Leuthold
Asset Allocation Fund
Annual Report
September 30, 1997
DEAR FELLOW SHAREHOLDERS:
First, thank you for your business and your continued support of our
philosophy. We appreciate having you with us as investors in the Leuthold Asset
Allocation Fund. As always, please feel free to call us at 612-332-9141 if you
have questions about the Fund, our strategy, or our current outlook.
Over the last fiscal year (9/30/96 through 9/30/97), overall Fund
performance was probably disappointing to at least some of our shareholders. Our
Real Estate Investment Trust holdings provided a 41.9% total return over this 12
months and our sector driven common stock portfolio gained 45.6%. Compared to
the S&P 500 (+40.5%), these were quite respectable returns. But the
disappointment was that we did not have enough of our assets invested in stocks.
The overall stock market was much stronger than we anticipated, moving
considerably above past valuation extremes. Nevertheless, since June 30, 1997,
overall Fund performance has exceeded that of all widely followed stock market
measures.
Over the 12 month period, about half the portfolio was invested in bonds
with about 20% in short term fixed income investments. Bond holdings provided a
respectable 16.1% total return, but this paled when compared to the stock
market's 12-month gain.
HOW ARE WE DOING LATELY?
- ------------------------
Some investors began to ask about portfolio risk as the U.S. market
experienced significant volatility in the third quarter of 1997. Then, over one
million investors watched CNBC on October 27 as the stock market fell 7%. (In
percentage terms this was the third deepest one-day decline since World War II.)
A snap back rally in October's final days reduced the damage somewhat.
Nevertheless, the Dow Jones Industrial Average ended October with a 500 point
decline for the month, down about 6%. The S&P 500 decline of 3.5% was more
modest, but almost all technology stocks sustained heavy damage. The
Semiconductor Index fell 20% and Technology-Production Equipment stocks
plummeted 33% on average.
Fortunately, our Fund held no tech stocks. In fact, the equity portion of
our portfolio moved up slightly or held even in October, with gains in Airlines,
Cable, Major Drugs and Oil Equipment & Services more than making up for declines
in our other sectors. Some luck involved here? Probably. However, our equity
strategy work has produced excellent results this year.
Bonds moved up in October as stocks declined. Thus, the 51% allocation of
Fund assets in bonds was a positive for the portfolio. In a month of market
turmoil your Fund turned in a positive performance of +1.4%.
- Overall, the Fund performance has been excellent since our June 30
quarterly report. From the end of June through October the total return has been
10.4%. This compares with a 4% gain in the S&P 500 and a 3% loss for the Dow
Jones Industrials.
It is true that our performance in the first half of 1997, relative to an
all-stock benchmark, was nothing to brag about. But it is also true that
historically we usually do best in tough market periods.
- FOR THE MONTH OF OCTOBER, THE LEUTHOLD ASSET ALLOCATION FUND WAS THE #5
PERFORMER OF THE 234 FUNDS IN THE MORNINGSTAR `ASSET ALLOCATION'' CATEGORY. IT
WAS THE #12 FUND FOR THE THREE MONTH PERIOD ENDING 10/31/97. HOW QUICKLY THINGS
CHANGE.
OVERVIEW OF CURRENT CONDITIONS
- ------------------------------
The two years that this Fund has been open have been both rewarding and
frustrating, often at the same time. That is typical for markets which are
grossly over or under-valued.
I am convinced that this is an unusually precarious situation for many
investors with substantial U.S. equity exposure, one in which the risks far
outweigh the prospective rewards. Now this is not a prediction of fire and
brimstone to come. Rather, it is a recognition of some basic truths about value
and about human behavior. It is also a comment about the risk side of the
risk/reward equation, something which seems to have been temporarily misplaced
in most investment disciplines today.
FACT: By virtually any valuation measure you choose, this is either the most
expensive market in history or very close to it. Yes, this is a new valuation
era, but these "new eras" have always been temporary.
FACT: Even at such elevated levels, an average household has a greater
percentage of their liquid financial assets in U.S. stocks than ever before.
The proportion is 70% greater than in 1975. Many are first-time equity
investors with little or no experience with significant stock market
declines.
FACT: Most of these investors all but ignored even the Chairman of the
Federal Reserve when he warned about unsupportable U.S. market valuations in
his now famous "irrational exuberance" speech on December 5, 1996. The Dow
Jones Industrial Average is up 21% since Alan Greenspan's comment.
FACT: Overvalued markets with large-scale participation by smaller investors
have been characteristic of market tops preceding almost every significant
decline of this century.
FACT: When things change, well, it's a long way down from here.
As per usual, the question is, "When?" And that question leads you down
precisely the wrong path, because while the debate can be interesting, the fact
is no one truly knows. Overvalued markets can become more expensive. Inexpensive
markets can stay that way for significant periods of time.
The more important question is "When am I more likely to get the best
return (compensation) for risking my money in stocks, with the least exposure to
a significant loss?" That answer is relatively simple - When stocks are
somewhat under-valued. (Again, please feel free to call us if you would like to
see all of the supporting statistics.)
- With 51% of the portfolio in U.S. Government bonds, we have profited as
long-term interest rates have declined over the past 12 months. We believe that
the risk/reward dynamics of this position will remain relatively attractive
until long-term rates decline below 6%, or until the stock market corrects more
than 15%.
- Our exposure to stocks includes a 10% allocation to real estate in the
form of Real Estate Investment Trusts. These instruments have appreciated at the
rate of the high-flying S&P in the last twelve months. Yet, we believe they are
much less likely than traditional stocks to suffer a dramatic decline.
- The S&P 500 call options (3% of total assets, providing 22% of effective
equity exposure) create additional capacity to participate if the market rallies
from current levels. However, should the market drop, our loss is limited to the
3% employed here. In addition, if our models turn negative we could sell these
options, purchase the same amount of put options, and reduce our effective
equity exposure to less than 5%.
- Including the call options and the Real Estate Investment Trusts, your
Fund currently has the equivalent of about 48% stock market exposure. But as
noted, this could be changed significantly if conditions warranted.
LOOKING AHEAD?
In recent years, conditions in the U.S. have been ideal for the stock
market...low inflation, good corporate profits, and relatively stable interest
rates. However, as we have continued to emphasize, valuations are sky high.
There is enormous risk in the U.S. stock market. We calculate a downward
adjustment to median valuation levels currently implies a 35%-40% decline from
current levels. If the next bear market is a secular bear market, the potential
decline is significantly greater.
Did October's volatile stock market mark the beginning of a major market
decline? At this point our key indicators aren't giving strong signals. The
Leuthold Group's Major Trend Index now reads "Neutral." But October was a
vivid demonstration that almost anything, even in far away Hong Kong, can touch
off a major sell off in the U.S. stock market.
In terms of the U.S. economy, some of the ideal conditions of recent years
may be fading. Wage increases (even in government data) are picking up.
Corporate earnings estimates for 1998 are coming down. Global financial strains
are intensifying as evidenced by problems in some emerging markets during the
latter part of 1997.
As of November 20, 1997, the Fund's overall asset allocation is standing
pat, with 51% bond exposure and 48% equity exposure (22% via limited risk index
calls). Subject to market conditions, we are considering taking profits in part
of the zero T-bond holdings and perhaps committing 5% of assets to panic
depressed emerging country stock markets in Asia and South America (using closed
end country funds).
IN ADDITION, A MAJOR REDUCTION IN U.S. EQUITY EXPOSURE WILL TAKE PLACE
IMMEDIATELY IF THE NOW DETERIORATING MAJOR TREND INDEX SHIFTS TO NEGATIVE
STATUS.
Our mission at Leuthold & Anderson is unchanged: To Make It and Keep It.
Sincerely,
/s/ Steve Leuthold
Steve Leuthold
Chairman
<TABLE>
A $10,000 INVESTMENT IN THE LEUTHOLD ASSET ALLOCATION FUND
<CAPTION>
11/95 12/95 3/96 6/96 9/96 12/96 3/97 6/97 9/97
----- ----- ---- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Leuthold Asset
Allocation Fund 10,000 10,231 10,141 10,340 10,544 11,185 10,969 11,430 12,436
Combined Index 10,000 10,255 10,405 10,650 10,902 11,477 11,593 12,690 13,340
Lipper Flexible
Fund Index 10,000 10,272 10,601 10,880 11,125 11,715 11,697 12,870 13,734
</TABLE>
The Combined Index is an unmanaged portfolio composed of 45% stocks (S&P 500),
45% bonds (Lehman Bros. Govt./Corporate Bond Index ["LB G/C BI"]), and 10%
cash (90-day T-bills). The Fund believes this index more closely reflects the
Fund's investment strategy, and therefore, is a more appropriate performance
comparator than either the S&P500 or the LBG/C BIalone. For the year ended
9/30/97, a hypothetical $10,000 investment in the Fund would have been $11,893,
the S&P 500, $14,050, the LB G/C BI, $10,820, the Lipper Flexible Fund Index,
$12,340, and the Combined Index, $12,240. This chart assumes an initial gross
investment of $10,000 made on 11/20/95 (commencement of operations). Returns
shown include the reinvestment of all dividends. Past performance is not
predictive of future performance. Investment return and principal value will
fluctuate, so that your shares, when redeemed, may be worth more or less than
the original cost.
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED SEPTEMBER 30, 1997
LIPPER FLEXIBLE
FUND COMBINED FUND INDEX S&P 500 LB G/C BI
- ----------------------------------------------------------------------------
3 MONTH 8.8% 5.1% 6.7% 7.5% 2.7%
6 MONTH 13.4% 15.1% 17.4% 26.2% 5.7%
1 YEAR 18.0% 22.4% 23.4% 40.5% 8.2%
SINCE INCEPTION 12.4% 16.7% 18.6% 30.9% 6.0%
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
ASSETS:
Investments, at value
(cost $27,169,861) $30,305,854
Interest receivable 254,600
Dividends receivable 17,192
Organizational expenses, net
of accumulated amortization 26,968
Other assets 14,866
-----------
Total Assets 30,619,480
-----------
LIABILITIES:
Payable to Adviser 21,218
Accrued expenses and
other liabilities 38,081
-----------
Total Liabilities 59,299
-----------
NET ASSETS $30,560,181
===========
NET ASSETS CONSIST OF:
Capital stock $26,627,417
Accumulated undistributed net
realized gains on investments 796,771
Net unrealized appreciation
on investments 3,135,993
-----------
Total Net Assets $30,560,181
===========
Shares outstanding
(250,000,000 shares of
$.0001 par value authorized) 2,736,025
Net Asset Value, Redemption Price
and Offering Price Per Share $11.17
======
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
INVESTMENT INCOME:
Dividend income (net of foreign
taxes withheld of $70) $ 300,468
Interest income 1,353,565
-----------
Total investment income 1,654,033
-----------
EXPENSES:
Investment advisory fee 269,461
Administration fee 31,718
Shareholder servicing and
accounting costs 46,712
Custody fees 9,147
Federal and state registration 25,083
Professional fees 29,864
Amortization of
organizational expenses 8,603
Reports to shareholders 5,978
Directors' fees and expenses 6,760
Other 6,425
-----------
Total expenses before reimbursement 439,751
Less:Reimbursement from Adviser (65,500)
-----------
Net expenses 374,251
-----------
NET INVESTMENT INCOME 1,279,782
-----------
REALIZED AND UNREALIZED
GAINSON INVESTMENTS:
Net realized gains on investments 650,665
Change in unrealized
appreciation on investments 2,908,909
-----------
Net realized and unrealized
gains on investments 3,559,574
-----------
NET INCREASE IN
NET ASSETS RESULTING
FROM OPERATIONS $4,839,356
==========
See notes to the financial statements.
STATEMENT OF CHANGES IN NET ASSETS
NOVEMBER 20, 1995
YEAR ENDED <F1> THROUGH
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ -------------------
OPERATIONS:
Net investment income $ 1,279,782 $ 1,161,465
Net realized gains on investments 650,665 172,238
Change in unrealized appreciation
on investments 2,908,909 227,083
----------- ------------
Net increase in net assets
from operations 4,839,356 1,560,786
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,318,685) (1,084,877)
In excess of net investment income (125,721) -
From net realized gains (794,514) -
----------- ------------
Total distributions (2,238,920) (1,084,877)
----------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 5,469,769 11,738,348
Proceeds from collective and
common trust fund conversions - 29,115,588
Proceeds from shares issued to holders in
reinvestment of dividends 2,168,493 1,037,552
Cost of shares redeemed (11,419,018) (10,626,896)
----------- -----------
Net increase (decrease) in net assets
from capital share transactions (3,780,756) 31,264,592
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (1,180,320) 31,740,501
----------- -----------
NET ASSETS:
Beginning of period 31,740,501 0
----------- -----------
End of period (including undistributed
net investment income of $0
and $81,802, respectively) $30,560,181 $31,740,501
=========== ===========
<F1> Commencement of operations.
See notes to the financial statements.
FINANCIAL HIGHLIGHTS
NOVEMBER 20, 1995
YEAR ENDED <F1> THROUGH
PER SHARE DATA: SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
Net asset value, beginning of period $10.18 $10.00
Income from investment operations:
Net investment income 0.44<F2> 0.38
Net realized and unrealized gains
on investments 1.32 0.16
----- -----
Total from investment operations 1.76 0.54
----- -----
Less distributions:
From net investment income (0.46) (0.36)
In excess of net investment income (0.05) -
From net realized gains (0.26) -
----- -----
Total distributions (0.77) (0.36)
----- -----
Net asset value, end of period $11.17 $10.18
====== ======
Total return 17.96% 5.43%<F3>
Supplemental data and ratios:
Net assets, end of period $30,560,181 $31,740,501
Ratio of expenses to average net assets:
Before expense reimbursement 1.47% 1.55%<F4>
After expense reimbursement 1.25% 1.25%<F4>
Ratio of net investment income to
average net assets:
Before expense reimbursement 4.05% 4.14%<F4>
After expense reimbursement 4.27% 4.44%<F4>
Portfolio turnover rate 35.62% 103.30%
Average commission rate paid $0.0600 $0.0600
<F1> Commencement of operations.
<F2> Net investment income per share is calculated using ending balances prior
to consideration of adjustments for permanent book
and tax differences.
<F3> Not annualized.
<F4> Annualized.
See notes to the financial statements.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
NUMBER MARKET
OF SHARES VALUE
--------- -----
COMMON STOCKS - 26.1%
AIRLINES - MAJOR - 1.8%
1,300 AMR Corporation * $143,894
3,500 Continental Airlines, Inc.* 137,812
1,500 Delta Air Lines, Inc. 141,281
1,600 UAL Corporation* 135,400
--------
558,387
--------
CABLE - 2.3%
11,900 Adelphia Communications
Corporation* 144,287
2,400 Cablevision Systems
Corporation Class A* 150,600
7,600 Comcast Corporation Class A* 195,700
3,400 TCA Cable TV, Inc. 132,600
1,700 Time Warner, Inc. 92,119
--------
715,306
--------
CRIMESTOPPERS - 1.7%
2,500 Corrections Corporation
of America* 108,750
2,000 Detection Systems, Inc.* 41,250
4,950 Pinkerton's, Inc.* 113,850
3,200 Pittston Brink's Group 128,200
4,000 Wackenhut Corrections
Corporation* 124,000
--------
516,050
--------
ENERGY - EQUIPMENT & SERVICES - 2.4%
1,600 Cliffs Drilling Company* 111,400
1,400 Diamond Offshore Drilling, Inc. 77,262
2,200 ENSCO International, Inc. 86,762
5,500 Global Marine, Inc. * 182,875
2,000 Noble Drilling Corporation * 64,500
3,300 Rowan Companies, Inc.* 117,563
NUMBER MARKET
OF SHARES VALUE
- ---------- ------
ENERGY - EQUIPMENT &
SERVICES - 2.4% (CONTINUED)
2,300 Veritas DGC, Inc.* $ 97,894
--------
738,256
--------
HEALTH CARE - MAJOR DRUGS - 1.1%
1,600 American Home Products
Corporation 116,800
800 Eli Lilly and Company 96,350
2,500 Schering-Plough Corporation 128,750
--------
341,900
--------
INFRASTUCTURE - REBUILDING AMERICA - 2.3%
1,800 Caterpillar, Inc. 97,087
1,500 Deere & Company 80,625
900 Florida Rock Industries, Inc. 53,550
1,800 Harnischfeger Industries, Inc. 76,950
2,250 Ingersoll-Rand Company 96,891
2,000 Manitowoc Company, Inc. 71,375
2,700 Martin Marietta Materials, Inc. 97,200
1,000 Medusa Corporation 47,625
800 Vulcan Materials Company 69,600
--------
690,903
--------
INSURANCE - LIFE - 2.8%
781 Aegon NV ADR 62,236
5,000 Equitable Companies, Inc. 205,313
4,600 Presidential Life Corporation 91,425
2,500 Provident Companies, Inc. 174,844
3,200 ReliaStar Financial Corporation 127,400
4,800 SunAmerica, Inc. 188,100
--------
849,318
--------
See notes to the financial statements.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
NUMBER MARKET
OF SHARES VALUE
---------- -----
REAL ESTATE INVESTMENT TRUSTS - 10.6%
5,200 Bradley Real Estate, Inc. $ 109,200
4,500 CBL & Associates Properties, Inc. 116,719
6,600 Cali Realty Corporation 274,725
970 Crescent Operating, Inc.* 19,521
9,700 Crescent Real Estate
Equities Company 389,213
3,300 Equity Residential
Properties Trust 180,056
4,800 First Industrial Realty Trust, Inc. 163,200
8,000 Franchise Finance Corporation
of America 220,500
4,200 Hospitality Properties Trust 148,575
5,400 Kilroy Realty Corporation 145,800
7,800 Nationwide Health
Properties, Inc. 187,688
8,999 Patriot American
Hospitality, Inc. 286,843
5,300 Prentiss Properties Trust 153,038
5,100 RFS Hotel Investors, Inc. 99,450
9,600 Reckson Associates Realty
Corporation 255,600
7,200 Sun Communities, Inc. 258,300
14,100 United Dominion Realty
Trust, Inc. 211,500
---------
3,219,928
---------
THE HOLDING TANK - 1.1%
2,200 Mobil Corporation 162,800
4,000 Oryx Energy Company * 101,750
1,800 Providian Financial Corporation 71,437
---------
335,987
---------
Total common stocks
(cost $5,857,054) 7,966,035
---------
Market
Value
-----
Contracts (100 shares per contract)
- ----------------------------------
CALL OPTIONS PURCHASED - 2.6%
S&P 500:
125 Expiration March 1998,
Exercise Price $950 $ 785,937
-----------
Total call options purchased
(cost $832,000) 785,937
-----------
Principal
Amount
-------
FIXED INCOME SECURITIES - 49.0%
U.S. TREASURY OBLIGATIONS - 49.0%
$16,880,000 U.S. Treasury Strips,
due 2/15/2018 4,487,546
-----------
U.S. Treasury Bonds:
7,290,000 7.50%, due 11/15/2016 8,110,125
1,990,000 8.125%, due 8/15/2019 2,368,100
-----------
10,478,225
-----------
Total fixed income securities
(cost $13,892,696) $14,965,771
-----------
See notes to the financial statements.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
PRINCIPAL MARKET
AMOUNT VALUE
------ -----
SHORT-TERM INVESTMENTS - 21.5%
VARIABLE RATE DEMAND
NOTES - 21.5%
$1,480,999 American Family $1,480,999
1,481,940 General Mills 1,481,940
181,375 Sara Lee 181,375
1,481,324 Pitney Bowes 1,481,324
151,374 Johnson Controls 1,518,374
444,099 Wisconsin Electric Power Co. 444,099
----------
6,588,111
----------
SCHEDULE OF INVESTMENTS
MARCH 31, 1996
MARKET
VALUE
-----
Total short-term investments
(cost $6,588,111) $ 6,588,111
-----------
Total investments - 99.2%
(cost $27,169,861) 30,305,854
-----------
Other assets in excess of
liabilities - 0.8% 254,327
-----------
TOTAL NET ASSETS - 100.0% $30,560,181
===========
*Non-income producing security.
See notes to the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Leuthold Funds, Inc. (the "Company") was incorporated on August 30,
1995, as a Maryland Corporation and is registered as an open-end management
investment company under the Investment Company Act of 1940. The Company
currently consists of one series, Leuthold Asset Allocation Fund (the
"Fund"). The investment objective of the Fund is to seek total return
consistent with prudent investment risk over the long term. The Fund
commenced operations on November 20, 1995.
The costs incurred in connection with the organization, initial registration
and public offering of shares, aggregating $43,019, have been paid by the
Fund. These costs are being amortized over the period of benefit, but not to
exceed sixty months from the Fund's commencement of operations.
The following is a summary of significant accounting policies consistently
followed by the Fund.
a) Investment Valuation - 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. Options and 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.
b) Federal Income Taxes - It is the Fund's policy to meet the requirements
of the Internal Revenue Code applicable to regulated investment companies
and the Fund intends to distribute investment company net taxable income
and net capital gains to shareholders. Therefore, no federal income tax
provision is required.
c) Distributions to Shareholders - Dividends from net investment income are
declared and paid quarterly. Distributions of net realized capital gains,
if any, will be declared at least annually.
d) Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
e) Purchased Option Accounting - Option contracts purchased are included in
the Statement of Assets and Liabilities as an asset and are valued at the
last bid price reported on the date of valuation. When option contracts
expire or are closed, realized gains or losses are recognized without
regard to any unrealized gains or losses on the underlying securities.
Option contracts are held by the Fund for trading and hedging purposes.
f) Foreign Currency Translations - Values of investments denominated in
foreign currencies are converted into U.S. dollars using the spot market
rate of exchange at the time of valuation. Purchases and sales of
investments and dividend and interest income are translated into U.S.
dollars using the spot market rate of exchange prevailing on the
respective dates of such transactions. The gain or loss resulting from
changes in foreign exchange rates is included with net realized and
unrealized gain or loss from investments, as appropriate.
g) Other - Investment and shareholder transactions are recorded on the trade
date. The Fund determines the gain or loss realized from the investment
transactions by comparing the original cost of the security lot sold with
the net sales proceeds. Dividend income is recognized on the ex-dividend
date or as soon as information is available to the Fund, and interest
income is recognized on an accrual basis. Discounts and premiums on bonds
are amortized over the life of the respective bond. Generally accepted
accounting principles require that permanent financial reporting and tax
differences be reclassified to capital stock.
2. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
YEAR NOV. 20,
ENDED 1995
SEPT. 30, SEPT. 30,
1997 1996
---- ----
Shares sold 522,072 1,167,497
Shares issued as a result
of collective and common
trust fund conversions - 2,905,504
Shares issued to holders
in reinvestment of
dividends 208,024 102,850
Shares redeemed (1,112,267) (1,057,655)
---------- ----------
Net increase (decrease) (382,171) 3,118,196
======= =========
3. INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term investments, for
the year ended September 30, 1997 were as follows:
PURCHASES SALES
-------------------------- ---------------------
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
---------- ----- ---------- -----
$1,545,205 $6,866,099 $3,741,595 $9,620,478
At September 30, 1997, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
Appreciation $3,257,419
(Depreciation) (168,413)
-----------
Net appreciation on investments $3,089,006
===========
At September 30, 1997, the cost of investments for federal income tax
purposes was $27,216,848.
At the close of business on January 19, 1996, the unit holders of the Piper
Trust Common Leuthold Flexible Fund transferred their assets to the Fund. As
a result of the tax-free transfer, the Fund acquired $860,971 of unrealized
appreciation for tax purposes. Since inception, the Fund has realized
$845,182 of the appreciation.
4. INVESTMENT ADVISORY AND
OTHER AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with Leuthold &
Anderson, Inc. Pursuant to its advisory agreement with the Fund, the
Investment Adviser is entitled to receive a fee, calculated daily and
payable monthly, at the annual rate of 0.90% as applied to the Fund's daily
net assets.
The Investment Adviser has voluntarily agreed to reimburse the Fund to the
extent necessary to ensure that total operating expenses (exclusive of
interest, taxes, brokerage commissions and other costs incurred in
connection with the purchase or sale of portfolio securities, and
extraordinary items) do not exceed the annual rate of 1.25% of the net
assets of the Fund, computed on a daily basis.
Firstar Trust Company, a subsidiary of Firstar Corporation, a publicly held
bank holding company, serves as custodian, transfer agent, administrator and
accounting services agent for the Fund.
For the period ended September 30, 1997, the Fund paid Weeden & Co., L.P., an
affiliate of the Adviser $18,636 of brokerage commissions.
5. DISTRIBUTIONS
Twenty-three percent of the dividends paid during the fiscal year ended
September 30, 1997, qualifies for the dividend received deduction available
to corporate shareholders.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF LEUTHOLD FUNDS, INC.:
We have audited the accompanying statement of assets and liabilities of Leuthold
Funds, Inc. (a Maryland corporation, which includes the Leuthold Asset Allo ca
tion Fund), including the schedule of investments, as of September 30, 1997, and
the related statement of operations for the year then ended and the statements
of changes in net assets for the year ended September 30, 1997 and the period
from November 20, 1995 (commencement of operations) through September 30, 1996,
and the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Leuthold Funds, lnc. as of September 30, 1997, and the results of its operations
for the year then ended and changes in its net assets for the year ended
September 30, 1997 and the period from November 20, 1995 (commencement of
operations) through September 30, 1996, and its financial highlights for each of
the periods indicated, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
October 24, 1997.
Leuthold
Asset Allocation Fund
INVESTMENT ADVISER:
Leuthold & Anderson, Inc., Minnesota
ADMINISTRATOR, TRANSFER AGENT,
DIVIDEND PAYING AGENT, SHAREHOLDER
SERVICING AGENT & CUSTODIAN:
Firstar Trust Company, Wisconsin
COUNSEL:
Foley & Lardner, Wisconsin
AUDITORS:
Arthur Andersen LLP, Wisconsin
This report is authorized for distribution only when preceded or accompanied by
a current prospectus.
