UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-9060
----------------------------------------------
HOLLAND SERIES FUND, INC.
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
375 PARK AVENUE
NEW YORK, NEW YORK 10152
------------------------------------------------------------------------------
(Address of principal executive offices)(Zip code)
(Name and Address of Agent for Service) Copy to:
Michael Holland State Street Bank and Trust Company
President and Treasurer Julie Tedesco, Esq.
Holland Series Fund, Inc. One Federal Street, 9th Floor
375 Park Avenue Boston, Massachusetts 02110
New York, New York 10152
and
Brynn Peltz, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Registrant's telephone number, including area code: (800) 304-6552
Date of fiscal year end: September 30th
Date of reporting period: September 30, 2004
ITEM 1: SHAREHOLDER REPORT
[BACKGROUND GRAPHIC]
HOLLAND BALANCED FUND
Annual Report
September 30, 2004
- ------------------------------------------------
<Table>
CONTENTS
Letter from the President.................... 1
Cumulative Performance....................... 2
Management Discussion of Fund Performance and
Notes to Performance....................... 3
Statement of Net Assets...................... 5
Statement of Operations...................... 8
Statements of Changes in Net Assets.......... 9
Financial Highlights......................... 10
Notes to Financial Statements................ 11
Report of Independent Registered Public
Accounting Firm............................ 15
Unaudited Information........................ 16
Directors and Officers....................... 18
</Table>
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - LETTER FROM THE PRESIDENT
- --------------------------------------------------------------------------------
September 30, 2004
- --------------------------------------------------------------------------------
(M. HOLLAND PHOTO)
Dear Fellow Shareholder:
Our Fund's cumulative total return
since inception (October 2, 1995
through September 30, 2004) is
75.83%. For the twelve months ended
September 30, 2004, our Fund's
total return is 5.12%.
As I view our equity portfolio which makes up 60% of our Fund, I am more
optimistic about its profit potential than at any time since 1995. What prompts
this optimism? Two things: The current and future earnings and dividend
performance of our companies, and, importantly, the fact that their stock prices
have been, and currently remain, at relative bargain levels.
A few years ago when our blue-chip equity holdings had their stock prices
outperforming many other assets, I wrote in these pages that such a period of
outperformance would pass. And now I'll observe that the opposite end of the
cycle is here: The current period of price underperformance will also pass, and,
as it does, the profit rewards will be considerable.
As our Fund's largest individual shareholder, I am most confident in our Fund's
holdings, fixed income as well as equity.
With Bullish Regards,
- -s- Michael F. Holland
Michael F. Holland
President and Founder
1
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - CUMULATIVE PERFORMANCE (UNAUDITED)
- --------------------------------------------------------------------------------
September 30, 2004
- --------------------------------------------------------------------------------
Set forth below are the cumulative total return figures for the periods
indicated and a graph showing the hypothetical $10,000 investment made in the
Holland Balanced Fund, Standard & Poor's 500 Index, Salomon 10 Year Government
Bond Index, 90 Day U.S. Treasury Bill and the Lipper Balanced Fund Index on
October 2, 1995. The cumulative and annualized total return figures and the
information in the graph represent past performance and are not indicative of
future results. The total returns reflect changes in price of the Fund's shares
and assume that any income dividends and/or capital gain distributions made by
the Fund during the period were reinvested in additional shares of the Fund.
Investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
<Table>
<Caption>
SALOMON 10 YEAR 90 DAY U.S.
HOLLAND BALANCED LIPPER BALANCED STANDARD & POOR'S GOVERNMENT TREASURY BILL
FUND(A) FUND INDEX(B) 500 INDEX(B) BOND INDEX(B) RATE(B)
---------------- --------------- ----------------- --------------- -------------
Inception 10000 10000 10000 10000 10000
3/97 12582 11703 12955 10412 10790
9/97 14192 13758 16209 11618 11067
3/98 14772 15037 18852 12562 11351
9/98 14537 14442 17402 14153 11628
3/99 16417 16363 22011 13431 11887
9/99 16554 16390 21949 13060 12167
3/00 19373 18076 25643 13757 12500
9/00 18976.3 18215 24580 14310 12874
3/01 16823 17074 19855 15592 13226
9/01 15981 16333 17812 16350 13453
3/02 17024 17496 19633 15788 13545
9/02 14561.6 14725 13951 18776 13405
3/03 15385.5 15246 14514 19069 13760
9/03 16727.5 17256 17042 19509 13826
3/04 17902 19076 19271 20331 13889
9/04 17583 19033 19073 20504 13979
</Table>
INVESTMENT PERFORMANCE
For the Periods Ended September, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
Average Total Return
Average Annualized Cumulative
ANNUALIZED SINCE INCEPTION SINCE INCEPTION
Return over the period One Year Five Year (10/2/95) (10/2/95)
- --------------------------------------------------------------------------------------
HOLLAND BALANCED FUND
(a) 5.12% 1.21% 6.47% 75.83%
Lipper Balanced Fund
Index (b) 10.58% 3.09% 7.43% 90.33%
Standard & Poor's 500
Index (b) 11.91% -2.77% 7.46% 90.73%
Salomon 10 Year
Government Bond Index
(b) 5.10% 9.46% 8.33% 105.04%
90 Day U.S. Treasury
Bill (b) 1.10% 2.82% 3.80% 39.79%
</Table>
2
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - MANAGEMENT DISCUSSION OF FUND
PERFORMANCE (UNAUDITED)
- --------------------------------------------------------------------------------
September 30, 2004
- --------------------------------------------------------------------------------
Since inception (October 2, 1995 through September 30, 2004), our Fund's total
return was 75.83% compared to 90.33% for the Lipper Balanced Fund Index, which
is an unmanaged index. For the past twelve months ended September 30, 2004, our
Fund's total return was 5.12% compared to 10.58% for the Lipper Index.
Our Fund's concentration in the equities of the largest and highest quality
companies was outperformed by the stock price increases of smaller companies
which make up a large part of the Standard & Poor's 500 marketplace. This
disparity in price performance, which worked in favor of the large blue-chip
companies a few years ago, has historically reverted.
Our portfolio composition by sector, which is detailed below, was a positive
offset in two significant areas: our large position in U.S. Treasury
inflation-indexed securities, and our investment in the Energy sector, which was
overweighted compared to the Standard & Poor's 500 Index. Nevertheless, the
outperformance of small and medium sized companies' equities, versus the
performance of the large blue-chip companies, was the most significant recent
factor, (and one which history would indicate normally reverses itself.)
Portfolio composition by sector
(AS A % OF TOTAL NET ASSETS)
- --------------------------------------------------------------------------------
[PIE CHART]
<Table>
<Caption>
DIVERSIFIED CONSUMER FOOD & MULTI REPURCHASE
U.S. GOVERNMENT FINANCE ENERGY MANUFACTURING BASICS TECHNOLOGY RETAIL BEVERAGES MEDIA AGREEMENT
- --------------- ------- ------ ------------- -------- ---------- ------ --------- ----- ----------
38.3 14.10 12.60 10.40 7.50 7.40 3.80 2.20 1.70 1.40
</Table>
3
- --------------------------------------------------------------------------------
NOTES TO PERFORMANCE
- --------------------------------------------------------------------------------
(a) Reflects waiver of fees and reimbursement of expenses by investment adviser.
Absent such waiver and reimbursement, the Fund's total return would have
been lower.
(b) The Lipper Balanced Fund Index is an index of mutual funds whose primary
objective is to conserve principal by maintaining at all times a balanced
portfolio of both stocks and bonds. Typically, the stock/bond ratio ranges
around 60%/40%. The Standard & Poor's 500 Index is a capitalization-weighted
index of 500 widely held stocks recognized by investors to be representative
of the stock market in general. The Salomon 10 Year Government Bond Index is
a subsector of the Broad Investment-Grade (BIG) Index. At present, this
sector contains U.S. Treasury securities with at least $1 billion public
amount outstanding and U.S. Agency and supranational issues with at least
$100 million outstanding. All securities in this index have a remaining
maturity of at least 10 years and carry a fixed rate coupon. The 90-Day U.S.
Treasury Bill rate is the average return on three month U.S. Treasury Bills.
The Standard & Poor's 500 Index and the Salomon 10 year Government Bond
Index are unmanaged and do not reflect the actual cost of investing in the
instruments that comprise each index.
4
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
September 30, 2004 Shares Value(+)
- ----------------------------------------------------------------------
COMMON STOCKS-59.9%
BANKS-2.1%
The Bank of New York Co., Inc. 45,000 $ 1,312,650
-----------
COMPUTERS-3.4%
International Business Machines Corp. 24,800 2,126,352
-----------
ELECTRONICS-6.6%
3M Co. 30,600 2,447,082
Intel Corp. 83,800 1,681,028
-----------
4,128,110
-----------
ENTERTAINMENT & LEISURE-1.7%
The Walt Disney Co. 46,000 1,035,469
-----------
FOOD & BEVERAGES-2.2%
PepsiCo, Inc. 28,500 1,393,690
-----------
FINANCIAL-6.4%
American Express Co. 40,000 2,058,400
Citigroup, Inc. 43,000 1,897,160
-----------
3,955,560
-----------
INSURANCE-5.7%
American International Group, Inc. 32,000 2,175,680
Berkshire Hathaway, Inc. Class A* 16 1,386,400
-----------
3,562,080
-----------
OIL/GAS-12.6%
ChevronTexaco Corp. 23,000 1,233,720
Exxon Mobil Corp. 82,600 3,992,058
Schlumberger, Ltd. 39,500 2,658,745
-----------
7,884,523
-----------
PHARMACEUTICALS-7.5%
Johnson & Johnson 50,500 2,844,665
Pfizer, Inc. 60,000 1,836,000
-----------
4,680,665
-----------
PRODUCER GOODS-3.8%
General Electric Co. 71,100 2,387,538
-----------
RETAIL TRADE-3.9%
Wal-Mart Stores, Inc. 45,000 2,394,000
-----------
SOFTWARE-4.0%
Microsoft Corp. 91,000 2,516,150
-----------
Total Common Stocks (Cost-$32,429,337) 37,376,787
-----------
</Table>
- --------------------------------------------------------------------------------
See Notes to the Financial Statements
5
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - STATEMENT OF NET ASSETS (continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
September 30, 2004 Principal Value(+)
- ----------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES-38.3%
GOVERNMENT AGENCY-0.8%
Federal Home Loan Bks, 3.500%
due 5/18/09 $ 500,000 $ 500,825
-----------
GOVERNMENT TREASURIES-37.5%
United States Treasury Note, 6.500%
due 5/15/05 2,000,000 2,054,376
United States Treasury Note, 2.000%
due 5/15/06 4,000,000 3,972,656
United States Treasury Note, 3.500%
due 1/15/11** 10,610,730 12,009,606
United States Treasury Note, 5.000%
due 2/15/11 5,000,000 5,375,585
-----------
23,412,223
-----------
Total U.S. Government Securities
(Cost-$22,358,602) 23,913,048
-----------
REPURCHASE AGREEMENTS-1.4%
State Street Bank and Trust Co. Repurchase
Agreement 0.650% due 10/1/04 in the
amount of $890,016; issued 9/30/04
(Collateralized by $845,000, FNMA,
6.250% due 03/05/12 with a market
value of $910,488) (Cost-$890,000) 890,000 890,000
-----------
Total Investments-99.6%
(Cost-$55,677,939) 62,179,835
-----------
OTHER ASSETS IN EXCESS OF LIABILITIES-0.4% 242,429
-----------
NET ASSETS-100%
Applicable to 4,151,240 outstanding $0.01
par value shares (authorized
1,000,000,000) $62,422,264
===========
Net asset value, offering price and
redemption price per share $ 15.04
===========
</Table>
- --------------------------------------------------------------------------------
See Notes to the Financial Statements
6
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - STATEMENT OF NET ASSETS (concluded)
- --------------------------------------------------------------------------------
<Table>
<Caption>
September 30, 2004
- ---------------------------------------------------------------------
COMPONENTS OF NET ASSETS AS OF SEPTEMBER 30, 2004
Capital stock at par value ($0.01) $ 41,513
Capital stock in excess of par value 59,405,279
Undistributed net investment income 176,926
Net accumulated realized loss on investments (3,703,350)
Net unrealized appreciation on investments 6,501,896
-----------
Net Assets $62,422,264
===========
</Table>
- --------------------------------------------------------------------------------
See Notes to the Financial Statements
* Non-income producing
** Treasury Inflation-Protection Security (TIPS)
+ See Note 2 to Financial Statements
FNMA Federal National Mortgage Assoc.
7
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Year Ended September 30, 2004
- ---------------------------------------------------------------------
INVESTMENT INCOME:
Interest $1,113,974
Dividends 620,837
----------
Total investment income 1,734,811
----------
EXPENSES:
Investment advisory fees (Note 3) 474,119
Administration and custody fees (Note 4) 130,479
Transfer agent fees 76,860
Shareholder reports 48,180
Audit fees 34,100
Directors fees 20,130
Insurance fees 19,764
Legal fees 16,836
Registration fees 12,810
Miscellaneous expense 5,000
----------
Total operating expenses 838,278
Net investment income 896,533
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (632,157)
Net change in unrealized appreciation on investments 2,800,628
----------
Net realized and unrealized gain on investments 2,168,471
----------
Net increase in net assets resulting from operations $3,065,004
==========
</Table>
- --------------------------------------------------------------------------------
See Notes to the Financial Statements
8
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Year Ended Year Ended
9/30/04 9/30,/03
- -----------------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income $ 896,533 $ 647,903
Net realized loss on investments (632,157) (1,312,967)
Net change in unrealized appreciation on
investments 2,800,628 7,920,643
----------- -----------
Net increase in net assets resulting from
operations 3,065,004 7,255,579
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net investment income (836,153) (650,886)
CAPITAL SHARE TRANSACTIONS, NET (NOTE 7) (735,053) 5,002,197
----------- -----------
Total increase in net assets 1,493,798 11,606,890
NET ASSETS
Beginning of year 60,928,466 49,321,576
----------- -----------
End of year $62,422,264 $60,928,466
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME, END OF
YEAR $ 176,926 $ 116,546
=========== ===========
</Table>
- --------------------------------------------------------------------------------
See Notes to the Financial Statements
9
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
For a capital share outstanding For the Year Ended
throughout the period 9/30/04 9/30/03 9/30/02 9/30/01 9/30/00
- ----------------------------------------------------------------------------------------------
PER SHARE DATA
Net asset value, beginning of period $ 14.50 $ 12.78 $ 14.21 $ 17.19 $ 15.27
------- ------- ------- ------- -------
INCREASE/DECREASE FROM INVESTMENT
OPERATIONS
Net investment income 0.21 0.17 0.17 0.24 0.24
Net realized and unrealized gain
(loss) on investments 0.53 1.72 (1.42) (2.92) 2.00
------- ------- ------- ------- -------
Total from investment operations 0.74 1.89 (1.25) (2.68) 2.24
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.20) (0.17) (0.18) (0.25) (0.26)
Net realized gain on investments -- -- -- (0.05) (0.06)
------- ------- ------- ------- -------
Total dividends and distributions (0.20) (0.17) (0.18) (0.30) (0.32)
------- ------- ------- ------- -------
Net asset value, end of period $ 15.04 $ 14.50 $ 12.78 $ 14.21 $ 17.19
======= ======= ======= ======= =======
TOTAL RETURN 5.12% 14.87% (8.88)%(a) (15.78)%(a) 14.63%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $62,415 $60,928 $49,322 $59,728 $68,298
Ratio of expenses to average net assets
after fee waivers and reimbursement of
other expenses 1.33% 1.46% 1.50% 1.50% 1.50%
Ratio of expenses to average net assets
before fee waivers and reimbursement of
other expenses 1.33% 1.46% 1.53% 1.59% 1.56%
Ratio of net investment income to average
net assets after fee waivers and
reimbursement of other expenses 1.42% 1.21% 1.17% 1.49% 1.46%
Ratio of net investment income to average
net assets before fee waivers and
reimbursement of other expenses 1.42% 1.21% 1.14% 1.40% 1.40%
Portfolio turnover 8.89% 9.92% 39.86% 19.63% 17.99%
</Table>
- --------------------------------------------------------------------------------
See Notes to the Financial Statements
<Table>
(a) Total return would have been lower had certain expenses not
been waived or reimbursed.
</Table>
10
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 2004
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Holland Series Fund, Inc. (the "Company") was organized as a Maryland
corporation on June 26, 1995 and is registered under the Investment Company Act
of 1940, as amended, as an open-end, management investment company. The Company
currently has one portfolio, the Holland Balanced Fund (the "Fund").
Investment Objective
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 gains/losses on investments. The Fund seeks to achieve its
objective through a combined portfolio of equity and investment grade
fixed-income securities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Securities
Securities transactions are accounted for as of the trade date. Interest income
and expenses are recorded on an accrual basis. The Fund amortizes discount or
premium using the yield-to-maturity method on a daily basis, except for
securities having a maturity date of sixty days or less at the time of
acquisition which are amortized on a straight-line basis. Dividend income is
recorded on the ex-dividend date. The Fund uses the specific identification
method for determining gain or loss on sales of securities.
The Fund may invest in Treasury Inflation-Protection Securities (TIPS). The
principal value and interest payout of TIPS are periodically adjusted according
to the rate of inflation based on the Consumer Price Index. The adjustments for
interest income due to the inflation is reflected in interest income in the
statement of operations.
Indemnifications
Under the Fund's organizational documents, its Officers and Directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business the Fund
enters into contracts that provide general indemnifications to other parties.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
Income Tax
There is no provision for federal income or excise tax since the Fund intends to
continue to qualify as a regulated investment company ("RIC") and intends to
comply with the requirements of Subchapter M of the Internal Revenue Code
applicable to RICs and to distribute substantially all of its taxable income and
realized gains.
11
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 2004
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
As of September 30, 2004 the Fund had a net tax basis capital loss carryforward,
for federal income tax purposes of $1,102,688 and $1,891,518, that may be
applied against future taxable capital gains until its expiration date on
September 30, 2010 and September 30, 2011, respectively.
Valuation
Securities traded on an exchange are valued at their last sales price on that
exchange. Securities for which over-the-counter market quotations are available
are valued at the latest bid price. The Fund is using the NASDAQ Official
Closing Price as the pricing source for those securities trading through that
market. Debt securities purchased with sixty days or less remaining to maturity
are valued at amortized cost which approximates fair value.
Securities 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
Directors of the Fund.
Expenses
Holland & Company L.L.C. (the "Investment Adviser") has agreed to voluntarily
waive its fee and to reimburse the Fund for expenses exceeding 1.50% of average
daily net assets. During the year ended September 30, 2004, the Investment
Adviser did not waive any portion of the advisory fees.
Dividends and Distributions to Shareholders
The Fund distributes dividends quarterly and capital gains annually.
Distributions from net short-term capital gains and net long-term capital gains,
if any, will typically be declared and paid in December, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. To the extent that a net realized
capital gain can be reduced by a capital loss carryover, such gain will not be
distributed.
Dividends and distributions to shareholders are recorded on the ex-date of the
dividend or the distribution. Distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations, which may differ from those amounts determined under accounting
principles generally accepted in the United States of America. These book/tax
differences are either temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions that
exceed net investment income or net realized capital gains for financial
reporting purposes, but not for tax purposes, are reported as distributions in
excess of net investment income or distributions in excess of net realized gains
on investments. To the extent they exceed net investment income or net realized
gains for tax purposes, they are reported as distributions of capital.
The tax character of distributions paid during the year ended September 30, 2004
was $836,153 for distributions paid from ordinary income. The tax character of
distributions paid during the year ended September 30, 2003 was $650,886 for
distributions paid from ordinary income.
12
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 2004
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
As of September 30, 2004 the components of distributable earnings on a tax basis
were $176,926 for undistributed ordinary income and $6,424,909 for unrealized
appreciation.
3. INVESTMENT ADVISORY AGREEMENT
The Company's Board of Directors has approved an investment advisory agreement
with the Investment Adviser. For its services as investment adviser, the Company
pays the Investment Adviser a monthly fee at an annual rate of 0.75% of the
Fund's average daily net assets. The Investment Adviser is controlled by Michael
F. Holland, its managing member and owner of a 99% interest in the Investment
Adviser.
As of September 30, 2004, Michael F. Holland and affiliates owned 99,803 shares
(2.4% of the shares outstanding) of the Fund.
4. ACCOUNTING, CUSTODY ADMINISTRATION
AND DISTRIBUTION AGREEMENTS
State Street Bank and Trust Company ("State Street") pursuant to its
Administration Agreement, provides or arranges for the provision of certain
administrative and accounting services for the Company, including maintaining
the books and records of the Company, and preparing certain reports and other
documents required by federal and /or state laws and regulations. For these
services, the Company pays State Street a fee at the annual rate of 0.10% of the
Fund's average daily net assets up to $100 million, 0.08% of the next $100
million, and 0.06% of those assets in excess of $200 million, subject to certain
minimum requirements, and reimbursement for out-of-pocket expenses pursuant to
the Administration Agreement. Pursuant to the Administration Agreement, the
Administrator is entitled to a minimum fee of $7,000 per month unless waived by
the Administrator. State Street also serves as the Fund's custodian and
accounting agent. Fees paid for custody and accounting services rendered by
State Street are based upon assets of the Fund and on transactions entered into
by the Fund during the period and are included in the administration and custody
fees in the Statement of Operations.
Alps Distributors Inc. pursuant to a distribution agreement with the Fund
provides distribution of the Fund's shares at no cost to the Fund or its
shareholders. The Investment Advisor bears the distribution cost.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term investments
and U.S. Government Securities, for the year ended September 30, 2004 aggregated
$5,048,802 and $5,475,685, respectively. Purchases and sales of U.S. Government
Securities, for the year ended September 30, 2004 aggregated $500,000 and $0,
respectively.
13
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 2004
- --------------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS (continued)
The components of net unrealized appreciation/ (depreciation) of investments
based on federal tax cost at September 30, 2004 for the Fund were as follows:
<Table>
<Caption>
- -----------------------------------------------------------------
Cost for Federal
Appreciation Depreciation Net Appreciation Tax Purposes
- -----------------------------------------------------------------
$7,276,453 $851,544 $6,424,909 $55,754,926
</Table>
At fiscal year ended September 30, 2004 the Fund incurred losses in the amount
of $632,157 that will be deferred in the current year and recognized at the year
ending September 30, 2005. The losses may be available to offset realized gains,
if any, to the extent provided in the regulations.
6. REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements under which a bank or securities
firm that is a primary or reporting dealer in U.S. Government securities agrees,
upon entering into a contract, to sell U.S. Government securities to the Fund
and repurchase such securities from the Fund at a mutually agreed upon price and
date. The Fund will engage in repurchase transactions with parties selected on
the basis of such party's creditworthiness. The collateral on repurchase
agreements must have an aggregate market value greater than or equal to the
repurchase price plus accrued interest at all times. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Fund will require the seller to deposit additional collateral by
the next business day. If the request for additional collateral is not met, or
the seller defaults on its repurchase obligation, the Fund maintains the right
to sell the underlying securities at market value and may claim any resulting
loss against the seller. However, in the event of default or bankruptcy by the
counterparty to the agreement, realization and/or retention of the collateral
may be subject to legal proceedings.
7. CAPITAL SHARE TRANSACTIONS
As of September 30, 2004, there were 1,000,000,000 shares of $.01 par value
capital stock authorized. Transactions in capital stock were as follows:
<Table>
<Caption>
- ---------------------------------------------------------------------------
Year Ended Year Ended
9/30/04 9/30/03
- ---------------------------------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------
Shares Sold 575,194 8,742,625 775,454 11,014,822
Shares Reinvested 43,101 646,181 38,491 530,809
-------- ------------ -------- -----------
618,295 9,388,806 813,945 11,545,631
Shares Redeemed (669,629) (10,123,859) (469,384) (6,543,434)
-------- ------------ -------- -----------
NET INCREASE/(DECREASE) (51,334) $ (735,053) 344,561 $ 5,002,197
======== ============ ======== ===========
- ---------------------------------------------------------------------------
</Table>
14
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
Holland Balanced Fund
In our opinion, the accompanying statement of net assets, including the
portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Holland Balanced Fund (the "Fund")
at September 30, 2004, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then ended
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 11, 2004
15
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - UNAUDITED INFORMATION
- --------------------------------------------------------------------------------
PROXY VOTING POLICIES
The Fund's Board of Directors have adopted proxy voting policies and procedures
for the Fund. On August 31 of each year, the Fund will be required to file with
the Securities and Exchange Commission its proxy voting record for the 12-month
period ending June 30, 2005 on Form N-PX. The Fund's proxy voting and policy
procedure and the most recent Form N-PX are available without charge, upon
request, by calling 1-800-30-HOLLAND or on the Securities and Exchange
Commission's website at http://www.sec.gov.
QUARTERLY PORTFOLIO OF INVESTMENTS
Beginning December 31, 2004, the Fund will file a Portfolio of Investments as of
the end of the first and third quarter of each fiscal year on Form N-Q which
will be available on the Security Exchange Commission's website at
http://www.sec.gov. Additionally, the Portfolio of Investments may be reviewed
and copied at the Commissions Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1.800.SEC.0330. The quarterly Portfolio of Investments will be made
available without charge, upon request, by calling 1-800-30-HOLLAND.
FEDERAL TAX INFORMATION
Certain tax information for the Fund is required to be provided to shareholders
based on the Fund's income and distributions for the taxable year ended
September 30, 2004. The amounts shown may differ from those elsewhere in this
report due to differences between tax and financial reporting requirements. In
January 2005, shareholders will receive Form 1099-DIV which will include their
share of qualified dividends and capital gains distributed during the calendar
year 2004. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their individual income tax
returns.
The Holland Balanced Fund designated 66.4% of ordinary income dividends as
income qualifying for dividends received deduction for the fiscal year ended
September 30, 2004.
Under Section 854(b)(2) of the Internal Revenue Code, the Holland Balanced Fund
designates $620,837 as qualified dividends for the fiscal year ended September
30, 2004.
SHAREHOLDER EXPENSES
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments and redemption fees
and (2) ongoing costs, including management fees, shareholder services fees and
other Fund expenses. This example is intended to help you understand your
ongoing costs of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds. It is based on an investment
of $1,000 invested at the beginning of the period and held for the entire
six-month period ended September 30, 2004.
ACTUAL EXPENSES
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you incurred over the period.
Simply divide your account value at the end of the period by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the
16
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - UNAUDITED INFORMATION (continued)
- --------------------------------------------------------------------------------
ACTUAL EXPENSES (continued)
number under the heading entitled "Expenses Paid During Period" to estimate the
expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratios and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. Thus, you should not use the hypothetical account values and
expenses to estimate the actual ending account balance or your expenses for the
period. Rather, these figures are provided to enable you to compare the ongoing
costs of investing in the Funds and other funds. To do so, compare the 5%
hypothetical examples with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Expenses paid during the period include amounts reflected in the Fund's
Statement of Operations net of reimbursement by the investment advisor.
<Table>
<Caption>
- ----------------------------------------------------
+For the Six Months Ended September 30, 2004
- ----------------------------------------------------
Value of a
$1,000 Expenses
Investment at Paid During
Actual End of Period the Period
- ----------------------------------------------------
$982.17 $6.64
</Table>
<Table>
<Caption>
- ----------------------------------------------------
For the Six Months Ended September 30, 2004
- ----------------------------------------------------
Hypothetical Value of a
(assuming a 5% $1,000 Expenses
return before Investment at Paid During
expenses) End of Period the Period
- ----------------------------------------------------
$1,018.30 $6.76
</Table>
17
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
Holland Balanced Fund - DIRECTORS AND OFFICERS (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN OTHER
POSITION(S) TERM OF OFFICE FUND COMPLEX DIRECTORSHIPS
HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION OVERSEEN BY HELD BY
NAME, ADDRESS, AND AGE FUND TIME SERVED DURING PAST FIVE YEARS DIRECTOR DIRECTOR
- ----------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR:
Michael F. Holland* Director, Term: Unlimited Holland & Company 1 Trustee of
375 Park Avenue Chairman of L.L.C., Chairman, State Street
New York, NY 10152 the Board, Elected: 9/95 1995 - present. Master Funds,
President and State Street
Age: 60 Treasurer Institutional
Investment
Trust and China
Fund, Inc.;
Director,
Reaves Utility
Income Fund
NON-INTERESTED DIRECTORS:
Sheldon S. Gordon Director Term: Unlimited Union Bancaire Privee 1 Director,
630 Fifth Avenue International Ametek, Inc.
Suite 2710 Elected: 9/95 Holdings, Inc. and Director,
New York, NY 10111 (Financial Services), Gulfmark
Chairman, Offshore, Inc.
Age: 68 1996 - Present.
Herbert S. Winokur, Jr. Director Term: Unlimited Chairman and Chief 1 Director, Mrs.
Capricorn Holdings, Inc. Executive Officer, Fields Famous
30 East Elm Street Elected: 9/95 Capricorn Holdings, Brands, Inc.;
Greenwich, CT 06830 Inc. (Investment Director, CCC
Age: 60 Company), Managing Information
General Partner, Services Group,
Capricorn Investors, Inc.; and
L.P., Capricorn Director, NATCO
Investors II, L.P., Group, Inc.
Capricorn Investors
III, L.P.,
1987 - present.
Desmond G. FitzGerald Director Term: Unlimited Chairman, North 1 Chairman, U.S.
375 Park Avenue American Properties Guaranteed
New York, NY 10152 Elected: 9/95 Group (Real Estate), Finance Corp.;
1987 - present. Advisory
Age: 60 Director, Bank
of New York;
Director,
Hilliard Farber
& Co., Inc.;
and Trustee,
Williams
Capital
Management
Trust.
Jeff C. Tarr Director Term: Unlimited Chairman, Junction 1 None
Junction Advisors Advisors (Financial
145 Central Park West, Elected: 9/95 Services), 1981 -
Apt. 25C present.
New York, NY 10023
Age: 60
OFFICERS:
Tana Tselepis Chief Term: Unlimited Consultant to Holland -- Member of the
375 Park Avenue Compliance & Company, LLC, Board of
New York, NY 10152 Officer and Elected: 5/02 1997 - 1999. Governors of
Vice (Vice Tufts - New
Age: 68 President President) and England Medical
9/04 (Chief Center
Compliance
Officer)
Julie A. Tedesco Secretary Term: Vice President and -- --
One Federal Street Indefinite Senior Counsel of
Boston, MA 02110 State Street Bank and
Elected: 5/02 Trust Company (2000 -
Age: 47 present); Counsel of
First Data Investor
Services Group, Inc.
(1994 - 2000).
</Table>
* Michael F. Holland is an interested person of the Fund because of his
employment relationship with Holland & Company L.L.C., the Investment Adviser.
The Statement of Additional Information for the Fund includes additional
information about the Fund's Directors and Officers and is available without
charge, upon request, by calling 1-800-30-HOLLAND.
18
Holland Series Fund, Inc.
- --------------------------------------------------------------------------------
ADVISER
Holland & Company L.L.C.
375 Park Avenue
New York, NY 10152
email HBFUND@aol.com
website www.thehollandfund.com
FUND ADMINISTRATOR,
CUSTODIAN AND FUND
ACCOUNTING AGENT
State Street Bank and Trust Co.
225 Franklin Street
Boston, MA 02110
DISTRIBUTOR
ALPS Distributors, Inc.
1625 Broadway, Suite 2200
Denver, CO 80202
TRANSFER AGENT & DIVIDEND
DISBURSING AGENT
ALPS Mutual Fund Services, Inc.
1625 Broadway, Suite 2200
Denver, CO 80202
LEGAL COUNSEL
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
- ------------------------------------
Holland & Company L.L.C.
375 Park Avenue
New York, New York 10152
Phone 800-30-HOLLAND
Email mike@thehollandfund.com
Website www.thehollandfund.com
This report has been prepared for the
Holland Balanced Fund's Shareholders
and may be distributed to others only
if preceded or accompanied by a prospectus.
ITEM 2. CODE OF ETHICS
(a) Holland Series Fund, Inc. (the "Fund") adopted a Code of Ethics for
Principal Executive and Senior Financial Officers (the "Code of Ethics") on
November 6, 2003.
(c) There have been no amendments to the Fund's Code of Ethics since its
adoption.
(d) There have been no waivers granted by the Fund to individuals covered by the
Fund's Code of Ethics since its adoption.
(f) A copy of the Fund's Code of Ethics has been posted on
www.hollandbalancedfund.com, the Fund's website.
ITEM 3. CODE OF ETHICS
(a)(1) The Board of Directors of the Fund has determined that the Fund has one
Board member serving on the Fund's Audit Committee that possess the attributes
identified in Instructions 2(b) of Item 3 to Form N-CSR to qualify as an "audit
committee financial expert."
(2) Sheldon S. Gordon is the Fund's audit committee financial expert. The
Board also determined that Mr. Gordon was "independent" as that term is defined
in the Sarbanes-Oxley Act of 2002.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees
For the fiscal years ending September 30, 2004 and September 30,
2003, the aggregate audit fees billed for professional services
rendered by PricewaterhouseCoopers ("PwC"), the Fund's principal
accountant, for the audit of the Fund's annual financial statements
and services normally provided by PwC in connection with the Fund's
statutory and regulatory filings or engagement were $31,000 and
$37,000, respectively.
(b) Audit-Related Fees
For the fiscal years ending September 30, 2004 and September 30,
2003, there were no fees for assurance and related services by PwC
reasonably related to the performance of the audit of the Fund's
financial statements that were not reported under (a) of this Item.
(c) Tax Fees
For the fiscal years ending September 30, 2004 and September 30,
2003, the aggregate tax fees billed for professional services
rendered by PwC for tax
compliance, tax advice, and tax planning were $3,100 and $3,000,
respectively. Services included the review of income and excise tax
returns for the Fund.
(d) All Other Fees
For the fiscal years ending September 30, 2004 and September 30,
2003, there were no fees billed for professional services rendered
by PwC for products and services provided by PwC, other than the
services reported in (a) through (c).
For the fiscal years ended September 30, 2004 and September 30,
2003, there were no fees billed for professional services rendered
by PwC for products and services provided by PwC to Holland &
Company, L.L.C. (the "Adviser") and any entity controlling,
controlled by, or under common control with the Adviser that
provides ongoing services to the Fund that (i) relate directly to
the operations and financial reporting of the Fund and (ii) were
pre-approved by the Fund's audit committee.
(e)(1) Audit Committee Pre-Approval Policies and Procedures
The Fund's Audit Committee Charter states the following with respect
to pre-approval procedures:
Pre-Approval Requirements. Before the independent accountants
are engaged by the Fund to render audit or non-audit services,
either:
1. The Audit Committee shall pre-approve all auditing
services and permissible non-audit services (e.g., tax
services) provided to the Fund. The Audit Committee may
delegate to one or more of its members the authority to
grant pre-approvals. Any decision of any member to whom
authority is delegated under this section shall be
presented to the full Audit Committee at its next
regularly scheduled meeting;
or
2. The engagement to render the auditing service or
permissible non-audit service is entered into pursuant
to pre-approval policies and procedures established by
the Audit Committee. Any such policies and procedures
must (1) be detailed as to the particular service and
(2) not involve any delegation of the Audit Committee's
responsibilities to the investment adviser. The Audit
Committee must be informed of each service entered into
pursuant to the policies and procedures. A copy of any
such policies and procedures shall be attached as an
exhibit to the Audit Committee Charter.
De Minimis Exceptions to Pre-Approval Requirements.
Pre-Approval for a service provided to the Fund other than
audit, review or attest services is not
required if: (1) the aggregate amount of all such non-audit
services provided to the Fund constitutes not more than 5
percent of the total amount of revenues paid by the Fund to
the independent accountants during the fiscal year in which
the non-audit services are provided; (2) such services were
not recognized by the Fund at the time of the engagement to be
non-audit services; and (3) such services are promptly brought
to the attention of the Audit Committee and are approved by
the Audit Committee or by one or more members of the Audit
Committee to whom authority to grant such approvals has been
delegated by the Audit Committee prior to the completion of
the audit.
Pre-Approval of Non-Audit Services Provided to the Adviser and
Certain Control Persons. The Audit Committee shall pre-approve
any non-audit services proposed to be provided by the
independent accountants to (a) the investment adviser and (b)
any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to
the Fund, if the independent accountants' engagement with the
investment adviser or any such control persons relates
directly to the operations and financial reporting of the
Fund. It shall be the responsibility of the independent
accountants to notify the Audit Committee of any non-audit
services that need to be pre-approved.
Application of De Minimis Exception: The De Minimis exception
set forth above applies to pre-approvals under this Section as
well, except that the "total amount of revenues" calculation
is based on the total amount of revenues paid to the
independent accountants by the Fund and any other entity that
has its services approved under this Section (i.e., the
investment adviser or any control person).
(e)(2) Percentages of Services
There were no pre-approval requirements waived for the services
described in paragraphs (b) through (d) of this Item by the Audit
Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) Total Fees Paid By Adviser and Certain Affiliates
For the fiscal years ending September 30, 2004 and September 30,
2003, the aggregate non-audit fees billed by PwC for services
rendered to the Fund and Holland & Company, L.L.C. (the "Adviser")
and any entity controlling, controlled by, or under common control
with the Adviser that provided ongoing services to the Fund were $0
and $0, respectively.
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no materials changes to the procedures by which shareholders may
recommend nominees to the Fund's Board of Directors.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Within 90 days of the filing date of this Form N-CSR, Michael Holland, the
Fund's President and Treasurer, reviewed the registrant's disclosure controls
and procedures (the "Procedures") and evaluated their effectiveness. Based on
his review, Mr. Holland determined that the Procedures adequately ensure that
information required to be disclosed by the Fund in its periodic reports is
recorded, processed, summarized and reported within the time periods required by
the Securities and Exchange Commission's rules and regulations.
(b) There were no significant changes in the Fund's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 12. EXHIBITS
(a)(1) Not applicable
(a)(2) The certifications required by Rule 30a-2 of the Investment Company Act
of 1940, as amended (the "1940 Act") are attached hereto.
(b) The certifications required by Rule 30a-2(b) of the 1940 Act and Sections
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HOLLAND SERIES FUND, INC.
By: /s/Michael Holland
------------------
Michael Holland
President and Treasurer of Holland Series Fund, Inc.
Date: November 24, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Michael Holland
------------------
Michael Holland
President and Treasurer of Holland Series Fund, Inc.
Date: November 24, 2004