HOLLAND BALANCED FUND
Holland Balanced Fund (the "Fund") is a no-load diversified portfolio
of Holland Series Fund, Inc., an open-end management investment company. The
Fund is designed to provide investors with a convenient and professionally
managed vehicle for seeking a high total investment return. Total investment
return is the aggregate of dividend and interest income and realized and
unrealized capital value changes. The Fund seeks to achieve its objective
through a combined portfolio of equity and investment grade fixed-income
securities. There can be no assurance that the Fund will achieve its investment
objective. See "Risk Factors."
Shares may be purchased directly from AMT Capital Services, Inc. (the
"Distributor"), 600 Fifth Avenue, New York, NY 10020 (800) 30-HOLLAND
[800-304-6552], or from securities dealers which have entered into selected
dealer agreements with the Distributor. The minimum initial purchase is $1,000
and the minimum subsequent purchase is $500. See "Purchase of Shares." A
shareholder may redeem his or her shares at any time at their net asset value.
See "Redemption of Shares."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is a concise statement of information about the Fund
that is relevant to making an investment in the Fund. This Prospectus should be
retained for future reference. A statement containing additional information
about the Fund, dated March 20, 1998 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and
can be obtained, without charge, by calling or by writing the Distributor at the
above telephone number or address. The Statement of Additional Information is
hereby incorporated by reference into this Prospectus.
HOLLAND & COMPANY L.L.C.--INVESTMENT ADVISER
AMT CAPITAL SERVICES, INC.--DISTRIBUTOR
The date of this Prospectus is March 20, 1998
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information.
The Fund and Its Investment Objective
The Fund is a no-load diversified investment portfolio of the Holland
Series Fund, Inc., an open-end management investment company incorporated in
Maryland on June 27, 1995. The Fund is designed to provide investors with a
convenient and professionally managed vehicle for seeking a high total
investment return. Total investment return is the aggregate of dividend and
interest income and realized and unrealized capital value changes. The Fund
seeks to achieve its objective through a combined portfolio of equity and
investment grade fixed-income securities. There can be no assurance that the
Fund will achieve its investment objective. See "Investment Objective and
Policies."
The Investment Adviser
Holland & Company L.L.C. (the "Investment Adviser") serves as the Fund's
investment adviser. For its services as investment adviser, the Fund pays the
Investment Adviser a monthly fee at an annual rate of 0.75% of the Fund's
average daily net assets. While the advisory fee is higher than that paid by
most investment companies (which includes money market funds) the Investment
Adviser believes the advisory fee is comparable to that of other investment
companies with similar investment objectives. See "Management of the Fund."
Purchasing Shares
Shares of the Fund may be purchased without any sales charges at its net
asset value next determined after receipt of the order by submitting an Account
Application to the Distributor and either wiring federal funds to the
Distributor's "Fund Purchase Account" at Unified Advisers, Inc. (the "Transfer
Agent") or mailing a check or money order to the Transfer Agent to be deposited
in such account. Shares may be purchased directly from the Distributor or from
other securities dealers with whom the Distributor has entered into selected
dealer agreements. Investors may be charged a fee if they effect transactions in
fund shares through a broker or agent. The Fund is available for sale in all 50
states. For information about the Fund's availability, contact an account
representative at AMT Capital.
The minimum initial investment is $1,000 although this minimum may be
waived from time to time at the discretion of the Fund. The minimum amount for
subsequent investment is $500 and may be waived from time to time at the
discretion of the Fund. There are no sales commissions (loads) or 12b-1 fees.
For more information, refer to "Purchase of Shares."
Redemption of Shares
Shares of the Fund may be redeemed, without charge, at the next determined
net asset value after receipt by either the Transfer Agent or AMT Capital of the
redemption request. There is no redemption fee. For more information, refer to
"Redemption of Shares."
Dividends and Distributions
The Fund intends to distribute its income
quarterly and capital gains annually. All distributions
are reinvested automatically, unless otherwise specified
in writing by the investor, in shares of the Fund. See
"Additional Information" and "Shareholder Services."
Risk Factors
Prospective Investors should consider certain
risks associated with an investment in the Fund. See
"Risk Factors."
THE FUND'S EXPENSES
The following expense table is provided to assist investors in
understanding the various costs and expenses that an investor will incur, either
directly or indirectly, as a shareholder in the Fund, which are calculated as a
percentage of average daily net assets. These are the only fund related expenses
that an investor bears.
Management fees, after waivers - %
Other expenses (after expense 1.50%
reimbursement)
Total Fund operating expenses 1.50%
(after waiver and reimbursement)
See "Management of the Fund" for a description of fees and expenses. "Other
expenses" includes fees for shareholder services, custodial, administration,
dividend disbursing and transfer agency fees, legal and accounting fees,
printing costs and registration fees. The Investment Adviser has voluntarily
agreed to cap the total annual operating expenses at 1.50% (on an annualized
basis) of the Fund's average daily net assets. Without such cap, management
fees, other expenses and total annual operating expenses for the year ended
September 30, 1997 would be 0.75%, 1.80% and 2.55%, respectively. See
"Management of the Fund."
Example: The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Fund. These amounts are based upon payments by
the Fund of operating expenses set forth in the table above, and are also based
upon the following assumptions:
A shareholder would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
After 1 year $ 15
After 3 years $ 47
After 5 years $ 82
After 10 years $179
This example should not be considered a representation of future expenses and
actual expenses may be greater or less than those shown. Moreover, while the
example assumes a 5% annual return, the Fund's performance will vary and may
result in a return greater or less than 5%.
FINANCIAL HIGHLIGHTS
The financial highlights for the period October 2, 1995 (commencement of
investment operations) through September 30, 1996 and the year ended
September 30, 1997 in the following table has been audited by Price
Waterhouse LLP, independent accountants. The audited financial statements
for the year ended September 30, 1997 are incorporated by reference in the
Statement of Additional Information. The financial highlights should be read
in conjunction with the financial statements which can be obtained upon
request without charge by calling (800) 304-6552.
<TABLE>
<S> <C> <C>
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For the
Period From
For a share outstanding throughout the period Year Ended October 2,1995*
September 30, to September
1997 30, 1996
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Per Share Data
Net asset value, beginning of period $11.39 $10.00
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Increase From Investment Operations:
Investment income, net 0.26 0.23
Net realized and unrealized gain on investments 2.30 1.33
---- ----
Total from investment operations 2.56 1.56
---- ----
Distributions From:
Investment income, net (0.25) (0.17)
Net realized gain on investments (0.00) # -
------
Total Distributions (0.25) (0.17)
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Net asset value, end of period $13.70 $11.39
====== ======
Total Return (c) 22.71% 15.65% (a)
Ratios/Supplemental Data
Net assets, end of period (000's) $26,788 $7,606
Ratio of expenses to average net assets 1.50% 1.50% (b)
Ratio of expenses to average net assets before expense waivers 2.55% 4.81% (b)
and reimbursements of other expenses
Ratio of net investment income, net to average net assets 2.31% 2.36% (b)
Portfolio turnover 5.07% 5.04%
Average commission rate per share $0.05 $0.06
</TABLE>
* Commencement of investment operations
# Rounds to less than .01.
(a) Not annualized
(b) Annualized
(c) Total return would have been lower had certain expenses not been waived
or reimbursed.
(d) Computed by dividing the total amount of brokerage commissions paid on
equity securities by the total number of shares of equity securities
purchased or sold during the period subject to brokerage commissions.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is designed to provide investors with a convenient and
professionally managed vehicle for seeking a high total investment return. This
is a fundamental investment objective and may not be changed without the
affirmative vote of the holders of a majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). Total investment return is the aggregate of dividend and interest
income and realized and unrealized capital value changes. The Fund seeks to
achieve its objective through a combined portfolio of equity and investment
grade fixed-income securities. The Investment Adviser will have discretion to
determine the proportion of the Fund's portfolio that will be invested in equity
and investment grade fixed-income securities at any particular time, depending
on the Investment Adviser's view of existing and anticipated market and economic
conditions. The Investment Adviser will seek to identify promising markets,
asset classes and securities which it believes have better than average
potential for price appreciation and minimal inherent risk. A key component of
the Investment Adviser's approach is seeking to recognize investment situations
in which asset classes or individual securities have been fundamentally
mispriced by investor sentiment or other market forces. Where the Investment
Adviser believes such opportunities exist, the Fund's assets will be positioned
in an effort to produce long-term price performance. Under ordinary market
conditions, the Fund will have at least 50% of its total assets invested in
equity securities, at least 25% of its total assets invested in investment grade
fixed-income securities and may invest up to 25% of its total assets in high
quality money market securities. No assurance can be given that the Fund will be
able to achieve its investment objective.
Equity securities consist of common and preferred stock (including
convertible preferred stock), bonds, notes and debentures convertible into
common or preferred stock, stock purchases warrants and rights, equity interests
in trusts, partnerships, joint ventures or similar enterprises and American,
Global or other types of depositary receipts. Most of the equity securities
purchased by the Fund are expected to be traded on a domestic or international
stock exchange or in a over-the-counter market. Fixed-income securities in which
the Fund may invest consist of U.S. government securities, U.S. and non-U.S.
corporate debt obligations and sovereign debt obligations issued by governments
and governmental entities, including supranational organizations such as the
World Bank. The Investment Adviser will have discretion to invest in the full
range of maturities of fixed-income securities. The Fund will invest only in
instruments which are rated Baa or better by Moody's Investors Service, Inc.
("Moody's") or BBB or better by Standard & Poor's Corporation ("S&P"), or which
are determined by the Fund's investment adviser to be of quality comparable to
instruments so rated. See Appendix A for a description of bond ratings. The Fund
may invest up to one-third of its total assets in foreign securities. The Fund
also may purchase securities on a when-issued or delayed delivery basis. The
Fund attempts to reduce overall exposure to risk from declines in securities
prices by spreading its investments over many different companies in a variety
of industries.
The Fund also reserves the right to invest a portion of its assets in
high quality money market securities, for cash management purposes, pending
investment in accordance with the Fund's investment objective and policies, to
meet operating expenses and redemption requests and to meet its obligations
pursuant to its investment activities. When the Investment Adviser determines
that market conditions so warrant, the Fund may invest all of its assets in high
quality money market securities for temporary defensive purposes. Money market
securities in which the Fund may invest include obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities, obligations
(including certificates of deposit, time deposits, demand deposits and bankers'
acceptances) of banks, commercial paper and repurchase agreements with respect
to securities in which the Fund may invest. The Fund will invest only in
commercial paper that is rated A-1 or A-2 by S&P, or P-1 or P-2 by Moody's or,
if not rated, issued by companies having an outstanding debt issue rated BBB or
better by S&P, or Baa or better by Moody's. The proportion of the Fund's assets
that is invested in money market securities will vary from time to time.
The Fund's investment policies (other than its investment objective)
are not fundamental and may be changed by the Board of Directors of the Fund
without the approval of shareholders.
INVESTMENT LIMITATIONS
The Fund may not:
(1) purchase the securities of any one issuer, other than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
if immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in such issuer or the Fund would own more than
10% of the outstanding voting securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to this
restriction.
(2) borrow money (including entering into reverse repurchase agreements)
except as a temporary measure for extraordinary or emergency purposes, and in no
event in excess of 15% of the value of the Fund's total assets at the time the
borrowing is made, except that for the purpose of this restriction, short-term
credits necessary for settlement of securities transactions are not considered
borrowings (the Fund will not purchase any securities at any time while such
borrowings exceed 5% of the value of its total assets);
(3) invest more than 25% of the total assets of the Fund in the securities
of issuers having their principal activities in any particular industry, except
for obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities or by any state, territory or any possession of the United
States or any of their authorities, agencies, instrumentalities or political
subdivisions, or with respect to repurchase agreements collateralized by any of
such obligations (for purposes of this restriction, supranational issuers will
be considered to comprise an industry as will each foreign government that
issues securities purchased by the Fund);
The limitations contained above may be changed only with the
affirmative vote of the holders of a majority of the Fund's outstanding voting
securities, as defined in the 1940 Act. The percentage limitations contained
above as well as elsewhere in this Prospectus and in the Statement of Additional
Information apply only at the time of purchase and the Fund will not be required
to dispose of securities upon subsequent fluctuations in market value.
RISK FACTORS
Changes in Interest Rates
The market value of the Fund's fixed-income securities and the portion
of the Fund's net asset value attributable to fixed-income securities will
generally fall when interest rates rise and rise when interest rates fall. In
general, fixed-income securities with longer maturities will be subject to
greater volatility resulting from interest rate fluctuations than will
fixed-income securities with shorter maturities.
Foreign Securities
Investment in securities of foreign issuers may involve risks arising
from non-U.S. accounting, auditing and financial reporting standards and less
publicly available information about issuers, from restrictions on foreign
investment and repatriation of capital, from differences between U.S. and
foreign securities markets, including less volume, much greater price volatility
in and relative illiquidity of foreign securities markets, different trading and
settlement practices and less government supervision and regulation, from
changes in currency exchange rates, from high and volatile rates of inflation,
from economic, social and political conditions and, as with domestic
multinational corporations, from fluctuating interest rates. Additionally,
certain amounts of the Fund's income may be subject to withholding taxes in the
foreign countries in which it invests.
Repurchase Agreements
The Fund may invest in repurchase agreements. Repurchase agreements
are investments which are used from time to time to obtain a return on available
cash. Entering into a repurchase agreement involves the acquisition by the Fund
from a broker-dealer or bank of an underlying security, most typically a debt
instrument, subject to the obligation of the seller to repurchase, and the Fund
to resell, usually not more than one week after its purchase, the instrument at
a fixed price in excess of the Fund's purchase price, such excess representing
the Fund's return on the repurchase agreement. Transaction costs may be incurred
by the Fund in connection with the sale of the securities if the seller does not
repurchase them in accordance with the repurchase agreement. In addition, in the
event of a default by or if bankruptcy proceedings are commenced with respect
to, the seller of the securities, realization on the securities by the Fund may
be delayed or limited and the Fund could experience a loss.
Securities with Limited Trading Market
The Fund may invest up to 15% of the value of its total assets in
illiquid securities, such as "restricted securities" which are illiquid, and
securities that are not readily marketable. If the Fund has a substantial
position in securities with limited trading markets, its activities could have
an adverse effect upon the liquidity and marketability of those securities.
Investments in securities which are "restricted" may involve added expenses
should the Fund be required to bear registration costs with respect to such
securities and could involve delays in disposing of such securities which might
have an adverse effect upon the price and timing of sales of such securities and
the liquidity of the Fund with respect to redemptions. Restricted securities and
securities for which there is a limited trading market may be significantly more
difficult to value due to the unavailability of reliable market quotations for
such securities, and investment in such securities may have an adverse impact on
net asset value.
Dependence on Certain Individual
Michael Holland is primarily responsible for the day-to-day management
of the Fund's portfolio. The loss of Michael Holland's services (due to
termination of employment, death, disability or otherwise) could adversely
affect the conduct of the Fund's business and its prospects for the future.
There can be no assurance that a suitable replacement could be found for Michael
Holland.
Borrowing
The Fund may borrow up to 15% of the value of its total assets in
certain limited circumstances. Borrowing can increase the opportunity for
capital appreciation when security prices rise and increase the risk of loss
when prices decline. Interest costs of borrowing are an expense that otherwise
would not be incurred and this could reduce the net investment income of the
Fund.
MANAGEMENT OF THE FUND
Board of Directors
The Board of Directors of the Fund consists of five individuals, four
of whom are not "interested persons" of the Fund as defined in the Investment
Company Act of 1940. The Directors of the Fund are responsible for the overall
supervision of the operations of the Fund and perform the various duties imposed
on the directors of investment companies by the Investment Company Act of 1940.
Advisory Arrangements
The Investment Adviser acts as the investment adviser to the Fund and
provides the Fund with management and investment advisory services. The
Investment Adviser also offers portfolio management and portfolio analysis
services to individuals and institutions.
The investment advisory agreement with the Investment Adviser (the
"Investment Advisory Agreement") provides that, subject to the direction of the
Board of Directors of the Fund, the Investment Adviser is responsible for the
actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security rests with the Investment
Adviser, subject to review by the Board of Directors. The Investment Adviser
also is obligated to provide all the office space, facilities, equipment and
personnel necessary to perform its duties under the Investment Advisory
Agreement.
The Investment Adviser receives monthly compensation at the annual
rate of 0.75% of the average daily net assets of the Fund. For the years ended
September 30, 1997 and 1996, the investment advisory fee, net of waivers, was
$0. The Investment Adviser may waive all or part of its fee from time to time
in order to increase the Fund's net income available for distribution to
shareholders. The Fund will not be required to reimburse the Investment
Adviser for any advisory fees waived. In addition, the Investment Adviser has
voluntarily agreed to cap total operating expenses at 1.5% (on an annualized
basis) of the Fund's average daily net assets. The Investment Adviser may from
time to time, at its own expense, provide compensation to certain selected
dealers for performing administrative services for their customers. These
services include maintaining account records, processing orders to purchase
and redeem Fund shares and responding to certain customer inquiries. Such
compensation does not represent an additional expense to the Fund or its
shareholders, since it will be paid from the assets of the Investment Adviser.
The Fund is responsible for paying certain expenses incurred in its
operations including, among other things, the investment advisory and
administrative fees, legal and audit fees, unaffiliated Directors' fees and
expenses, custodian and transfer agency fees, certain insurance premiums,
accounting and pricing costs, federal and state registration fees, the costs of
issuing and redeeming shares, costs of shareholder meetings, any extraordinary
expenses and certain of the costs of printing proxies, shareholders reports,
prospectuses and statements of additional information. The Fund also pays for
brokerage fees and commissions in connection with the purchase and sale of
portfolio securities.
The Investment Adviser is a limited liability company organized under
the laws of New York State and it is a registered investment adviser under the
Investment Advisers Act of 1940. The Investment Adviser is controlled by Michael
Holland, its managing member and owner of a 99% interest in the limited
liability company. Michael Holland is primarily responsible for the day-to-day
management of the Fund's portfolio. Michael Holland's money management and
entrepreneurial skills have been employed on behalf of a number of leading asset
management and investment banking companies. At The Blackstone Group from
January 1994 through June 1995, he was a General Partner and Chief Executive
Officer of Blackstone Alternative Asset Management, where he supervised the
management of the firm's partnership investment fund. Prior to that, he served
as Vice Chairman at Oppenheimer & Co., from March 1992 through January 1994,
where he helped launch and manage a number of closed-end mutual funds.
From 1989 to 1992 Michael Holland was Chairman & Chief Executive
Officer of Salomon Brothers Asset Management Inc. Before that he was President
and Chief Executive Officer of First Boston Asset Management Corporation, where
client assets grew to some $6 billion under his leadership. A graduate of
Harvard College and Columbia University Graduate School of Business
Administration, Michael Holland began his career at J.P.
Morgan & Co. in 1968.
Michael Holland makes frequent appearances on television programs such
as Moneyline with Lou Dobbs, CNN, Bloomberg Business News and CNBC and is
perhaps best known as a regular panelist on Wall $treet Week with Louis
Rukeyser.
Administrator
AMT Capital Services, Inc., (in its capacity as administrator, the
"Administrator") acts as the Fund's administrator pursuant to an administration
agreement (the "Administration Agreement"). Pursuant to the Administration
Agreement, the Administrator is responsible for providing administrative
services to the Fund and assists in managing and supervising all aspects of the
general day-to-day business activities and operations of the Fund other than
investment advisory activities, including certain accounting, auditing,
clerical, bookkeeping, custodial, transfer agency, dividend disbursing,
compliance and related services, Blue Sky compliance, corporate secretarial
services and assistance in the preparation and filing of tax returns and reports
to shareholders and the SEC. The Fund pays the Administrator a monthly fee at
the annual rate of 0.15% of the Fund's average daily net assets and the
Administrator is entitled to reimbursement from the Fund for its out-of-pocket
expenses incurred under the Administration Agreement. Pursuant to the
Administration Agreement, the Administrator will be paid a minimum fee of
$50,000 for services provided to the Fund.
Transfer Agent
Unified Advisers, Inc. (the "Transfer Agent") acts as the Fund's
Transfer Agent pursuant to a transfer agency, dividend disbursing agency and
shareholder servicing agency agreement (the "Transfer Agent Agreement").
Pursuant to the Transfer Agent Agreement, the Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening and maintenance
of shareholder accounts. The Fund pays the Transfer Agent a monthly fee of $1.30
per shareholder account subject to a minimum of $1,500 per month and the
Transfer Agent is entitled to reimbursement from the Fund for out-of-pocket
expenses incurred by the Transfer Agent under the Transfer Agent Agreement.
Year 2000 Problem
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 Adviser and the Administrator and other 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 Adviser and the Administrator are
taking steps that they believe are reasonably designed to address the
Year 2000 Problem with respect to computer systems that they use and to
obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, however, there can be
no assurance that these steps will be sufficient to avoid any adverse impact to
the Fund nor can there be any assurance that the Year 2000 Problem will not
have an adverse effect on the companies whose securities are held by the
Fund or on global markets or economies, generally.
PURCHASE OF SHARES
The Fund is offering its shares at a public offering price equal to
the net asset value. The Fund has no sales charge for purchases of its shares.
Investors may be charged a fee if they effect transactions in fund shares
through a broker or agent. Shares may be purchased directly from the Distributor
or from other securities dealers with whom the Distributor has entered into
selected dealer agreements. The minimum initial investment of the Fund is
$1,000. The minimum subsequent purchase is $500. The Fund reserves the right to
waive the minimum initial investment amount and minimum subsequent purchase
amount.
The Fund has authorized one or more brokers to receive, on its behalf,
purchase orders. Such brokers are authorized to designate other intermediaries
to accept purchase orders on the Fund's behalf. The Fund will be deemed to have
received a purchase order when an authorized broker of, if applicable, a
broker's authorized agent receives the order. Share purchase orders placed
through an authorized broker or the broker's authorized designee will be priced
at the Fund's Net Asset Value next computed after they are received by an
authorized broker or the broker's authorized designee.
The offering of shares of the Fund is continuous and purchases of shares of
the Fund may be made on any day the New York Stock Exchange is open for business
(a "Business Day"). The Fund offers shares at a public offering price equal to
the net asset value next determined after receipt of a purchase order by the
Transfer Agent. Any order may be rejected by the Distributor, Transfer Agent or
the Fund. Neither the Distributor, Transfer Agent nor the selected dealers are
permitted to withhold placing orders to benefit themselves by a price change.
The Fund reserves the right to suspend the sale of its shares to the public in
response to conditions in the securities market or otherwise, and may thereafter
resume the sale of its shares from time to time. Shares purchased will be held
in the shareholder's account by the Transfer Agent. Share certificates will not
be issued by the Transfer Agent.
Purchases of shares can be made by wire transfer, check or money order.
Share purchase orders are effective at the next determined net asset value after
the investment has been received by the Transfer Agent. In the case of wire
purchases, the shareholder's bank may impose a charge to execute a wire
transfer. The wiring instructions for purchasing shares of the Fund are:
Fifth Third Bank
Cincinnati, OH
ABA # 042000314
Attn: Fifth Third - Central Indiana
Acct: 747-88013
Benf: Holland Balanced Fund
F/F/C (Shareholder's Account at Fund)
Share purchase orders made with a check or money order should be mailed to the
following address:
Holland Balanced Fund
c/o Unified Advisers, Inc.
P.O. Box 6110
Indianapolis, IN 46206-6110
For a share purchase order to become effective on a particular Business Day,
prior to the close of the New York Stock Exchange (normally 4:00 p.m. Eastern
time), (i) in the case of a wire transfer payment, a purchaser must call
Transfer Agent at (800) 249-0763 to inform the Fund of the incoming wire
transfer or (ii) in the case of payment by check or money order, a complete
share purchase order must be actually received by the Transfer Agent. If the
Fund receives notification of a wire transfer or a complete share purchase order
after the above-mentioned cut-off times, such purchase order shall be executed
as of the next determined net asset value.
REDEMPTION OF SHARES
The Fund will redeem all full and fractional shares of the Fund upon
request of shareholders. The redemption price is the net asset value per share
next determined after receipt by the Transfer Agent or Distributor (or selected
dealers) of proper notice of redemption as described below. Shareholders
liquidating their holdings will receive upon redemption all dividends reinvested
through the date of redemption. If notice of redemption is received by the
Transfer Agent or Distributor (or selected dealers) on any Business Day, the
redemption will be effective on the date of receipt. Payment will ordinarily be
made by wire on the next Business Day, but, in any case, within no more than
seven business days from the date of receipt. If the notice is received on a day
that is not a Business Day or after the above-mentioned cut-off times, the
redemption notice will be deemed received as of the next Business Day. The value
of shares at the time of redemption may be more or less than the shareholder's
cost depending on the market value of the securities held by the Fund at such
time.
The Fund has authorized one or more brokers to receive, on its behalf,
redemption orders. Such brokers are authorized to designate other
intermediaries to receive redemption orders on the Fund's behalf. The Fund will
be deemed to have received a redemption order when an authorized broker or, if
applicable, a broker's authorized agent receives the order. Share redemption
orders placed through an authorized broker or the broker's authorized designee
will be priced at the Fund's Net Asset Value next computed after they are
received by an authorized broker or the broker's authorized designee.
A shareholder may elect to receive payment upon redemption of their
shares in the form of a wire or check. There is no charge imposed by the Fund to
redeem shares of the Fund; however, in the case of a redemption by wire, a
shareholder's bank may impose its own wire transfer fee for receipt of the wire.
Redemptions may be executed in any amount requested by the shareholder up to the
amount such shareholder has invested in the Fund.
A shareholder wishing to redeem shares may do so by mailing proper
notice of redemption directly to the Transfer Agent, Unified Advisers, Inc.,
P.O. Box 6110, Indianapolis, IN 46206-6110. Proper notice of redemption may be
accomplished by a written letter requesting redemption. The notice requires the
signature of all persons in whose names the shares are registered, signed
exactly as their names appear on the Transfer Agent's register. The signatures
on the notice must be guaranteed by a national bank or other bank which is a
member of the Federal Reserve System (not a savings bank) or by a member firm of
any national or regional securities exchange or other eligible guarantor
institution. Notarized signatures are not sufficient. In certain instances, the
Transfer Agent may require additional documents such as, but not limited to,
trust instruments, death certificates, appointments as executor or administrator
or certificates of corporate authority. For shareholders redeeming directly with
the Transfer Agent, payment will be mailed within seven days of receipt of a
proper notice of redemption. The Fund reserves the right to reject any order for
redemption.
Redemption by Wire
To redeem shares, a shareholder or any authorized agent (so designated
on the Account Application Form) must provide the Transfer Agent or Distributor
(or selected dealers) with the dollar or share amount to be redeemed, the
account to which the redemption proceeds should be wired (which account shall
have been previously designated by the shareholder on its Account Application
Form), the name of the shareholder and the shareholder's account number.
A shareholder may change its authorized agent or the account
designated to receive redemption proceeds at any time by writing to the Transfer
Agent or Distributor (or selected dealers) with an appropriate signature
guarantee. Further documentation may be required when deemed appropriate by the
Transfer Agent.
Telephone Redemption
A shareholder may request redemption by calling the Transfer Agent at
(800) 249-0763 or the Distributor at (800) 30-HOLLAND [1-800-304-6552] (or
selected dealers at their number). Telephone redemption is made available to
shareholders of the Fund on the Account Application Form. Shareholders should
realize that by making redemption requests by telephone, they may be giving up a
measure of security that they may have if they were to redeem their shares in
writing. The Fund reserves the right to refuse a telephone request for
redemption if it is believed advisable to do so. Procedures for redeeming shares
by telephone may be modified or terminated at any time by the Fund. Neither the
Fund nor the Transfer Agent will be liable for following redemption instructions
received by telephone, which are reasonably believed to be genuine, and the
shareholder will bear the risk of loss in the event of unauthorized or
fraudulent telephone instructions. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. The Fund and/or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent instructions in the absence of following these
procedures. The Fund or the Transfer Agent may require personal identification
codes. Checks will be made payable to the registered shareholders and sent to
the address of record on file with the Transfer Agent. Payments by wire will
only be made to the registered holders through pre-existing bank account
instructions. No bank instruction changes will be accepted via telephone.
Small Accounts
Under the Fund's present policy, it reserves the right to redeem upon
not less than 30 days' notice, the shares in an account which has a value of
$500 or less if the reduction in value is the result of shareholder redemptions
or transfers and not as a result of a decline in the net asset value. However,
any shareholder affected by the exercise of this right will be allowed to make
additional investments prior to the date fixed for redemption to avoid
liquidation of the account.
THE FUND'S PERFORMANCE
Total Return
From time to time, the Fund may advertise certain information about
its performance. The Fund may present its "average annual total return" over
various periods of time. Such total return figures show the average annual
percentage change in value of an investment in the Fund from the beginning date
of the measuring period to the end of the measuring period. These figures
reflect changes in the price of the Fund's shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the period
were reinvested in shares of the Fund. Figures may be given for the most current
one-, five- and ten-year periods (or the life of the Fund, if it has not been in
existence for any such period) and may be given for other periods as well. When
considering "average" total return figures for periods longer than one year, it
is important to note that the Fund's annual total return for any one year in the
period might have been greater or less than the average for the entire period.
In addition, the Fund may make available information as to its respective
"yield" and "effective yield" over a thirty-day period, as calculated in
accordance with the Commission's prescribed formula. The "effective yield"
assumes that the income earned by an investment in the Fund is reinvested, and
will therefore be slightly higher than the yield because of the compounding
effect of this assumed reinvestment.
Furthermore, in reports or other communications to shareholders or in
advertising material, the Fund may compare its performance with that of other
mutual funds as listed in the rankings prepared by Lipper Analytical Services,
Inc. or similar independent services which monitor the performance of mutual
funds, other industry or financial publications or financial indices such as the
Standard & Poor's Composite Index of 500 Stocks or a composite benchmark index.
It is important to note that the total return figures are based on historical
earnings and are not intended to indicate future performance.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services designed to
facilitate investment in its shares. Full details as to each of such services,
copies of the various plans described below and instructions as to how to
participate in the various services or plans, or how to change options with
respect thereto, can be obtained from the Fund or the Distributor.
Investment Account. Each shareholder whose account is maintained at
the Transfer Agent has an Investment Account and will receive statements from
the Transfer Agent after each share transaction, including reinvestment of
dividends and capital gains distributions, showing the activity in the account
since the beginning of the year. Shareholders may make additions to their
Investment Account at any time by mailing a check directly to the Transfer
Agent.
Automatic Investment Plan. An investor who opens an account and wishes
to make subsequent, periodic investments in a Fund by electronic funds transfer
from a bank account may establish an Automatic Investment Plan on the account.
The investor specifies the frequency (monthly, quarterly or yearly) and the
automatic investment amount ($100 or more).
Automatic Clearing House Purchases. An investor may, at his or her
request, make additional investments into the Fund by giving his or her bank a
voided check with pre-arranged instructions to withdraw funds from his or her
bank account and deposit such funds into his or her Holland Balanced Fund
account.
Automatic Reinvestment of Dividends and Capital Gains Distributions.
All dividends and capital gains distributions are reinvested automatically in
full and fractional shares of the Fund, without sales charge, at the net asset
value per share next determined on the ex-dividend date of such distribution. A
shareholder may at any time, by written notification to the Transfer Agent,
elect to have subsequent dividends or both dividends and capital gains paid in
cash rather than reinvested, in which event payment will be mailed on the
payment date.
IRAs. A prototype IRA is available generally for all working
individuals who receive compensation (which for self-employed individuals
includes earned income) for services rendered and for all individuals who
receive alimony or separate maintenance payments pursuant to a divorce or
separation instrument. Contributions to an IRA made available by the Fund may be
invested in shares of the Fund. Shareholders should consult with a financial
adviser regarding an IRA.
Shareholders will be able to inquire about their Fund accounts by
calling the Transfer Agent at (800) 249-0763. Also, shareholders can receive the
net asset value per share of the Fund by calling the toll-free number.
ADDITIONAL INFORMATION
Dividends and Distributions
It is the Fund's intention to distribute all its net investment
income, if any. Dividends from such net investment income are paid quarterly.
All net realized long- or short-term capital gains, if any, are distributed to
the Fund's shareholders at least annually. Dividends and distributions will be
reinvested automatically in shares of the Fund at net asset value on the
ex-dividend date. Shareholders may elect in writing to receive any such
dividends or distributions, or both, in cash. Dividends and distributions are
taxable to shareholders as discussed below whether they are reinvested in shares
of the Fund or received in cash.
Determination of Net Asset Value
The net asset value of the shares of the Fund is determined once daily
as of the time of the close of regularly scheduled trading on the New York Stock
Exchange on each day on which such Exchange is open for trading. The net asset
value per share is computed by dividing the sum of the value of the securities
held by the Fund plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued expenses)
by the total number of shares outstanding at such time, rounded to the nearest
cent. Expenses, including the investment advisory fees payable to the Investment
Adviser, are accrued daily.
Portfolio securities which are traded on stock exchanges are valued at
the last sale price as of the close of business on the day the securities are
being valued, or, lacking any sales, at the mean between closing bid and asked
prices. Securities traded in the over-the-counter market, including money market
securities, are valued at the most recent bid prices as obtained from one or
more dealers that make markets in the securities. Money market securities with
maturities of sixty days or less are valued at amortized cost which approximates
market value. Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. Securities that are primarily traded on foreign exchanges
generally are valued at the preceding closing values of such securities on their
respective exchanges, except that when an occurrence subsequent to the time a
value was so established is likely to have changed such value, then the fair
value of those securities may be determined by consideration of other factors
or under the direction of the Board of Directors. In valuing assets, prices
denominated in foreign currencies are converted to U.S. dollar equivalents at
the current exchange rate. Securities may be valued by independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund.
Taxes
The following discussion is only a brief summary of some of the important
tax considerations affecting the Fund and its shareholders. No attempt is made
to present a detailed explanation of all federal, state, local and foreign
income tax considerations, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential investors are urged to consult
their own tax advisers with specific reference to their own tax situation.
The Fund intends to continue to qualify and elect to be treated as a
"regulated investment company" for federal income tax purposes under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). If so
qualified, the Fund will not be subject to federal income taxes on its net
investment income (i.e., its investment company taxable income) as that term is
defined in the Code, determined without regard to the deduction for dividends
paid) and net capital gain (i.e., the excess of the Fund's net long-term capital
gain over its net short-term capital loss), if any, that it distributes to its
shareholders in each taxable year. To qualify as a regulated investment company,
the Fund must, among other things, distribute to its shareholders at least 90%
of its net investment company taxable income for such taxable year. However, the
Fund would be subject to corporate federal income tax at a rate of 35% on any
undistributed income or net capital gain. The Fund will be subject to a 4%
nondeductible excise tax on its taxable income to the extent it does not meet
certain distribution requirements. If in any year the Fund should fail to
qualify as a regulated investment company, the Fund would be subject to federal
income tax in the same manner as an ordinary corporation and distributions to
shareholders would be taxable to such holders as ordinary income to the extent
of the earnings and profits of the Fund. Such distributions qualify for the
dividends-received deduction available to corporate shareholders. Distributions
in excess of earnings and profits would be treated as a tax-free return of
capital, to the extent of a holder's basis in its shares, and any excess, as a
long- or short-term capital gain.
Distributions paid by the Fund from net investment income are
designated by the Fund as "ordinary income dividends" and, whether paid in cash
or reinvested in additional shares, will be taxable to Fund shareholders that
are otherwise subject to tax as ordinary income. A portion of the Fund's
ordinary income dividends may be eligible for the dividends-received deduction
for corporations if certain requirements are met. Distributions made from the
Fund's net capital gain which are designated by the Fund as "capital gains
dividends" are taxable to shareholders as long-term capital gains, regardless of
the length of time the shareholder has owned Fund shares. Shareholders receiving
distributions from the Fund in the form of additional shares will be treated for
federal income tax purposes as receiving a distribution in an amount equal to
the net asset value of the additional shares on the date of such a distribution.
Gain or loss, if any, recognized on the sale or other disposition of
shares of the Fund will be taxed as capital gain or loss if the shares are
capital assets in the shareholder's hands. Generally, a shareholder's gain or
loss will be a long-term gain or loss if the shares have been held for more than
one year. The maximum tax rate on any long-term capital gains on securities held
for more than 12 months is 28%. If such securities are held more than 18 months,
the maximum rate is 20%. If a shareholder sells or otherwise disposes of a share
of the Fund before holding it for more than six months, any loss on the sale or
other disposition of such share shall be treated as a long-term capital loss to
the extent of any capital gain dividends received by the shareholder with
respect to such share. A loss realized on a sale or exchange of shares may be
disallowed if other shares are acquired within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of.
Dividends and distributions by the Fund are generally taxable to the
shareholders at the time the dividend or distribution is made. Any dividend
declared in October, November or December of any year, however, that is payable
to shareholders of record on a specified date in such months will be deemed to
have been received by the shareholders and paid by the Fund on December 31 of
such year in the event such dividends are actually paid during January of the
following year.
The Fund may be required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number, (ii) the Internal Revenue Service ("IRS") notifies the
Fund that the shareholder has failed to report properly certain interest and
dividend income to the IRS and to respond to notices to that effect, or (iii)
when required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding.
Organization of the Fund
The Fund is a diversified portfolio of Holland Series Fund, Inc. (the
"Series Fund"), an open-end management investment company, which was
incorporated under Maryland law on June 27, 1995. The Series Fund has an
authorized capital of 1,000,000,000 shares of Common Stock, par value $0.01 per
share. Holland Balanced Fund currently is the only organized portfolio. The
Board of Directors may, in the future, authorize the issuance of additional
classes of capital stock representing shares of additional investment
portfolios. All shares of each fund will have equal voting rights and each
shareholder is entitled to one vote for each full share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Series Fund is not
required and does not intend to hold meetings of shareholders. The Fund has
undertaken to call a meeting of shareholders upon a written request of 10% of
the Fund's outstanding shares, for the purpose of voting on removal of one or
more directors and the Fund will assist shareholder communications with regard
to such a meeting, as provided under Section 16(c) of the 1940 Act. Shares of
the Fund will, when issued, be fully paid and non-assessable and have no
preemptive or conversion rights. Each share is entitled to participate equally
in dividends and distributions declared by the Fund and in the net assets of the
Fund on liquidation or dissolution after satisfaction of outstanding
liabilities.
Shareholder Inquiries
Shareholder inquiries may be addressed to the Fund or the Distributor
at the addresses or telephone numbers set forth on the cover page of this
Prospectus.
APPENDIX A
Description of Bond Ratings*
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality
and carry the smallest degree of investment risk. 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 most unlikely 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 generally are 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 or 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.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation
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 higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
APPENDIX B
Description of Commercial Paper Ratings
Moody's Investors Service, Inc.
Prime 1--Issuers (or related supporting institutions) rated "Prime-1"
have a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2"
have a strong ability for repayment of senior short-term debt 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 alternative liquidity is
maintained.
Standard & Poor's Corporation
A-1--This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
STATEMENT OF ADDITIONAL INFORMATION
HOLLAND BALANCED FUND
600 Fifth Avenue, New York, New York 10020
Phone No. (800) 30-HOLLAND [800-304-6552]
Holland Balanced Fund (the "Fund") is a no-load diversified
portfolio of Holland Series Fund, Inc., an open-end management investment
company. The Fund is designed to provide investors with a convenient and
professionally managed vehicle for seeking a high total investment return. Total
investment return is the aggregate of dividend and interest income and realized
and unrealized capital value changes. The Fund seeks to achieve high total
investment return from a combined portfolio of equity and investment grade
fixed-income securities. There can be no assurance that the Fund's objective
will be attained.
This Statement of Additional Information of the Fund is not a
prospectus and should be read in conjunction with the prospectus of the Fund,
dated March 20, 1998 (the "Prospectus"), which has been filed with the
Securities and Exchange Commission and can be obtained, without charge, by
calling or by writing the Fund at the above telephone number or address. This
Statement of Additional Information has been incorporated by reference into the
Prospectus.
----------------
Holland & Company L.L.C. - Investment Adviser
AMT Capital Services, Inc. - Distributor
----------------
The date of this Statement of Additional Information is March 20, 1998
Table of Contents
Page
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES...... 3
INVESTMENT RESTRICTIONS...................................................... 4
MANAGEMENT OF THE FUND....................................................... 6
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.......................... 8
REDEMPTION OF SHARES......................................................... 9
PORTFOLIO TRANSACTIONS AND BROKERAGE................ ........................ 9
DETERMINATION OF NET ASSET VALUE............................................. 10
PERFORMANCE DATA............................................................. 10
SHAREHOLDER SERVICES......................................................... 11
DIVIDENDS AND DISTRIBUTIONS.................................................. 12
TAXATION..................................................................... 12
ADDITIONAL INFORMATION....................................................... 16
FINANCIAL STATEMENTS..........................................................17
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
Repurchase Agreements
.........The Fund may enter into repurchase
agreements. A repurchase agreement is a transaction in
which the seller of a security commits itself at the time of
the sale to repurchase that security from the buyer at a
mutually agreed upon time and price. Repurchase agreements
may be characterized as loans which are collateralized by
the underlying securities. The Fund will enter into
repurchase agreements only with respect to obligations that
could otherwise be purchased by the Fund. The Fund will
enter into repurchase agreements only with dealers, domestic
banks or recognized financial institutions which, in the
opinion of the investment adviser, Holland & Company, L.L.C.
(the "Investment Adviser") based on guidelines established
by the Fund's Board of Directors, are deemed creditworthy.
The Investment Adviser will monitor the value of the
securities underlying the repurchase agreement at the time
the transaction is entered into and at all times during the
term of the repurchase agreement to ensure that the value of
the securities always equals or exceeds the repurchase
price. The Fund requires that additional securities be
deposited if the value of the securities purchased decreases
below their resale price and does not bear the risk of a
decline in the value of the underlying security unless the
seller defaults under the repurchase obligation. In the
event of default by the seller under the repurchase
agreement, the Fund could experience losses that include:
(i) possible decline in the value of the underlying security
during the period while the Fund seeks to enforce its rights
thereto; (ii) additional expenses to the Fund for enforcing
those rights; (iii) possible loss of all or part of the
income or proceeds of the repurchase agreement; and (iv)
possible delay in the disposition of the underlying security
pending court action or possible loss of rights in such
securities. Repurchase agreements with maturities of more
than seven days will be treated as illiquid securities by
the Fund.
Firm Commitments and When-Issued Securities
.........The Fund may purchase securities on a firm
commitment basis, including when-issued securities.
Securities purchased on a firm commitment basis are
purchased for delivery beyond the normal settlement date at
a stated price and yield. No income accrues to the
purchaser of a security on a firm commitment basis prior to
delivery. Such securities are recorded as an asset and are
subject to changes in value based upon changes in the
general level of interest rates. Purchasing a security on a
firm commitment basis can involve a risk that the market
price at the time of delivery may be lower than the agreed
upon purchase price, in which case there could be an
unrealized loss at the time of delivery. The Fund will only
make commitments to purchase securities on a firm commitment
basis with the intention of actually acquiring the
securities, but may sell them before the settlement date if
it is deemed advisable. The Fund will establish a
segregated account in which it will maintain liquid assets
in an amount at least equal in value to the Fund's
commitments to purchase securities on a firm commitment
basis. If the value of these assets declines, the Fund will
place additional liquid assets in the account on a daily
basis so that the value of the assets in the account is
equal to the amount of such commitments.
Borrowing
.........The Fund may borrow in certain limited
circumstances. See "Investment Limitations." Borrowing
creates an opportunity for increased return, but, at the
same time, creates special risks. For example, borrowing
may exaggerate changes in the net asset value of the Fund's
portfolio. Although the principal of any borrowing will be
fixed, the Fund's assets may change in value during the time
the borrowing is outstanding. The Fund may be required to
liquidate portfolio securities at a time when it would be
disadvantageous to do so in order to make payments with
respect to any borrowing, which could affect the investment
manager's strategy and the ability of the fund to comply
with certain provisions of the Internal Revenue Code of
1986, as amended (the "Code") in order to provide
"pass-though" tax treatment to shareholders. Furthermore,
if the Fund were to engage in borrowing, an increase in
interest rates could reduce the value of the Fund's shares
by increasing the Fund's interest expense.
Warrants
.........The Fund may invest in warrants, which are
securities permitting, but not obligating, their holder to
subscribe for other securities. Warrants do not carry the
right to dividends or voting rights with respect to their
underlying securities, and they do not represent any rights
in assets of the issuer. An investment in warrants may be
considered speculative. In addition, 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.
Foreign Securities
.........In addition to risks identified in the Prospectus, other
investment risks associated with foreign securities include the possible seizure
or nationalization of foreign assets and the possible establishment of exchange
controls, expropriation, confiscatory taxation, other foreign governmental laws
or restrictions which might affect adversely payments due on securities held by
the Fund, the lack of extensive operating experience of eligible foreign
subcustodians and legal limitations on the ability of the Fund to recover assets
held in custody by a foreign subcustodian in the event of the subcustodian's
bankruptcy. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. Finally, in
the event of a default in any such foreign obligations, it may be more difficult
for the Fund to obtain or enforce a judgment against the issuers of such
obligations.
Sovereign Debt
.........Investment in certain debt obligations
issued or guaranteed by a government, its agencies or
instrumentalities ("Sovereign Debt") involves a high degree
of risk. The governmental entity that controls the
repayment of Sovereign Debt may not be willing or able to
repay the principal and/or interest when due in accordance
with the terms of such debt. Holders of Sovereign Debt,
including the Fund, may be requested to participate in the
rescheduling of such debt and to extend further loans to
governmental entities. A foreign sovereign itself would not
be subject to traditional bankruptcy proceedings by which
Sovereign Debt on which it has defaulted may be collected in
whole or in part, and certain sovereign entities may not be
subject to such proceedings. Further, the Fund may have
difficulty disposing of certain Sovereign Debt obligations,
as there may be a thin trading market for such securities.
INVESTMENT RESTRICTIONS
.........In addition to the investment restrictions
set forth in the Prospectus, the Fund has adopted the
following restrictions and policies relating to the
investment of its assets and its activities. The Fund may
not:
Make investments for the purpose of exercising
control or management.
Purchase securities of other investment companies
except as permitted under the 1940 Act or in connection with a merger,
consolidation, acquisition or reorganization.
Purchase or sell real estate, provided that the Fund
may invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein.
Purchase or sell commodities or commodity contracts.
Underwrite securities of other issuers except insofar
as the Fund may be deemed an underwriter under the Securities Act of
1933 in selling portfolio securities.
Make loans, except that (a) the Fund may purchase and
hold debt securities in accordance with its investment objective(s) and
policies, (b) the Fund may enter into repurchase agreements with
respect to portfolio securities, subject to applicable limitations of
its investment policies, and (c) delays in the settlement of securities
transactions will not be considered loans.
Purchase any securities on margin, except that the
Fund may (i) purchase delayed delivery or when issued securities, and
(ii) obtain such short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities.
Sell securities short.
Purchase securities of issuers which it is restricted
from selling to the public without registration under the 1933 Act if
by reason thereof the value of its aggregate investment in such
securities will exceed 10% of its total assets.
Write, purchase or sell puts, calls, straddles,
spreads or combinations thereof.
Purchase or sell interests in oil, gas or other
mineral exploration or development programs provided, however, that
this shall not prohibit a Fund from purchasing publicly traded
securities of companies engaging in whole or in part in such
activities.
Purchase or retain any securities of an issuer if one
or more persons affiliated with a Fund owns beneficially more than 1/2
of 1% of the outstanding securities of such issuer and such affiliated
persons so owning 1/2 of 1% together own beneficially more than 5% of
such securities.
Invest more than 5% of its total assets in securities
of unseasoned issuers (other than securities issued or guaranteed by
U.S. federal or state or foreign governments or agencies,
instrumentalities or political subdivisions thereof) which, including
their predecessors, have been in operation for less than three years.
Invest in warrants (other than warrants acquired by
the Fund as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower of cost
or market) would exceed 5% of the value of the Fund's net assets or if,
as a result, more than 2% of the Fund's net assets would be invested in
warrants that are not listed on the American Stock Exchange or the New
York Stock Exchange.
Investment restrictions (1) through (6) described above and
the restrictions discussed under "Investment Limitations" in the Prospectus are
fundamental policies of the Fund and may be changed only with the affirmative
vote of the holders of a majority of the Fund's outstanding voting securities,
as defined in the Investment Company Act of 1940, as amended (the "1940 Act").
Restrictions (7) through (14) are non-fundamental policies of the Fund and may
be changed by a majority of the Board of Directors of the Fund. Whenever an
investment policy or limitation states a maximum percentage of the Fund's assets
in any security or other asset, such percentage limitation shall be determined
immediately after and as a result of the Fund's acquisition of such security or
other asset. Accordingly, any later increase or decrease in a percentage
resulting from a change in values, net assets or other circumstances will not be
considered when determining whether that investment complies with the Fund's
investment policies and limitations.
MANAGEMENT OF THE FUND
Directors and Officers
The Directors and executive officers of the Fund and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Director is
375 Park Ave., New York, New York 10152.
<TABLE>
<S> <C> <C>
Name and Address Position with the Company Principal Occupation
During Past Five Years
Michael F. Holland*/ Director and President Holland & Company L.L.C., Chairman,
Age: 52 6/95 - present; The Blackstone
Group, general partner, 1/84 -
5/95; Oppenheimer & Company Inc.,
Vice Chairman, 3/92 - 1/94; Salomon
Brothers Asset Management Inc.,
Chairman and Chief Executive
Officer, 5/89 - 3/92; Salomon
Brothers Inc., Managing Director
5/89 - 3/92.
Sheldon S. Gordon Director, Chairman Union Bancaire Privee
Age: 60 International, Inc., Chairman 9/96
- Present; Blackstone Alternative
Union Bancaire Priveee International Asset Management L.P., Chairman
Ave. of the Americas 1/93 - 9/96; The Blackstone Group,
New York, NY general partner 4/91 - 5/95;
Blackstone Europe, Chairman, 4/91 -
6/93; Stamford Capital Group, Inc.,
Chairman and Chief Executive
Officer, 1/85 - 8/90.
Herbert S. Winokur, Jr. Director Capricorn Investors, L.P., Managing
Age: 53 General Partner, 9/87 - present.
Capricorn Management
72 Cummings Point Road
Stamford, CT 06902
Desmond G. FitzGerald Director North American Properties Group,
Age: 53 Chairman, 1/87 - present; North
American Housing Corp., Chairman,
North American Properties Group 12/86 - 8/93.
2015 West Main Street
Stamford, CT 06902
Jeff Tarr Director Junction Advisors, Chairman, 1/81 -
Age: 52 present.
Junction Advisers, Inc.
9 West 57th Street, Suite 4650
New York, NY 10019
William E. Vastardis Secretary and Treasurer AMT Capital Services, Inc., Senior
Age: 42 Vice President 7/92 - present;
AMT Capital Services, Inc. Vanguard Group Inc., Vice
600 Fifth Avenue, 26th Floor President, 1/87 - 4/92.
New York, NY 10020
Carla E. Dearing Assistant Treasurer AMT Capital Services, Inc.,
Age: 34 President, 1/92 - present; AMT
AMT Capital Services, Inc. Capital Advisers, Inc., Principal
600 Fifth Avenue, 26th Floor and Senior Vice President, 1/92 -
New York, NY 10020 present; Morgan Stanley & Co., Vice
President, 11/88 - 1/92.
F. Michael Gozzillo Assistant Secretary AMT Capital Services, Inc., Vice
Age: 32 President, 5/95 - present;
AMT Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, NY 10020
</TABLE>
- --------
*/ interested person as defined in the 1940 Act.
Pursuant to the terms of the Fund's investment advisory
agreement and administration agreement, the Investment Adviser or AMT Capital
Services, Inc. (the "Administrator") pays all compensation of officers and
employees of the Fund and the Investment Adviser pays the fees of all Directors
of the Fund who are affiliated persons of the Investment Adviser. The Fund pays
each unaffiliated Director an annual fee, paid quarterly, of $3,000 plus $500
per meeting attended and pays all Directors' actual out-of-pocket expenses
relating to attendance at meetings. The Fund does not provide any pension or
retirement benefits to its Directors.
<TABLE>
<S> <C> <C> <C>
Director's Compensation Table for the Year Ended September 30, 1997
Director Aggregate Pension or Total Compensation
Compensation from Retirement Benefits From Registrant and
Registrant Accrued as Part of Fund Complex Paid to
Fund Expenses Directors
Michael F. Holland $0 $0 $0
Sheldon S. Gordon $0 $0 $0
Herbert S. Winokur, Jr. $3,500 $0 $3,500
Desmond FitzGerald $4,500 $0 $4,500
Jeff C. Tarr $4,500 $0 $4,500
</TABLE>
Management and Advisory Arrangements
Reference is made to "Management of the
Fund-Management and Advisory Arrangements" in the Prospectus
for certain information concerning the management and
advisory arrangements of the Fund.
The investment advisory agreement dated September 28, 1995
with the Investment Adviser (the "Investment Advisory Agreement") provides that,
subject to the direction of the Board of Directors of the Fund, the Investment
Adviser is responsible for the actual management of the Fund's portfolio. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser, subject to review by the Board of Directors.
The Investment Adviser provides the portfolio manager for the Fund, who
considers analyses from various sources, makes the necessary investment
decisions and places transactions accordingly. As compensation for its services
to the Fund, the Investment Adviser receives monthly compensation at the annual
rate of 0.75% of the average daily net assets of the Fund. For the year ended
September 30, 1997, the Investment Adviser waived all fees payable to it by the
Fund, totaling $118,211 and reimbursed $46,628 of expenses of the Fund. For the
period from October 2, 1995 (commencement of operations) to September 30, 1996,
the Investment Adviser waived all fees payable to it by the Fund, totaling
$38,075 and reimbursed $131,302 of expenses of the Fund.
Investment decisions for the Fund are made independently from
those of other accounts managed by the Investment Adviser. Securities held by
the Fund also may be held by, or be appropriate investments for, other
investment advisory clients of the Investment Adviser. Because of different
objectives or other factors, a particular security may be bought for one or more
clients when one or more clients are selling the same security. If purchases or
sales of securities for the Fund or other advisory clients of the Investment
Adviser arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. To the extent that transactions on
behalf of more than one client of the Investment Adviser during the same period
may increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price or the size of
the position obtained or sold.
The Investment Advisory Agreement obligates the Investment
Adviser to provide investment advisory services and all the office space,
facilities, equipment and personnel necessary to perform its duties under the
Investment Advisory Agreement. The Fund pays all other expenses incurred in the
operation of the Fund including, among other things, taxes, expenses for legal
and auditing services, costs of printing proxies, stock certificates,
shareholder reports, prospectuses and statements of additional information,
charges of the custodian and the transfer agent, expenses of redemption of
shares, Securities and Exchange Commission ("SEC") fees, expenses of registering
the shares under Federal and state securities laws, fees and expenses of
unaffiliated Directors, accounting and pricing costs (including the daily
calculation of net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and other expenses
properly payable by the Fund.
Unless earlier terminated as described below, the Investment
Advisory Agreement will remain in effect for two years and thereafter, from year
to year if approved annually (a) by the Board of Directors of the Fund or by a
majority of the outstanding shares of the Fund and (b) by a majority of the
Directors who are not parties to such contract or interested persons (as defined
in the 1940 Act) of any such party. Such contract is not assignable and may be
terminated without penalty on 60 days' written notice at the option of either
party thereto or by the vote of the shareholders of the Fund. The
continuation of the Investment Advisory Agreement was most recently approved
by the Board of Directors on September 25, 1997 and by the sole shareholder,
Michael F. Holland, on June 28, 1995.
The Investment Adviser is controlled by Michael Holland, its
managing member and owner of a 99% interest in the limited liability company.
Administrator
AMT Capital Services, Inc. (the "Administrator") acts as the
Fund's administrator pursuant to an administration agreement (the
"Administration Agreement"). Pursuant to the Administration Agreement dated
September 28, 1995, the Administrator is responsible for providing
administrative services to the Fund, and assists in managing and supervising all
aspects of the general day-to-day business activities and operations of the Fund
other than investment advisory activities including certain accounting,
auditing, clerical, bookkeeping, custodial, transfer agency, dividend
disbursing, compliance and related services, Blue Sky compliance, corporate
secretarial services and assistance in the preparation and filing of tax returns
and reports to shareholders and the SEC. The Fund pays the Administrator a
monthly fee at the annual rate of 0.15% of the Fund's average daily net assets
and the Administrator is entitled to reimbursement from the Fund for its
out-of-pocket expenses incurred under the Administration Agreement. The
Administrator will be paid a minimum fee of $50,000 for services provided to the
Fund.
CONTROL PERSONS and PRINCIPAL HOLDERS OF SECURITIES
As of March 19, 1998, there were no persons holding 5 percent or more of the
outstanding shares of the Holland Balanced Fund.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus
for certain information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect
to any such redemption may only be suspended for any period during which trading
on the New York Stock Exchange is restricted as determined by the SEC or such
Exchange is closed (other than customary weekend and holiday closings), for any
period during which an emergency exists as defined by the SEC as a result of
which disposal of portfolio securities or determination of the net asset value
of the Fund is not reasonably practicable, and for such other periods as the SEC
may by order permit for the protection of shareholders of the Fund.
Shares are redeemable at the option of the Fund at net asset
value if, in the opinion of the Fund, ownership of the shares has or may become
concentrated to an extent which would cause the Fund to be deemed a personal
holding company within the meaning of the Code.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policy established by the Board of Directors, the
Investment Adviser is primarily responsible for the Fund's portfolio decisions
and the placing of the Fund's portfolio transactions. The Fund anticipates that
its annual portfolio turnover rate generally will not exceed 100%. The actual
portfolio turnover for the years ended September 30, 1997 and 1996 were 5.07%.
and 5.04%, respectively.
Fixed-income securities, certain short-term securities and
certain equities normally will be purchased or sold from or to issuers directly
or to dealers serving as market makers for the securities at a net price, which
may include dealer spreads and underwriting commissions. Equity securities may
also be purchased or sold through brokers who will be paid on commission. For
the year ended September 30, 1997, the Fund paid brokerage commissions of
$6,846. In selecting brokers and dealers, it is the policy of the Fund to obtain
the best results taking into account factors such as the general execution and
operational facilities of the brokers or dealer, the type and size of
transaction involved, the creditworthiness and stability of the broker or
dealer, execution and settlement capabilities, time required to negotiate and
execute the trade, research services and the Investment Adviser's arrangements
related thereto (as described below), overall performance, the dealer's risk in
positioning the securities involved and the broker's commissions and dealer's
spread or mark-up. While the Investment Adviser generally seeks the best price
in placing its orders, the Fund may not necessarily be paying the lowest price
available.
Notwithstanding the above, in compliance with Section 28(e) of
the Securities Exchange Act of 1934, the Investment Adviser may select brokers
who charge a commission in excess of that charged by other brokers if the
Investment Adviser determines in good faith that the commission to be charged is
reasonable in relation to the brokerage and research services provided to the
Investment Adviser by such brokers. Research services generally consist of
research and statistical reports or oral advice from brokers regarding
particular companies, industries or general economic conditions. The Investment
Adviser may also, in compliance with applicable law, enter into arrangements
with brokers pursuant to which such brokers provide research in exchange for a
certain volume of brokerage transactions to be executed through such broker.
While the payment of higher commissions increases the Fund's costs, the
Investment Adviser does not believe that the receipt of such brokerage and
research services significantly reduces its expenses as the Fund's investment
manager. The Investment Adviser's arrangements for the receipt of research
services from brokers may create conflicts of interest.
Research services furnished to the Investment Adviser by
brokers who effect securities transactions for a Fund may be used by the
Investment Adviser in servicing other investment companies and accounts which it
manages. Similarly, research services furnished to the Investment Adviser by
brokers who effect securities transactions for other investment companies and
accounts which the Investment Adviser manages may be used by the Investment
Adviser in servicing the Fund. Not all of these research services are used by
the Investment Adviser in managing any particular account, including the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined
once daily Monday through Friday as of the time of the close of regularly
scheduled trading on the New York Stock Exchange on each day during which such
Exchange is open for trading. The New York Stock Exchange is not open on New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Martin Luther King Day, Thanksgiving Day and Christmas Day. The net asset
value per share is computed by dividing the sum of the value of the securities
held by Fund plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued expenses)
by the total number of shares outstanding at such time, rounded to the nearest
cent. Expenses, including the investment advisory fees payable to the Investment
Adviser, are accrued daily.
Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund.
PERFORMANCE DATA
The Fund's "average annual total return" figures described and
shown in the Prospectus are computed according to a formula prescribed by the
SEC. The formula can be expressed as follows:
P(1+T)n=ERV
Where:
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical
$1,000 payment made at the beginning of the
1, 5, or 10 year periods at the end of such
periods, assuming reinvestment of all
dividends and distributions.
The total return as defined above for the Fund for the 12
month period ended September 30, 1997 was 22.71%. The total return from the
Fund's commencement of investment operations (October 2, 1995) through September
30, 1997 was 19.16% on an annualized basis.
In addition to total return, the Fund may quote performance in
terms of a 30-day yield. The yield figures provided will be calculated according
to a formula prescribed by the Commission and can be expressed as follows:
(a-b)
Yield = 2[(cd +1) 6 - 1 ]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last day of the
period.
The yield as defined above for the Fund for the 30-day period
ended September 30, 1997 was 2.16%.
For the purpose of determining the interest earned (variable
"a" in the formula) on debt obligations that were purchased by the Fund at a
discount or premium, the formula generally calls for amortization of the
discount or premium; the amortization schedule will be adjusted monthly to
reflect changes in the market value of the debt obligations.
Under this formula, interest earned on debt obligations for
purposes of "a" above, is calculated by (1) computing the yield to maturity of
each obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last day of
each month, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest), (2) dividing that figure by 360
and multiplying the quotient by the market value of the obligation (including
actual accrued interest as referred to above) to determine the interest income
on the obligation in the Fund's portfolio (assuming a month of 30 days) and (3)
computing the total of the interest earned on all debt obligations during the
30-day or one month period. Undeclared earned income, computed in accordance
with generally accepted accounting principles, may be subtracted from the
maximum offering price calculation required pursuant to "d" above.
The Fund's performance will vary from time to time depending
on market conditions, the composition of its portfolio and operating expenses.
Consequently, any given performance quotation should not be considered
representative of the performance of the Fund for any specified period in the
future. Because performance will vary, it may not provide a basis for comparing
an investment in shares of the Fund with certain bank deposits or other
investments that may pay a fixed return for a stated period of time. Investors
comparing the Fund's performance with that of other mutual funds should give
consideration to the nature, quality and maturity of the respective investment
companies' portfolio securities and market conditions. An investor's principal
is not guaranteed by the Fund.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described
below which are designed to facilitate investment in its shares. Full details as
to each of such services and copies of the various plans described below can be
obtained from the Fund or the Distributor.
Investment Account
Each shareholder whose account is maintained at Unified
Advisers, Inc. (the "Transfer Agent"), P.O. Box 6110, Indianapolis, IN
46206-6110, has an Investment Account and will receive statements from the
Transfer Agent after each share transaction, including reinvestment of dividends
and capital gains distributions, showing the activity in the account since the
beginning of the year. Shareholders may make additions to their Investment
Account at any time by mailing a check directly to the Transfer Agent. Share
certificates will not be issued by the Transfer Agent.
Automatic Investment Plan
A shareholder may elect to establish an Automatic Investment
Plan pursuant to which funds will automatically be transferred from a bank
account to be invested in the Fund. The bank at which the bank account is
maintained must be a member of the Automated Clearing House. Automatic
investments can be no more frequent than monthly and must be a minimum of $50.
The Fund will debit the specified amount from the account and the proceeds will
be invested at the Fund's offering price determined on the date of the debit.
Automatic Clearing House Purchases
An investor may, at his or her request, make additional
investments into the Fund by giving his or her bank a voided check with
pre-arranged instructions to withdraw funds from his or her bank account and
deposit such funds into his or her Holland Balanced Fund account.
Automatic Reinvestment of Dividends and Capital Gains
Distributions
Unless specific instructions are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be reinvested automatically in additional shares of the Fund.
Such reinvestment will be at the net asset value of shares of the Fund, without
sales charge, as of the close of business on the ex-dividend date of the
dividend or distribution. Shareholders may elect in writing to receive either
their dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed on the payment date.
Shareholders may, at any time, notify the Transfer Agent in
writing that they no longer wish to have their dividends and/or capital gains
distributions reinvested in shares of the Fund or vice versa and, commencing ten
days after receipt by the Transfer Agent of such notice, those instructions will
be effected.
Individual Retirement Accounts (IRA)
A prototype IRA is available, which has been approved as to
form by the Internal Revenue Service ("IRS"). Contributions to an IRA made
available by the Fund may be invested in shares of the Fund.
The Custodian has agreed to serve as custodian of the IRA and
furnish the services provided for in the Custodial Agreement. The Custodian will
charge each IRA an application fee as well as certain additional fees for its
services under the Custodial Agreement. In accordance with IRS regulations, an
individual may revoke an IRA within seven calendar days after it is established.
Contributions in excess of the allowable limits, premature
distributions to an individual who is not disabled before age 59-1/2 or
insufficient distributions after age 70-1/2 will generally result in substantial
adverse tax consequences.
For information required for adopting an IRA, including
information on fees, obtain the form of Custodial Agreement and related
materials, including disclosure materials, available from the Fund. Consultation
with a financial adviser regarding an IRA is recommended.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all its net investment income,
if any. Dividends from such net investment income will be paid quarterly. All
net realized long- or short-term capital gains, if any, will be distributed to
the Fund's shareholders at least annually. See "Shareholder Services-Automatic
Reinvestment of Dividends and Capital Gains Distributions" for information
concerning the manner in which dividends and distribution may be reinvested
automatically in shares of the Fund.
TAXATION
The following is a general summary of certain federal income
tax considerations affecting the Fund and its shareholders and, except as
otherwise indicated, reflects provisions of the Internal Revenue Code of
1986, as amended, ("Code") Code as of the date of this Prospectus. No attempt is
made to present a detailed explanation of all federal, state, local and foreign
income tax considerations, and this discussion is not intended as a
substitute for careful tax planning. Accordingly, potential investors are
urged to consult their own tax advisors regarding an investment in the Fund.
The Fund
The Fund has qualified and intends to continue to qualify
as a "regulated investment company" for federal income tax purposes
under Subchapter M of the Code as amended ("the Code").
In order to so qualify, the Fund must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, payments
with respect to loans of securities, gains from the sale or other disposition of
stock or securities, or foreign currencies, or other income derived with respect
to its business of investing in such stock, securities or currencies (including,
but not limited to, gains from options, futures or forward contracts); and (b)
diversify its holdings so that, at the end of each quarter of each taxable year,
(i) at least 50% of the value of the Fund's assets is represented by cash, cash
items, U.S. Government securities, securities of other regulated investment
companies, and other securities which, with respect to any one issuer, do not
represent more than 5% of the value of the Fund's assets nor more than 10% of
the voting securities of such issuer, and (ii) not more than 25% of the value of
the Fund's assets is invested in the securities of any issuer (other than U.S.
Government securities or the securities of other regulated investment companies)
or of any two or more issuers that the Fund controls and that are engaged in the
same, similar or related trades or businesses.
If the Fund qualifies as a regulated investment company and
distributes to its shareholders at least 90% of its net investment income (i.e.,
its net investment company taxable income as that term is defined in the Code
without regard to the deductions for dividends), then the Fund will not be
subject to federal income tax on its net investment income and net capital gains
(i.e., the excess of the Fund's net long-term capital gain over its short-term
capital loss) if any, that it distributes to its shareholders in each taxable
year. However, the Fund would be subject to corporate income tax (currently at a
rate of 35%) on any undistributed net investment income, and net capital gain.
If the Fund retains amounts attributable to its net capital gain, the Fund
expects to designate such retained amounts as undistributed capital gains in a
notice to its shareholders who (i) will be required to include in income for
United States federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (ii) will be entitled to
credit their proportionate shares of the 35% tax paid by the Fund on the
undistributed amounts against their federal income tax liabilities and to claim
refunds to the extent such credits exceed their liabilities and (iii) will be
entitled to increase their tax basis, for federal income tax purposes, in their
shares by an amount equal to 65% of the amount of undistributed capital gains
included in the shareholder's income.
In addition, the Fund will be subject to a nondeductible 4%
excise tax on the amount by which the aggregate income it distributes in any
calendar year is less than the sum of: (a) 98% of the Fund's ordinary income for
such calendar year; (b) 98% of the excess of capital gains over capital losses
(both long- and short-term) for the one-year period ending on October 31 of each
year; and (c) 100% of the undistributed ordinary income and gains from prior
years. For this purpose, any income or gain retained by the Fund that is subject
to corporate tax will be considered to have been distributed by year-end.
The Fund intends to distribute sufficient income so as to
avoid both corporate federal income tax and the excise tax.
The Fund may make investments that produce income that is not
matched by a corresponding cash distribution to the Fund, such as investments in
pay-in-kind bonds or in obligations such as certain Brady Bonds or zero coupon
securities having original issue discount (i.e., an amount equal to the excess
of the stated redemption price of the security at maturity over its issue
price), or market discount (i.e., an amount equal to the excess of the stated
redemption price of the security at maturity over its basis immediately after it
was acquired) if the Fund elects as it intends to accrue market discount on a
current basis. In addition, income may continue to accrue for federal income tax
purposes with respect to a non-performing investment. Any of the foregoing
income would be treated as income earned by the Fund and therefore would be
subject to the distribution requirements of the Code. Because such income may
not be matched by a corresponding cash distribution to the Fund, the Fund may be
required to dispose of other securities to be able to make distributions to it
investors.
The Fund's taxable income will in most cases be determined on
the basis of reports made to the Fund by the issuers of the securities in which
the Fund invests. The tax treatment of certain securities in which the Fund may
invest is not free from doubt and it is possible that an IRS examination
of the issuers of such securities or of the Fund could result in adjustments
to the income of the Fund. An upward adjustment by
the IRS to the income of the Fund may result in the failure of the Fund to
satisfy the 90% distribution requirement described herein necessary for the Fund
to maintain its status as a regulated investment company under the Code. In such
event, the Fund may be able to make a "deficiency dividend" distribution to its
shareholders with respect to the year under examination to satisfy this
requirement. Such distribution will be taxable as a dividend to the shareholders
receiving the distribution (whether or not the Fund has sufficient current or
accumulated earnings and profits for the year in which such distribution is
made). A downward adjustment by the IRS to the income of the Fund may cause a
portion of the previously made distribution with respect to the year under
examination not to be treated as a dividend. In such event, the portion of
distributions to each shareholder not treated as a dividend would be
recharacterized as a return of capital and reduce the shareholder's basis in the
shares held at the time of the previously made distributions. Accordingly, this
reduction in basis could cause a shareholder to recognize additional gain upon
the sale of such shareholder's shares.
Income received by the Fund from sources outside the United
States may be subject to withholding and other taxes imposed by countries other
than the United States. Because the Fund's investments in foreign securities
will be limited, the Fund will not be eligible to elect to "pass-through" to
its shareholders any tax benefits associated with any foreign income taxes
paid by the Fund.
Certain of a Fund's investments in structured products may,
for federal income tax purposes, constitute investments in shares of foreign
corporations. If a Fund purchases shares in certain foreign investment entities,
called "passive foreign investment companies" ("PFICs"), the Fund 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 Fund to its shareholders. Additional charges in the
nature of interest may be imposed on either a Fund or its shareholders with
respect to deferred taxes arising from the distributions or gains. If a Fund
were to invest in a PFIC and (if the Fund received the necessary information
available from the PFIC, which may be difficult to obtain) elected to treat the
PFIC as a "qualified electing fund" under the Code, in lieu of the foregoing
requirements, the Fund 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 Fund, and the amounts would be subject to the 90% and excise
tax distribution requirements described above. Because of the expansive
definition of a PFIC, it is possible that a Fund may invest a portion of its
assets in PFICS. It is not anticipated, however, that the portion of such Fund's
assets invested in PFICs will be material.
Effective for tax years beginning after December 31, 1997, the
Fund may elect to be governed by Section 1296 of the Code. If the election is
made, the Fund includes in income each year an amount equal to the excess, if
any, of the fair value of the PFIC stock as of the close of taxable year over
the Fund's adjusted basis in such stock. The Fund is allowed a deduction for
the excess, if any, of the adjusted basis of the PFIC stock over its fair market
value as of the close of the taxable year. However, such deductions are
allowable only to the extent of any net mark-to-market gains with respect to the
stock included by the Fund for prior taxable years. The tax basis of PFIC
stock is adjusted by the income and deductions recognized. Mark-to-market
gains and the allowable deductions will get ordinary gain/loss treatment.
Additionally, the holding period of PFIC stock will be deemed to begin on the
first day of the following tax year after making the election. For
purposes of RIC qualification, mark-to-market gain is treated as a
dividend. Any income or loss recognized under Section 1296 is treated as
U.S. source.
Under the Code, gains or losses attributable to fluctuations
in exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time a Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, gains or
losses from the disposition of foreign currencies, from the disposition of debt
securities denominated in a foreign currency, or from the disposition of a
forward contract denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, increase or decrease the amount of a Fund's
net investment income available to be distributed to its
shareholders as ordinary income, rather than increasing or decreasing the amount
of a Fund's net capital gain. Because section 988 losses reduce the amount of
ordinary dividends a Fund will be allowed to distribute for a taxable year, such
section 988 losses may result in all or a portion of prior dividends
distributions for such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as ordinary dividend, reducing each
shareholder's basis in his Fund shares. To the extent that such distributions
exceed such shareholder's basis, each distribution will be treated as a gain
from the sale of shares.
Shareholders
Distributions. Distributions to shareholders of ordinary
income dividends will be taxable as ordinary income whether paid in cash or
reinvested in additional shares. It is anticipated that a portion of such
dividends will qualify for the dividends received deduction generally available
for corporate shareholders under the Code. Shareholders receiving distributions
from the Fund in the form of additional shares will be treated for federal
income tax purposes as receiving a distribution in an amount equal to the fair
market value of the additional shares on the date of such distribution.
Consequently, if the number of Shares distributed reflects a market premium, the
amount distributed to shareholders would exceed the amount of the cash
distributed to nonparticipating shareholders.
Distributions to shareholders of net capital gain that are
designated by the fund as "capital gains dividends", will be taxable as
long-term capital gains, whether paid in cash or additional shares, regardless
of how long the shares have been held by such shareholders. These distributions
will not be eligible for the dividends-received deduction. The maximum federal
income tax rate currently imposed on individuals with respect to long-term
capital gains is 28% (20% if securities are held more than 18
months), whereas the maximum federal income tax rate currently imposed on
individuals with respect to ordinary income (and short-term capital gains, which
are taxed at the same rates as ordinary income) is 39.6%. With respect to
corporate taxpayers, generally long-term capital gains are taxed at the
same federal income tax rate as ordinary income and short-term capital gains.
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although the price of shares
purchased at that time may reflect the amount of the forthcoming distribution,
those who purchase just prior to a distribution will receive a distribution
which will nevertheless be taxable to them.
Dividends and distributions by the Fund are generally taxable
to the shareholders at the time the dividend or distribution is made (even if
paid or reinvested in additional shares). Any dividend declared by the Fund in
October, November or December of any calendar year, however, which is payable to
shareholders of record on a specified date in such a month and which is not paid
on or before December 31 of such year will be treated as received by the
shareholders as of December 31 of such year, provided that the dividend is paid
during January of the following year. Any distribution in excess of the Fund's
net investment income and net capital gain would first reduce a shareholder's
basis in his shares and, after the shareholder's basis is reduced to zero, would
constitute capital gains to a shareholder who holds his shares as capital
assets.
A notice detailing the tax status of dividends and
distributions paid by the Fund will be mailed annually to the shareholders of
the Fund.
Dispositions and Redemptions. Gain or loss, if any, recognized
on the sale or other disposition of shares of the Fund will be taxed as capital
gain or loss if the shares are capital assets in the shareholder's hands.
Generally, a shareholder's gain or loss will be a long-term gain or loss if the
shares have been held for more than one year. If a shareholder sells or
otherwise disposes of a share of the Fund before holding it for more than six
months, any loss on the sale or other disposition of such share shall be treated
as a long-term capital loss to the extent of any capital gain dividends received
by the shareholder with respect to such share. A loss realized on a sale or
exchange of shares may be disallowed if other shares are acquired within a
61-day period beginning 30 days before and ending 30 days after the date that
the shares are disposed of. If disallowed, the loss will be reflected by an
upward adjustment to the basis of the shares acquired.
-----------------------------
Investors should consult their own tax advisors regarding
specific questions as to the federal, state, local and foreign tax consequence
of ownership of shares in the Fund.
ADDITIONAL INFORMATION
Description of Shares
Holland Series Fund, Inc. was incorporated under Maryland Law
on June 27, 1995. The Fund currently is the only organized portfolio of Holland
Series Fund, Inc. Holland Series Fund, Inc. has an authorized capital of
1,000,000,000 shares of Common Stock, par value $0.01 per share. All shares are
of the same class. Shareholders of the Fund are entitled to one vote for each
full share held and fractional votes for fractional shares held and will vote on
the election of Directors and any other matter submitted to a shareholder vote.
Voting rights for Directors are not cumulative. Shares of the Fund issued are
fully paid and non-assessable and have no preemptive or conversion rights.
Redemption rights are discussed elsewhere herein and in the Prospectus. Each
share is entitled to participate equally in dividends and distributions declared
by the Fund and in the net assets of the Fund upon liquidation or dissolution
after satisfaction of outstanding liabilities. Stock certificates will not be
issued by the Transfer Agent.
Appropriate Investors
Investors should carefully consider the Prospectus and
Statement of Additional Information when determining whether the Fund is an
appropriate investment given their particular investment needs and preferences.
An investment in the Fund may provide diversification to an investor
whose assets are primarily invested in stocks or bonds alone. The Fund may
be an appropriate choice for conservative investors seeking to build wealth
over time. The Fund may also be an appropriate choice for: (i) those who
want to leave the all-important asset allocation decision to a professional
manager; (ii) investors who want to capture some of the stock market's growth
potential but with less risk than an all-equity portfolio; (iii) investors
building capital for education or retirement who are looking for a core
investment vehicle; and (iv) anyone who appreciates Michael Holland's
approach to portfolio management.
Independent Accountants
Price Waterhouse LLP, 1177 Avenue of the Americas, New York,
New York 10036 has been selected as the independent accountants of the Fund. The
selection of independent accountants is subject to ratification by the Fund's
shareholders at any annual meeting of shareholders held by the Fund. The
independent accountants are responsible for auditing the financial statements of
the Fund.
Custodian and Fund Accounting Agent
Investors Bank & Trust Company, P.O. Box 1537, Boston,
Massachusetts 02205 acts as custodian and fund accounting agent of the Fund's
assets. The custodian is responsible for safeguarding and controlling the Fund's
cash and securities, handling the delivery of securities and collecting interest
and dividends on the Fund's investments. The fund accounting agent is
responsible for maintaining the books and records and calculating the daily net
asset value of the Fund.
Transfer Agent
Unified Advisers, Inc., P.O. Box 6110, Indianapolis, IN
46206-6110 acts as the Fund's transfer agent. The transfer agent is responsible
for the issuance, transfer and redemption of shares and the opening, maintenance
and servicing of shareholder accounts.
Legal Counsel
Simpson Thacher & Bartlett, New York, New York, is counsel
for the Fund.
Reports to Shareholders
The fiscal year of the Fund ends on September 30 of each year.
The Fund sends to its shareholders at least semi-annually reports showing the
Fund's portfolio and other information. An annual report, containing financial
statements audited by independent accountants, is sent to shareholders each
year. At the end of each calendar year, shareholders will receive Federal income
tax information regarding dividends and capital gains distributions.
Additional Information
The prospectus and this Statement of Additional Information do
not contain all the information set forth in the Registration Statement and the
exhibits thereto, which the Fund has filed with the SEC, Washington, D.C., under
the Securities Act of 1933 and the 1940 Act, to which reference is hereby made.
FINANCIAL STATEMENTS
The Fund's annual Financial Statements for the year ended
September 30, 1997 are hereby incorporated by reference in this Statement of
Additional Information from the Fund's annual report filed with the Securities
and Exchange Commission on December 3, 1997. The Fund's annual report can be
obtained without charge by calling the Fund at (800) 30-HOLLAND [800-304-6552].
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*/ interested person as defined in the 1940 Act.
