Securities Act Registration No. 33-96634
Investment Company Act Reg. No. 811-9094
__________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 1 [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2 [ ]
(Check appropriate box or boxes.)
______________________
LEUTHOLD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
100 North Sixth Street, Suite 700A
Minneapolis, Minnesota 55403
(Address of Principal Executive Offices) (Zip Code)
(612) 332-9141
(Registrant's Telephone Number, including Area Code)
Copy to:
David D. Deming
Leuthold & Anderson, Inc. Richard L. Teigen
100 North Sixth Street Foley & Lardner
Suite 700A 777 East Wisconsin Avenue
Minneapolis, Minnesota 55403 Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
Registrant has registered an indefinite number of shares of its common
stock, $0.0001 par value, under the Securities Act of 1933 and will file
its required Rule 24f-2 Notice for Registrant's fiscal year ending
September 30, 1996 prior to November 30, 1996.
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
__________________________________________________________________________
The Exhibit Index is located at page __ of the sequential numbering
system.
Page 1 of __ Pages
<PAGE>
LEUTHOLD FUNDS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and
the Statement of Additional Information of the responses to the Items of
Parts A and B of Form N-1A.)
Caption or Subheading in
Prospectus or Statement of
Item No. on Form N-1A Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Fund Expenses
3. Financial Highlights Financial Highlights; Total
Return
4. General Description of Investment Objective;
Registrant Investment Policies;
Investment Risks; Who
Should Invest;
Implementation of Policies;
Investment Restrictions
5. Management of the Fund Management of the Fund;
Investment Adviser;
Administration of the Fund
5A. Management's Discussion of *
Fund Performance
6. Capital Stock and Other Dividends, Capital Gains
Securities and Taxes; General
Information; Other Leuthold
Services
7. Purchase of Securities Being The Share Price of the
Offered Fund; Opening an Account
and Purchasing Shares; When
Your Account Will be
Credited
8. Redemption or Repurchase Selling Your Shares;
Important Information About
Telephone Transactions;
Transferring Registration
9. Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT
OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and *
History
13. Investment Objectives and Investment Restrictions;
Policies Investment Considerations
14. Management of the Fund Directors and Officers of
the Corporation
15. Control Persons and Directors and Officers of
Principal Holders of the Corporation; Ownership
Securities of Management and Principal
Shareholders; Investment
Adviser, Administrator,
Custodian, Transfer Agent
and Account Services Agent
16. Investment Advisory and Investment Adviser,
Other Services Administrator, Custodian,
Transfer Agent and Account
Services Agent; Independent
Accountants
17. Brokerage Allocation Allocation of Portfolio
Brokerage
18. Capital Stock and Other Included in Prospectus
Securities under "General Information"
19. Purchase, Redemption and Included in Prospectus
Pricing of Securities Being under "The Share Price of
Offered the Fund"; "Opening an
Account and Purchasing
Shares"; "When Your Account
Will Be Credited"; "Selling
Your Shares"; "Important
Information About Telephone
Transactions"; "Transferring
Registration"; Determination of
Net Asset Value; Systematic
Withdrawal Plan
20. Tax Status Taxes
21. Underwriters *
22. Calculations of Performance Performance Information
Data
23. Financial Statements Financial Statements
_______________________
* Answer negative or inapplicable
Leuthold
Asset Allocation Fund
Leuthold Asset Allocation Fund
the sole portfolio of
Leuthold Funds, Inc.
Supplement to the Prospectus dated October 31, 1995
The date of this Supplement is April 30, 1996
The following table is to be inserted on Page 2 of the Prospectus before
"Total Return".
Financial Highlights
The financial information of a share of Leuthold Asset Allocation Fund
(the "Fund") outstanding during the period from November 20, 1995
(commencement of operations) to March 31, 1996 included in this table has
been derived from the financial records of the Fund without examination by
the Fund's independent accountants, who do not express an opinion thereon.
The table should be read in conjunction with the financial statements and
related notes contained in the Fund's Semi-Annual Report to Shareholders,
copies of which may be obtained, without charge, upon request.
Net asset value, beginning of period . . . . . . . . . . $10.00
-----
Income from investment operations:
Net investment income . . . . . . . . . . . . . . . . 0.15
Net realized and unrealized losses on investments . . (0.01)
------
Total from investment operations . . . . . . . . . . 0.14
-----
Less distributions from net investment income . . . . . . (0.15)
-----
Net asset value, end of period . . . . . . . . . . . . . $9.99
======
Total return(1) . . . . . . . . . . . . . . . . . . . . . 1.42%
Supplemental data and ratios:
Net assets, end of period . . . . . . . . . . . . $34,401,222
Ratio of expenses to average net assets(2) . . . . . 1.25%
Ratio of net investment income to average net assets(2) 4.49%
Portfolio turnover rate . . . . . . . . . . . . . . . 32.31%
(1) Not annualized for the period November 20, 1995 through March 31,
1996.
(2) Annualized for the period November 20, 1995 through March 31,
1996. Without expense waivers of $23,286 for the period November
20, 1995 through March 31, 1996, the ratio of expenses to average
net assets would have been 1.49% and the ratio of net investment
income to average net assets would have been 4.25%.
PROSPECTUS
October 31, 1995
LEUTHOLD
ASSET ALLOCATION FUND
New Account Information:
Investor Information Department . . . . . . . . . . . . . . 1-800-273-6886
Table of Contents
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . 2
Total Return . . . . . . . . . . . . . . . . . . . . . . 2
Investment Objective . . . . . . . . . . . . . . . . . . 2
Investment Policies . . . . . . . . . . . . . . . . . . . 2
Investment Risks . . . . . . . . . . . . . . . . . . . . 3
Who Should Invest . . . . . . . . . . . . . . . . . . . . 4
Implementation of Policies . . . . . . . . . . . . . . . 4
Investment Restrictions . . . . . . . . . . . . . . . . . 8
Management of the Fund . . . . . . . . . . . . . . . . . 8
Investment Adviser . . . . . . . . . . . . . . . . . . . 8
Administration of the Fund . . . . . . . . . . . . . . 10
Dividends, Capital Gains and Taxes . . . . . . . . . . 11
The Share Price of the Fund . . . . . . . . . . . . . . 11
General Information . . . . . . . . . . . . . . . . . . 12
Shareholder Guide
Opening an Account and Purchasing Shares . . . . . . . 13
Choosing a Distribution Option . . . . . . . . . . . . 14
Tax Caution . . . . . . . . . . . . . . . . . . . . . . 14
Additional Information . . . . . . . . . . . . . . . . 14
When Your Account Will Be Credited . . . . . . . . . . 15
Selling Your Shares . . . . . . . . . . . . . . . . . . 15
Important Information About Telephone Transactions . . 16
Transferring Registration . . . . . . . . . . . . . . . 16
Other Leuthold Services . . . . . . . . . . . . . . . . 16
Investment Objective and Policies
Leuthold Funds, Inc. is an open-end diversified investment company
consisting of a single portfolio, the Leuthold Asset Allocation Fund (the
"Fund"), that seeks high total return (i.e., capital change plus income)
consistent with reasonable risk over the long term. The Fund invests in
common stocks and other equity securities, bonds and other fixed-income
securities, and money market instruments in proportions consistent with
their expected returns and risks as evaluated by Leuthold & Anderson,
Inc., the Fund's adviser (the "Adviser"). See "INVESTMENT POLICIES" and
"IMPLEMENTATION OF POLICIES." The Adviser believes that seeking high total
return necessarily involves minimizing market risk. There is no assurance
that the Fund will achieve its stated objective.
Opening an Account
To open a regular (non-retirement) account, please complete and return the
Purchase Application. If you need assistance in completing this Form,
please call our Investor Information Department. The minimum initial
investment is $10,000 or $1,000 for Uniform Gifts/Transfers to Minors Act
accounts and Individual Retirement Accounts (IRAs). To open an IRA, please
use a Leuthold IRA Application. To obtain a copy of this form, call 1-800-
273-6886, Monday through Friday from 8:00 a.m. to 7:00 p.m. (Central
time). The Fund is offered on a no-load basis (i.e., there are no sales
commissions or 12b-1 fees). However, the Fund incurs expenses for
investment advisory and administrative services.
About This Prospectus
This Prospectus is designed to set forth concisely the information you
should know about the Fund before you invest. It should be retained for
future reference. A "Statement of Additional Information" containing
additional information about the Fund has been filed with the Securities
and Exchange Commission. Such Statement is dated October 31, 1995 and has
been incorporated by reference into this Prospectus. A copy may be
obtained without charge by writing to the Fund or by calling the Investor
Information Department.
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 COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Fund Expenses
The following table illustrates all expenses and fees that you would incur
as a shareholder of the Fund. The Annual Fund Operating Expenses are based
on the estimated amount set forth in the table.
Shareholder Transaction Expenses Sales Load
Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None*
Exchange Fees None
Annual Fund Operating Expenses
Management Fees 0.90%
12b-1 Fees None
Other Expenses (after estimated
reimbursements) (1) 0.35%
Total Fund Operating Expenses
(after estimated reimbursements) (1) 1.25%
* A fee of $7.50 is charged for each wire redemption.
(1) Other Expenses and Total Fund Operating Expenses are estimated and
reflect the fact that the Fund's investment adviser has voluntarily agreed
to reimburse the Fund to the extent necessary to ensure that Total Fund
Operating Expenses do not exceed 1.25% of the average daily net assets of
the Fund. Absent reimbursement, Other Expenses and Total Fund Operating
Expenses for the Fund for the fiscal year ending September 30, 1996 are
estimated to be 0.70% and 1.60%, respectively.
The purpose of this table is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an
investor in the Fund.
The following example illustrates the expenses that you would incur on a
$1,000 investment over various periods, assuming (1) a 5% annual rate of
return and (2) redemption at the end of each period. As noted in the table
above, the Fund charges no redemption fees of any kind.
1 Year 3 Years
_____ ______
$13 $40
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown.
Total Return
From time to time the Fund may advertise its total return. Total return
figures are based on historical earnings and are not intended to indicate
future performance. An investment in the Fund will fluctuate in value and
at redemption its value may be more or less than the original investment.
The "total return" of the Fund refers to the average annual compounded
rates of return over stated periods or for the life of the Fund (which
periods will be stated in the advertisement) which, if applied to an
initial investment in the Fund at the beginning of a stated period and
compounded over the period, would result in the redeemable value of the
Fund at the end of the stated period. The calculation assumes reinvestment
of all dividends and distributions and reflects the effect of all
recurring fees.
Additionally, the Fund may compare its performance to that of the Standard
& Poor's 500 Composite Stock Price Index ("S&P 500 Index") and the Lehman
Brothers Intermediate Government/Corporate Bond Index.
Investment Objective
The Fund seeks high total return consistent with reasonable risk over the
long term
The objective of the Fund is to seek high total return (i.e., capital
change plus income) consistent with reasonable risk over the long term.
Capital change includes both realized and unrealized changes. The Fund's
investment adviser, Leuthold & Anderson, Inc. (the "Adviser"), believes
that seeking high total return necessarily involves minimizing market
risk. The Adviser believes that maintaining profits when the market
declines is as important as earning profits. There is no assurance that
the Fund will achieve its stated objective.
Investment Policies
The Fund invests in equity securities, fixed-income securities and money
market instruments in varying proportions
The Fund will allocate its assets among common stocks and other equity
securities, bonds and other fixed-income securities, and money market
instruments. The Fund may also invest indirectly in such securities
through investments in registered investment companies. See
"IMPLEMENTATION OF POLICIES" for a discussion of the types of equity and
fixed-income securities in which the Fund may invest. The Adviser
allocates the Fund's assets among equity securities, fixed-income
securities and money market instruments in proportions which reflect the
anticipated returns and risks of each asset class. The estimates of return
and risk are developed based upon the Adviser's disciplined valuation
methodology. There are no limitations on the amount of the Fund's assets
which may be allocated to each of the three asset classes (equity
securities, fixed-income securities and money market instruments).
However, except under what the Adviser considers unusual circumstances,
equity securities will comprise 30% to 70% of the Fund's total assets.
Fixed-income securities also typically will constitute 30% to 70% of the
Fund's total assets. Money market instruments will rarely exceed 20% of
the Fund's total assets. For purposes of determining such proportions,
investments in equity funds will be classified as equity securities,
investments in fixed-income funds will be classified as fixed-income
securities and investments in money market funds will be classified as
money market securities. The Fund is managed without regard to tax
ramifications.
In estimating the relative attractiveness of each asset class, the Adviser
takes into account various factors. The Adviser initially begins the
allocation process by analyzing the government bond market, both domestic
and foreign, considering both economic and monetary factors and
forecasting the trend of inflation. It attempts to determine what risks
and returns U.S. Treasury securities present over the next one to five
years. The Adviser then assesses the probability that common stocks as an
asset class will perform better. In doing so, it will consider The
Leuthold Group's Major Trend Index, which index comprises over 170
individual components that are evaluated weekly. Key elements include
stock market intrinsic value benchmark studies, economic and monetary
factors, inflation and interest rate levels and trends, equity investor
attitudinal factors, equity supply/demand considerations and technical
stock market measures.
Once expected return and volatility (risk) estimates are developed for
each asset class, the Adviser will implement a particular allocation
strategy. See "Implementation of Policies" for a description of the
securities in which the Fund invests and other investment practices of the
Fund.
The investment objective and policies of the Fund (other than those
indicated in "Investment Restrictions") are not fundamental and so may be
changed by the Board of Directors without shareholder approval. However,
shareholders would be notified at least 30 days in advance prior to a
material change in either.
Investment Risks
The Fund is subject to stock and bond market risk
Depending on the Adviser's allocation of the Fund's assets among stocks,
bonds and money market instruments, investors in the Fund may be exposed
to the market risk of common stocks and bonds.
Stock market risk is the possibility that stock prices in general will
decline over short or even extended periods. This risk is in addition to
the risks inherent in the individual stock selections made by the Adviser
which are discussed in "Implementation of Policies."
Bond market risk is the potential for fluctuations in the market value of
bonds. Bond prices vary inversely with changes in the level of interest
rates. When interest rates rise, the prices of bonds fall; conversely,
when interest rates fall, bond prices rise. While bonds normally fluctuate
less in price than stocks, there have been extended periods of cyclical
increases in interest rates that have caused significant declines in bond
prices. The risk of bonds declining in value, however, may be offset in
whole or in part by the higher level of income that bonds provide. In
addition to bond market risks, individual issues of bonds may be subject
to the risk that the issuer may not be able to make scheduled interest and
principal payments. This risk is discussed in "Implementation of
Policies."
While the Fund invests in stocks, bonds and money market instruments in
varying proportions, investors should not construe the Fund as a balanced
investment program offering relatively stable allocations among these
asset classes. Because the allocation strategy of the Adviser may, at
certain times, result in a portfolio with a primary emphasis on common
stocks, the Fund may from time to time exhibit a level of volatility which
is more consistent with a common stock portfolio than a balanced
portfolio. However, under normal circumstances, the volatility of the
Fund's total return is expected to be less than that of a common stock
portfolio, as represented, for example, by the S&P 500 Index.
The Adviser may fail to anticipate market advances or declines
Investors should also be aware that the investment results of the Fund
depend, in part, upon the Adviser's ability to anticipate correctly the
relative performance and risk of stocks, bonds and money market
instruments. Historical evidence indicates that correctly timing portfolio
allocations among these asset classes has been a difficult strategy to
implement successfully. While the Adviser has substantial experience in
asset allocation, there can be no assurance that the Adviser will
correctly anticipate relative asset class performance in the future on a
consistent basis. The Fund's investment results would suffer, for example,
if only a small portion of the Fund's assets were allocated to stocks
during a significant stock market advance, or if a major portion of its
assets were allocated to stocks during a market decline. Moreover, since
the Fund's common stock investments will not parallel the S&P 500 Index or
any other broad market index, it is possible that the Fund's common stock
investments may outperform or underperform the stock market in general.
Similarly, the Fund's performance could deteriorate if the Fund were
substantially invested in bonds at a time when interest rates moved
adversely.
Who Should Invest
Long-term investors seeking high total return
The Fund is designed for investors seeking high total return through an
investment vehicle which provides an actively managed mix of equity
securities, fixed-income securities and money market instruments. Because
the Fund can and may have a large percentage of its portfolio invested in
common stocks, investors in the Fund should be willing to accept certain
risks, including the potential for sudden, sometimes substantial declines
in market value.
Due to the risks associated with common stock and bond investments, the
Fund is intended to be a long-term investment vehicle and is not designed
to provide investors with a means of speculating on short-term stock and
bond market movements. Investors who engage in excessive account activity
generate additional costs which are borne by all of the Fund's
shareholders. In order to minimize such costs the Fund has adopted the
following policies. The Fund reserves the right to reject any purchase
request that is reasonably deemed to be disruptive to efficient portfolio
management, either because of the timing of the investment or previous
excessive trading by the investor. Additionally, the Fund reserves the
right to suspend the offering of its shares.
No assurance can be given that the Fund will achieve its objective or that
shareholders will be protected from the risk of loss that is inherent in
equity investing. Also, there can be no guarantee that the Adviser will
correctly anticipate fluctuations in the stock and bond markets in its
effort to attain high total return while minimizing risk.
Implementation of Policies
The Fund may invest in stocks and other equity securities
In an effort to maximize its total investment return, the Fund utilizes a
number of investment practices.
Structuring a common stock portfolio begins with the Adviser overlaying
current and expected economic conditions against a detailed broad sector
(investment styles) risk/reward framework. The Adviser develops a broad
sector strategy based on historical and expected relationships between
large capitalization stocks (i.e., $1 billion or more) and small
capitalization stocks (i.e., less that $1 billion); between "growth"
stocks (high price/earnings ratio), "value" stocks (low price/earnings
ratio) and "cyclical" stocks (economically sensitive); and between
aggressive stock groups and defensive stock groups.
Utilizing the broad sector (style) strategy, the Adviser determines
individual sector/group allocations focusing on traditional economic and
industrial sectors (e.g., housing, energy, food) as well as conceptual
("office of the future") and quantitative ("superior dividend payers")
themes. The Adviser continually monitors over sixty sectors and themes
both on a fundamental and technical basis. Finally, the Adviser selects
individual stocks to achieve the desired sector exposure.
Individual stocks are selected from within the sector framework, utilizing
a detailed composite ranking system in conjunction with the judgment of
the Adviser. The Adviser: (1) ranks each stock on numerous fundamental
factors such as earnings growth and price/earnings ratio, technical
factors such as price movement and relative strength, and sentiment
factors such as insider activity and short sales ratio; (2) formulates a
weighted composite total score for each stock; and (3) gives a ranking
score for each stock. Stocks with the higher ranking scores are expected
to outperform the broad market averages as well as the sector index.
In addition to investing directly in common stocks, the Fund may invest
indirectly in common stocks by investing in registered investment
companies which invest in common stocks. The Fund may do so to obtain (a)
exposure to international equity markets by investing in international
funds, (b) increased exposure to a particular industry by investing in a
sector fund, or (c) a broad exposure to small capitalization stocks by
investing in small cap funds.
The Fund may also invest in preferred stocks and warrants. Preferred stock
has a preference over common stock in liquidation (and generally dividends
as well) but is subordinated to the liabilities of the issuer in all
respects. As a general rule the market value of preferred stock with a
fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk, while the market price of
convertible preferred stock generally also reflects some element of
conversion value. Because preferred stock is junior to debt securities and
other obligations of the issuer, deterioration in the credit quality of
the issuer will cause greater changes in the value of a preferred stock
than in a senior debt security with similar stated yield characteristics.
Unlike interest payments on debt securities, preferred stock dividends are
payable only if declared by the issuer's board of directors. Preferred
stock also may be subject to optional or mandatory redemption provisions.
Warrants are securities permitting, but not obligating, their holders to
subscribe for other securities. Warrants do not carry with them the right
to dividends or voting rights with respect to the securities that they
entitle their holder to purchase, and they do not represent any rights in
the assets of the issuer. As a result, an investment in warrants may be
considered to be more speculative than certain other types of investments.
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.
The Fund may invest in fixed-income securities
The principal components of the Fund's fixed-income portfolio typically
will be U.S. Treasury Notes and Bonds. The Fund may also invest in
corporate fixed-income securities, including high-yield securities
commonly known as "junk bonds", and fixed-income securities of foreign
issuers. The average portfolio maturity of the Fund's bond portfolio will
depend on the Adviser's view of interest rate trends considering both
fundamental economic indicators and technical market indicators. The Fund
may also invest in zero coupon U.S. Treasury securities which consist of
U.S. Treasury Notes and Bonds that have been stripped of their unmatured
interest coupons by the U.S. Department of Treasury. A zero coupon U.S.
Treasury security pays no interest to its holders during its life and its
value to an investor consists of the difference between its face value at
the time of maturity and the price for which it was acquired, which is
generally an amount much less than its face value. Zero coupon U.S.
Treasury securities are generally subject to greater fluctuations in value
in response to changing interest rates than debt obligations that pay
interest currently.
The Fund may invest indirectly in fixed-income securities by investing in
registered investment companies which invest in such securities. The Fund
may do so to obtain (a) diversified exposure to corporate fixed-income
securities (including high yield or "junk" bonds) by investing in income
funds or (b) diversified exposure to international markets by investing in
international income funds.
The Fund may invest in money market instruments
The Fund's money market instruments may include (a) U.S. Treasury
Securities with a remaining maturity of less than 90 days, (b) high
quality commercial paper issued by corporations rated (at the time of
purchase) in the highest category by Standard & Poor's Corporation ("S&P")
or Moody's Investors Services, Inc. ("Moody's") with a remaining maturity
of less than 90 days, or (c) commercial paper master demand notes rated in
the highest category by S&P or Moody's. Commercial paper master demand
notes are unsecured demand instruments without a fixed maturity bearing
interest at rates which are fixed to known lending rates and which adjust
when such lending rates change.
The Fund may invest in small cap stocks
The Fund may invest directly in small capitalization stocks and may invest
in registered investment companies which invest in small capitalization
stocks. Investments in smaller capitalization companies may offer greater
potential for capital appreciation than larger companies. However greater
market risks are often associated with these companies. They may have
limited product lines, markets, market share and financial resources or
they may be dependent on a small or inexperienced management team. These
stocks may trade less frequently and in more limited volume and be subject
to greater and more abrupt price swings than stocks of larger companies.
The Fund may invest in foreign securities
The Fund may invest up to 25% of its total assets in securities of foreign
issuers. In addition, a registered investment company in which the Fund
may invest may invest up to 100% of its assets in securities of foreign
issuers. Investments in foreign securities involve special risks and
considerations that are not present when the Fund invests in domestic
securities.
There is often less information publicly available about a foreign issuer
than about a U.S. issuer. Foreign issuers are not generally subject to
accounting, auditing, and financial reporting standards and practices
comparable to those in the United States. The securities of some foreign
issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. This is particularly true of securities in
emerging markets which can be extremely volatile. Foreign brokerage
commissions, custodial expenses, and other fees are also generally higher
than for securities traded in the United States. There may also be
difficulties in enforcing legal rights outside the United States. There
may be a possibility of nationalization or expropriation of assets,
imposition of currency exchange controls, confiscatory taxation, political
or financial instability, and diplomatic developments which could affect
the value of an underlying registered investment company's investments in
certain foreign countries. Legal remedies available to investors may be
more limited than those available with respect to investments in the
United States or in other foreign countries. Income received by a
registered investment company in which the Fund invests may be reduced by
withholding and other taxes imposed by such countries.
Individual foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth or gross national product,
inflation rate, capital reinvestment, resource self-sufficiency and
balance of payment positions. The economies of countries with emerging
markets may be predominately based on only a few industries, may be highly
vulnerable to changes in global trade conditions, and may suffer from
extreme and volatile debt or inflation rates. Debt obligations of issuers
located in, or of, developing countries involve a high degree of risk, and
may be in default or present the risk of default.
Since the Fund or a registered investment company in which the Fund may
invest may purchase securities denominated in foreign currencies, changes
in foreign currency exchange rates will affect, either directly or
indirectly, the value of the Fund's assets from the perspective of U.S.
investors. Certain registered investment companies, but not the Fund, may
seek to protect themselves against the adverse effects of currency
exchange rate fluctuations by entering into currency forward, futures or
options contracts. Hedging transactions may not, however, always be fully
effective in protecting against adverse exchange rate fluctuations.
Furthermore, hedging transactions involve transaction costs and the risk
that the registered investment company might lose money; either because
exchange rates move in an unexpected direction, because another party to a
hedging contract defaults or for other reasons. Hedging transactions also
limit any potential gain which might result if exchange rates moved in a
favorable direction. The value of foreign investments and the investment
income derived from them may also be affected (either favorably or
unfavorably) by exchange control regulations. In addition, the value of
foreign fixed-income investments will fluctuate in response to changes in
U.S. and foreign interest rates.
The Fund may hold securities of U.S. and foreign issuers in the form of
American Depositary Receipts ("ADRs") or American Depositary Shares
("ADSs"). These securities may not necessarily be denominated in the same
currency as the securities for which they may be exchanged. ADRs and ADSs
typically are issued by an American bank or trust company and evidence
ownership of underlying securities issued by a foreign corporation.
Generally, ADRs and ADSs in registered form are designed for use in U.S.
securities markets. For purposes of the Fund's investment policies, the
Fund's investments in ADRs and ADSs will be deemed to be investments in
equity securities representing the securities of foreign issuers into
which they may be converted.
The Fund may be exposed to the risks of investing in corporate debt
securities including high-yield securities
The Fund may invest in corporate debt securities, including bonds and
debentures (which are long-term), and notes (which may be short or long-
term). A registered investment company in which the Fund invests may also
invest in such debt securities. These debt securities may be rated
investment grade by S&P or Moody's. Securities rated BBB by S&P or Baa by
Moody's, although investment grade, exhibit speculative characteristics
and are more sensitive than higher rated securities to changes in economic
conditions. The Fund (and registered investment companies in which the
Fund invests) may also invest in securities that are rated below
investment grade. Investments in high yield securities (i.e., less than
investment grade), while providing greater income and opportunity for gain
than investments in higher-rated securities, entail relatively greater
risk of loss of income or principal. Lower-grade obligations are commonly
referred to as "junk bonds". Market prices of high-yield, lower-grade
obligations may fluctuate more than market prices of higher-rated
securities. Lower-grade, fixed income securities tend to reflect short-
term corporate and market developments to a greater extent than higher-
rated obligations which, assuming no change in their fundamental quality,
react primarily to fluctuations in the general level of interest rates.
Debt rated BB, B, CCC, CC and C and debt rated Ba, B, Caa, Ca and C are
regarded by S&P and Moody's, respectively, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal
in accordance with the terms of the obligation. For S&P, BB indicates the
lowest degree of speculation and C the highest. For Moody's, Ba indicates
the lowest degree of speculation and C the highest. For additional
information on the ratings used by S&P and Moody's and a description of
low-rated securities, see the Statement of Additional Information.
Low-rated securities are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are
engaged, to changes in the financial condition of the issuers and to price
fluctuation in response to changes in interest rates. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to
make payments of principal and interest and increase the possibility of
default. In addition, the market for low-rated securities has expanded
rapidly in recent years.
The market for low-rated securities is generally thinner and less active
than that for higher quality securities, which would limit the ability of
the Fund (or a registered investment company in which the Fund invests) to
sell such securities at fair value in response to changes in the economy
or the financial markets. While such securities may have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposure to adverse conditions. For additional information
about the risks of investing in low-rated securities, see the Statement of
Additional Information.
The Fund may invest in securities of other registered investment companies
The Fund may invest up to 25% of its net assets in shares of registered
investment companies. However, under normal market conditions, the Fund
will not invest more than 5% of its net assets in such shares. The Fund
will not purchase or otherwise acquire shares of any registered investment
company (except as part of a plan of merger, consolidation or
reorganization approved by the shareholders of the Fund) if (a) the Fund
and its affiliated persons would own more than 3% of any class of
securities of such registered investment company or (b) more than 5% of
its net assets would be invested in the shares of any one registered
investment company. If the Fund purchases more than 1% of any class of
security of a registered open-end investment company, such investment will
be considered an illiquid investment.
Any investment in a registered investment company involves investment
risk. Additionally an investor could invest directly in the registered
investment companies in which the Fund invests. By investing indirectly
through the Fund, an investor bears not only his or her proportionate
share of the expenses of the Fund (including operating costs and
investment advisory fees) but also indirect similar expenses of the
registered investment companies in which the Fund invests. An investor may
also indirectly bear expenses paid by registered investment companies in
which the Fund invests related to the distribution of such registered
investment company's shares.
Under certain circumstances an open-end investment company in which the
Fund invests may determine to make payment of a redemption by the Fund
(wholly or in part) by a distribution in kind of securities from its
portfolio, instead of in cash. As a result, the Fund may hold such
securities until the Adviser determines it appropriate to dispose of them.
Such disposition will impose additional costs on the Fund.
Investment decisions by the investment advisers to the registered
investment companies in which the Fund invests are made independently of
the Fund and the Adviser. At any particular time, one registered
investment company in which the Fund invests may be purchasing shares of
an issuer whose shares are being sold by another registered investment
company in which the Fund invests. As a result, the Fund would incur
certain transactional costs without accomplishing any investment purpose.
The Fund may be exposed to certain additional risks as a result of
investing in securities of other registered investment companies
Although the Fund will not concentrate its investments, registered
investment companies in which the Fund invests may concentrate their
investments within one industry (i.e. sector funds). Since the investment
alternatives within an industry are limited, the value of the shares of
such a registered investment company may be subject to greater market
fluctuation than a registered investment company which invests in a
broader range of securities. The Fund will not hold, however, more than 3%
of any class of securities, including voting securities, of any registered
investment company.
The Fund may invest in registered investment companies which utilize stock
and bond futures contracts and options on stock and bond futures.
Futures contracts and options on futures contracts may be used for several
reasons: to permit exposure to the stock market by investing in stock
index futures while minimizing the transaction costs of holding each
security comprising the index; to maintain cash reserves while simulating
full investment; to facilitate trading; to seek higher investment returns
when a futures contract is priced more attractively than the underlying
security or index; or to hedge against changes in interest rates.
The primary risks associated with the use of futures contracts and options
are: (i) imperfect correlation between the change in market value of the
securities held by the registered investment company and the prices of
futures contracts and options on futures contracts; and (ii) possible lack
of a liquid secondary market for a futures contract and the resulting
inability to close a futures position prior to its maturity date.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the
extremely high degree of leverage involved in futures pricing. As a
result, a relatively small price movement in a futures contract may result
in immediate and substantial loss (or gain) to the investor.
The Fund may borrow money under unusual circumstances
The Fund may borrow money, subject to the limitations set forth below, for
temporary or emergency purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of
securities.
Portfolio turnover may be high
Due to the active asset allocation approach employed by the Fund, the
Fund's portfolio turnover rate may be high, but will generally not exceed
100% per year. A 100% portfolio turnover rate would occur, for example, if
all of the Fund's securities were replaced within one year. Further, in
order to comply with the "short-short" test of the Internal Revenue
Service, it may be necessary for the Fund to modify its investment
strategy and refrain from securities sales that it would otherwise make.
Under the IRS's "short-short" test, a mutual fund must not receive more
than 30% of its gross income from gains realized on securities held for
less than 90 days. High portfolio turnover (i.e. over 100%) may involve
correspondingly greater brokerage commissions and other transaction costs,
which are borne directly by the Fund. In addition high portfolio turnover
may result in increased short-term capital gains which, when distributed
to shareholders, are treated as ordinary income.
Investment Restrictions
The Fund has adopted certain fundamental restrictions
The Fund has adopted certain restrictions in an attempt to reduce its
exposure to specific situations. Some of these restrictions are that the
Fund will not:
(a) with respect to 75% of the value of its total assets, purchase the
securities of any issuer (except obligations of the United States
government and its instrumentalities) if as a result the Fund would hold
more than 10% of the outstanding voting securities of the issuer, or more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer;
(b) concentrate 25% or more of its total assets in securities of any one
industry (other than obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities);
(c) borrow money or issue securities, except for temporary bank
borrowings (not exceeding 10% of the value of the Fund's total assets) or
for emergency or extraordinary purposes;
(d) sell securities short, buy securities on margin, or write put or call
options; and
(e) pledge or hypothecate its assets, except to secure borrowings for
temporary or emergency purposes.
These investment restrictions are considered at the time investment
securities are purchased. The investment limitations described here and in
the Statement of Additional Information may be changed only with the
approval of a majority of the Fund's shareholders.
Management of the Fund
The Officers of the Fund manage its day-to-day operations and are
responsible to the Fund's Board of Directors. The Directors set broad
policies for the Fund and choose its Officers. A list of Directors and
Officers of the Fund and a statement of their present positions and
principal occupations during the past five years can be found in the
Statement of Additional Information.
Investment Adviser
Leuthold & Anderson, Inc. manages the Fund's investments
The Fund employs Leuthold & Anderson, Inc. (the "Adviser"), 100 North
Sixth Street, Suite 700A, Minneapolis, Minnesota 55403, as its investment
adviser. Under an investment advisory agreement dated October 30, 1995
(the "Advisory Agreement"), the Adviser furnishes continuous investment
advisory services to the Fund. The Adviser discharges its responsibilities
subject to the control of the Officers and Directors of the Fund.
The Adviser has no prior experience advising a mutual fund, but does act
as the investment adviser to individual and institutional clients with
investment portfolios of more than $175 million. The Adviser was organized
in August, 1987. Mr. Steven C. Leuthold, President, Treasurer and a
director of the Fund, and David D. Deming, Vice President, Secretary and a
director of the Fund, serve as the portfolio managers of the Fund and, as
such, are responsible for the day-to-day management of its portfolio. Mr.
Leuthold has been Chairman and Portfolio Manager for the Adviser since
August, 1987. He has also been a Portfolio Manager for Leuthold, Weeden
&Associates, L.P. since January, 1991 and Chairman of The Leuthold Group
since November, 1981. Mr. Deming has been President and Portfolio Manager
of the Adviser since January 1, 1995. He has also been President and
Marketing Director of Leuthold, Weeden & Associates, L.P., a Minneapolis
investment advisory firm, since April, 1994. Prior to joining Leuthold,
Weeden &Associates, L.P., Mr. Deming was employed by The Leuthold Group,
the institutional investment research division of Weeden &Co., L.P., a
securities broker-dealer, from June 1, 1992 until April, 1994. Prior to
joining The Leuthold Group, Mr. Deming was employed by Paine Webber, a
securities broker-dealer, in Minneapolis as an account executive from
September, 1991 until June, 1992. Prior to joining Paine Webber, Mr.
Deming was a co-founder and principal of Via Moto, Ltd., a Chicago,
Illinois specialty retailer, from March, 1989 through September, 1991.
The Adviser supervises and manages the investment portfolio of the Fund
and, subject to such policies as the Board of Directors of the Fund may
determine, directs the purchase or sale of investment securities in the
day-to-day management of the Fund's investment portfolio. Under the
Advisory Agreement, the Adviser, at its own expense and without
reimbursement from the Fund, furnishes office space and all necessary
office facilities, equipment and executive personnel for managing the
investments of the Fund and pays salaries and fees of all officers and
directors of the Fund (except the fees paid to directors who are not
interested persons of the Adviser). For the foregoing, the Adviser
receives a monthly fee based on the Fund's average daily net assets at the
annual rate of 0.90%. The rate of the annual advisory fee is higher than
that paid by most mutual funds.
The Fund will pay all of its expenses not assumed by the Adviser
including, but not limited to, the costs of preparing and printing its
registration statements required under the Securities Act of 1933 and the
Investment Company Act of 1940 and any amendments thereto, the expenses of
registering its shares with the Securities and Exchange Commission and in
the various states, the printing and distribution cost of prospectuses
mailed to existing shareholders, the cost of director and officer
liability insurance, reports to shareholders, reports to government
authorities and proxy statements, interest charges, brokerage commissions,
and expenses incurred in connection with portfolio transactions. The Fund
will also pay the fees of directors who are not officers of the Fund,
salaries of administrative and clerical personnel, association membership
dues, auditing and accounting services, fees and expenses of any custodian
or trustees having custody of Fund assets, expenses of calculating the net
asset value and repurchasing and redeeming shares, and charges and
expenses of dividend disbursing agents, registrars, and share transfer
agents, including the cost of keeping all necessary shareholder records
and accounts and handling any problems relating thereto. In addition to
any reimbursement requirement required under the most restrictive
applicable expense limitation of state securities commissions, the Adviser
has voluntarily agreed to reimburse the Fund for expenses in excess of
1.25% of its average net assets. Such voluntary reimbursements to the Fund
may be modified or discontinued at any time.
The Advisory Agreement authorizes the Adviser to select brokers or dealers
to execute purchases and sales of the Fund's portfolio securities, and
directs the Adviser to use its best efforts to obtain the best available
price and most favorable execution with respect to all transactions. The
full range and quality of brokerage services available are considered in
making these determinations.
The Fund has authorized the Adviser to pay higher commissions in
recognition of brokerage services felt necessary for the achievement of
better execution, provided the Adviser believes this to be in the best
interest of the Fund. Although the Fund does not market its shares through
intermediary brokers or dealers, the Fund may place orders with qualified
broker-dealers who recommend the Fund to clients if the Adviser of the
Fund believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms. The
Fund may also place orders with Weeden & Co., L.P., with which Steven C.
Leuthold is affiliated, if the quality of the transaction and the
commissions are comparable to what they would be with other qualified
brokerage firms.
The Adviser has experience managing accounts with the same investment
objective as the Fund
Set forth below is historical performance data relating to the Adviser.
The data is provided to illustrate past performance in managing similar
portfolios as measured against specified market indices. Composite figures
reflect the performance of all active accounts of the Adviser invested in
the Adviser's conventional portfolio. The composite does not reflect all
of the Adviser's assets under management and may not accurately reflect
the performance of all accounts managed by the Adviser. The accounts
included in the composite had the same investment objective as the Fund
and were managed using substantially similar, though not in all cases,
identical, investment strategies and techniques as those contemplated for
use by the Fund. See "Investment Objective" and "Investment Policies." All
performance data presented is historical and investors should not consider
this performance data as an indication of the future performance of the
Fund or the results an individual investor might achieve by investing in
the Fund. Investors should not rely on the historical performance of the
Adviser when making an investment decision.
All returns quoted are time-weighted total rates of return and include the
reinvestment of dividends and interest. Performance figures are net of the
advisory fees charged by the Adviser to the accounts comprising the
composite. Consequently, the figures do not reflect the assessment of the
Fund's advisory fee or other expenses equivalent to the Fund's operating
expenses. The net effect of the deduction of the Fund's advisory fee and
the operation expenses on annualized performance, including the compounded
effect over time, may be substantial. Investors should be aware that
because the Fund will elect to qualify as a regulated investment company
under the Internal Revenue Code, the Fund will not be subject to taxes on
its investment income and capital gains. See "Dividends, Capital Gains and
Taxes."
All information presented is based on data supplied by the Adviser or from
statistical services, reports or other sources believed by the Adviser to
be reliable. However, such information has not been verified by any third
party and is unaudited.
<TABLE>
<CAPTION>
Annual Rates of Return (1)
Years Ended December 31,
1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C>
Leuthold &
Anderson, Inc.
Conventional
Portfolio (4.1) 14.6 1.4 17.9 1.6 24.9 20.1
S&P 500 Index(2) 1.2 10.0 7.7 30.4 (3.2) 31.7 16.6
Lehman Bros.
Intermediate
Gov't./Corp.
Bond Index(3) (1.9) 8.8 7.2 14.6 9.2 12.9 6.7
</TABLE>
Compounded Annual Rates of Return (1)
(For the Period Ended December 31, 1994)
7 Years 5 Years 3 Years 1 Year
Leuthold &
Anderson, Inc.
Conventional
Portfolio 10.4 5.9 3.7 (4.1)
S&P 500 Index(2) 12.8 8.7 6.3 1.2
Lehman Bros.
Intermediate
Gov't./Corp.
Bond Index(3) 8.1 7.4 4.6 (1.9)
(1) The calculation of the rates of return was performed in accordance
with the Performance Presentation Standards endorsed by the Association
for Investment Management and Research ("AIMR"). Other performance
calculation methods may produce different results. The AIMR performance
presentation criteria require the presentation of at least a ten-year
performance record or performance for the period since inception, if
shorter.
Total annual rate of return is the change in redemption value of units
purchased with an initial $1,000 investment, assuming the reinvestment of
dividends. Compounded annual rate of return represents the level annual
rate which, if earned for each year in a multiple year period, would
produce the cumulative rate of return over that period.
(2) The S&P 500 Index is a widely recognized index of market activity
based on the aggregate performance of a selected, unmanaged portfolio of
publicly traded common stocks. The performance data includes reinvested
dividends.
(3) The Lehman Brothers Intermediate Government/Corporate Bond Index
includes fixed-rate U.S. Treasury, U.S. Government Agency and U.S.
corporate debt and dollar denominated debt securities of certain foreign
entities with maturities no greater than ten years. Performance data
includes reinvestment of interest.
Past performance may not be indicative of future rates of return.
Investors should also be aware that other performance calculation methods
may produce different results, and that comparisons of investment results
should consider qualitative circumstances and should be made only for
portfolios with generally similar investment objectives.
Administration of the Fund
Firstar Trust Company administers the Fund
The Fund has entered into an administration agreement (the "Administration
Agreement") with Firstar Trust Company, 615 East Michigan Street,
Milwaukee, Wisconsin 53202 (the "Administrator"). Under the Administration
Agreement, the Administrator prepares and maintains the books, accounts
and other documents required by the Investment Company Act of 1940,
responds to shareholder inquiries, prepares the Fund's financial
statements and tax returns, prepares certain reports and filings with the
Securities and Exchange Commission and with state Blue Sky authorities,
furnishes statistical and research data, clerical, accounting and
bookkeeping services and stationery and office supplies, keeps and
maintains the Fund's financial and accounting records and generally
assists in all aspects of the Fund's operations. The Administrator, at its
own expense and without reimbursement from the Fund, furnishes office
space and all necessary office facilities, equipment and executive
personnel for performing the services required to be performed by it under
the Administration Agreement. For the foregoing, the Administrator
receives from the Fund a fee, paid monthly at an annual rate of .05% of
the first $100,000,000 of the Fund's average net assets, .04% of the next
$400,000,000 of the Fund's average net assets, and .03% of the Fund's
average net assets in excess of $500,000,000. Notwithstanding the
foregoing, the minimum annual fee payable to the Administrator is $27,000.
Firstar Trust Company also provides custodial, transfer agency and
accounting services for the Fund. Information regarding the fees payable
by the Fund to Firstar Trust Company for these services is provided in the
Statement of Additional Information.
Dividends, Capital Gains and Taxes
The Fund pays quarterly dividends and any capital gains annually
The Fund expects to pay dividends quarterly from ordinary income. Net
capital gains distributions, if any, will be made annually.
In addition, in order to satisfy certain distribution requirements of the
Tax Reform Act of 1986, the Fund may declare special year-end dividend and
capital gains distributions during December. Such distributions, if
received by shareholders by January 31, are deemed to have been paid by
the Fund and received by shareholders on December 31st of the prior year.
Dividend and capital gains distributions may be automatically reinvested
or received in cash. See "Choosing a Distribution Option" for a
description of these distribution methods.
The Fund intends to continue to qualify for taxation as a "regulated
investment company" under the Internal Revenue Code so that it will not be
subject to federal income tax to the extent its income is distributed to
shareholders. Dividends paid by the Fund from net investment income and
net short-term capital gains, whether received in cash or reinvested in
additional shares, will be taxable to shareholders as ordinary income.
Distributions paid by the Fund from long-term capital gains, whether
received in cash or reinvested in additional shares, are taxable as long-
term capital gains, regardless of the length of time you have owned shares
in the Fund. Capital gains distributions are made when the Fund realizes
net capital gains on sales of portfolio securities during the year. The
Fund does not seek to realize any particular amount of capital gains
during a year; rather, realized gains are a by-product of portfolio
management activities. Consequently, capital gains distributions may be
expected to vary considerably from year to year; there will be no capital
gains distributions in years when the Fund realizes net capital losses.
Note that if you accept capital gains distributions in cash, instead of
reinvesting them in additional shares, you are in effect reducing the
capital at work for you in the Fund. Also, keep in mind that if you
purchase shares in the Fund shortly before the record date for a dividend
or capital gains distribution, a portion of your investment will be
returned to you as a taxable distribution, regardless of whether you are
reinvesting your distributions or receiving them in cash.
The Fund will notify you annually as to the tax status of dividend and
capital gains distributions paid by the Fund.
A capital gain or loss may be realized upon exchange or redemption
A sale or redemption of shares of the Fund is a taxable event and may
result in a capital gain or loss.
Dividend distributions, capital gains distributions, and capital gains or
losses from redemptions may be subject to state and local taxes.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied
with IRS taxpayer identification regulations. You may avoid this
withholding requirement by certifying on your Purchase Application your
proper Social Security or Taxpayer Identification Number and by certifying
that you are not subject to backup withholding.
The tax discussion set forth above is included for general information
only. Prospective investors should consult their own tax advisers
concerning the tax consequences of an investment in the Fund. The Fund is
managed without regard to tax ramifications.
The Share Price of the Fund
The Fund's share price or "net asset value" per share is determined by
dividing the total market value of the Fund's investments and other
assets, less any liabilities, by the number of outstanding shares of the
Fund. The Fund's net asset value is determined at the close of regular
trading (generally, 4:00 p.m. Eastern time) each day the New York Stock
Exchange is open for trading.
Common stocks that are listed on a securities exchange are valued at the
last quoted sales price on the day the valuation is made. Price
information on listed stocks is taken from the exchange where the security
is primarily traded. Securities which are listed on an exchange but which
are not traded on the valuation date are valued at the most recent bid
prices. Unlisted securities for which market quotations are readily
available are valued at the latest quoted bid price. Debt securities are
valued at the latest bid prices furnished by independent pricing services.
Other assets and securities for which no quotations are readily available
are valued at fair value as determined in good faith by the Directors.
Short-term instruments (those with remaining maturities of 60 days or
less) are valued at amortized cost, which approximates market.
The Fund has adopted procedures pursuant to Rule 17a-7 under the
Investment Company Act of 1940 pursuant to which the Fund may effect a
purchase and sale transaction with an affiliated person of the Fund (or an
affiliated person of such an affiliated person) in which the Fund issues
its shares in exchange for securities of a type which are permitted
investments for the Fund. For purposes of determining the number of shares
to be issued, the securities to be exchanged will be valued in the manner
described above.
General Information
The Fund is a Maryland corporation. The Articles of Incorporation permit
the Directors to issue 500,000,000 shares of common stock, with a $.0001
par value. The Board of Directors has the power to designate one or more
classes ("series") of shares of common stock and to classify or reclassify
any unissued shares with respect to such series. Currently the Fund is
offering one class of shares.
The shares of the Fund are fully paid and non-assessable; have no
preference as to conversion, exchange, dividends, retirement or other
features; and have no preemptive rights. Such shares have non-cumulative
voting rights, meaning that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the Directors if
they so choose.
Annual meetings of shareholders will not be held except as required by the
Investment Company Act of 1940 and other applicable law. An annual meeting
will be held to vote on the removal of a Director or Directors of the Fund
if requested in writing by the holders of not less than 10% of the
outstanding shares of the Fund.
All securities and cash of the Fund are held by Firstar Trust Company,
which also serves as the Fund's Transfer and Dividend Disbursing Agent.
Arthur Andersen LLP serves as independent accountants for the Fund and
will audit its financial statements annually. The Fund is not involved in
any litigation.
Shareholder Guide
Opening an Account
and Purchasing Shares
You may open a regular (non-retirement) account, either by mail or wire.
Simply complete and return a Purchase Application and any required legal
documentation, indicating the amount you wish to invest. Your purchase
must be equal to or greater than the $10,000 minimum initial investment
requirement or $1,000 for Uniform Gifts/Transfers to Minors Act accounts
and Individual Retirement Accounts (IRAs). You must open a new IRA by mail
(IRAs may not be opened by wire) using a Leuthold IRA Application. Your
purchase must be equal to or greater than the $1,000 minimum initial
investment requirement, but no more than $2,000 if you are making a
regular IRA contribution. Rollover contributions are generally limited to
the amount withdrawn within the past 60 days from an IRA or other
qualified Retirement Plan. If you need assistance with the forms or have
any questions about the Fund, please call our Investor Information
Department at 1-800-273-6886. Note: For other types of account
registrations (e.g., corporations, associations, other organizations,
trusts or powers of attorney), please call us to determine which
additional forms you may need.
Because of the risks associated with common stock and bond investments,
the Fund is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculating on short-term
market movements. Consequently, the Fund reserves the right to reject any
specific purchase request. The Fund also reserves the right to suspend the
offering of shares for a period of time.
The Fund's shares are purchased at the next-determined net asset value
after your investment has been received. The Fund is offered on a no-load
basis (i.e., there are no sales commissions or 12b-1 fees).
Additional Investments to Existing Accounts
Subsequent investments to any account may be made by mail or wire. The
minimum subsequent investment is $100.
Purchasing By Mail
Complete and sign the enclosed Purchase Application.
New Account - Please include the amount of your initial investment on the
Purchase Application, make your check payable to Leuthold Asset Allocation
Fund and mail to:
Leuthold Funds, Inc.
c/o Firstar Trust Company
Mutual Fund Services
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
For express or registered mail, send to:
Leuthold Funds, Inc.
c/o Firstar Trust Company
Mutual Fund Services
3rd Floor
615 East Michigan Street
Milwaukee, Wisconsin 53202
Additonal Investments - Additional investments should include the
Additional Investment Form attached to your Fund confirmation statements.
Please make your check payable to Leuthold Asset Allocation Fund, write
your account number on your check and, using the return envelope provided,
mail to one of the addresses indicated for new accounts.
All written requests should be mailed to one of the addresses indicated
for new accounts. Do not send registered, overnight or express mail to the
post office box address.
Purchasing By Wire
Money should be wired to:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA Number 0750-00022
For credit to: Firstar Trust Company MFS
Account Number 112952137
For further credit to: Leuthold Asset Allocation Fund, "shareholder name
and account number"
Before Wiring
To assure proper receipt, please be sure to contact our Investor
Information Department at 1-800-273-6886 before wiring and to include the
above-referenced information. If you are opening a new account, please
complete the Purchase Application and mail it to the "New Account" address
after completing your wire arrangement. Note: Federal Funds wire purchase
orders will be accepted only when the Fund and Custodian Bank are open for
business.
Telephone Purchase and Automatic Investment
The Telephone Purchase option lets you move money from your bank account
to your Leuthold Asset Allocation Fund account at your request. Only bank
accounts held at domestic financial institutions that are Automated
Clearing House (ACH) members can be used for telephone transactions. To
have your Fund shares purchased at the net asset value determined as of
the close of regular trading on a given date, Firstar Trust Company must
receive both the purchase order and payment by Elec tronic Funds Transfer
through the ACH System before the close of regular trading on such date.
Most transfers are completed within 3 business days. Telephone
transactions may not be used for initial purchases of Fund shares. The
minimum amount that can be transferred by telephone is $100.
If you choose the Automatic Investment option, money will be moved from
your bank account to your Leuthold Asset Allocation Fund account on the
schedule (e.g., monthly, bimonthly [every other month], quarterly or
yearly) you select, and may be in any amount subject to a $50 minimum. To
establish these options, complete the appropriate sections of the Purchase
Application. Please call our Investor Information Department at 1-800-273-
6886 if you have questions. Please wait three weeks before using the
service.
Choosing a Distribution Option
You must select one of three distribution options:
1. Automatic Reinvestment Option - Both dividends and capital gains
distributions will be reinvested in additional Fund shares. This option
will be selected for you unless you specify one of the other options.
2. Cash Dividend Option - Your dividends will be paid in cash and your
capital gains will be reinvested in additional Fund shares.
3. All Cash Option - Both dividend and capital gains distributions will be
paid in cash.
You may change your option by calling our Investor Information Department
at 1-800-273-6886.
Tax Caution
Investors should ask about the timing of capital gains and dividend
distributions before investing
Under Federal tax laws, the Fund is required to distribute net capital
gains and dividend income to Fund shareholders. These distributions are
made to all shareholders who own Fund shares as of the distribution's
record date, regardless of how long the shares have been owned. Purchasing
shares just prior to the record date could have a significant impact on
your tax liability for the year. For example, if you purchase shares
immediately prior to the record date of a sizable capital gain or income
dividend distribution, you will be assessed taxes on the amount of the
capital gain and/or dividend distribution later paid even though you owned
the Fund shares for just a short period of time. (Taxes are due on the
distributions even if the dividend or gain is reinvested in additional
Fund shares.) While the total value of your investment will be the same
after the distribution the amount of the distribution will offset the drop
in the net asset value of the shares you should be aware of the tax
implications the timing of your purchase may have.
Prospective investors should, therefore, inquire about potential
distributions before investing. The Fund's annual capital gains
distributions normally occur in December, while income dividends are
generally paid quarterly in March, June, September and December. For
additional information on distributions and taxes, see the section
entitled "Dividends, Capital Gains, and Taxes."
Additional Information
Signature Guarantees - For our mutual protection, we may require a
signature guarantee on certain written transaction requests. A signature
guarantee verifies the authenticity of your signature and may be obtained
from banks, brokers and any other guarantor that the Fund deems
acceptable. A signature guarantee cannot be provided by a notary public.
Certificates - Share certificates will be issued upon request. If a
certificate is lost, you may incur an expense to replace it.
Broker-Dealer Purchases - If you purchase shares in the Fund through a
registered broker-dealer or investment adviser, the broker-dealer or
adviser may charge a service fee.
Cancelling Trades - The Fund will not cancel any trade (e.g., a purchase
or redemption) believed to be authentic, received in writing or by
telephone, once the trade has been received.
When Your Account Will Be Credited
Your trade date is the date on which your account is credited. If your
purchase is made by check or Federal Funds wire and is received by the
close of regular trading on the New York Stock Exchange (generally 4:00
p.m. Eastern time), your trade date is the day of receipt. If your
purchase is received after the close of the Exchange, your trade date is
the next business day. Your shares are purchased at the net asset value
determined on your trade date. The Fund will not accept third-party checks
to open an account. Please be sure your purchase check is made payable to
"Leuthold Asset Allocation Fund."
Selling Your Shares
You may withdraw any portion of the funds in your account by redeeming
shares at any time (please see "Important Redemption Information"). You
may initiate a request by writing or by telephoning. Your redemption
proceeds will be mailed no later than the seventh day after the receipt of
the request in Good Order, except that when a purchase has been made by
check, the Fund can hold payment on redemption until it is reasonably
satisfied the check has cleared. (This may normally take up to 3 days for
local personal or corporate checks and up to 7 days for other personal or
corporate checks.) Your redemption proceeds will be mailed upon clearance
of the purchase check. If you redeem by telephone and request wire
payment, such payment will normally be made in Federal Funds on the next
business day.
Selling By Mail - Requests should be mailed to Leuthold Funds, Inc., c/o
Firstar Trust Company, Mutual Fund Services, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701 (For express or registered mail, send your request to
Leuthold Funds, Inc., c/o Firstar Trust Company, Mutual Fund Services, 3rd
Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53201.)
If you are requesting a redemption of shares from an Individual Retirement
Account (IRA), you must include instructions regarding federal income tax
withholding. Unless otherwise indicated, such a redemption, as well as
redemptions of other retirement plans not involving a direct rollover to
an eligible plan, will be subject to federal income tax withholding.
The redemption price of shares will be the Fund's net asset value next
determined after Firstar Trust Company has received all required documents
in Good Order.
Definition of Good Order - Good Order means that the request includes the
following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the
account.
4. Any required signature guarantees.
5. Other supporting legal documentation that might be required in the
case of estates, corporations, trusts and certain other accounts.
6. Any certificates you hold for the account.
If you have questions about this definition as it pertains to your
request, please call our Investor Information Department at 1-800-273-
6886.
Selling By Telephone - To sell shares by telephone, you or your pre-
authorized representative may call our Investor Information Department at
1-800-273-6886. The proceeds will be sent to you by mail, unless you
request wire payment. If you redeem by telephone and request wire payment,
such payment will normally be made in Federal Funds on the next business
day. Firstar Trust Company will wire redemption proceeds only to the bank
and account designated on your Purchase Application or in written
instructions (with signature guarantee) subsequently received by Firstar
Trust Company, and only if the bank is a commercial bank located within
the United States. Firstar Trust Company charges a fee (currently $7.50,
but subject to change without notice) for each payment made by wire of
redemption proceeds, which fee will be deducted from your account. Please
see "Important Information About Telephone Transactions."
Telephone Redemption & Systematic Withdrawal The Telephone Redemption
option lets you move money from your Fund account to your bank account via
Electronic Funds Transfer (EFT) at your request. If you select the
Systematic Withdrawal option, money will be automatically moved from your
Fund account to your bank account according to the schedule you have
selected. The Systematic Withdrawal option may be in any amount subject to
a $100 minimum. You may elect these options by completing the appropriate
sections of the Purchase Application. If money is moved via EFT, you will
not be charged for these services.
Important Redemption Information - Shares purchased may be redeemed at any
time. However, your redemption proceeds will not be paid until payment for
the purchase is collected, which may take up to ten calendar days.
Delivery of Redemption Proceeds - Redemption requests received by
telephone prior to the close of regular trading on the New York Stock
Exchange (generally 4:00 p.m. Eastern time) are processed on the day of
receipt and the redemption proceeds are normally sent on the following
business day.
Redemption requests received by telephone after the close of the Exchange
are processed on the business day following receipt and the proceeds are
normally sent on the second business day following receipt. The Fund
reserves the right to revise or terminate the telephone redemption
privilege at any time.
Redemption proceeds must be sent to you within seven days of receipt of
your request in Good Order.
If you experience difficulty in making a telephone redemption during
periods of drastic economic or market changes, your redemption request may
be made by regular or express mail. It will be implemented at the net
asset value next determined after your request has been received by
Firstar Trust Company in Good Order.
The Fund may suspend the redemption right or postpone payment at times
when the New York Stock Exchange is closed or under any emergency
circumstances as determined by the United States Securities and Exchange
Commission.
Minimum Account Balance Requirements - Due to the relatively high cost of
maintaining smaller accounts, the Fund reserves the right to redeem
involuntarily shares in any account that is below $1,000. You will be
notified if the value of your account is below this minimum account
balance requirement. You will then be allowed 60 days to make an
additional investment before the account is liquidated. If an account is
liquidated, the proceeds will be promptly paid to the shareholder.
Important Information
About Telephone Transactions
To protect your account from losses resulting from unauthorized or
fraudulent telephone instructions, the Fund adheres to the following
security procedures:
1. Security Check - To request a transaction by telephone, the caller
must know (i) the name of the Fund; (ii) the 10-digit account number;
(iii) the exact name and address used in the registration; and (iv) the
Social Security or Employer Identification number listed on the account.
2. Payment Policy - The proceeds of any telephone redemption by mail will
be made payable to the registered shareowner and mailed to the address of
record, only. The proceeds of any telephone redemption by wire will be
wired only to the bank and account designated on the Purchase Application
or in written instructions (with signature guarantee) subsequently
received by Firstar Trust Company from the registered shareowner, and only
if the bank is a commercial bank located within the United States.
Neither the Fund nor Firstar Trust Company will be responsible for the
authenticity of transaction instructions received by telephone, provided
that reasonable security procedures have been followed. The Fund believes
that the security procedures described above are reasonable and that if
such procedures are followed, you will bear the risk of any losses
resulting from unauthorized or fraudulent telephone transactions on your
account. If the Fund or Firstar Trust Company fails to follow reasonable
security procedures, it may be liable for any losses resulting from
unauthorized or fraudulent telephone transactions on your account.
Transferring Registration
You may request transfer of the registration of any of your Fund shares to
another person by writing to: Leuthold Funds, Inc., c/o Firstar Trust
Company, Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-
0701. The request must be in Good Order. For further instructions, please
call our Investor Information Department at 1-800-273-6886.
Other Leuthold Services
For more information about any of these services, please call our Investor
Information Department at 1-800-273-6886.
Firstar Trust Company will send you a confirmation statement each time you
initiate a transaction in your account. You will also receive an account
statement at the end of each calendar quarter. The fourth-quarter
statement will be a year-end statement, listing all transaction activity
for the entire calendar year.
Financial Reports on the Fund will be mailed to you semi-annually,
according to the Fund's fiscal year-end.
Leuthold
Asset Allocation Fund
Investor Information Department:
1-800-273-6886
Tele-Account for 24-Hour Access:
1-800-273-6886
Telecommunication Service for the Hearing-Impaired:
1-800-684-3416
Transfer Agent:
Firstar Trust Company
615 East Michigan Street
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
(Regular Mail Address)
Mutual Fund Services
3rd Floor
615 East Michigan Street
Milwaukee, Wisconsin 53202
(Overnight or Express Mail Address)
STATEMENT OF ADDITIONAL INFORMATION April 30, 1996
LEUTHOLD FUNDS, INC.
100 North Sixth Street
Suite 700A
Minneapolis, Minnesota 55403
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of Leuthold Funds, Inc.
dated October 31, 1995 and the Supplement to the Prospectus dated April
30, 1996. Requests for copies of the Prospectus should be made by writing
to Leuthold Funds, Inc., 100 North Sixth Street, Suite 700A, Minneapolis,
Minnesota 55403, Attention: Corporate Secretary, or by calling 1-800-273-
6886.
Leuthold Funds, Inc.
TABLE OF CONTENTS
Page No.
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . 3
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . 11
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS . . . . . . . . . . 14
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN, TRANSFER
AGENT AND ACCOUNT SERVICES AGENT . . . . . . . . . . . . . . . . . 14
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . 17
SYSTEMATIC WITHDRAWAL PLAN . . . . . . . . . . . . . . . . . . . . . 17
ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . 18
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
STOCKHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 20
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 22
DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . . . . . . . . . 23
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . 27
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . 27
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated October 31, 1995, as supplemented
April 30, 1996, and, if given or made, such information or representations
may not be relied upon as having been authorized by Leuthold Funds, Inc.
This Statement of Additional Information does not constitute an offer
to sell securities.
<PAGE>
INVESTMENT RESTRICTIONS
As set forth in the Prospectus dated October 31, 1995, as
supplemented April 30, 1996, of Leuthold Funds, Inc. (the "Corporation")
under the caption "INVESTMENT OBJECTIVE," the investment objective of the
Leuthold Asset Allocation Fund (the "Fund") is to seek high total return
(i.e. capital change plus income) consistent with reasonable risk over the
long term. Consistent with this investment objective, the Fund has
adopted the following investment restrictions which are matters of
fundamental policy and cannot be changed without approval of the holders
of the lesser of: (i) 67% of the Fund's shares present or represented at
a stockholder's meeting at which the holders of more than 50% of such
shares are present or represented; or (ii) more than 50% of the
outstanding shares of the Fund.
1. The Fund will diversify its assets in different
companies and will not purchase securities of any issuer if, as
a result of such purchase, the Fund would own more than 10% of
the outstanding voting securities of such issuer or more than 5%
of the Fund's assets would be invested in 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 limitation). This
restriction does not apply to obligations issued or guaranteed
by the United States Government, its agencies or
instrumentalities.
2. The Fund will not sell securities short, buy
securities on margin, or write put or call options.
3. The Fund will not borrow money or issue senior
securities, except for temporary bank borrowings (not exceeding
10% of the value of the Fund's total assets) or for emergency or
extraordinary purposes. The Fund will not borrow money for the
purpose of investing in securities, and the Fund will not
purchase any portfolio securities for so long as any borrowed
amounts remain outstanding.
4. The Fund will not pledge or hypothecate its assets,
except to secure borrowings for temporary or emergency purposes.
5. The Fund will not act as an underwriter or distributor
of securities other than shares of the Fund (except to the
extent that the Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933, as amended, in the
disposition of restricted securities).
6. The Fund will not make loans, except it may enter into
repurchase agreements or acquire debt securities from the issuer
or others which are publicly distributed or are of a type
normally acquired by institutional investors and except that it
may make loans of portfolio securities if any such loans are
secured continuously by collateral at least equal to the market
value of the securities loaned in the form of cash and/or
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and provided that no such loan
will be made if upon the making of that loan more than 30% of
the value of the Fund's total assets would be the subject of
such loans. The Fund has determined not to enter into
repurchase agreements during the fiscal year ending September
30, 1996.
7. The Fund will not concentrate more than 25% of its
total assets in securities of any one industry. This
restriction does not apply to obligations issued or guaranteed
by the United States Government, its agencies or
instrumentalities.
8. The Fund will not make investments for the purpose of
exercising control or management of any company.
9. The Fund will not purchase or sell real estate or real
estate mortgage loans and will not make any investments in real
estate limited partnerships.
10. The Fund will not purchase or sell commodities or
commodity contracts, including futures contracts.
11. The Fund will not purchase or sell any interest in any
oil, gas or other mineral exploration or development program,
including any oil, gas or mineral leases.
The Fund has adopted certain other investment restrictions which
are not fundamental policies and which may be changed by the Fund's Board
of Directors without stockholder approval. These additional restrictions
are as follows:
1. The Fund will not acquire or retain any security
issued by a company, an officer or director of which is an
officer or director of the Fund or an officer, director or other
affiliated person of the Fund's investment adviser.
2. The Fund will not invest more than 5% of the Fund's
total assets in securities of any issuer which has a record of
less than three (3) years of continuous operation, including the
operation of any predecessor business of a company which came
into existence as a result of a merger, consolidation,
reorganization or purchase of substantially all of the assets of
such predecessor business.
3. The Fund will not purchase illiquid securities if, as
a result of such purchase, more than 5% of the total value of
its total assets would be invested in such securities.
4. The Fund's investments in warrants will be limited to
5% of the Fund's net assets. Included within such 5%, but not
to exceed 2% of the value of the Fund's net assets, may be
warrants which are not listed on either the New York Stock
Exchange or the American Stock Exchange.
5. The Fund may purchase put or call options provided
that the Fund's investments in such put or call options will be
limited to 5% of the Fund's net assets.
6. The Fund will not purchase the securities of other
investment companies except: (a) as part of a plan of merger,
consolidation or reorganization approved by the stockholders of
the Fund; (b) securities of registered open-end investment
companies; or (c) securities of registered closed-end investment
companies on the open market where no commission results, other
than the usual and customary broker's commission. No purchases
described in (b) and (c) will be made if as a result of such
purchases (i) the Fund and its affiliated persons would hold
more than 3% of any class of securities, including voting
securities, of any registered investment company; (ii) more than
5% of the Fund's net assets would be invested in shares of any
one registered investment company; and (iii) more than 25% of
the Fund's net assets would be invested in shares of registered
investment companies.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is
made. If these restrictions are adhered to at the time an investment is
made, and such percentage subsequently changes as a result of changing
market values or some similar event, no violation of the Fund's
fundamental restrictions will be deemed to have occurred. Any changes in
the Fund's investment restrictions made by the Board of Directors will be
communicated to stockholders prior to their implementation.
INVESTMENT CONSIDERATIONS
Warrants and Put and Call Options
As set forth in the Corporation's Prospectus, the Fund may
invest in warrants and put and call options on securities.
By purchasing a put option, the Fund obtains the right (but not
the obligation) to sell the option's underlying security at a fixed strike
price. In return for this right, the Fund pays the current market price
for the option (known as the option premium). The Fund may terminate its
position in a put option it has purchased by allowing it to expire or by
exercising the option. If the option is allowed to expire, the Fund will
lose the entire premium it paid. If the Fund exercises the option, it
completes the sale of the underlying security at the strike price. The
Fund may also terminate a put option position by closing it out in the
secondary market at its current price, if a liquid secondary market
exists. The buyer of a put option can expect to realize a gain if
security prices fall substantially. However, if the underlying security's
price does not fall enough to offset the cost of purchasing the option, a
put buyer can expect to suffer a loss (limited to the amount of the
premium paid, plus related transaction costs).
The features of call options are essentially the same as those
of put options, except that the purchaser of a call option obtains the
right to purchase, rather than sell, the underlying security at the
option's strike price. A call buyer attempts to participate in potential
price increases of the underlying security with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
Warrants are similar to call options in that the purchaser of a
warrant has the right (but not the obligation) to purchase the underlying
security at a fixed price. Warrants are issued by the issuer of the
underlying security whereas options are not. Warrants typically have
exercise periods in excess of those of call options.
High Yield Securities
As set forth in the Corporation's Prospectus, the Fund (or a
registered investment company in which the Fund invests) may invest in
high yield, high risk, lower-rated securities, commonly known as "junk
bonds." Investments in such securities are subject to the risk factors
outlined below.
The high yield market is relatively new and at times is subject
to substantial volatility. An economic downturn or increase in interest
rates may have a more significant effect on the high yield securities in
an underlying registered investment company's portfolio and their markets,
as well as on the ability of securities' issuers to repay principal and
interest. Issuers of high yield securities may be of low creditworthiness
and the high yield securities may be subordinated to the claims of senior
lenders. During periods of economic downturn or rising interest rates the
issuers of high yield securities may have greater potential for insolvency
and a higher incidence of high yield bond defaults may be experienced.
The prices of high yield securities have been found to be less
sensitive to interest rate changes than higher-rated investments but are
more sensitive to adverse economic changes or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress
which would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to
obtain additional financing. If the issuer of a high yield security owned
by the Fund (or by a registered investment company in which the Fund
invests) defaults, the Fund (or such registered investment company) may
incur additional expenses in seeking recovery. Periods of economic
uncertainty and changes can be expected to result in increased volatility
of market prices of high yield securities and the Fund's net asset value.
Yields on high yield securities will fluctuate over time. Furthermore, in
the case of high yield securities structured as zero coupon or pay-in-kind
securities, their market prices are affected to a greater extent by
interest rate changes and thereby tend to be more volatile than market
prices of securities which pay interest periodically and in cash.
Certain securities held by the Fund (or a registered investment
company in which the Fund invests), including high yield securities, may
contain redemption or call provisions. If an issuer exercises these
provisions in a declining interest rate market, the Fund (or such
registered investment company) would have to replace the security with a
lower yielding security, resulting in a decreased return for the investor.
Conversely, a high yield security's value will decrease in a rising
interest rate market, as will the value of the Fund's (or the underlying
registered investment company's) assets.
The secondary market for high yield securities may at times
become less liquid or respond to adverse publicity or investor perceptions
making it more difficult for the Fund (or a registered investment company
in which the Fund invests) to value accurately high yield securities or
dispose of them. To the extent the Fund (or a registered investment
company in which the Fund invests) owns or may acquire illiquid or
restricted high yield securities, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity
difficulties, and judgment will play a greater role in valuation because
there is less reliable and objective data available.
Special tax considerations are associated with investing in high
yield bonds structured as zero coupon or pay-in-kind securities. The Fund
(or a registered investment company in which the Fund invests) will report
the interest on these securities as income even though it receives no cash
interest until the security's maturity or payment date. Further, the Fund
(or a registered investment company in which the Fund invests) must
distribute substantially all of its income to its shareholders to qualify
for pass-through treatment under the tax law. Accordingly, the Fund (or a
registered investment company in which the Fund invests) may have to
dispose of its portfolio securities under disadvantageous circumstances to
generate cash or may have to borrow to satisfy distribution requirements.
Credit ratings evaluate the safety of principal and interest
payments, not the market value risk of high yield securities. Since
credit rating agencies may fail to timely change the credit ratings to
reflect subsequent events, the investment adviser to the Fund (or a
registered investment company in which the Fund invests) should monitor
the issuers of high yield securities in the portfolio to determine if the
issuers will have sufficient cash flow and profits to meet required
principal and interest payments, and to attempt to assure the securities'
liquidity so the fund can meet redemption requests. To the extent that
the Fund (or a registered investment company in which the Fund invests)
invests in high yield securities, the achievement of its investment
objective may be more dependent on its own credit analysis than is the
case for higher quality bonds. The Fund (or a registered investment
company in which the Fund invests) may retain a portfolio security whose
rating has been changed.
Futures Contracts
A registered investment company in which the Fund invests may
enter into futures contracts for the purchase or sale of debt securities
and stock indexes. A futures contract is an agreement between two parties
to buy and sell a security or an index for a set price on a future date.
Futures contracts are traded on designated "contract markets" which,
through their clearing corporations, guarantee performance of the
contracts.
A financial futures contract sale creates an obligation by the
seller to deliver the type of financial instrument called for in the
contract in a specified delivery month for a stated price. A financial
futures contract purchase creates an obligation by the purchaser to take
delivery of the type of financial instrument called for in the contract in
a specified delivery month at a stated price. The specific instruments
delivered or taken, respectively, at settlement date are not determined
until on or near such date. The determination is made in accordance with
the rules of the exchange on which the futures contract sale or purchase
was made. Futures contracts are traded in the United States only on
commodity exchanges or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market.
Although futures contracts by their terms call for actual
delivery or acceptance of commodities or securities, in most cases the
contracts are closed out before the settlement date without the making or
taking of delivery. Closing out a futures contract sale is effected by
purchasing a futures contract for the same aggregate amount of the
specific type of financial instrument or commodity with the same delivery
date. If the price of the initial sale of the futures contract exceeds
the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. On the other hand, if the price of the offsetting
purchase exceeds the price of the initial sale, the seller realizes a
loss. The closing out of a futures contract purchase is effected by the
purchaser's entering into a futures contract sale. If the offsetting sale
price exceeds the purchase price, the purchaser realizes a gain, and if
the purchase price exceeds the offsetting sale price, the purchaser
realizes a loss.
A registered investment company in which the Fund invests may
sell financial futures contracts in anticipation of an increase in the
general level of interest rates. Generally, as interest rates rise, the
market value of the securities held by an underlying registered investment
company will fall, thus reducing its net asset value. This interest rate
risk may be reduced without the use of futures as a hedge by selling such
securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs in the form of dealer spreads and brokerage
commissions and would typically reduce the registered investment company's
average yield as a result of the shortening of maturities.
The sale of financial futures contracts serves as a means of
hedging against rising interest rates. As interest rates increase, the
value of an underlying registered investment company's short position in
the futures contracts will also tend to increase, thus offsetting all or a
portion of the depreciation in the market value of the investments being
hedged. While a registered investment company in which the Fund invests
will incur commission expenses in selling and closing out futures
positions (by taking an opposite position in the futures contract),
commissions on futures transactions tend to be lower than transaction
costs incurred in the purchase and sale of portfolio securities.
A registered investment company in which the Fund invests may
purchase interest rate futures contracts in anticipation of a decline in
interest rates when it is not fully invested. As such purchases are made,
an underlying registered investment company would probably expect that an
equivalent amount of futures contracts will be closed out.
Unlike when a registered investment company in which the Fund
invests purchases or sells a security, no price is paid or received by the
registered investment company upon the purchase or sale of a futures
contract. Upon entering into a contract, the underlying registered
investment company is required to deposit with its custodian in a
segregated account in the name of the futures broker an amount of cash
and/or U.S. Government securities. This is known as "initial margin."
Initial margin is similar to a performance bond or good faith deposit
which is returned to an underlying registered investment company upon
termination of the futures contract, assuming all contractual obligations
have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance
margin", to and from the broker (or the custodian) are made on a daily
basis as the price of the underlying security or commodity fluctuates,
making the long and short positions in the futures contract more or less
valuable. This is known as "marking to the market."
A registered investment company in which the Fund invests may
elect to close some or all of its futures positions at any time prior to
their expiration in order to reduce or eliminate a hedge position then
currently held by the registered investment company. The underlying
registered investment company may close its positions by taking opposite
positions which will operate to terminate its position in the futures
contracts. Final determinations of variation margin are then made,
additional cash is required to be paid by or released to the underlying
registered investment company, and it realizes a loss or a gain. Such
closing transactions involve additional commission costs.
A stock index futures contract may be used to hedge an
underlying registered investment company's portfolio with regard to market
risk as distinguished from risk related to a specific security. A stock
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. A
stock index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from
changes in the market value of the contract to be credited or debited at
the close of each trading day to the respective accounts of the parties to
the contract. On the contract's expiration date, a final cash settlement
occurs. Changes in the market value of a particular stock index futures
contract reflect changes in the specified index of equity securities on
which the future is based.
In the event of an imperfect correlation between the futures
contract and the portfolio position which is intended to be protected, the
desired protection may not be obtained and the registered investment
company may be exposed to risk of loss. Further, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the registered investment company than if it had not
entered into futures contracts on debt securities or stock indexes.
The market prices of futures contracts may also be affected by
certain factors. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, participants may close
futures contracts through offsetting transactions which could distort the
normal relationship between the securities and futures markets. Second,
the deposit requirements in the futures market are less stringent than
margin requirements in the securities market. Accordingly, increased
participation by speculators in the futures market may also cause
temporary price distortions.
Positions in futures contracts may be closed out only on an
exchange or board of trade providing a secondary market for such futures.
There is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular
time.
In order to assure that registered investment companies have
sufficient assets to satisfy their obligations under their futures
contracts, the registered investment companies in which the Fund invests
are required to establish segregated accounts with their custodians. Such
segregated accounts are required to contain an amount of cash, U.S.
Government securities and other liquid, high grade debt securities equal
in value to the current value of the underlying instrument less the margin
deposit.
The risk to an underlying registered investment company from
investing in futures is potentially unlimited. Gains and losses on
investments in futures depend upon the underlying registered investment
company's investment adviser's ability to predict correctly the direction
of stock prices, interest rates and other economic factors.
Options on Futures Contracts
A registered investment company in which the Fund invests may
also purchase and sell listed put and call options on futures contracts.
An option on a futures contract gives the purchaser the right in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the option period.
When an option on a futures contract is exercised, delivery of the futures
position is accompanied by cash representing the difference between the
current market price of the futures contract and the exercise price of the
option. The underlying registered investment company may also purchase
put options on futures contracts in lieu of, and for the same purpose as,
a sale of a futures contract. A registered investment company in which
the Fund invests may also purchase such put options in order to hedge a
long position in the underlying futures contract in the same manner as it
purchases "protective puts" on securities.
The holder of an option may terminate the position by selling an
option of the same series. There is, however, no guarantee that such a
closing transaction can be effected. An underlying registered investment
company is required to deposit initial and maintenance margin with respect
to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those applicable to futures contracts
described above and, in addition, net option premiums received will be
included as initial margin deposits.
In addition to the risks which apply to all options
transactions, there are several risks relating to options on futures
contracts. The ability to establish and close out positions on such
options is subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop. In
comparison with the use of futures contracts,the purchase of options on
futures contracts involves less potential risk to a registered investment
company because the maximum amount of risk is the premium paid for the
option (plus transaction costs). There may, however, be circumstances
when the use of an option on a futures contract would result in a loss to
a registered investment company in which the Fund invests when the use of
a futures contract would not, such as when there is no movement in the
prices of the underlying securities. Writing an option on a futures
contract involves risks similar to those arising in the sale of futures
contracts, as described above.
Illiquid Securities
The Fund may invest up to 5% of its net assets in securities for
which there is no readily available market ("illiquid securities"). The
5% limitation includes securities whose disposition would be subject to
legal restrictions ("restricted securities"). Illiquid and restricted
securities often have a market value lower than the market price of
unrestricted securities of the same issuer and are not readily marketable
without some time delay. This could result in the Fund being unable to
realize a favorable price upon disposition of such securities and in some
cases might make disposition of such securities at the time desired by the
Fund impossible.
Lending Portfolio Securities
The Fund may lend its investment securities to qualified
institutional investors for either short-term or long-term purposes of
realizing additional income. However, the Fund has determined not to lend
investment securities during the fiscal year ending September 30, 1996.
Loans of securities by the Fund will be collateralized by cash, letters of
credit, or securities issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the current market
value of the loaned securities.
DIRECTORS AND OFFICERS OF THE CORPORATION
The name, age, address, principal occupation(s) during the past
five years, and other information with respect to each of the directors
and officers of the Corporation are as follows:
* David D. Deming -- Director, Vice President and Secretary.
Mr. Deming, 36, has been President and Portfolio Manager of Leuthold &
Anderson,Inc. (the "Adviser") since January 1, 1995. He has also been
President and Marketing Director of Leuthold, Weeden & Associates, L.P., a
Minneapolis investment advisory firm since April, 1994. Prior to joining
Leuthold, Weeden & Associates, L.P., Mr. Deming was employed by The
Leuthold Group, the institutional investment research division of Weeden &
Co., L.P., a securities broker-dealer, from June 1, 1992 until April,
1994. Prior to joining The Leuthold Group, Mr. Deming was employed by
Paine Webber, a securities broker-dealer, in Minneapolis as an account
executive from September, 1991 until June, 1992. Prior to joining Paine
Webber, Mr. Deming was a co-founder and principal of Via Moto, Ltd., a
Chicago, Illinois specialty retailer, from March, 1989 through September,
1991. Mr. Deming graduated from the University of Wisconsin-La Crosse
with a B.S. in Finance in 1982. His address is c/o Leuthold & Anderson,
Inc., 100 North Sixth Street, Suite 700A, Minneapolis, MN 55403.
* Steven C. Leuthold -- Director, President and Treasurer. Mr.
Leuthold, 58, has been Chairman and Portfolio Manager for the Adviser
since August, 1987. He has also been a Portfolio Manager for Leuthold,
Weeden & Associates, L.P. since January, 1991 and Chairman of The Leuthold
Group since November, 1981. He is also a director of Minnesota Brewing
Company, a public company engaged in contract and proprietary brewing.
Mr. Leuthold graduated from the University of Minnesota with a B.S. in
History in 1960. His address is c/o Leuthold & Anderson, Inc., 100 North
Sixth Street, Suite 700A, Minneapolis, MN 55403.
* Charles D. Zender -- Director. Mr. Zender, 51, has been
Managing Director of The Leuthold Group since January, 1991. Prior to
such time, he served as a marketing/sales executive of The Leuthold Group
since May, 1988. Mr. Zender graduated from the University of Northern
Iowa with a B.A. in Accounting/Business Administration in 1970. His
address is c/o Leuthold & Anderson, Inc., 100 North Sixth Street, Suite
700A, Minneapolis, MN 55403.
__________________
* Messrs. Leuthold, Deming and Zender are "interested persons" of the
Corporation (as defined in the Act).
John S. Chipman -- Director. Mr. Chipman, 69, has been Regent's
Professor of Economics at the University of Minnesota since 1981. He was
a Guest Professor at the University of Konstanz, Germany from 1986 to 1991
and was awarded an honorary doctorate from such institution in 1991. Mr.
Chipman received his Ph.D in Economics from Johns Hopkins University in
1950. His address is c/o Leuthold & Anderson, Inc., 100 North Sixth
Street, Suite 700A, Minneapolis, MN 55403.
Lawrence L. Horsch -- Director. Mr. Horsch, 61, has been a
member of the Board of Directors of Boston Scientific Corp., a public
company engaged in developing, producing and marketing medical devices,
since February, 1995, when SCIMED Life Systems, Inc., a medical products
company he helped organize in 1971, merged with Boston Scientific Corp.
Prior to such merger, Mr. Horsch served in various capacities with SCIMED
Life Systems, Inc., including Acting Chief Financial Officer from 1994 to
1995, Chairman of the Board from 1977 to 1994, and as a director from 1977
to 1995. He has also served as Chairman of Eagle Management & Financial
Corp., a management consulting firm, since 1990. From 1987 to 1990, he
served as Chairman and Chief Executive Officer of Munsingwear, Inc., an
apparel company that filed for protection under Chapter 11 of the Federal
Bankruptcy Code in July, 1991 and emerged from bankruptcy in September,
1991. Mr. Horsch attended the College of St. Thomas and Northwestern
University, where he received an M.B.A. in Finance in 1958. His address
is c/o Leuthold & Anderson, Inc., 100 North Sixth Street, Suite 700A,
Minneapolis, MN 55403.
Paul M. Kelnberger -- Director. Mr. Kelnberger, 52, joined
Johnson, West & Co., PLC, a public accounting firm, in 1969 and has been a
partner since 1975. He is also a director of Video Update, Inc., a public
company engaged in owning, operating and franchising video rental
superstores. Mr. Kelnberger is a Certified Public Accountant (CPA). His
address is c/o Johnson, West & Co., PLC, 336 Robert Street North, Suite
1400, St. Paul, MN 55101.
Elizabeth Page -- Vice President, Assistant Secretary. Ms.
Page, 36, has been Operations Manager of the Adviser since 1988 and
Operations and Compliance Director since January, 1995. Ms. Page
graduated from the University of Wisconsin-Stout with a B.S. in Business
Administration in 1982. Her address is c/o Leuthold & Anderson, Inc., 100
North Sixth Street, Suite 700A, Minneapolis, MN 55403.
Kristen Voigtsberger -- Vice President. Ms. Voigtsberger, 32,
has been Account Administrator of the Adviser since 1990. Ms.
Voigtsberger graduated from Pennsylvania State University in 1985 with a
B.A. in Russian. Her address is c/o Leuthold & Anderson, Inc., 100 North
Sixth Street, Suite 700A, Minneapolis, MN 55403.
The Corporation's standard method of compensating directors is
to pay each director who is not an interested person of the Corporation a
fee of $500 for each meeting of the Board of Directors attended. The
Corporation also may reimburse its directors for travel expenses incurred
in order to attend meetings of the Board of Directors.
The Corporation was organized on August 30, 1995. The table
below sets forth the compensation anticipated to be paid by the
Corporation to each of the current directors of the Corporation during the
fiscal year ending September 30, 1996:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Total
Compensation
from Corporation
Aggregate Pension or Retirement Estimated Annual and Fund
Name of Compensation Benefits Accrued As Benefits Upon Complex Paid to
Person from Corporation Part of Fund Expenses Retirement Directors
<S> <C> <C> <C> <C>
David D. Deming $0 $0 $0 $0
Steven C. Leuthold $0 $0 $0 $0
Charles D. Zender $0 $0 $0 $0
John S. Chipman $2,000 $0 $0 $2,000
Lawrence L. Horsch $2,000 $0 $0 $2,000
Paul M. Kelnberger $2,000 $0 $0 $2,000
</TABLE>
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Set forth below are the names and addresses of all holders of
the Fund's shares who as of March 31, 1996 beneficially owned more than 5%
of the Fund's then outstanding shares, as well as the number of shares of
the Fund beneficially owned by all officers and directors of the Fund as a
group.
Name and Address
of Beneficial Owner Number of Shares Percent of Class
Piper Trust Company, Trustee
FBO Omnibus Reinvest
222 S. 9th Street
Minneapolis, MN 55402-3389 961,498(1) 27.7%
Norwest Bank Minnesota, Trustee
Interstate Medical Center
Profit Sharing Plan
U/A dated 6/1/84
733 Marquette Avenue, #0036
Minneapolis, MN 55479-0001 335,706 9.7%
Norwest Bank Minnesota, Trustee
Interstate Medical Center
Money Purchase Pension Plan
U/A dated 6/1/84
733 Marquette Avenue, #0036
Minneapolis, MN 55479-0001 201,051 5.8%
Officers and Directors as a Group
(8 persons) 84,314(1)(2) 2.4%
_____________________________
(1) Includes 7,189 shares held in the Leuthold & Anderson Retirement
Plan
(2) Includes 66,973 shares held by the Steven Leuthold Trust, for
which Albert Andrews, Jr. serves as sole trustee, and 10,152
shares held by the Steven C. Leuthold Family Foundation, a
charitable trust controlled by Steven C. Leuthold.
By virtue of its share ownership, Piper Trust Company, Trustee FBO
Omnibus Reinvest, is deemed to control the Fund and the Corporation. In
combination with the holders of more than 22.3% of the Fund's outstanding
shares, Piper Trust Company, Trustee FBO Omnibus Reinvest, owns sufficient
shares of the Fund to approve or disapprove all matters brought before the
Fund's shareholders, including the election of directors of the
Corporation and the approval of auditors. The Corporation does not
control any person.
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNT SERVICES AGENT
As set forth in the Prospectus under the caption "MANAGEMENT OF
THE FUND," the investment adviser to the Fund is Leuthold & Anderson,
Inc., 100 North Sixth Street, Suite 700A, Minneapolis, Minnesota 55403
(the "Adviser"). Pursuant to the investment advisory agreement entered
into between the Corporation and the Adviser with respect to the Fund (the
"Advisory Agreement"), the Adviser furnishes continuous investment
advisory services to the Fund. The Adviser is controlled by Steven C.
Leuthold, its Chairman and principal shareholder.
The Adviser has undertaken to reimburse the Fund to the extent
that the aggregate annual operating expenses, including the investment
advisory fee and the administration fee but excluding interest, taxes,
brokerage commissions and other costs incurred in connection with the
purchase or sale of portfolio securities, and extraordinary items, exceed
that percentage of the average net assets of the Fund for such year, as
determined by valuations made as of the close of each business day of the
year, which is the most restrictive percentage provided by the state laws
of the various states in which the shares of the Fund are qualified for
sale or, if the states in which the shares of the Fund are qualified for
sale impose no such restrictions, 2%. As of the date of this Statement of
Additional Information, the percentage applicable to the Fund is 2-1/2% on
the first $30,000,000 of its average daily net assets, 2% on average daily
the next $70,000,000 of its average daily net assets and 1-1/2% on average
daily net assets in excess of $100,000,000. Additionally, the Adviser has
voluntarily agreed to reimburse the Fund to the extent aggregate annual
operating expenses as described above exceed 1.25% of the Fund's daily net
assets. The Fund monitors its expense ratio on a monthly basis. If the
accrued amount of the expenses of the Fund exceeds the expense limitation,
the Fund creates an account receivable from the Adviser for the amount of
such excess. In such a situation the monthly payment of the Adviser's fee
will be reduced by the amount of such excess (and if the amount of such
excess in any month is greater than the monthly payment of the Adviser's
fee, the Adviser will pay the Fund the amount of such difference), subject
to adjustment month by month during the balance of the Fund's fiscal year
if accrued expenses thereafter fall below this limit.
The Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Corporation or by the vote of a majority (as defined in
the Act) of the outstanding shares of the Fund, and (ii) by the vote of a
majority of the directors of the Fund who are not parties to the Advisory
Agreement or interested persons of the Adviser, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement provides that it may be terminated at any time without the
payment of any penalty, by the Board of Directors of the Corporation or by
vote of the majority of the Fund's stockholders on sixty (60) days'
written notice to the Adviser, and by the Adviser on the same notice to
the Corporation, and that it shall be automatically terminated if it is
assigned.
The Advisory Agreement provides that the Adviser shall not be
liable to the Corporation or its stockholders for anything other than
willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations or duties. The Advisory Agreement also provides that the
Adviser and its officers, directors and employees may engage in other
businesses, devote time and attention to any other business whether of a
similar or dissimilar nature, and render services to others.
As set forth in the Prospectus under the caption "MANAGEMENT OF
THE FUND," the administrator to the Corporation is Firstar Trust Company,
615 East Michigan Street, Milwaukee, Wisconsin 53202 (the
"Administrator"). The Fund Administration Servicing Agreement entered
into between the Corporation and the Administrator relating to the Fund
(the "Administration Agreement") will remain in effect until terminated by
either party. The Administration Agreement may be terminated at any time,
without the payment of any penalty, by the Board of Directors of the
Corporation upon the giving of ninety (90) days' written notice to the
Administrator, or by the Administrator upon the giving of ninety (90)
days' written notice to the Corporation.
Under the Administration Agreement, the Administrator shall
exercise reasonable care and is not liable for any error or judgment or
mistake of law or for any loss suffered by the Corporation in connection
with the performance of the Administration Agreement, except a loss
resulting from willful misfeasance, bad faith or negligence on the part of
the Administrator in the performance of its duties under the
Administration Agreement.
Firstar Trust Company also serves as custodian of the
Corporation's assets pursuant to a Custody Agreement. Under the Custody
Agreement, Firstar Trust Company has agreed to (i) maintain a separate
account in the name of the Fund, (ii) make receipts and disbursements of
money on behalf of the Fund, (iii) collect and receive all income and
other payments and distributions on account of the Fund's portfolio
investments, (iv) respond to correspondence from shareholders, security
brokers and others relating to its duties and (v) make periodic reports to
the Fund concerning the Fund's operations. Firstar Trust Company does not
exercise any supervisory function over the purchase and sale of
securities. For its services as custodian, Firstar Trust Company is
entitled to receive a fee, payable monthly, based on the annual rate of
.02% of the net assets of the Fund (subject to a minimum annual $2,700
fee). In addition, Firstar Trust Company, as custodian, is entitled to
certain charges for securities transactions and reimbursement for
expenses.
Firstar Trust Company also serves as transfer agent and dividend
disbursing agent for the Fund under a Shareholder Servicing Agent
Agreement. As transfer and dividend disbursing agent, Firstar Trust
Company has agreed to (i) issue and redeem shares of the Fund, (ii) make
dividend and other distributions to shareholders of the Fund, (iii)
respond to correspondence by Fund shareholders and others relating to its
duties, (iv) maintain shareholder accounts, and (v) make periodic reports
to the Fund. For its transfer agency and dividend disbursing services,
Firstar Trust Company is entitled to receive fees at the rate of $13 per
shareholder account (subject to a minimum annual fee of $18,900). Also,
Firstar Trust Company is entitled to certain other transaction charges and
reimbursement for expenses.
In addition the Corporation has entered into a Fund Accounting
Servicing Agreement with Firstar Trust Company pursuant to which Firstar
Trust Company has agreed to maintain the financial accounts and records of
the Fund and provide other accounting services to the Fund. For its
accounting services, Firstar Trust Company is entitled to receive fees,
payable monthly, based on the total annual rate of $19,800 for the first
$40 million in average net assets of the Fund, .01% on the next $200
million of average net assets, and .005% on average net assets exceeding
$240 million. Firstar Trust Company is also entitled to certain out of
pocket expenses, including pricing expenses.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "DETERMINATION
OF NET ASSET VALUE," the net asset value of the Fund will be determined as
of the close of regular trading (currently 4:00 p.m. Eastern time) on each
day the New York Stock Exchange is open for trading. Options are valued
at the latest quoted bid price. The New York Stock Exchange is open for
trading Monday through Friday except New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, when any of the
aforementioned holidays falls on a Saturday, the New York Stock Exchange
will not be open for trading on the preceding Friday and when any such
holiday falls on a Sunday, the New York Stock Exchange will not be open
for trading on the succeeding Monday, unless unusual business conditions
exist, such as the ending of a monthly or the yearly accounting period.
The New York Stock Exchange also may be closed on national days of
mourning.
SYSTEMATIC WITHDRAWAL PLAN
An investor who owns Fund shares worth at least $10,000 at the
current net asset value may, by completing an application which may be
obtained from the Fund or Firstar Trust Company, create a Systematic
Withdrawal Plan from which a fixed sum will be paid to the investor at
regular intervals. To establish the Systematic Withdrawal Plan, the
investor deposits Fund shares with the Corporation and appoints it as
agent to effect redemptions of Fund shares held in the account for the
purpose of making monthly or quarterly withdrawal payments of a fixed
amount to the investor out of the account. Fund shares deposited by the
investor in the account need not be endorsed or accompanied by a stock
power if registered in the same name as the account; otherwise, a properly
executed endorsement or stock power, obtained from any bank, broker-dealer
or the Corporation is required. The investor's signature should be
guaranteed by a bank, a member firm of a national stock exchange or other
eligible guarantor.
The minimum amount of a withdrawal payment is $100. These
payments will be made from the proceeds of periodic redemptions of shares
in the account at net asset value. Redemptions will be made in accordance
with the schedule (e.g., monthly, bimonthly [every other month], quarterly
or yearly, but in no event more than monthly) selected by the investor.
If a scheduled redemption day is a weekend day or a holiday, such
redemption will be made on the next preceding business day. Establishment
of a Systematic Withdrawal Plan constitutes an election by the investor to
reinvest in additional Fund shares, at net asset value, all income
dividends and capital gains distributions payable by the Fund on shares
held in such account, and shares so acquired will be added to such
account. The investor may deposit additional Fund shares in his account
at any time.
Withdrawal payments cannot be considered as yield or income on
the investor's investment, since portions of each payment will normally
consist of a return of capital. Depending on the size or the frequency of
the disbursements requested, and the fluctuation in the value of the
Fund's portfolio, redemptions for the purpose of making such disbursements
may reduce or even exhaust the investor's account.
The investor may vary the amount or frequency of withdrawal
payments, temporarily discontinue them, or change the designated payee or
payee's address, by notifying Firstar Trust Company in writing thirty (30)
days prior to the next payment.
ALLOCATION OF PORTFOLIO BROKERAGE
The Fund's securities trading and brokerage policies and
procedures are reviewed by and subject to the supervision of the
Corporation's Board of Directors. Decisions to buy and sell securities
for the Fund are made by the Adviser subject to review by the
Corporation's Board of Directors. In placing purchase and sale orders for
portfolio securities for the Fund, it is the policy of the Adviser to seek
the best execution of orders at the most favorable price in light of the
overall quality of brokerage and research services provided, as described
in this and the following paragraphs. Many of these transactions involve
payment of a brokerage commission by the Fund. In some cases,
transactions are with firms who act as principals of their own accounts.
In selecting brokers to effect portfolio transactions, the determination
of what is expected to result in best execution at the most favorable
price involves a number of largely judgmental considerations. Among these
are the Adviser's evaluation of the broker's efficiency in executing and
clearing transactions, block trading capability (including the broker's
willingness to position securities) and the broker's reputation, financial
strength and stability. The most favorable price to the Fund means the
best net price without regard to the mix between purchase or sale price
and commission, if any. Over-the-counter securities may be purchased and
sold directly with principal market makers who retain the difference in
their cost in the security and its selling price. In some instances, the
Adviser feels that better prices are available from non-principal market
makers who are paid commissions directly. Although the Fund does not
initially intend to market its shares through intermediary broker-dealers,
the Fund may place portfolio orders with broker-dealers who recommend the
purchase of Fund shares to clients (if the Adviser believes the
commissions and transaction quality are comparable to that available from
other brokers) and may allocate portfolio brokerage on that basis.
The Adviser may allocate brokerage to Weeden & Co., L.P.
("Weeden") but only if the Adviser reasonably believes the commission and
transaction quality are comparable to that available from other qualified
brokers. Steven C. Leuthold is a limited partner and director of Weeden.
Weeden's institutional investment research division is designated The
Leuthold Group, in which Steven C. Leuthold has a separate fifty-percent
pecuniary interest. Under the Act, Weeden is prohibited from dealing with
the Fund as a principal in the purchase and sale of securities. Since
transactions in the over-the-counter securities market generally involve
transactions with dealers acting as principal for their own account,
Weeden may not serve as the Fund's dealer in connection with such
transactions. Weeden, when acting as a broker for the Fund in any of its
portfolio transactions executed on a securities exchange of which Weeden
is a member, will act in accordance with the requirements of Section 11(a)
of the Securities Exchange Act of 1934 and the rules of such exchanges.
In allocating brokerage business for the Fund, the Adviser also
takes into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the
availability of the brokerage firm's analysts for consultation. While the
Adviser believes these services have substantial value, they are
considered supplemental to the Adviser's own efforts in the performance of
its duties under the Advisory Agreement. Other clients of the Adviser may
indirectly benefit from the availability of these services to the Adviser,
and the Fund may indirectly benefit from services available to the Adviser
as a result of transactions for other clients. The Advisory Agreement
provides that the Adviser may cause the Fund to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting a securities transaction in excess of the amount another broker
would have charged for effecting the transaction, if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of brokerage and research services provided by the
executing broker viewed in terms of either the particular transaction or
the Adviser's overall responsibilities with respect to the Fund and the
other accounts as to which he exercises investment discretion. Weeden
will not receive higher commissions because of research services provided.
The Fund did not commence operations until October 31, 1995.
TAXES
As set forth in the Prospectus under the caption "TAXES," the
Fund will endeavor to qualify annually for and elect tax treatment
applicable to a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended.
Dividends from the Fund's earnings and profits, and
distributions of the Fund's net long-term realized capital gains, are
taxable to investors, whether received in cash or in additional shares of
the Fund. The 70% dividends-received deduction for corporations will
apply only to the proportionate share of the dividend attributable to
dividends received by the Fund from domestic corporations.
Redemption of shares will generally result in a capital gain or
loss for income tax purposes. Such capital gain or loss will be long term
or short term, depending upon the holding period. However, if a loss is
realized on shares held for six months or less, and the investor received
a capital gain distribution during that period, then such loss is treated
as a long-term capital loss to the extent of the capital gain distribution
received.
This section is not intended to be a full discussion of present
or proposed federal income tax laws and the effect of such laws on an
investor. Investors are urged to consult with their respective tax
advisers for a complete review of the tax ramifications of an investment
in the Fund.
STOCKHOLDER MEETINGS
The Maryland General Corporation Law permits registered
investment companies, such as the Fund, to operate without an annual
meeting of stockholders under specified circumstances if an annual meeting
is not required by the Act. The Fund has adopted the appropriate
provisions in its Bylaws and may, at its discretion, not hold an annual
meeting in any year in which the election of directors is not required to
be acted on by stockholders under the Act.
The Fund's Bylaws also contain procedures for the removal of
directors by its stockholders. At any meeting of stockholders, duly
called and at which a quorum is present, the stockholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be
cast thereon, remove any director or directors from office and may elect a
successor or successors to fill any resulting vacancies for the unexpired
terms of removed directors.
Upon the written request of the holders of shares entitled to
not less than ten percent (10%) of all the votes entitled to be cast at
such meeting, the Secretary of the Fund shall promptly call a special
meeting of stockholders for the purpose of voting upon the question of
removal of any director. Whenever ten or more stockholders of record who
have been such for at least six months preceding the date of application,
and who hold in the aggregate either shares having a net asset value of at
least $25,000 or at least one percent (1%) of the total outstanding
shares, whichever is less, shall apply to the Fund's Secretary in writing,
stating that they wish to communicate with other stockholders with a view
to obtaining signatures to a request for a meeting as described above and
accompanied by a form of communication and request which they wish to
transmit, the Secretary shall within five business days after such
application either: (1) afford to such applicants access to a list of the
names and addresses of all stockholders as recorded on the books of the
Fund; or (2) inform such applicants as to the approximate number of
stockholders of record and the approximate cost of mailing to them the
proposed communication and form of request.
If the Secretary elects to follow the course specified in clause
(2) of the last sentence of the preceding paragraph, the Secretary, upon
the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall,
with reasonable promptness, mail such material to all stockholders of
record at their addresses as recorded on the books unless within five
business days after such tender the Secretary shall mail to such
applicants and file with the Securities and Exchange Commission, together
with a copy of the material to be mailed, a written statement signed by at
least a majority of the Board of Directors to the effect that in their
opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion.
After opportunity for hearing upon the objections specified in
the written statement so filed, the Securities and Exchange Commission
may, and if demanded by the Board of Directors or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness
after the entry of such order and the renewal of such tender.
PERFORMANCE INFORMATION
Average annual total return measures both the net investment
income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in the Fund's
investment portfolio. The Fund's average annual total return figures are
computed in accordance with the standardized method prescribed by the
Securities and Exchange Commission by determining the average annual
compounded rates of return over the periods indicated, that would equate
the initial amount invested to the ending redeemable value, according to
the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of
the period of a hypothetical $1,000
payment made at the beginning of such
period
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value or the appropriate reinvestment dates as
described in the Prospectus, and (ii) deducts all recurring fees, such as
advisory fees, charged as expenses to all investor accounts.
Total return is the cumulative rate of investment growth which
assumes that income dividends and capital gains are reinvested. It is
determined by assuming a hypothetical investment at the net asset value at
the beginning of the period, adding in the reinvestment of all income
dividends and capital gains, calculating the ending value of the
investment at the net asset value as of the end of the specified time
period, subtracting the amount of the original investment, and dividing
this amount by the amount of the original investment. This calculated
amount is then expressed as a percentage by multiplying by 100.
The Fund's total return for the period from the Fund's
commencement of operations (November 20, 1995) through March 31, 1996 was
1.42%. The foregoing performance results are based on historical earnings
and should not be considered as representative of the performance of the
Fund in the future. Such performance results also reflect reimbursements
made by the Adviser during the period from November 20, 1995 through March
31, 1996 to keep aggregate annual operating expenses at or below 1.25% of
daily net assets. An investment in the Fund will fluctuate in value and
at redemption its value may be more or less than the initial investment.
DESCRIPTION OF SECURITIES RATINGS
As set forth in the Corporation's Prospectus, the Fund (or a
registered investment company in which the Fund invests) may invest in
bonds and debentures assigned ratings of either Standard & Poor's
Corporation ("Standard & Poor's") or Moody's Investors Service, Inc.
("Moody's"). As also set forth therein, the Fund may invest in commercial
paper and commercial paper master notes rated by Standard & Poor's or
Moody's. A brief description of the ratings symbols and their meanings
follows.
Standard & Poor's Debt Ratings. A Standard & Poor's corporate
or municipal debt rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. This assessment may
take into consideration obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform any audit in connection with
any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes
in, or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the
obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
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 the
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 debts in this category than in higher
rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Moody's Bond Ratings.
Aaa - Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." 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 Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities 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 to be 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.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes Bonds in this class.
B - Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of time
may be small.
Caa - Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa to B. The modifier 1 indicates that the
company 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 company ranks in the lower end of its generic rating category.
Standard & Poor's Commercial Paper Ratings. A Standard & Poor's
commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from A-1 for the
highest quality obligations to D for the lowest. The categories rated A-3
or higher are as follows:
A-1. This highest category indicates that the degree of safety
regarding timely payment is strong. Those issuers 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 issuers designed "A-1".
A-3. Issues carrying this designation have adequate capacity
for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designation.
Moody's Short-Term Debt Ratings. Moody's short-term debt
ratings are opinions of the ability of issuers to repay punctually senior
debt obligations which have an original maturity not exceeding one year.
Obligations relying upon support mechanisms such as letters-of-credit and
bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to
be investment grade, to indicate the relative repayment ability of rated
issuers:
Prime-1. Issuers rated Prime-1 (or supporting institutions)
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 structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions)
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,
may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayment of senior short-term obligations.
The effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, has been selected as the independent accountants for the
Fund.
FINANCIAL STATEMENTS
The following unaudited financial statements are incorporated by
reference to the Semi-Annual Report, dated March 31, 1996, of the Fund
(File No. 811-9094), as filed with the Securities and Exchange Commission
on April 29, 1996:
- Statement of Assets and Liabilities as of March 31, 1996
(Unaudited)
- Statement of Operations For the Period From November 20,
1995 (Commencement of Operations) through March 31, 1996
(Unaudited)
- Statement of Changes in Net Assets For the Period From
November 20, 1995 (Commencement of Operations) through
March 31, 1996 (Unaudited)
- Financial Highlights For the Period From November 20, 1995
(Commencement of Operations) to March 31, 1996 (Unaudited)
- Schedule of Investments as of March 31, 1996 (Unaudited)
- Notes to the Financial Statements (Unaudited)
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a.) Financial Statements (Financial Highlights included in Part A
and all incorporated by reference to the Semi-Annual Report,
dated March 31, 1996 (File No. 811-9094), of Leuthold Funds,
Inc. (as filed with the Securities and Exchange Commission on
April 29, 1996))
Statement of Assets and Liabilities (Unaudited)
Statement of Operations (Unaudited)
Statement of Changes in Net Assets (Unaudited)
Financial Highlights (Unaudited)
Schedule of Investments (Unaudited)
Notes to the Financial Statements (Unaudited)
(b.) Exhibits
(1) Registrant's Articles of Incorporation (Exhibit 1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(2) Registrant's Bylaws (Exhibit 2 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(3) None
(4) Specimen Class A Common Stock Certificate (Leuthold
Asset Allocation Fund) (Exhibit 4 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(5) Investment Advisory Agreement with Leuthold & Anderson,
Inc. relating to Leuthold Asset Allocation Fund (Exhibit
5 to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(6) None
(7) None
(8) Custodian Agreement with Firstar Trust Company (Exhibit
8 to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(9.1) Fund Administration Servicing Agreement with Firstar
Trust Company relating to Leuthold Asset Allocation Fund
(Exhibit 9.1 to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(9.2) Transfer Agent Agreement with Firstar Trust Company
relating to Leuthold Asset Allocation Fund (Exhibit 9.2
to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(9.3) Fund Accounting Servicing Agreement with Firstar Trust
Company (Exhibit 9.3 to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(10) Opinion of Foley & Lardner, counsel for Registrant
(Exhibit 10 to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(11) Consent of Arthur Andersen LLP.
(12) None
(13) Subscription Agreement (Exhibit 13 to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement
on Form N-1A is incorporated by reference pursuant to
Rule 411 under the Securities Act of 1933).
(14) Individual Retirement Custodial Account (Exhibit 14 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(15) None
(16) Schedule for Computation of Performance Quotations
(17) Financial Data Schedule
(18) None
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by Piper Trust Company, Trustee FBO
Omnibus Reinvest, which owned 27.7% of its voting securities as of March
31, 1996. Registrant neither controls any person nor is under common
control with any other person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of March 31, 1996
Class A Common Stock, $0.0001 77
par value (Leuthold Asset
Allocation Fund)
Item 27. Indemnification
Pursuant to the authority of the Maryland General Corporation
Law, particularly Section 2-418 thereof, Registrant's Board of Directors
has adopted the following bylaw which is in full force and effect and has
not been modified or cancelled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
A. The Corporation shall indemnify all of its corporate
representatives against expenses, including attorneys fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the
corporate representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall create a rebuttable presumption that the person was
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard to the duties and obligations involved in the conduct of his or
her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation
of and/or presentation of the defense of a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 2-418(F) of the Maryland General Corporation Law upon
receipt of: (i) an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation
as authorized in this bylaw; and (ii) a written affirmation by the
corporate representative of the corporate representative's good faith
belief that the standard of conduct necessary for indemnification by the
corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under these bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person subject to the limitations imposed from
time to time by the Investment Company Act of 1940, as amended.
F. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or
served another corporation, partnership, joint venture, trust or other
enterprise in one of these capacities at the request of the corporation
and who, by reason of his or her position, is, was, or is threatened to be
made, a party to a proceeding described herein.
Insofar as indemnification for and with respect to liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of Registrant pursuant to the foregoing
provisions or otherwise, Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
director, officer or controlling person or Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Incorporated by reference to pages 11 through 13 of the
Statement of Additional Information pursuant to Rule 411 under the
Securities Act of 1933.
Item 29. Principal Underwriters
Not Applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder are in the
physical possession of Registrant and Registrant's Administrator as
follows: the documents required to be maintained by paragraphs (5), (6),
(7), (10) and (11) of Rule 31a-1(b) will be maintained by the Registrant
at 100 North Sixth Street, Suite 700A, Minneapolis, Minnesota; and all
other records will be maintained by the Registrant's Administrator,
Firstar Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin.
Item 31. Management Services
All management-related service contracts entered into by
Registrant are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
Registrant undertakes, if requested to do so by the holders of
at least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
director or directors and to assist in communications with other
shareholders as required by Section 16(c) of the Investment Company Act of
1940.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets
all of the requirements for effectiveness of this Amended Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amended Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Minneapolis
and State of Minnesota on the 29th day of April, 1996.
LEUTHOLD FUNDS, INC.
(Registrant)
By: /s/ Steven C. Leuthold
Steven C. Leuthold, President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the following
persons in the capacities and on the date(s) indicated.
Name Title Date
/s/ Steven C. Leuthold President and Treasurer April 29, 1996
Steven C. Leuthold (Principal Executive,
Financial and Accounting
Officer) and a Director
/s/ David D. Deming Director April 29, 1996
David D. Deming
/s/ Charles D. Zender Director April 29, 1996
Charles D. Zender
/s/ John S. Chipman Director April 29, 1996
John S. Chipman
/s/ Lawrence L. Horsch Director April 29, 1996
Lawrence L. Horsch
/s/ Paul M. Kelnberger Director April 29, 1996
Paul M. Kelnberger
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(1) Registrant's Articles of
Incorporation*
(2) Registrant's Bylaws*
(3) None
(4) Specimen Class A Common Stock
Certificate (Leuthold Asset
Allocation Fund)*
(5) Investment Advisory Agreement with
Leuthold and Anderson, Inc.
relating to Leuthold Asset
Allocation Fund*
(6) None
(7) None
(8) Custodian Agreement with Firstar
Trust Company*
(9.1) Fund Administration Servicing
Agreement with Firstar Trust
Company relating to Leuthold Asset
Allocation Fund*
(9.2) Transfer Agent Agreement with
Firstar Trust Company*
(9.3) Fund Accounting Servicing
Agreement with Firstar Trust
Company*
(10) Opinion of Foley & Lardner,
counsel for Registrant*
(11) Consent of Arthur Andersen LLP
(12) None
(13) Subscription Agreement*
(14) Individual Retirement Custodial
Account*
(15) None
(16) Schedule for Computation of
Performance Quotations
(17) Financial Data Schedule
(18) None
__________________________________
* Incorporated by reference.
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to all references to
our firm included in or made a part of Registration Statement No. 33-96634
on Form N-1A of Leuthold Funds, Inc.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
April 29, 1996
EXHIBIT 16
Schedule for Computation of Performance Quotation
LEUTHOLD ASSET ALLOCATION FUND
1. Initial (November 20, 1996) Net Asset Value = 10.00
2. Number of hypothetical shares purchased = $1,000 divided by $10.00 =
100 shares
3. Amount of dividends =
12/29/95 - $0.05176082 per share 100 = $5.18/$10.18 = .5085 shares
03/29/95 - $.10026509 per share 100.5085 = $10.08/$9.99 = 1.0088 shares
Total = 1.5173
4. Fees charged to shareholder accounts = 0
5. Ending (March 31, 1996) Net Asset Value = $9.99
6. Ending redeemable value of hypothetical investment =
100 + 1.5173 = 101.5173 x $9.99 = $1,014.16
7. Total Return = ($1,014.16 - $1,000) divided by $1,000 = +1.42%
<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> LEUTHOLD FUNDS, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> NOV-20-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 34,126,201
<INVESTMENTS-AT-VALUE> 34,285,582
<RECEIVABLES> 429,837
<ASSETS-OTHER> 72,799
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</TABLE>
