrictions B-
Description of Certain Investments and Policies B-
Management of The Trust B-
Committees of the Board of Trustees B-
Principal Holders of Securities B-
Investment Management and Other Services B-
Brokerage Allocation and Other Practices B-
Purchase and Redemption of Securities Being Offered B-
Determination of Net Asset Value B-
Taxes B-
Organization of The Trust B-
Performance Information About the Growth Fund B-
Legal Matters B-
Independent Auditors B-
Financial Statements B-
Appendix B-
B-1
<PAGE>
GENERAL INFORMATION AND HISTORY
The Lou Holland Trust (the "Trust") was organized as a Delaware business trust
on December 20, 1995 and is registered with the Securities and Exchange
Commission ("SEC") as a no-load, open-end diversified management investment
company, commonly known as a "mutual fund." The Trust is organized as a series
company and currently consists of one series, the Growth Fund. In the future,
the Trust may establish additional series.
The Growth Fund is a separate investment portfolio with a distinct investment
objective, investment programs, policies, and restrictions. The Fund is managed
by Holland Capital Management (the "Investment Manager"), which directs the
day-to-day operations of the Fund. The Investment Manager also provides
administrative services to the Trust. HCM Investments, Inc. (the "Distributor"),
an affiliate of the Investment Manager, serves as distributor for the shares of
the Fund.
The Trust bears all expenses of its operation, other than those assumed by the
Investment Manager. Such expenses include payment for distribution services,
transfer agent services, accounting services, certain administrative services,
legal fees, and payment of taxes. In addition, the expense of organizing the
Trust and registering and qualifying its initial shares under federal and state
securities laws will be charged to the Trust's operations, as an expense, and
amortized over a period not to exceed five years.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions apply to the Growth Fund and
may be changed only by approval of the Fund's shareholders. Except with respect
to borrowing money, as described in (2) below, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in that
percentage amount resulting from any change in value of the portfolio securities
or the Fund's net assets will not result in a violation of such investment
restriction.
The Growth Fund will not:
(1) Margin and Short Sales: Purchase securities on margin or sell securities
short, except that the Growth Fund may make margin deposits in connection with
permissible options and futures transactions subject to (5) and (8) below, may
make short sales against the box and may obtain short-term credits as may be
necessary for clearance of transactions;
(2) Senior Securities and Borrowing: Issue any class of securities senior to any
other class of securities, although the Growth Fund may borrow from a bank for
temporary, extraordinary or emergency purposes or through the use of reverse
repurchase agreements. The Fund may borrow up to 15% of the value of its total
assets in order to meet redemption requests. No securities will be purchased
when borrowed money exceeds 5% of the Fund's total assets. The Fund may enter
into futures contracts subject to (5) below;
(3) Real Estate: Purchase or sell real estate, or invest in real estate limited
partnerships, except the Growth Fund may, as appropriate and consistent with its
investment objective, investment programs, policies and other investment
restrictions, buy securities of issuers that engage in real estate operations
and securities that are secured by interests in real estate (including shares of
real estate mortgage investment conduits, mortgage pass-through securities,
mortgage-backed securities and collateralized mortgage obligations) and may hold
and sell real estate acquired as a result of ownership of such securities;
(4) Control of Portfolio Companies: Invest in portfolio companies for the
purpose of acquiring or exercising control of such companies;
(5) Commodities: Purchase or sell commodities and invest in commodities futures
contracts, except that the Growth Fund may enter into futures contracts and
options thereon where, as a result thereof, no more than 5% of the total assets
for the Fund (taken at market value at the time of entering into the futures
contracts) would be committed to margin deposits on such futures contracts and
premiums paid for unexpired options on such futures contracts; provided that, in
the case of an option that is "in-the-money" at the time of purchase, the
"in-the-money" amount, as defined under Commodity Futures Trading Commission
regulations, may be excluded in computing such 5% limit;
(6) Investment Companies: Invest in the securities of other open-end investment
companies, except that the Growth Fund may purchase securities of other open-end
investment companies if immediately thereafter the Fund (i) owns no more than 3%
of the total outstanding voting securities of any one investment company and
(ii) invests no more than 10% of its total assets (taken at market value) in the
securities of any one investment company or all other investment companies in
the aggregate;
(7) Underwriting: Underwrite securities issued by other persons, except to the
extent that the Growth Fund may be deemed to be an underwriter, within the
meaning of the 1933 Act, in connection with the purchase of securities directly
from an issuer in accordance with the Fund's investment objective, investment
programs, policies, and restrictions;
B-2
<PAGE>
(8) Options and Spreads: Invest in puts, calls, straddles, spreads or any
combination thereof, except that the Growth Fund may invest in and commit its
assets to writing and purchasing put and call options to the extent permitted by
the Prospectus and this Statement of Additional Information;
(9) Oil and Gas Programs: Invest in interests in oil, gas, or other mineral
exploration or development programs or oil, gas and mineral leases, although
investments may be made in the securities of issuers engaged in any such
businesses;
(10) Ownership of Portfolio Securities by Officers and Trustees: Purchase or
retain the securities of any issuer if the officers and Trustees or the
Investment Manager individually own more than 1/2 of 1% of the securities of
such issuer or collectively own more than 5% of the securities of such issuer;
(11) Loans: Make loans, except that the Growth Fund in accordance with its
investment objective, investment program, policies, and restrictions may: (i)
invest in a portion of an issue of publicly issued or privately placed bonds,
debentures, notes, and other debt securities for investment purposes; (ii)
purchase money market securities and enter into repurchase agreements, provided
such repurchase agreements are fully collateralized and marked to market daily;
and (iii) lend its portfolio securities in an amount not exceeding one-third the
value of the Fund's total assets;
(12) Unseasoned Issuers: Invest more than 5% of its total assets in securities
of issuers, including their predecessors and unconditional guarantors, which, at
the time of purchase, have been in operation for less than three years, other
than obligations issued or guaranteed by the U.S. Government, its agencies, and
instrumentalities;
(13) Restricted Securities, Illiquid Securities and Securities Not Readily
Marketable: Knowingly purchase or otherwise acquire any security or invest in a
repurchase agreement maturing in more than seven days, if as a result, more than
15% of the net assets of the Growth Fund would be invested in securities that
are illiquid or not readily marketable, including repurchase agreements maturing
in more than seven days and non-negotiable fixed time deposits with maturities
over seven days. The Fund may invest without limitation in restricted securities
provided such securities are considered to be liquid;
(14) Mortgaging: Mortgage, pledge, or hypothecate in any other manner, or
transfer as security for indebtedness any security owned by the Growth Fund,
except as may be necessary in connection with (i) permissible borrowings (in
which event such mortgaging, pledging, and hypothecating may not exceed 15% of
the Fund's total assets in order to secure such borrowings) and (ii) the use of
options and futures contracts;
(15) Diversification: Make an investment unless 75% of the value of the Growth
Fund's total assets is represented by cash, cash items, U.S. Government
securities, securities of other investment companies and other securities. For
purposes of this restriction, the purchase of "other securities" is limited so
that no more than 5% of the value of the Fund's total assets would be invested
in any one issuer. As a matter of operating policy, the Fund will not consider
repurchase agreements to be subject to the above-stated 5% limitation if all the
collateral underlying the repurchase agreements are U.S. Government securities
and such repurchase agreements are fully collateralized; or
(16) Concentration: Invest 25% or more of the value of its total assets in any
one industry, except that the Growth Fund may invest 25% or more of the value of
its total assets in cash or cash items, securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities or instruments secured by
these money market instruments, such as repurchase agreements.
DESCRIPTION OF CERTAIN INVESTMENTS AND POLICIES
The following is a description of certain types of investments which may be made
by the Growth Fund and of certain investment policies that may be followed by
the Fund.
Money Market Instruments
The Growth Fund may invest in high-quality money market instruments in order to
enable it to: (i) take advantage of buying opportunities; (ii) meet redemption
requests or ongoing expenses; or (iii) take defensive action as necessary, or
for other temporary purposes. The money market instruments that may be used by
the Fund include:
U.S. Government Obligations: These consist of various types of marketable
securities issued by the U.S. Treasury, i.e., bills, notes and bonds. Such
securities are direct obligations of the U.S. Government and differ mainly
in the length of their maturity. Treasury bills, the most frequently
issued marketable Government security, have a maturity of up to one year
and are issued on a discount basis.
B-3
<PAGE>
U.S. Government Agency Securities: These consist of debt securities issued
by agencies and instrumentalities of the U.S. Government, including the
various types of instruments currently outstanding or which may be offered
in the future. Agencies include, among others, the Federal Housing
Administration, Government National Mortgage Association ("GNMA"),
Farmer's Home Administration, Export-Import Bank of the United States,
Maritime Administration, and General Services Administration.
Instrumentalities include, for example, each of the Federal Home Loan
Banks, the National Bank for Cooperatives, the Federal Home Loan Mortgage
Corporation (FHLMC"), the Farm Credit Banks, the Federal National Mortgage
Association ("FNMA"), and the U.S. Postal Service. These securities are
either: (i) backed by the full faith and credit of the U.S. Government
(e.g., U.S. Treasury Bills); (ii) guaranteed by the U.S. Treasury (e.g.,
GNMA mortgage-backed securities); (iii) supported by the issuing agency's
or instrumentality's right to borrow from the U.S. Treasury (e.g., FNMA
Discount Notes); or (iv) supported only by the issuing agency's or
instrumentality's own credit (e.g., each of the Federal Home Loan Banks).
Bank and Savings and Loan Obligations: These include, among others,
certificates of deposit, bankers' acceptances, and time deposits.
Certificates of deposit generally are short-term, interest-bearing
negotiable certificates issued by commercial banks or savings and loan
associations against funds deposited in the issuing institution. Bankers'
acceptances are time drafts drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction (e.g.,
to finance the import, export, transfer, or storage of goods). With
bankers' acceptances, the borrower is liable for payment as is the bank,
which unconditionally guarantees to pay the draft at its face amount on
the maturity date. Most bankers' acceptances have maturities of six months
or less and are traded in secondary markets prior to maturity. Time
deposits are generally short-term, interest-bearing negotiable obligations
issued by commercial banks against funds deposited in the issuing
institutions. In the case of domestic banks, the Growth Fund will not
invest in any security issued by a commercial bank or a savings and loan
association unless the bank or savings and loan association is a member of
the Federal Deposit Insurance Corporation ("FDIC"), or in the case of
savings and loan associations, insured by the FDIC; provided, however,
that such limitation will not prohibit investments in foreign branches of
domestic banks which meet the foregoing requirements. The Fund will not
invest in time-deposits maturing in more than seven days.
Commercial Paper and Other Short-Term Corporate Debt Instruments: These
include commercial paper (i.e., short-term, unsecured promissory notes
issued by corporations to finance short-term credit needs). Commercial
paper is usually sold on a discount basis and has a maturity at the time
of issuance not exceeding nine months. Also included are non-convertible
corporate debt securities (e.g., bonds and debentures). Corporate debt
securities with a remaining maturity of less than 13 months are liquid
(and tend to become more liquid as their maturities lessen) and are traded
as money market securities. The Growth Fund may purchase corporate debt
securities having no more than 13 months remaining to maturity at the date
of settlement.
Repurchase Agreements: The Growth Fund may invest in repurchase
agreements. A repurchase agreement is an instrument under which the
investor (such as the Fund) acquires ownership of a security (known as the
"underlying security") and the seller (i.e., a bank or primary dealer)
agrees, at the time of the sale, to repurchase the underlying security at
a mutually agreed upon time and price, thereby determining the yield
during the term of the agreement. This results in a fixed rate of return
insulated from market fluctuations during such period, unless the seller
defaults on its repurchase obligations. The underlying securities will
consist of high-quality debt securities and must be determined to present
minimal credit risks. Repurchase agreements are, in effect, collateralized
by such underlying securities, and, during the term of a repurchase
agreement, the seller will be required to mark to market such securities
every business day and to provide such additional collateral as is
necessary to maintain the value of all collateral at a level at least
equal to the repurchase price. Repurchase agreements usually are for short
periods, often under one week, and will not be entered into by the Fund
for a duration of more than seven days if, as a result, more than 15% of
the net asset value of the Fund would be invested in such agreements or
other securities which are not readily marketable.
The Growth Fund will assure that the amount of collateral with respect to
any repurchase agreement is adequate. As with a true extension of credit,
however, there is risk of delay in recovery or the possibility of
inadequacy of the collateral should the seller of the repurchase agreement
fail financially. In addition, the Fund could incur costs in connection
with the disposition of the collateral if the seller were to default. The
Fund will enter into repurchase agreements only with sellers deemed to be
creditworthy by the Board and only when the economic benefit to the Fund
is believed to justify the attendant risks. The Fund has adopted standards
for the sellers with whom they will enter into repurchase agreements. The
Board believes these standards are designed to reasonably assure that such
sellers present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase
agreement. The Fund may enter into repurchase agreements only with member
banks of the Federal Reserve System or primary dealers in U.S. Government
securities.
Securities of Foreign Issuers
As described in the Prospectus, the Growth Fund also may purchase equity and
equity-related securities of foreign issuers. Also as described in the
Prospectus, the Fund may purchase American Depositary Receipts ("ADRs"). ADRs
are U.S. dollar-
B-4
<PAGE>
denominated certificates issued by a U.S. bank or trust company and represent
the right to receive securities of a foreign issuer deposited in a domestic bank
or foreign branch of a U.S. bank and traded on a U.S. exchange or in an
over-the-counter market. Generally, ADRs are in registered form. There are no
fees imposed on the purchase or sale of ADRs when purchased from the issuing
bank or trust company in the initial underwriting, although the issuing bank or
trust company may impose charges for the collection of dividends and the
conversion of ADRs into the underlying securities. Investments in ADRs have
certain advantages over direct investment in the underlying foreign securities
since: (i) ADRs are U.S. dollar-denominated investments that are registered
domestically, easily transferable and for which market quotations are readily
available; and (ii) issuers whose securities are represented by ADRs are subject
to the same auditing, accounting, and financial reporting standards as domestic
issuers.
Investments in foreign securities involve certain risks that are not typically
associated with investing in domestic issuers, including: (i) less publicly
available information about the securities and about the foreign company or
government issuing them; (ii) less comprehensive accounting, auditing, and
financial reporting standards, practices, and requirements; (iii) stock markets
outside the U.S. may be less developed or efficient than those in the U.S. and
government supervision and regulation of those stock markets and brokers and the
issuers in those markets is less comprehensive than that in the U.S.; (iv) the
securities of some foreign issuers may be less liquid and more volatile than
securities of comparable domestic issuers; (v) settlement of transactions with
respect to foreign securities may sometimes be delayed beyond periods customary
in the U.S.; (vi) fixed brokerage commissions on certain foreign stock exchanges
and custodial costs with respect to securities of foreign issuers generally
exceed domestic costs; (vii) with respect to some countries, there is the
possibility of unfavorable changes in investment or exchange control
regulations, expropriation, or confiscatory taxation, taxation at the source of
the income payment or dividend distribution, limitations on the removal of funds
or other assets of the Fund, political or social instability, or diplomatic
developments that could adversely affect U.S. investments in those countries;
and (viii) foreign securities denominated in foreign currencies may be affected
favorably or unfavorably by changes in currency exchange rates and exchange
control regulations and the Fund may incur costs in connection with conversions
between various currencies. Specifically, to facilitate its purchase of
securities denominated in foreign currencies, the Fund may engage in currency
exchange transactions to convert currencies to or from U.S. dollars. The Fund
does not intend to hedge its foreign currency risks and will engage in currency
exchange transactions on a spot (i.e., cash) basis only at the spot rate
prevailing in the foreign exchange market.
Equity Securities
As stated in the Prospectus, the Growth Fund invests primarily in the common
stocks of a diversified group of companies that have (i) demonstrated historical
growth of earnings faster than the general market, (ii) earnings growth
stability, (iii) a return on equity higher than the general market, and (iv)
whose dividend growth is typically greater than that of the market.
Convertible Securities
Convertible securities may be converted at either a stated price or stated rate
into underlying shares of common stock. Convertible securities have
characteristics similar to both fixed-income and equity securities. Convertible
securities generally are subordinated to other similar but non-convertible
securities of the same issuer, although convertible bonds, as corporate debt
obligations, enjoy seniority in right of payment to all equity securities, and
convertible preferred stock is senior to common stock of the same issuer.
Because of the subordination feature, however, convertible securities typically
have lower ratings than similar non-convertible securities.
Although to a lesser extent than with fixed-income securities, the market value
of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stock. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
Convertible securities are investments that provide for a stable stream of
income with generally higher yields than common stocks. There can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. A convertible security, in addition to
providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices fluctuate. Convertible
securities, however, generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital appreciation.
Options and Futures Contracts
The Growth Fund may write covered call options, buy put options, buy call
options and write put options, without limitation except as noted in this
paragraph and in the Fund's investment restrictions set forth in this Statement
of Additional Information. Such options may relate to particular securities or
to various indexes and may or may not be listed on a national securities
exchange and
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<PAGE>
issued by the Options Clearing Corporation. The Fund may also invest in futures
contracts and options on futures contracts (index futures contracts or interest
rate futures contracts, as applicable) for hedging purposes or for other
purposes so long as aggregate initial margins and premiums required for
non-hedging positions do not exceed 5% of its net assets, after taking into
account any unrealized profits and losses on any such contracts it has entered
into. However, the Fund may not write put options or purchase or sell futures
contracts or options on futures contracts to hedge more than its total assets
unless immediately after any such transaction the aggregate amount of premiums
paid for put options and the amount of margin deposits on its existing futures
positions do not exceed 5% of its total assets.
Options trading is a highly specialized activity which entails greater than
ordinary investment risks. A call option for a particular security gives the
purchaser of the option the right to buy, and a writer the obligation to sell,
the underlying security at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price of the security. The
premium paid to the writer is in consideration for undertaking the obligations
under the option contract. A put option for a particular security gives the
purchaser the right to sell the underlying security at the stated exercise price
at any time prior to the expiration date of the option, regardless of the market
price of the security. In contrast to an option on a particular security, an
option on an index provides the holder with the right to make or receive a cash
settlement upon exercise of the option. The amount of this settlement will be
equal to the difference between the closing price of the index at the time of
exercise and the exercise price of the option expressed in dollars, times a
specified multiple.
The Growth Fund may invest in unlisted over-the-counter options only with
broker-dealers deemed creditworthy by the Investment Manager. Closing
transactions in certain options are usually effected directly with the same
broker-dealer that effected the original option transaction. The Fund bears the
risk that the broker-dealer will fail to meet its obligations. There is no
assurance that the Fund will be able to close an unlisted or listed option
position. Furthermore, unlisted options are not subject to the protections
afforded purchasers of listed options by the Options Clearing Corporation, which
performs the obligations of its members who fail to do so in connection with the
purchase or sale of options.
To enter into a futures contract, the Growth Fund must make a deposit of an
initial margin with its custodian in a segregated account in the name of its
futures broker. Subsequent payments to or from the broker, called variation
margin, will be made on a daily basis as the price of the underlying security or
index fluctuates, making the long and short positions in the futures contracts
more or less valuable.
The risks related to the use of options and futures contracts include: (i) the
correlation between movements in the market price of a portfolio's investments
(held or intended for purchase) being hedged and in the price of the futures
contract or option may be imperfect; (ii) possible lack of a liquid secondary
market for closing out options or futures positions; (iii) the need for
additional portfolio management skills and techniques; and (iv) losses due to
unanticipated market movements.
Successful use of options and futures by the Growth Fund is subject to the
Investment Manager's ability to correctly predict movements in the direction of
the market. For example, if the Fund uses future contracts as a hedge against
the possibility of a decline in the market adversely affecting securities held
by it and securities prices increase instead, the Fund will lose part or all of
the benefit of the increased value of its securities which it has hedged because
it will have approximately equal offsetting losses in its futures positions. The
risk of loss in trading futures contracts in some strategies can be substantial,
due both to the low margin deposits required, and the extremely high degree of
leverage involved in future pricing. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss or
gain to the investor. Thus, a purchase or sale of a futures contract may result
in losses or gains in excess of the amount invested in the contract.
Illiquid Securities
The Growth Fund will not invest more than 15% of its net assets in illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not deemed illiquid for purposes of this
limitation. The Investment Manager will monitor the liquidity of such restricted
securities under the supervision of the Board.
The Growth Fund may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 (the "1933 Act"). Commercial paper is restricted as to disposition under
federal securities law, and is generally sold to institutional investors, such
as the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the purchaser
must be in an exempt transaction. Commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in commercial paper, thus
providing liquidity. The Fund believes that commercial paper and possible
certain other restricted securities which meet the criteria for liquidity
established by the Board, as contemplated by SEC Rule 144A, are quite liquid.
The Fund intends, therefore, to treat the restricted securities which meet the
criteria for liquidity established by the Board, including commercial paper, as
determined by the Investment Manager, as liquid and not subject to the
investment limitations applicable to illiquid securities.
B-6
<PAGE>
Rule 144A adopted by the SEC allows for a broader institutional trading market
for securities otherwise subject to a restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. The Investment Manager anticipates that the market for certain
restricted securities such as institutional commercial paper may expand further
as a result of this regulation and use of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the NASDAQ Stock Market, Inc.
Warrants
The Growth Fund may invest in warrants, which are certificates that give the
holder the right to buy a specific number of shares of a company's stock at a
stipulated price within a certain time limit (generally, two or more years).
Because a warrant does not carry with it the right to dividends or voting rights
with respect to the securities which it entitles a holder to purchase, and
because it does not represent any rights in the assets of the issuer, warrants
may be considered more speculative than certain other types of investments.
Also, the value of a warrant does not necessarily change with the value of the
underlying securities, and a warrant ceases to have value if it is not exercised
prior to its expiration date.
When-Issued Securities
The Growth Fund may utilize up to 5% of its total assets to purchase securities
on a "when-issued" basis, which normally settle within 30 to 45 days. The Fund
will enter into a when-issued transaction for the purpose of acquiring portfolio
securities and not for the purpose of leverage, but may sell the securities
before the settlement date if the Investment Manager deems it advantageous to do
so. The payment obligation and the interest rate that will be received on
when-issued securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities purchased or sold on
a when-issued basis, the yields obtained may be higher or lower than the yields
available in the market on the dates when the investments are actually delivered
to the buyers. When the Fund agrees to purchase when-issued securities, its
custodian will set aside in a segregated account cash, U.S. government
securities or other liquid high-grade debt obligations or other liquid
securities that are acceptable as collateral to the appropriate regulatory
authority equal to the amount of the commitment. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case the Fund may be required subsequently to place additional assets in the
segregated account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. It may be expected that the Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
the Fund engages in when-issued transactions, it relies on the other party to
consummate the trade. Failure of the seller to do so may result in the Fund's
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.
Other Investment Companies
The Growth Fund may also invest up to 10% of its total assets in the securities
of other investment companies, including closed-end investment companies, in
accordance with Section 12(d)(1)(A) of the 1940 Act. Such investment in other
investment companies will take into consideration the operating expenses and
fees of these companies, including advisory fees, as such expenses may reduce
investment return.
Lending of Portfolio Securities
In order to generate income, the Growth Fund may lend portfolio securities on a
short-term or a long-term basis, up to one-third of the value of its total
assets to broker-dealers, banks, or other institutional borrowers of securities.
Since this technique may be considered a form of leverage, the Fund will only
enter into loan arrangements with broker-dealers, banks, or other institutions
which the Investment Manager for the Fund has determined are creditworthy under
guidelines established by the Trustees, and will receive collateral in the form
of cash (which may be invested in accordance with the Fund's investment program)
or U.S. Government securities, equal to at least 100% of the value of the
securities loaned at all times. The Fund will continue to receive the equivalent
of the interest or dividends paid by the issuer of the securities lent. The Fund
may also receive interest on the investment of the collateral or a fee from the
borrower as compensation for the loan. The Fund will retain the right to call,
upon notice, the securities lent. The principal risk is the potential insolvency
of the broker-dealer or other borrower. As a result there may be delays in
recovery, or even loss of rights in the collateral should the borrower fail
financially. The Investment Manager reviews the creditworthiness of the entities
to which loans are made to evaluate those risks.
Certain Policies to Reduce Risk
The Growth Fund has adopted certain fundamental investment policies in managing
its portfolio that are designed to maintain the portfolio's diversity and reduce
risk. The Fund will (i) not purchase the securities of any company if, as a
result, the Fund's holdings of that issue would amount to more than 5% of the
value of the Fund's total assets, or more than 25% of the value of total assets
would be invested in any one industry; and (ii) not borrow money except for
temporary purposes and then only in amounts not exceeding 15% of the value of
its total assets. The Fund will not borrow in order to increase income, but only
to facilitate redemption requests that might otherwise require untimely
disposition of portfolio securities. If the Fund borrows money, its share price
may be subject to greater fluctuation until the borrowing is paid off.
Limitation (i) does not apply to obligations issued or
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<PAGE>
guaranteed by the U.S. Government, its agencies, and instrumentalities or
instruments secured by such obligations such as repurchase agreements, or to
cash or cash items. These investment policies are fundamental and may be changed
for the Fund only by approval of the Fund's shareholders.
If the Fund makes additional investments while borrowings are outstanding, this
may be considered a form of leverage. The 1940 Act requires the Fund to maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed. If the 300%
asset coverage should decline as a result of market fluctuations or other
reasons, the Fund may be required to sell some of its portfolio holdings within
three days to reduce its borrowings and restore the 300% asset coverage, even
though it may be disadvantageous from an investment standpoint to sell
securities at that time. To avoid the potential leveraging effects of the Fund's
borrowings, additional investments will not be made while borrowings are in
excess of 5% of the Fund's total assets.
In addition, it is a fundamental investment policy that the Growth Fund may
invest only up to 20% of its total assets in securities of foreign issuers. The
Fund adheres to certain other fundamental investment policies which are set
forth in this Statement of Additional Information.
These fundamental investment policies may be changed only with the consent of a
"majority of the outstanding voting securities" of the Growth Fund. As used in
this Prospectus and Statement of Additional Information, the term "majority of
the outstanding voting shares" means the lesser of (i) 67% of the shares of the
Fund present at a meeting where the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Fund.
MANAGEMENT OF THE TRUST
Board of Trustees
The management of the Trust's business and affairs is the responsibility of its
Board of Trustees. Although the Board is not involved in the day-to-day
operations of the Trust, the Board has the responsibility for establishing broad
operating policies and supervising the overall performance of the Trust.
Trustees and Officers
The Trustees and officers of the Trust, together with information as to their
principal business occupations during the last five years, are shown below. Any
Trustee who is considered an "interested person" of the Trust (as defined in
Section 2 (a) (19) of the 1940 Act) is indicated by an asterisk next to his or
her name. The address for all interested persons, unless otherwise indicated, is
35 West Wacker Drive, Suite 3260, Chicago, Illinois 60601:
Position with the Trust and
Principal Occupation During the
Name Age Past Five Years
*Louis A. Holland 57 President, Trustee and Chairman of the
Board of Trustees. Managing Partner and
Chief Investment officer of Holland
Capital Management, L.P. President,
Treasurer and Director, HCM Investments,
Inc.
*Monica L. Walker 40 Secretary and Trustee. Portfolio
Manager, Holland Capital Management,
L.P.; Vice President, HCM Investments,
Inc.
*Laura J. Janus 51 Treasurer. Portfolio Manager, Holland
Capital Management, L.P.; Vice President,
HCM Investments, Inc.
Lester H. McKeever, Jr. 64 Trustee. Managing Partner, Washington,
6700 S. Oglesby Ave. Pittman & McKeever, Certified Public
Chicago, IL 60649-1301 Accountants & Management Consultants.
Kenneth R. Meyer 54 Trustee. President and Managing
1012 Westhoor Rd. Director, Lincoln Capital Management Co.
Winnetka, IL 60093-1840
John D. Mabie 66 Trustee. President, Mid-Continent Capital.
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<PAGE>
55 W. Monroe St.
Suite 3560
Chicago, IL 60603-5011
Of the persons listed in the table above, the following describes any position
held with any affiliated persons or principal underwriters of registrant: Louis
A. Holland is Managing Partner and Chief Investment Officer of the Investment
Manager and President, Treasurer and Director of the Distributor; Monica L.
Walker and Laura J. Janus each are a Vice President of the Distributor and a
partner of, and member of the Investment Policy Committee of, the Investment
Manager.
The following table describes the compensation provided by the Trust for the
fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Retirement Estimated Benefits Total Compensation
Position Compensation from Benefits Accrued as Part Upon Retirement from The Trust
The Trust * of Trust Expenses Paid to Trustees
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lester H. McKeever,
Trustee and Member of $0 0 0 $0
Audit Committee
- -------------------------------------------------------------------------------------------------------------------------
Kenneth R. Meyer,
Trustee and Member of $0 0 0 $0
Audit Committee
- -------------------------------------------------------------------------------------------------------------------------
John D. Mabie,
Trustee and Member of $0 0 0 $0
Audit Committee
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Each Trustee listed in the table has voluntarily agreed to waive the receipt of
fees for services as a Trustee to the Trust for the fiscal year ended December
31, 1998.
Trustees who are interested persons of the Trust, as that term is defined by the
1940 Act, do not receive compensation from the Trust. In the absence of the
voluntary waiver of fees, each Trustee who is not an interested person of the
Trust is expected to receive $2,100 for services as a Trustee for the fiscal
year ending December 31, 1999.
COMMITTEES OF THE BOARD OF TRUSTEES
The Board has an Audit Committee and an Executive Committee. The duties of these
two committees and their present membership are as follows:
Audit Committee: The members of the Audit Committee will consult with the
Trust's independent public accountants if the accountants deem it desirable, and
will meet with the Trust's independent public accountants at least once annually
to discuss the scope and results of the annual audit of the Growth Fund and such
other matters as the Audit Committee members may deem appropriate or desirable.
Lester H. McKeever, Jr., Kenneth R. Meyer and John D. Mabie are the members of
the Audit Committee.
Executive Committee: During intervals between meetings of the Board, the
Executive Committee possesses and may exercise all of the powers of the Board in
the management of the Trust except as to matters where action of the full Board
is specifically required. Included within the scope of such powers are matters
relating to valuation of securities held in the Growth Fund's portfolio and the
pricing of the Fund's shares for purchase and redemption. Louis A. Holland and
Monica L. Walker are the members of the Executive Committee.
PRINCIPAL HOLDERS OF SECURITIES
The names, addresses, and percentages of ownership of each person who owns of
record or beneficially five percent or more of the Growth Fund's shares as of
March 31, 1999 are listed below:
Name Address Percentage
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<PAGE>
Robert Fred Heft 2 Oakbrook Club Drive 8.39%
Apt C307
Hinsdale, Il 60523-1333
Great West Life Recordkeeper 8515 E. Orchard Rd 7.99%
Chicago Park District Def Comp Englewood, Co 80111-5002
Trust FBO Chicago Park
Distirct 457
Lee Seidler & Lynn Seidler 5001 Joewood Dr 7.56%
Jt Ten Sanibel Fl 33957-7512
Firstar Trust Company Cust 270 Euclid Ave 6.46%
Thomas A. Silberman IRA Rollover Winnetka, Il 60093-3605
Tia Lamarre Duppler 9 Woodbury Ct 6.06%
Appleton, WI 54915-7111
As of March 31, 1999, Trustees and officers of the Trust, as a group, owned
5.35% of the Growth Fund's outstanding voting securities.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Investment Manager
Holland Capital Management, 35 West Wacker Drive, Suite 3260, Chicago, Illinois
60601, serves as Investment Manager of the Trust pursuant to an Investment
Management and Administration Agreement that has been approved by the Board,
including a majority of independent Trustees.
The controlling persons of the Investment Manager are: Holland Capital
Management, Inc., the General Partner of the Investment Manager; Louis A.
Holland, Managing Partner and Chief Investment Officer of the Investment
Manager; and Catherine E. Lavery, Chief Accounting Officer, Secretary and
Director of Holland Capital Management, Inc.
Investment management fees are paid to the Investment Manager monthly at the
following annualized rates based on a percentage of the average daily net asset
value of the Growth Fund: 0.85% of average daily net assets up to $500 million,
0.75% of average daily net assets up to the next $500 million, and 0.65% of
average daily net assets in excess of $1 billion. For the period April 29, 1996
(commencement of operations) through December 31, 1996 and for the years ended
December 31, 1997 and 1998, no management fees were paid to the Investment
Manager by the Growth Fund. The Investment Manager has contractually agreed to
waive its management fee and/or reimburse expenses in an amount that operates to
limit total annual operating expenses to not more than 1.35% of the Growth
Fund's average daily net assets.
In addition to the duties set forth in the Prospectus, the Investment Manager,
in furtherance of such duties and responsibilities, is authorized in its
discretion to engage in the following activities: (i) buy, sell, exchange,
convert, lend, or otherwise trade in portfolio securities and other assets; (ii)
place orders and negotiate the commissions (if any) for the execution of
transactions in securities with or through broker-dealers, underwriters, or
issuers; (iii) prepare and supervise the preparation of shareholder reports and
other shareholder communications; and (iv) obtain and evaluate business and
financial information in connection with the exercise of its duties.
The Investment Manager will also furnish to or place at the disposal of the
Trust such information and reports as requested by or as the Investment Manager
believes would be helpful to the Trust. The Investment Manager has agreed to
permit individuals who are among its officers or employees to serve as Trustees,
officers, and members of any committee or advisory board of the Trust without
cost to the Trust. The Investment Manager has agreed to pay all salaries,
expenses, and fees of any Trustees or officers of the Trust who are affiliated
with the Investment Manager.
In its administration of the Trust, the Investment Manager is responsible for:
(i) maintaining the Trust's books and records; (ii) overseeing the Trust's
insurance relationships; (iii) preparing or assisting in the preparation of all
required tax returns, proxy statements and reports to the Trust's shareholders
and Trustees and reports to and filings with the SEC and any other governmental
agency; (iv) preparing such applications and reports as may be necessary to
register or maintain the registration of the Trust's shares under applicable
state securities laws; (v) responding to all inquiries or other communications
of shareholders which are directed to the Investment Manager; and (vi)
overseeing all relationships between the Trust and its agents.
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<PAGE>
The Distributor and Distribution Services
The Distributor serves as the principal underwriter of the shares of the Growth
Fund pursuant to a Distribution Agreement between the Distributor and the Trust.
The Distributor is a Delaware corporation whose principal place of business is
35 West Wacker Drive, Suite 3260, Chicago, Illinois 60601. The Distributor is an
affiliate of the Investment Manager, as both the Distributor and the Investment
Manager are controlled by Louis A. Holland.
The Fund's shares are sold on a no-load basis and, therefore, the Distributor
receives no sales commission or sales load for providing such services. The
Trust has not currently entered into any plan or agreement for the payment of
fees pursuant to Rule 12b-1 under the 1940 Act, but reserves the right to do so
with respect to the Growth Fund, any future series of shares or any future
classes of shares of any series. No compensation was paid to the Distributor for
distribution services for the year ended December 31, 1998.
Custodian, Transfer Agent and Dividend Disbursing Agent
Pursuant to written agreements between it and Firstar Trust Company ("Firstar"),
Firstar will serve as custodian, transfer agent and dividend disbursing agent
for the Trust. Firstar also will provide fund accounting, administrative,
recordkeeping, tax related and other reporting services for the Trust. The
principal business address of Firstar is 615 East Michigan Street, Post Office
Box 701, Milwaukee, Wisconsin 53201-0701.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Subject to the general supervision of the Board, the Investment Manager is
responsible for making decisions with respect to the purchase and sale of
portfolio securities on behalf of the Trust, including the selection of
broker-dealers to effect portfolio transactions, the negotiation of commissions,
and the allocation of principal business and portfolio brokerage.
The purchase of any money market instruments and any other debt securities
traded in the over-the-counter market usually will be on a principal basis
directly from issuers or dealers serving as primary market makers. The price of
such money market instruments and debt securities is usually negotiated, on a
net basis, and no brokerage commissions are paid. Although no stated commissions
are paid for securities traded in the over-the-counter market, transactions in
such securities with dealers usually include the dealer's "mark-up" or
"mark-down." Money market instruments and other debt securities may also be
purchased in underwriting offerings, which include a fixed amount of
compensation to the underwriter, generally referred to as the underwriting
discount or concession.
In selecting brokers and dealers to execute transactions for the Growth Fund,
the primary consideration is to seek to obtain the best execution of the
transactions, at the most favorable overall price, and in the most effective
manner possible, considering all the circumstances. Such circumstances include:
the price of the security; the rate of the commission or broker-dealer's
"spread;" the size and difficulty of the order; the reliability, integrity,
financial condition, general execution and operational capabilities of competing
broker-dealers; and the value of research and other services provided by the
broker-dealer. The Investment Manager may also rank broker-dealers based on the
value of their research services and may use this ranking as one factor in its
selection of broker-dealers. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and subject to the policy of
seeking the best price and execution as state above, sales of shares of the Fund
by a broker-dealer may be considered by the Investment Manager in the selection
of broker-dealers to execute portfolio transactions for the Fund.
Under no circumstances will the Trust deal with the Investment Manager or its
affiliates in any transaction in which the Investment Manager or its affiliates
act as a principal.
In placing orders for the Trust, the Investment Manager, subject to seeking best
execution, is authorized to cause the Trust to pay broker-dealers that furnish
brokerage and research services (as such services are defined under section
28(e) of the Securities Exchange Act of 1934, as amended (the "1934 Act") a
higher commission than that which might be charged by another broker-dealer that
does not furnish such brokerage and research services or who furnishes services
of lesser value. However, such higher commissions must be deemed by the
Investment Manager as reasonable in relation to the brokerage and research
services provided by the broker-dealer, viewed in terms of either that
particular transaction or the overall decision-making responsibilities of the
Investment Manager with respect to the Trust or other accounts, as to which it
exercises investment discretion (as such term is defined under Section 3(a)(35)
of the 1934 Act).
The Investment Manager currently provides investment advice to other entities
and advisory accounts that have investment programs and an investment objective
similar to the Growth Fund. Accordingly, occasions may arise when the Investment
Manager may engage in simultaneous purchase and sale transactions of securities
that are consistent with the investment objective and programs of the Fund, and
other accounts. On those occasions, the Investment Manager will allocate
purchase and sale transactions in an equitable manner according to written
procedures approved by the Board. Specifically, such written procedures provide
that, in allocating purchase and sale transactions made on a combined basis, the
Investment Manager will seek to achieve
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<PAGE>
the same average unit price of securities for each entity and will seek to
allocate, as nearly as practicable, such transactions on a pro-rata basis
substantially in proportion to the amounts ordered to be purchased or sold by
each entity. Such procedures may, in certain instances, be either advantageous
or disadvantageous to the Fund.
It is expected that the Distributor, a registered broker-dealer, may act as
broker for the Growth Fund, in conformity with the securities laws and rules
thereunder. The Distributor is an affiliated person of the Investment Manager.
In order for the Distributor to effect any portfolio transactions for the Fund
on an exchange or board of trade, the commissions received by the Distributor
must be reasonable and fair compared to the commission paid to other brokers in
connection with comparable transactions involving similar securities or futures
being purchased or sold on an exchange or board of trade during a comparable
period of time. This standard would allow the Distributor to receive no more
than the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arm's-length transaction. The Board will approve
procedures for evaluating the reasonableness of commissions paid to the
Distributor and periodically will review these procedures. The Distributor will
not act as principal in effecting any portfolio transactions for the Fund.
For the period April 29, 1996 through December 31, 1996 and the years ended
December 31, 1997 and 1998, total brokerage commissions paid by the Growth Fund
were $2,773, $4,508, and $4,805, respectively. No brokerage commissions were
paid to the Distributor.
PURCHASE AND REDEMPTION OF SECURITIES BEING OFFERED
The shares of the Growth Fund are offered to the public for purchase directly
through the Distributor. The offering and redemption price of the shares of the
Fund are based upon the Fund's net asset value per share next determined after a
purchase order or redemption request has been received in good order by the
Fund. See "Determination of Net Asset Value" below. The Trust intends to pay all
redemptions of the shares of the Fund in cash. However, the Trust may make full
or partial payment of any redemption request by the payment to shareholders of
portfolio securities (i.e., by redemption-in-kind), at the value of such
securities used in determining the redemption price. The Trust, nevertheless,
pursuant to Rule 18f-1 under the 1940 Act, will file a notification of election
under which the Fund will be committed to pay in cash to any shareholder of
record of the Fund, all such shareholder's requests for redemption made during
any 90-day period, up to the lesser of $250,000 or 1% of the Fund's net asset
value at the beginning of such period. The securities to be paid in-kind to any
shareholders will be readily marketable securities selected in such manner as
the Board deems fair and equitable. If shareholders were to receive
redemptions-in-kind, they would incur brokerage costs should they wish to
liquidate the portfolio securities received in such payment of their redemption
request. The Trust does not anticipate making redemptions-in-kind.
The right to redeem shares or to receive payment with respect to any redemption
of shares of the Growth Fund may only be suspended (i) for any period during
which trading on the New York Stock Exchange ("Exchange") is restricted or such
Exchange is closed, other than customary weekend and holiday closings, (ii) for
any period during which an emergency exists as a result of which disposal of
securities or determination of the net asset value of the Fund is not reasonably
practicable, or (iii) for such other periods as the SEC may by order permit for
protection of shareholders of the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of the Growth Fund is normally calculated as of
the close of trading on the Exchange on every day the Exchange is open for
trading. The Exchange is open Monday through Friday except on national holidays.
The assets of the Growth Fund are valued as follows:
Equity assets are valued based on market quotations, or if market quotations are
not available, by a method that the Board believes accurately reflects fair
value.
All money market instruments held by the Growth Fund are valued on an amortized
cost basis. Amortized cost valuation involves initially valuing a security at
its cost, and thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the security. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the security.
Short-term debt instruments with a remaining maturity of more than 60 days,
intermediate and long-term bonds, convertible bonds, and other debt securities
are generally valued at prices obtained from an independent pricing service.
Where such prices are not available, valuations will be obtained from brokers
who are market makers for such securities. However, in circumstances where the
Investment Manager deems it appropriate to do so, the mean of the bid and asked
prices for over-the-counter securities or the last available sale price for
exchange-traded debt securities may be used. Where no last sale price for
exchange traded debt securities is available, the mean of the bid and asked
prices may be used.
B-12
<PAGE>
Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided, as described above, are
valued in good faith by the Board using its best judgment.
TAXES
The Trust intends to continue to qualify as a "regulated investment company"
("RIC") under Subchapter M of the Code. As such, it will not be subject to
federal income tax on any income and capital gains distributed to its
shareholders. Under Subchapter M of the Code, the Trust must satisfy certain
requirements regarding the character of investments in the Trust, investment
diversification, and distribution.
In general, to qualify as a RIC, at least 90% of the gross income of the Trust
for the taxable year must be derived from dividends, interest, and gains from
the sale or other disposition of securities.
A RIC must distribute to its shareholders 90% of its ordinary income and net
short-term capital gains. Moreover, undistributed net income may be subject to
tax at the RIC level.
In addition, the Trust must declare and distribute dividends equal to at least
98% of its ordinary income (as of the twelve months ended December 31) and
distributions of at least 98% of its capital gains net income (as of the twelve
months ended October 31), in order to avoid a federal excise tax. The Trust
intends to make the required distributions, but cannot guarantee that it will do
so. Dividends attributable to the Trust's ordinary income are taxable as such to
shareholders in the year in which they are received.
A corporate shareholder may be entitled to take a deduction for income dividends
received by it that are attributable to dividends received from a domestic
corporation, provided that both the corporate shareholder retains its shares in
the Growth Fund for more than 45 days and the Trust retains its shares in the
issuer from whom it received the income dividends for more than 45 days. A
distribution of capital gains net income reflects the Trust's excess of net
long-term gains over its net short-term losses. The Trust must designate income
dividends and distributions of capital gains net income and must notify
shareholders of these designations within sixty days after the close of the
Trust's taxable year. A corporate shareholder of the Trust cannot use a
dividends-received deduction for distributions of capital gains net income.
If, in any taxable year, the Trust should not qualify as a RIC under the Code:
(i) the Trust would be taxed at normal corporate rates on the entire amount of
its taxable income without deduction for dividends or other distributions to its
shareholders, and (ii) the Trust's distributions to the extent made out of the
Trust's current or accumulated earnings and profits would be taxable to its
shareholders (other than shareholders in tax deferred accounts) as ordinary
dividends (regardless of whether they would otherwise have been considered
capital gains dividends), and may qualify for the deduction for dividends
received by corporations.
If the Trust purchases shares in certain foreign investment entities, called
"passive foreign investment companies" ("PFICs"), the Trust may be subject to
U.S. federal income tax on a portion of any "excess distribution" or gain from
the disposition of the shares even if the income is distributed as a taxable
dividend by the Trust to its shareholders. Additional charges in the nature of
interest may be imposed on either the Trust or its shareholders with respect to
deferred taxes arising from the distributions or gains. If the Trust were to
purchase shares in a PFIC and (if the PFIC made the necessary information
available) elected to treat the PFIC as a "qualified electing fund" under the
Code, in lieu of the foregoing requirements, the Trust might be required to
include in income each year a portion of the ordinary earnings and net capital
gains of the PFIC, even if not distributed to the Trust, and the amounts would
be subject to the 90% and calendar year distribution requirements described
above.
ORGANIZATION OF THE TRUST
Each share of the Growth Fund is entitled to one vote on all matters submitted
to a vote of shareholders of the Fund. Fractional shares, when issued, have the
same rights, proportionately, as full shares. All shares are fully paid and
non-assessable when issued and have no preemptive, conversion or cumulative
voting rights.
As a Delaware business trust entity, the Trust need not hold regular annual
shareholder meetings and, in the normal course, does not expect to hold such
meetings. The Trust, however, must hold shareholder meetings for such purposes
as, for example: (i) electing the initial Board; (ii) approving certain
agreements as required by the 1940 Act; (iii) changing the fundamental
investment objective, policies, and restrictions of the Growth Fund; and (iv)
filling vacancies on the Board in the event that less than a majority of the
Trustees were elected by shareholders. The Trust expects that there will be no
meetings of shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders. At such time, the Trustees then in office will call a
shareholders meeting for the election of the Trustees. In addition, holders of
record of not less than two-thirds of the outstanding shares of the Trust may
remove a Trustee from office by a vote cast in person or by proxy at a
shareholder meeting called for that purpose at the request of holders of 10% or
more of the outstanding shares of the Trust. The Trust has the obligation to
assist in such
B-13
<PAGE>
shareholder communications. Except as set forth above, Trustees will continue in
office and may appoint successor Trustees.
PERFORMANCE INFORMATION ABOUT THE GROWTH FUND
Total Return Calculations
The Growth Fund may provide average annual total return information calculated
according to a formula prescribed by the SEC. According to that formula, average
annual total return figures represent the average annual compounded rate of
return for the stated period. Average annual total return quotations reflect the
percentage change between the beginning value of a static account in the Fund
and the ending value of that account measured by the current net asset value of
the Fund, and assuming that all dividends and capital gains distributions during
the stated period were reinvested in shares of the Fund when paid. Total return
is calculated by finding the average annual compounded rates of return of a
hypothetical investment that would equate the initial amount invested to the
ending redeemable value of such investment, according to the following formula:
T = (ERV/P)1/n - 1
where T equals average annual total return; where ERV, the ending redeemable
value, is the value at the end of the applicable period of a hypothetical $1,000
payment made at the beginning of the applicable period; where P equals a
hypothetical initial payment of $1,000; and where n equals the number of years.
The Growth Fund, from time to time, also may advertise its cumulative total
return figures. Cumulative total return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of the Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in shares of the Fund. Cumulative total return is calculated by
finding the compound rates of a hypothetical investment over such period,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value; ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.
Based on the foregoing, the average annual total return for the Growth Fund for
the year ended December 31, 1998, was 35.75%.
The performance results are based on historical earnings and should not be
considered as representative of the performance of the Fund in the future. Such
performance results also reflect waivers and reimbursements made by the Adviser
during the year ended December 31, 1998, to keep aggregate annual operating
expenses at 1.35% of daily net assets. An investment in the Fund will fluctuate
in value and at redemption, its value may be more or less than the initial
investment.
From time to time, in reports and promotional literature, the performance of the
Growth Fund may be compared to: (i) other mutual funds or groups of mutual funds
tracked by: (A) Lipper Analytical Services, a widely-used independent research
firm which ranks mutual funds by overall performance, investment objectives, and
asset size; (B) Forbes Magazine's Annual Mutual Fund Survey and Mutual Fund
Honor Roll; or (C) other financial or business publications, such as Business
Week, Money Magazine, and Barron's, which provide similar information; (ii) the
Consumer Price Index (measure for inflation), which may be used to assess the
real rate of return from an investment in the Fund; (iii) other Government
statistics such as Gross Domestic Product, and net import and export figures
derived from Governmental publications, e.g., The Survey of Current Business,
which may be used to illustrate investment attributes of the Fund or the general
economic, business, investment, or financial environment in which the Fund
operates; (iv) Alexander Steele's Mutual Fund Expert, a tracking service which
ranks various mutual funds according to their performance; and (v) Morningstar,
Inc. which ranks mutual funds on the basis of historical risk and total return.
Morningstar's rankings are calculated using the mutual fund's average annual
returns for a certain period and a risk factor that reflects the mutual fund's
performance relative to three-month Treasury bill monthly returns. Morningstar's
rankings range from five star (highest) to one star (lowest) and represent
Morningstar's assessment of the historical risk level and total return of a
mutual fund as a weighted average for 3, 5, and 10-year periods. In each
category, Morningstar limits its five star rankings to 10% of the mutual funds
it follows and its four star rankings to 22.5% of the mutual funds it follows.
Rankings are not absolute or necessarily predictive of future performance.
B-14
<PAGE>
The Trust may also illustrate the investment returns of the Growth Fund or
returns in general by graphs and charts that compare, at various points in time,
the return from an investment in the Fund (or returns in general) on a
tax-deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the same return on a taxable basis.
LEGAL MATTERS
Legal advice regarding certain matters relating to the federal securities law
applicable to the offer and sale of the shares described in the Prospectus has
been provided by Jorden Burt Boros Cicchetti Berenson & Johnson, 1025 Thomas
Jefferson Street, N.W., Suite 400 - East Lobby, Washington, DC 20007, which
serves as Special Counsel to the Trust.
INDEPENDENT AUDITORS
The Trust's independent auditors are KPMG LLP, 303 East Wacker Drive, Chicago,
Ilinois, 60601.
Effective December 31, 1997, and ratified by the Board of Trustees on August 27,
1998, Deloitte & Touche LLP was terminated as the Trust's independent auditors.
For the years ended December 31, 1996 through December 31, 1997, Deloitte &
Touche LLP expressed an unqualified opinion on the Growth Fund's Financial
Statements. There were no disagreements between Trust management and Deloitte &
Touche LLP prior to their termination. The Board of Trustees approved the
termination of Deloitte & Touch LLP and the appointment of KPMG LLP as the
Trust's independent auditors
FINANCIAL STATEMENTS
The financial statements and accompanying notes for the years ended December 31,
1998 and 1997 are included in the Growth Fund's Annual Report, which accompanies
this Statement of Additional Information, and are incorporated herein by
reference. The financial statements, including the financial highlights
contained in the prospectus, for the year ended December 31, 1998 have been
audited by KPMG LLP, independent auditors, as stated in their report, and are
included herein in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing. The financial statements for
the year ended December 31, 1997 and the financial highlights contained in the
prospectus for the years ended December 31, 1997 and 1996 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, and are
included herein in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
Shareholders may obtain additional copies of the Annual Report free of charge by
calling 1-800-295-9779.
B-15
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS OF CERTAIN MONEY MARKET SECURITIES
Description of Moody's Investors Service, Inc.'s commercial paper ratings:
Prime-1 (or related institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
1. Leading market positions in well established industries. High rates of return
on funds employed.
2. Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
3. Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
4. Well established access to a range of financial market and assured sources of
alternate liquidity.
Prime-2 (or related supporting institutions) have a strong capacity for
repayment of short term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Description of Standard & Poor's Corporation's commercial paper ratings:
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Description of Fitch Investor's Service, Inc.'s commercial paper ratings:
Fitch-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
Fitch-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Description of Duff & Phelps Inc.'s commercial paper ratings:
Duff 1--High certainty of timely payment. Liquidity factors are excellent and
supported by strong fundamental protection factors. Risk factors are minor.
Duff 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing internal funds needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
B-16
<PAGE>
DESCRIPTION OF CERTAIN CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are not likely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
B-17
<PAGE>
John M. Ganley, Esq.
April 30, 1999
Page 2
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
Suite 400 East
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
(202) 965-8100
April 30, 1999
VIA EDGAR TRANSMISSION
John M. Ganley, Esq.
U. S. Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, N.W.
Washington, DC 20549-0505
Re: Response to the Comments of the Staff on
The Lou Holland Trust (the "Trust")
Post-Effective Amendment No. 4 to the Registration Statement on
Form N-1A
File Nos. 333-0935; 811-7533
Dear Mr. Ganley:
Set forth below is a summary of the Staff's comments relating to the
above-captioned filing, which were orally conveyed to us on April 21, and our
responses thereto.
1. Delete or move the two paragraphs immediately preceding "Investment
Objective" and delete the header "An Overview of the Growth Fund."
Response: The two referenced paragraphs have been moved to immediately
follow the Expense Example and the header "An Overview of the
Growth Fund" has been deleted.
2. Move the reference to the Investment Adviser (which immediately follows
"Investment Objective") to the first paragraph that leads into the
Risk/Return Summary.
Response: The reference to the Investment Adviser has been
moved to the Risk/Return Summary lead-in paragraph.
That paragraph has been revised as follows:
"The following overview of the Growth Fund is a summary of
more important information you should know before investing.
More detailed information about The Lou Holland Trust (the
"Trust"), and the Growth Fund's investment strategies and
risks, and Holland Capital Management, L.P. (the "Investment
Manager"), the Trust's investment adviser, is included
elsewhere in this Prospectus."
<PAGE>
John M. Ganley, Esq.
April 30, 1999
Page 6
As noted above in our response to Comment 1, the two
paragraphs that followed this lead-in paragraph have been
moved to another location in the prospectus.
3. In the Principal Investment Strategies section, describe the size of the
companies in which the Growth Fund invests (e.g., small, mid, and/or large
cap).
Response: The Growth Fund invests in mid- to large-capitalization
companies. The second sentence of the Principal Investment
Strategies section has been revised as follows: "In pursuing
its investment objective, the Growth Fund maintains a
diversified portfolio of equity securities of mid- to large-
capitalization companies that have the following
characteristics:"
4. In the Principal Investment Risks section, delete the second sentence,
which reads: "Generally speaking, the more risk a mutual fund takes on,
the greater the opportunity for higher returns." Registrants are not
permitted to discuss the rewards of investing in the Risk/Return Summary.
Response: The referenced sentence has been deleted.
5. In the Principal Investment Risks section, the prospectus
describes risks associated with the use of derivatives. There is,
however, no disclosure in the Principal Investment Strategies
section regarding the Growth Fund's use of derivatives. Thus,
there appears to be a "disconnect" between principal strategies
and principal risks concerning derivatives. If the use of
derivatives is a principal investment strategy it should be disclosed
as such. If it is not, the Staff recommends removing the derivatives
disclosure from the Principal Investment Risk section.
Response: The use of derivatives does not rise to a "principal
investment strategy" for the Growth Fund. Thus, the disclosure
of the risks associated with the use of those instruments has
been removed from the Principal Investment Risks section.
6. Confirm that the typeface size of the numbers in the Bar Chart will be at
least 10 point in the printed prospectus.
Response: We have confirmed that the typeface sized used in the Bar
Chart will be at least 10 point in the printed prospectus.
7. Confirm that the lowest and highest returns for a calendar quarter will
appear on the same page as the Bar Chart in the printed prospectus.
<PAGE>
Response: We have confirmed that the lowest and highest returns for a
calendar quarter will appear on the same page as the Bar Chart
in the printed prospectus.
8. In the Average Annual Total Return Table, provide a more precise
description of the Russell 1000 Growth Index and the Russell Mid-Cap
Growth Index. Additionally, confirm that the typeface size used in the
Table, for both the numbers and the narratives, will be at least 10 point
in the printed prospectus.
Response: The descriptions of the indices have been revised as follows:
"Russell 1000 Growth Index - An unmanaged index which measures the
performance of a subset of approximately 568 of those Russell 1000
companies (that is, the 1000 largest U.S. companies in terms of
market capitalization) companies 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 439 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."
Additionally, we have confirmed that the typeface size used in the
Table will be at least 10 point in the printed prospectus.
9. In the Fee Table, revise the line item relating to 12b-1 fees
as follows: "Distribution (12b-1) Fees."
Response: The requested change has been made.
10. With respect to fee waivers and expense reimbursements, an expense
limitation agreement that may be terminated at any time by any party
thereto (other than the fund) is not sufficient for purposes of disclosing
net expenses in the fee table and calculating the expense example using
net expenses in accordance with the Staff's position in this connection.1/
The Staff would permit the Trust to rely on the Staff's position if the
Trust's Expense Limitation Agreement provided that the Agreement could be
terminated only by the Trust's Board of Trustees.
<PAGE>
Response: The Trust's Expense Limitation Agreement has been amended to
provide that the Agreement may be terminated only by the
Trust's Board of Trustees. Thus, the fee table discloses net
expenses and the expense example has been calculated using net
expenses. The footnote to the fee table has been revised to
disclose that the Expense Limitation Agreement may be
terminated only be the Trust's Board of Trustees.
11. In the "More Information . . ." section of the prospectus, if
the use of derivatives is not a principal investment strategy for
the Growth Fund, the discussion of those instruments should be
set off from the information that precedes it.
Response: Immediately preceding the discussion of "Options
and Futures Contracts," the following header has been
added: "Other Investment Strategies, Risks and Practices
of the Growth Fund".
12. In the first sentence of "How to Purchase Shares - - Share Price," remove
"and accepted" from the following disclosure: "To make an initial purchase
of the Growth Fund, a completed and signed Application in good order, as
described below, must first be received and accepted." The quoted
disclosure would seem to be inconsistent with the requirements of Rule
22c-1 under the Investment Company Act of 1940.
Response: The requested change has been made.
13. For the reason stated in Comment 12, above, in the first sentence of "How
to Redeem Shares," delete "and acceptance" from the following disclosure:
"Shareholders have the right to redeem . . . next computed following
receipt and acceptance of the redemption request by the Trust."
Response: The requested change has been made and the relevant
disclosure has been revised as follows:
". . . next computed following receipt and
acceptance of the redemption request in proper form
by the Trust."
14. In the section entitled "How the Trust is Managed," provide a sub-heading
for the disclosure concerning portfolios managers.
<PAGE>
Response: A sub-heading "Portfolio Managers" has been added immediately
preceding the portfolio managers paragraph. In addition, the
paragraph that followed the portfolio manager disclosure
(concerning the investment advisory fee and the expense
limitation) has been moved to immediately precede the
"Portfolio Managers" paragraph.
15. In "Year 2000" paragraph, add disclosure to the effect that the Year 2000
problem could affect the issuers of securities held by the Growth Fund.
Response: The requested disclosure has not been added. We are not
aware that this disclosure has been required of other
registrants.
16. Confirm that counsel's consent will be filed as an exhibit to the
registration statement.
Response: We confirm that counsel's consent will be filed as an
exhibit to the registration statement.
* * * * *
In addition to the foregoing changes, we have made certain stylistic and
grammatical changes, all of which will be indicated on a marked copy of
post-effective amendment no. 5 to the Trust's registration statement on Form
N-1A to be filed via EDGAR transmission. But for the requested addition to the
Y2K disclosure, we believe we have been fully responsive to the Staff's comments
and that none of our responses raise additional issues for the Staff's
consideration.
We truly appreciate your continuing attention to this filing. If you
require additional information, please call me at (202) 965-8150 or my colleague
Chris Menconi at (202) 965-8129.
Very truly yours,
/s/ Joan E. Boros
Joan E. Boros
cc: Mr. Louis A. Holland
Christopher D. Menconi, Esq.
F:\CDM\DATA\47262_1
- --------
1/ See Investment Company Institute (pub. avail. Oct. 2, 1998) at Question 6.
