(Leuthold Core Investment Fund Logo)
ANNUAL REPORT
September 30, 1998
DEAR FELLOW SHAREHOLDERS:
- -------------------------
We appreciate your support and the growing endorsement of our Core Investment
Fund philosophy. In the fiscal year ending September 30, 1998, investor net new
inflows increased your Fund assets by 35%. Increasingly, advisors and
individual investors are recognizing the merits of maintaining a solid core
within an overall investment portfolio.
We are also pleased to report outstanding investment results over the last
fiscal year (9/30/97 through 9/30/98). The total return from your Fund,
including dividends, was +14.5%. Over this frustrating and difficult market
period, the average common stock mutual fund lost 6.4% with the average flexible
fund producing only a 4% gain. For this 12-month period our Fund ranked in the
top 3% of all mutual funds and in the top 1% of our Fund category (Domestic
Hybrid).
Your Fund performed very well in three of the past four quarters. We were
able to outperform the S&P 500 in the fourth quarter of 1997 by largely avoiding
the stock market's downturn in October. We maintained our cautious investment
stance in the first quarter of 1998. In our view this continued to be a
dangerously speculative period. However, in late January, U.S. stocks began an
explosive rally despite poor earnings reports and no significant reduction in
long-term interest rates. We were concerned about the quality of this rally and
reluctant to increase equity exposure. Thus, the Fund's performance lagged well
behind stock market indices. As this rally faded in the second quarter of 1998,
the Fund's relative performance improved dramatically, under-performing the S&P
500 by only 2%. Ultimately, though, our prudence proved to be well justified.
THE TRAUMA OF 1998'S THIRD QUARTER
- ----------------------------------
The third quarter of 1998 proved to be a traumatic experience for most stock
market investors. It was the worst quarter for the stock market since the third
quarter of 1990. Popular stock market measures registered 10% to 12% declines,
with indices of smaller capitalization stocks down 20%. The average common
stock mutual fund declined 15% with some of the most aggressive funds down 30%
or more. However, the Leuthold Core Investment Fund managed to post a positive
2.7% return. This third quarter performance was a major contributing factor in
our superior 12-month performance.
MAKING IT...AND KEEPING IT
- --------------------------
Regardless of recent results, shareholders should not expect positive returns
in all future declining stock market periods. Our investment management firm's
1988 to date experience indicates a 1.9% loss is typical during quarterly
periods when the stock market declines. While our definition of long term
investment success is "making it and keeping it" we don't ALWAYS do it quite so
effectively.
We entered the third quarter with a cautious commitment to common stocks and
a heavy 45% investment in long term Treasury bonds. By late July we became
extremely concerned over the deteriorating earnings outlook, the growing impact
of Asian troubles on the U.S. economy and the erosion increasingly evident in
the U.S. stock market's technical underpinnings. Combined with the extreme
level of stock market valuations, these factors justified maximum stock market
caution. This caution, combined with a strong bond market, explains our
positive third quarter returns.
RECENT PORTFOLIO CHANGES
- ------------------------
The U.S. stock market has rebounded sharply from its lows of early October
and initially the Fund lagged behind. But, as the recent financial crisis has
eased and the Asian economic situation has stabilized somewhat, we have
increased our U.S. stock market commitment to about 40% of portfolio assets.
In September and October, we reduced holdings in long term Treasury bonds
from 45% to 10%; Treasury bond yields of 5% are not so appealing. We have added
higher yielding U.S. Corporate bonds, as well as Canadian, Australian and New
Zealand 10-year Government bonds.
OVERVIEW OF CURRENT CONDITIONS
- ------------------------------
While the stock market has rebounded and appears to be headed higher over the
intermediate term (January-February 1999), some very real negatives remain. We
will be cautious when and if we increase the Fund's equity exposure. We again
stand ready to step aside if current market conditions deteriorate.
O THE CURRENT STOCK MARKET IS BEING DRIVEN AND SUPPORTED BY A NEW SURGE OF
INFLOWS INTO U.S. MUTUAL FUNDS. WE EXPECT THIS WILL CONTINUE AND PROBABLY
ACCELERATE IN EARLY 1999 (A SEASONAL TENDENCY).
O THE RECENT U.S. AND GLOBAL FINANCIAL STRESS HAS EASED AND AT LEAST SOME
ASIAN ECONOMIES SEEM TO BE STABILIZING.
O HOWEVER, AGGREGATE CORPORATE EARNINGS ARE NOW IN A DECLINING TREND, WITH
PROFIT MARGINS CONTRACTING. TO SUSTAIN A LONGER-TERM STOCK MARKET ADVANCE,
RENEWED EARNINGS GROWTH IS ESSENTIAL BUT NOT EVIDENT.
O THE U.S. ECONOMY WILL SOON BE ENTERING ITS EIGHTH EXPANSION YEAR, THE
SECOND LONGEST PEACETIME EXPANSION IN U.S. HISTORY. CURRENT THREATS TO ITS
LONGEVITY INCLUDE GLOBAL EXCESS CAPACITY, THE U.S. TRADE IMBALANCE, THE
THREAT OF SIGNIFICANT DEFLATION AND PERHAPS A YEAR 2000 COMPUTER CRISIS.
O STOCK MARKET VALUATION MEASURES ARE AGAIN AT, OR CLOSE TO HISTORICAL
EXTREMES. A RETREAT TO HISTORICAL NORMS NOW IMPLIES A DECLINE TO DOW JONES
5000. WHEN INVESTOR PSYCHOLOGY DOES SHIFT FROM CONFIDENCE TO UNCERTAINTY
OR FEAR, A SEVERE DECLINE IS QUITE LIKELY. THE THIRD QUARTER OF 1998 WAS A
PREVIEW.
CONCLUSION
- ----------
For now, our work indicates the stock market is going higher. Our work also
shows the higher the market, the higher the risk. As the third quarter of 1998
demonstrated, the stock market can still be a rollercoaster. The extraordinary
recent public confidence in the stock market is not a permanent condition.
Our mission at Leuthold Core Investment Fund is to manage risk as well as
return. The last 12 months is a demonstration of the importance of risk
management. The next 12 months may well provide an even more vivid
demonstration.
Sincerely,
/s/ Steve Leuthold
Steve Leuthold
Chairman
A $10,000 INVESTMENT IN THE LEUTHOLD CORE INVESTMENT FUND
LEUTHOLD CORE COMBINED LIPPER FLEXIBLE
DATE INVESTMENT FUND $14,234 INDEX $13,549 FUND INDEX $14,290
----- ---------------------- -------------- ------------------
11/20/95 $10,000 $10,000 $10,000
12/31/96 $10,232 $10,251 $10,272
1/31/96 $10,141 $10,354 $10,471
2/28/96 $10,121 $10,371 $10,526
3/31/96 $10,142 $10,396 $10,600
4/30/96 $10,111 $10,521 $10,759
5/31/96 $10,294 $10,636 $10,896
6/30/96 $10,341 $10,618 $10,880
7/31/96 $10,392 $10,314 $10,542
8/31/96 $10,382 $10,514 $10,724
9/30/96 $10,543 $10,817 $11,126
10/31/96 $10,813 $10,956 $11,326
11/30/96 $11,175 $11,330 $11,874
12/31/96 $11,185 $11,286 $11,715
1/31/97 $11,142 $11,497 $12,055
2/28/97 $11,078 $11,465 $12,048
3/31/97 $10,970 $11,179 $11,698
4/30/97 $11,090 $11,402 $11,990
5/31/97 $11,221 $11,893 $12,502
6/30/97 $11,432 $12,165 $12,871
7/31/97 $12,303 $12,744 $13,593
8/31/97 $11,829 $12,615 $13,175
9/30/97 $12,439 $13,055 $13,735
10/31/97 $12,615 $12,914 $13,462
11/30/97 $12,829 $13,051 $13,702
12/31/97 $13,114 $13,257 $13,904
1/31/98 $13,218 $13,298 $13,993
2/28/98 $13,348 $13,745 $14,671
3/31/98 $13,709 $14,052 $15,165
4/30/98 $13,639 $14,157 $15,259
5/31/98 $13,534 $13,980 $15,108
6/30/98 $13,859 $14,149 $15,399
7/31/98 $13,612 $13,899 $15,239
8/31/98 $13,788 $12,929 $13,743
9/30/98 $14,234 $13,549 $14,290
The Combined Index (new) consists of an unmanaged portfolio of 45% common
stocks (15% S&P 500 Index, 15% S&P 400 Midcap Index and 15% Russell 2000
Index), 45% bonds (Lehman Bros. Govt./Corporate Bond Index ("LB G/C BI"),
and 10% money market instruments (90-day U.S. T-bills). The Fund
believes this index more closely reflects the Fund's investment strategy,
and therefore, is a more appropriate performance comparator than using
the S&P 500 alone for the stock portion of the index. For the year ended
9/30/98, a hypothetical $10,000 investment in the Fund would have been
$11,445, the Lipper Flexible Fund Index, $10,404, and the combined index
(old) (consisting of 45% S&P 500, 45% LB G/C BI and 10% T-bills),
$11,106. 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. The Fund's past performance is not
necessarily an indication of its future performance. It may perform
better or worse in the future.
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED SEPTEMBER 30, 1998
LIPPER
COMBINED FLEXIBLE COMBINED
FUND (NEW) FUND INDEX (OLD)
---- ------- ---------- -------
3 month 2.70% (4.24)% (7.21)% (1.88)%
6 month 3.83% (3.58)% (5.77)% 0.87%
1 year 14.45% 3.79% 4.04% 11.06%
Since Inception 13.12% 11.19% 13.28% 14.72%
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
ASSETS:
Investments, at value (cost $42,915,073) $45,932,167
Interest receivable 339,126
Dividends receivable 52,473
Organizational expenses, net of accumulated amortization 18,365
Other assets 9,141
------------
Total Assets $46,351,272
------------
LIABILITIES:
Payable to Adviser 30,325
Accrued expenses and other liabilities 53,929
------------
Total Liabilities 84,254
------------
NET ASSETS $46,267,018
------------
------------
NET ASSETS CONSIST OF:
Capital stock $39,725,276
Accumulated undistributed net realized gains on investments 3,524,865
Net unrealized appreciation on investments 3,016,877
------------
Total Net Assets $46,267,018
------------
------------
Shares outstanding (250,000,000 shares of
$.0001 par value authorized) 3,865,956
Net Asset Value, Redemption Price and Offering Price Per Share $11.97
------
------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
INVESTMENT INCOME:
Dividend income (net of foreign taxes withheld of $139) $ 343,938
Interest income 1,453,645
----------
Total investment income 1,797,583
----------
EXPENSES:
Investment advisory fee 329,152
Administration fee 29,277
Shareholder servicing and accounting costs 45,226
Custody fees 15,351
Federal and state registration 25,899
Professional fees 36,350
Amortization of organizational expenses 8,603
Reports to shareholders 15,214
Directors' fees and expenses 5,477
Other 6,098
----------
Total expenses before reimbursement 516,647
Less: Reimbursement from Adviser (59,492)
----------
Net expenses 457,155
----------
NET INVESTMENT INCOME 1,340,428
----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on investments 3,731,847
Change in unrealized appreciation on:
Investments (110,421)
Foreign currency translations (8,695)
----------
Net realized and unrealized gains on investments 3,612,731
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,953,159
----------
----------
See notes to the financial statements.
STATEMENT OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
OPERATIONS:
Net investment income $ 1,340,428 $ 1,279,782
Net realized gains on investments 3,731,847 650,665
Change in unrealized appreciation on
investments and foreign currency (119,116) 2,908,909
----------- -----------
Net increase in net assets from operations 4,953,159 4,839,356
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,299,705) (1,318,685)
In excess of net investment income -- (125,721)
From net realized gains (1,049,550) (794,514)
----------- -----------
Total distributions (2,349,255) (2,238,920)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 16,547,279 5,469,769
Proceeds from shares issued to holders in
reinvestment of dividends 2,226,762 2,168,493
Cost of shares redeemed (5,671,108) (11,419,018)
----------- -----------
Net increase (decrease) in net assets
from capital share transactions 13,102,933 (3,780,756)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 15,706,837 (1,180,320)
NET ASSETS:
Beginning of year 30,560,181 31,740,501
----------- -----------
End of year $46,267,018 $30,560,181
----------- -----------
----------- -----------
See notes to the financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
YEAR YEAR NOVEMBER 20, 1995(1)<F1>
ENDED ENDED THROUGH
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------- ------------------- -------------------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $11.17 $10.18 $10.00
------ ------ ------
Income from investment operations:
Net investment income 0.40 0.44(2)<F2> 0.38
Net realized and unrealized
gains on investments 1.16 1.32 0.16
------ ------ ------
Total from investment operations 1.56 1.76 0.54
------ ------ ------
Less distributions:
From net investment income (0.40) (0.46) (0.36)
In excess of net investment income -- (0.05) --
From net realized gains (0.36) (0.26) --
------ ------ ------
Total distributions (0.76) (0.77) (0.36)
------ ------ ------
Net asset value, end of period $11.97 $11.17 $10.18
------ ------ ------
------ ------ ------
Total return 14.45% 17.96% 5.43%(3)
Supplemental data and ratios:
Net assets, end of period $46,267,018 $30,560,181 $31,740,501
Ratio of expenses to average net assets:
Before expense reimbursement 1.41% 1.47% 1.55%(4)<F4>
After expense reimbursement 1.25% 1.25% 1.25%(4)<F4>
Ratio of net investment income to
average net assets:
Before expense reimbursement 3.50% 4.05% 4.14%(4)<F4>
After expense reimbursement 3.66% 4.27% 4.44%(4)<F4>
Portfolio turnover rate 73.43% 35.62% 103.30%
</TABLE>
(1)<F1> Commencement of operations.
(2)<F2> Net investment income per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax
differences.
(3)<F3> Not annualized.
(4)<F4> Annualized.
See notes to the financial statements.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1998
NUMBER MARKET
OF SHARES VALUE
---------- -------
COMMON STOCKS - 27.9%
CABLE - 3.4%
15,800 Adelphia Communications Corporation *<F5> $ 618,175
6,400 Cablevision Systems Corporation Class A *<F5> 276,400
6,400 Comcast Corporation Class A 300,400
4,900 MediaOne Group, Inc. 217,744
6,400 TCA Cable TV, Inc. 180,000
-----------
1,592,719
-----------
HOUSING - 1.6%
3,800 Centex Corporation 131,100
7,900 Kaufman & Broad Home Corporation 185,156
7,700 Lennar Corporation 171,806
1,300 Ryland Group, Inc. 31,688
6,000 Standard Pacific Corporation 84,750
5,700 Toll Brothers, Inc. *<F5> 130,744
-----------
735,244
-----------
GROWTH - RECESSION RESISTANT - 4.0%
4,000 American Home Products Corporation 209,500
4,400 Automatic Data Processing, Inc. 328,900
3,800 Brown-Forman Corporation - Class B 228,000
19,300 Food Lion, Inc. - Class A 205,063
3,900 The Gap, Inc. 205,725
3,000 Newell Company 138,188
6,600 The ServiceMaster Company 144,375
3,400 Wal-Mart Stores, Inc. 185,725
2,500 WM. Wrigley Jr. Company 189,844
-----------
1,835,320
-----------
INSURANCE - LIFE - 1.9%
2,600 American General Corporation 166,075
3,400 Equitable Companies, Inc. 140,675
5,600 Liberty Financial Companies, Inc. 147,700
5,400 Protective Life Corporation 194,400
4,300 UNUM Corporation 213,656
-----------
862,506
-----------
REAL ESTATE INVESTMENT TRUSTS - 12.5%
13,000 Apartment Investment & Management Company Class A 490,750
25,600 Boykin Lodging Company 385,600
21,700 CCA Prison Realty Trust 390,600
10,600 Crescent Real Estate Equities Company 267,650
11,200 Developers Diversified Realty Corporation 204,400
4,400 Equity Residential Properties Trust 185,625
20,100 Franchise Finance Corporation of America 551,494
9,900 Liberty Property Trust 235,744
16,400 Mack-Cali Realty Corporation 492,000
9,400 Meditrust Companies 160,388
14,800 Merry Land & Investment 331,150
10,500 Nationwide Health Properties, Inc. 236,250
10,000 Pacific Gulf Properties 201,250
12,098 Patriot American Hospitality Inc. 154,250
12,300 Saul Centers, Inc. 209,100
7,500 Sovran Self Storage, Inc. 196,875
18,900 United Dominion Realty Trust, Inc. 214,987
16,000 Weeks Corporation 478,000
46,800 Winston Hotels, Inc. 406,575
-----------
5,792,688
-----------
TECHNOLOGY - WIRELESS SERVICES - 2.1%
4,100 Airtouch Communications, Inc. *<F5> 233,700
3,600 Centennial Cellular Corporation Class A *<F5> 115,200
12,000 CommNet Cellular, Inc. *<F5> 132,000
825 Leap Wireless International, Inc. *<F5> 3,867
3,300 QUALCOMM, Inc. *<F5> 158,194
1,800 Vodafone Group plc ADR<F7> 202,950
7,400 Western Wireless Corporation Class A *<F5> 132,275
-----------
978,186
-----------
UTILITIES - ELECTRIC - 2.4%
4,800 Cleco Corporation 161,700
2,000 FPL Group, Inc. 139,375
4,200 Idacorp Inc. 140,962
6,100 Minnesota Power, Inc. 268,781
5,100 Montana Power Company 227,906
5,600 OGE Energy Corporation 161,700
-----------
1,100,424
-----------
Total common stocks (cost $12,255,404) 12,897,087
-----------
INVESTMENT COMPANIES - 3.8%
EMERGING COUNTRY FUNDS - 3.8%
28,300 Asia Pacific Fund 141,500
28,100 Asia Tigers Fund 142,256
20,900 China Fund 150,219
23,600 Fidelity Adviser Emerging Asia Fund 157,825
62,800 First Philippine Fund *<F5> 247,275
32,500 Greater China Fund 178,750
29,100 Korea Fund *<F5> 178,237
45,600 Morgan Stanley Asia-Pacific Fund 265,050
14,800 Scudder New Asia Fund 110,075
38,900 WEBS - Malaysia 77,800
30,200 WEBS - Singapore 115,137
-----------
Total investment companies (cost $2,266,322) 1,764,124
-----------
CONTRACTS (100
SHARES PER CONTRACT)
- --------------------
PUT OPTIONS PURCHASED - 5.5%
S&P 500:
81 Expiration March 1999, Exercise Price $1,050 818,100
149 Expiration December 1998, Exercise Price $1,125 1,739,575
-----------
Total put options purchased (cost $1,556,180) 2,557,675
-----------
PRINCIPAL
AMOUNT
---------
FIXED INCOME SECURITIES - 39.0%
FOREIGN BONDS - 9.3%
$3,130,000 New South Wales Treasury Corp., 8.00%, 3/01/2008 2,193,280
3,780,000 New Zealand Government Bond, 7.00%,7/15/2009 2,092,627
-----------
4,285,907
-----------
U.S. TREASURY OBLIGATIONS - 29.7%
7,905,000 7.50%, due 11/15/2016 10,078,875
2,665,000 8.125%, due 8/15/2019 3,657,712
-----------
13,736,587
-----------
Total fixed income securities (cost $16,146,380) 18,022,494
-----------
VARIABLE RATE DEMAND NOTES - 23.1%
$1,518,415 General Mills, 4.95%#<F6> 1,518,415
1,172,372 Pitney Bowes, 4.95%#<F6> 1,172,372
2,000,000 Wisconsin Electric, 4.96%#<F6> 2,000,000
2,000,000 Warner Lambert, 4.96%#<F6> 2,000,000
2,000,000 American Family, 4.96%#<F6> 2,000,000
2,000,000 Firstar, 5.09%#<F6> 2,000,000
-----------
Total variable rate demand notes (cost $10,690,787) 10,690,787
-----------
Total investments - 99.3% (cost $42,915,073) 45,932,167
Other assets in excess of liabilities - 0.7% 334,851
-----------
TOTAL NET ASSETS - 100.0% $46,267,018
-----------
-----------
*<F5> Non-income producing security.
#<F6> Variable rate security. The rates listed are as of 9/30/98.
ADR<F7> American Depository Receipts.
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 Core Investment Fund, formerly
known as 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) 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 YEAR
ENDED ENDED
SEPT. 30, 1998 SEPT. 30, 1997
-------------- --------------
Shares sold 1,420,345 522,072
Shares issued to holders in reinvestment
of dividends 193,699 208,024
Shares redeemed (484,113) (1,112,267)
---------- ----------
Net increase (decrease) 1,129,931 (382,171)
---------- ----------
---------- ----------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term investments, for
the year ended September 30, 1998 were as follows:
PURCHASES SALES
------------------------ ------------------------
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
------------ ----- ------------ -----
$8,055,205 $18,198,269 $12,168,515 $9,715,620
At September 30, 1998, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
Appreciation $4,548,483
(Depreciation) (2,589,211)
-----------
Net appreciation on investments $1,959,272
-----------
-----------
At September 30, 1998, the cost of investments for federal income tax
purposes was $33,282,108.
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 $844,294 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 Mutual Fund Services, LLC serves as transfer agent, administrator
and accounting services agent for the Fund. Firstar Bank Milwaukee, NA
serves as custodian for the Fund.
For the period ended September 30, 1998, the Fund paid Weeden & Co., L.P.,
an affiliate of the Adviser $35,665 of brokerage commissions.
5. INCOME TAX INFORMATION
The Fund hereby designates $34,093 as short-term capital gain distributions
for purposes of the dividends paid deduction.
6. DISTRIBUTIONS
Twenty-five percent of dividends paid during the fiscal year ended
September 30, 1998, 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 Core Investment
Fund), including the schedule of investments, as of September 30, 1998, the
related statement of operations for the year then ended and statement of changes
in net assets for each of the two years in the period then ended and the
financial highlights for the periods presented. 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 upon 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, 1998, 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, Inc. as of September 30, 1998, and the results of its
operations, for the year then ended, the changes in its net assets for each of
the two years in the period then ended and its financial highlights for the
period presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
October 23, 1998.
(Leuthold Core Investment Fund Logo)
INVESTMENT ADVISER:
Leuthold & Anderson, Inc., Minnesota
ADMINISTRATOR, TRANSFER AGENT,
DIVIDEND PAYING AGENT, SHAREHOLDER
SERVICING AGENT:
Firstar Mutual Fund Services, LLC,
Wisconsin
CUSTODIAN:
Firstar Bank Milwaukee, NA
COUNSEL:
Foley & Lardner, Wisconsin
AUDITORS:
Arthur Andersen LLP, Wisconsin
This report is authorized for distribution only when preceded or accompanied by
a current prospectus.
