Securities Act Registration No. 33-96634
Investment Company Act Reg. No. 811-9094
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 4 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 5 |X|
(Check appropriate box or boxes.)
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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:
Steven C. Leuthold
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)
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):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
|X| on January 31, 1999 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.
<PAGE>
P R O S P E C T U S
January 31, 1999
Leuthold Core Investment Fund
Leuthold Core Investment Fund seeks capital appreciation and income
(or "total return") in amounts attainable by assuming only prudent investment
risk over the long term. The Fund's definition of long term investment success
is making it and keeping it.
Please read this Prospectus and keep it for future reference. It
contains important information, including information on how Leuthold Core
Investment Fund invests and the services it offers to shareholders.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Leuthold Core Investment Fund TABLE OF CONTENTS
100 North Sixth Street
Suite 700A
Minneapolis, Minnesota 55403
(612) 332-9141
Questions Every Investor Should Ask
Before Investing in the Leuthold Core
Investment Fund............................ 2
Fees and Expenses............................ 6
Investment Objective, Strategies and Risks... 7
Management of the Fund....................... 11
The Fund's Share Price ...................... 13
Purchasing Shares............................ 13
Redeeming Shares............................. 17
Dividends, Distributions and Taxes........... 20
Financial Highlights......................... 21
<PAGE>
QUESTIONS EVERY INVESTOR SHOULD ASK BEFORE
INVESTING IN LEUTHOLD CORE INVESTMENT FUND
1. What are the Fund's Goals?
Leuthold Core Investment Fund seeks capital appreciation and income (or "total
return") in amounts attainable by assuming only prudent investment risk over the
long term. The Fund is a "flexible" fund meaning that it can invest in common
stocks and other equity securities, bonds and other debt securities, and money
market instruments.
2. What are the Fund's Principal Investment Strategies?
Leuthold Core Investment Fund allocates its investments among:
* Common Stocks and other equity securities
* Bonds and other debt securities (other than money market instruments)
* Money market instruments
in proportions which reflect our Adviser's judgment of the potential returns and
risks of each asset class. Our Adviser considers a number of factors when making
these allocations including economic conditions and monetary factors, inflation
and interest rate levels and trends, investor confidence and technical stock
market measures. The Fund expects that normally:
* 30% to 70% of its assets will be invested in common stocks and other
equity securities
* 30% to 70% of its assets will be invested in bonds and other debt
securities (other than money market instruments)
* up to 20% of its assets will be invested in money market instruments.
The Fund's investments in common stocks and other equity securities may consist
of:
* Large, mid or small capitalization common stocks
* Growth stocks, value stocks or cyclical stocks
* Aggressive stocks or defensive stocks
* Stocks in any industry or sector
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<PAGE>
* Equity mutual funds
* Options.
The Fund's investments in bonds and other debt securities normally will consist
of U.S. Treasury Notes and Bonds, although the Fund may also invest in
investment grade corporate debt securities and debt securities of foreign
issuers. The Fund may also invest in mutual funds which invest in debt
securities, including mutual funds that invest in high yield securities commonly
known as "junk bonds."
3. What are the Principal Risks in Investing in the Fund?
Investors in the Fund may lose money. There are risks associated with
investments in each of the asset classes in which the Fund invests. These risks
include:
* Market Risk: The prices of the securities, particularly the common
stocks, in which the Fund invests may decline for a number of reasons.
The price declines of common stocks, in particular, may be steep,
sudden and/or prolonged.
* Interest Rate Risk: In general, the value of bonds and other debt
securities rise when interest rates fall and fall when interest rates
rise. Longer term obligations are usually more sensitive to interest
rate changes than shorter term obligations. While bonds and other debt
securities normally fluctuate less in price than common stocks, there
have been extended periods of increases in interest rates that have
caused significant declines in bond prices.
* Credit Risk: The issuers of the bonds and other debt securities held
by the Fund may not be able to make interest or principal payments.
Even if these issuers are able to make interest or principal payments,
they may suffer adverse changes in financial condition that would
lower the credit quality of the security, leading to greater
volatility in the price of the security.
* Currency Risk: The U.S. dollar value of foreign securities traded in
foreign currencies (and any dividends and interest earned) may be
affected favorably or unfavorably by changes in foreign currency
exchange rates. An increase in the U.S. dollar relative to these other
currencies will adversely affect the Fund.
The Fund's performance will also be affected by our Adviser's ability to
anticipate correctly the relative potential returns and risks of the asset
classes in which the Fund invests. For example, the Fund's relative investment
performance would suffer if only a small portion of the Fund's assets were
allocated to stocks during a significant stock market advance, and its absolute
investment performance would suffer if a major portion of its assets were
allocated to stocks during a market decline. Finally, since the Fund intends to
assume only prudent investment risk, there will be periods in which the Fund
underperforms mutual funds that are willing to assume greater risk.
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<PAGE>
Because of these risks the Fund is a suitable investment only for those
investors who have medium to long-term investment goals. Prospective investors
who are uncomfortable with an investment that will increase and decrease in
value should not invest in the Fund. Our Adviser does not intend the Fund to be
a fixed balanced investment program. Rather, as our name implies, the Fund is
intended to be a flexible core investment suitable for any long-term investor.
Long-term investors may wish to supplement an investment in the Fund with other
investments to satisfy their short-term financial needs and to diversify their
exposure to various markets and asset classes.
4. How has the Fund Performed?
The bar chart and table that follow provide some indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year and how its average annual returns over various periods compare to those of
a Combined Index (consisting of an unmanaged portfolio of 45% common stocks, 45%
bonds and 10% money market instruments) and the Lipper Flexible Fund Index.
Please remember that the Fund's past performance is not necessarily an
indication of its future performance. It may perform better or worse in the
future.
20%
17.25%
10% 9.32% XXX
XXX XXX
0% XXX XXX
--------- ----------- ---------
-10%
1996 1997
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Note: The Fund's 1998 Year-to-date total return is 8.54% (January 1, 1998
through the quarter ending September 30, 1998).
During the two year period shown on the bar chart, the Fund's highest
total return for a quarter was 8.79% (quarter ended September 30,
1997) and the lowest total return for a quarter was -1.92% (quarter
ended March 31, 1997).
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<PAGE>
Average Annual Total Returns
(for the periods ending Since the inception date of the
December 31, 1997) Past Year Fund (November 20, 1995)
- ------------------------------- ------------- --------------------------------
Leuthold Core Investment Fund 17.25% 13.69%
Combined Index* 17.46% 14.27%
Lipper Flexible Fund Index** 18.68% 16.88%
* The Combined Index consists of an unmanaged portfolio of 45% common
stocks represented by the Standard & Poor's Composite Index of 500
Stocks (15%), the Standard & Poor's 400 Mid-Cap Index (15%) and the
Russell 2000 Index (15%); 45% bonds represented by the Lehman Brothers
Government/Corporate Bond Index; and 10% money market instruments
represented by 90-day United States Treasury Bills.
** The Lipper Flexible Fund Index is an index of mutual funds having an
investment objective similar to the Fund's investment objective.
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<PAGE>
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)......... No Sales Charge
Maximum Deferred Sales Charge (Load).... No Deferred Sales Charge
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and Distributions..................... No Sales Charge
Redemption Fee.......................... None*
Exchange Fee............................ None
Maximum Account Fee..................... No Account Fee
ANNUAL FUND OPERATING EXPENSES Before After
(expenses that are deducted from Fund assets) fee waivers fee waivers**
Management Fees......................... 0.90% 0.74%
Distribution and/or Service (12b-1) Fees None None
Other Expenses.......................... 0.51% 0.51%
Total Annual Fund Operating Expenses.... 1.41% 1.25%
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* Our transfer agent charges a fee of $12.00 for each wire redemption.
** Our Adviser waives its advisory fee to the extent necessary to ensure
that our Total Fund Operating Expenses do not exceed 1.25% of our
average daily net assets.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
1 Year 3 Years 5 Years 10 Years
------- ------- ------- --------
$144 $446 $771 $1691
------- ------- ------- --------
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<PAGE>
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
The Fund seeks capital appreciation and income (or "total return") in
amounts attainable by assuming only prudent investment risk over the long term.
The Fund's definition of long term investment success is making it and keeping
it. Our Adviser believes that maintaining profits when markets decline is as
important as earning profits when markets rise. Although we have no intention of
doing so, the Fund may change its investment objective without obtaining
shareholder approval. Please remember that an investment objective is not a
guarantee. An investment in the Fund might not appreciate and investors could
lose money.
How We Allocate our Assets
Our Adviser allocates your Fund's investments among the three
asset classes as follows:
* First, our Adviser analyzes the U.S. government bond market with the
goal of determining the risks and returns that U.S. Treasury
securities present over the next one to five years.
* Next, our Adviser assesses the probability that common stocks as an
asset class will perform better than U.S. Treasury securities. In
doing so, it considers The Leuthold Group's Major Trend Index. This
proprietary index comprises over 170 individual components that The
Leuthold Group evaluates weekly.
* Finally, our Adviser implements the asset allocation strategy. In
doing so, our Adviser may purchase put or call options on stock
indexes or engage in short sales of index-related and other securities
to rapidly and cost-effectively change the Fund's equity allocation.
How We Make Individual Security Selections
After our Adviser has determined the appropriate allocations
among asset classes, it selects individual investments as follows:
* For our investments in bonds and debt securities (other than money
market instruments) our Adviser will first compare the anticipated
returns and risks of U.S. Treasury Notes and Bonds, foreign government
debt securities (without limitation as to rating) and corporate
fixed-income securities (without limitation as to rating) and
determine how much to invest in each sector. Next our Adviser will
consider interest rate trends
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<PAGE>
and economic indicators to determine the desired maturity of the
Fund's portfolio of debt securities. The Fund may invest indirectly in
fixed-income securities by investing in mutual funds or closed-end
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
domestic income funds or (b) diversified exposure to international
markets by investing in international income funds.
* For our investments in common stocks and other equity securities, our
Adviser uses the following approach.
First, Our Adviser develops a broad sector strategy and
determines what percentage of its equity investments to allocate
among large capitalization stocks ($4 billion or more)
mid-capitalization stocks ($2 to $4 billion) and small
capitalization stocks (less than $2 billion) and among "growth
stocks" (stocks with high price/earnings ratios), "value" stocks
(stocks with low price/earnings ratios) and "cyclical" stocks
(stocks which are economically sensitive).
Next, Our Adviser develops a more narrow sector strategy and
determines what percentage of each broad sector's investments to
allocate among individual sector categories using both
traditional industrial sectors such as "housing," "energy" or
"food," as well as conceptual themes such as "global energy."
Finally, Our Adviser selects individual stocks after ranking each
stock by fundamental factors (such as price/earnings ratios or
growth rates) and technical factors (such as price movements) in
the individual sector category. In addition to investing in
individual stocks, the Fund may invest in mutual funds, unit
investment trusts or closed-end investment companies which invest
in common stocks. The Funds 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.
-8-
<PAGE>
The Fund may, in response to adverse market, economic, political or other
conditions, take temporary defensive positions. This means the Fund will invest
more than 20% of its assets in money market instruments (like U.S. Treasury
Bills, commercial paper or repurchase agreements). The Fund will not seek
capital appreciation to the extent that it invests in money market instruments
since these securities earn interest but do not appreciate in value. When the
Fund is not taking a temporary defensive position, it still will hold some cash
and money market instruments so that it can pay its expenses, satisfy redemption
requests, take advantage of investment opportunities, or as part of its normal
asset allocation process.
Portfolio Turnover
The Fund's annual portfolio turnover rate usually will not exceed 100%.
(Generally speaking, a turnover rate of 100% occurs when the Fund replaces
securities valued at 100% of its average net assets within a one year period.)
Higher portfolio turnover (100% or more) will result in the Fund incurring more
transaction costs such as brokerage commissions or mark-ups or mark-downs.
Payment of these transaction costs reduce total return. Higher portfolio
turnover could result in the payment by the Fund's shareholders of increased
taxes on realized gains. Distributions to the Fund's shareholders, to the extent
they are short-term capital gains, will be taxed at ordinary income rates for
federal income tax purposes, rather than at lower capital gains rates.
Risks
There are a number of risks associated with the various securities in which
the Fund will at times invest. These include:
* Risks associated with Zero Coupon U.S. Treasury Securities. Zero
coupon U.S. Treasury securities are U.S. Treasury Notes and Bonds that
have been stripped of their unmatured interest coupons by the U.S.
Department of Treasury. Zero coupon U.S. Treasury securities are
generally subject to greater fluctuation in value in response to
changing interest rates than debt obligations that pay interest
currently.
* Risks associated with Small Cap Stocks. Stocks of smaller
capitalization companies tend to be riskier investments than stocks of
larger capitalization companies. Smaller capitalization companies may
have limited product lines, markets, market share and financial
resources or they may be dependent on a small or inexperienced
management team. Stocks of smaller capitalization companies may trade
less frequently and in more limited volume and may be subject to
greater and more abrupt price swings than stocks of larger companies.
-9-
<PAGE>
* Risks associated with Foreign Securities. In addition to currency risk
there is often less information publicly available about foreign
issuers than U.S. issuers. The securities of foreign issuers may be
less liquid and more volatile than securities of comparable U.S.
issuers. The costs associated with securities transactions are often
higher in foreign countries than in the U.S. Foreign governments and
foreign economies often are less stable than the U.S. government and
the U.S. economy.
* Risks associated with High Yield Securities. The Fund may invest
directly, or indirectly in high yield securities. High yield
securities (or "junk bonds") provide greater income and opportunity
for gains than higher-rated securities but entail greater risk of loss
of principal. High yield securities are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal
in accordance with the terms of the obligation. The market for high
yield securities is generally thinner and less active than the market
for higher quality securities. This may limit the ability of the Fund,
or investment companies in which the Fund invests, to sell high yield
securities at the price at which it is being valued for purposes of
calculating net asset value.
* Risks associated with Registered Investment Companies. When the Fund
invests in a registered investment company, the Fund's shareholders
bear not only their proportionate share of the expenses of the Fund
(such as operating costs and investment advisory fees) but also,
indirectly, similar expenses of the registered investment companies in
which the Fund invests.
* Risks associated with purchasing Put and Call Options. If the Fund
purchases a put or call option and does not exercise or sell it prior
to the option's expiration date, the Fund will realize a loss in the
amount of the entire premium paid, plus commission costs. It is
possible, although not likely, that there may be times when a market
for the Fund's outstanding options does not exist.
* Risks associated with Short Sales. The Fund's investment performance
will suffer if a security for which the Fund has effected a short sale
appreciates in value. The Fund's investment performance may also
suffer if the Fund is required to close out a short position earlier
than it had
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<PAGE>
intended. This would occur if the securities lender requires it to
deliver the securities the Fund borrowed at the commencement of the
short sale and the Fund was unable to borrow such securities from
other securities lenders.
MANAGEMENT OF THE FUND
Leuthold & Anderson, Inc. manages the Fund's investments.
Leuthold & Anderson, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser's address is:
100 North Sixth Street
Suite 700A
Minneapolis, MN 55403
The Adviser has been in business since 1987 and has been the Fund's only
investment adviser. As the investment adviser to the Fund, the Adviser manages
the investment portfolio for the Fund. It makes the decisions as to which
securities to buy and which securities to sell. The Fund pays the Adviser an
annual investment advisory fee equal to 0.9% of its average net assets.
Steven C. Leuthold is primarily responsible for the day-to-day management
of the Fund's portfolio. He is the Fund's portfolio manager. Mr. Leuthold has
been Chairman and Portfolio Manager of the Adviser since its organization in
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. Prior to founding The Leuthold Group, Mr. Leuthold was employed
by Criterion Investment Management as a portfolio manager for The Pilot Fund and
Industries Trend Fund.
The Adviser has experience managing accounts with the same investment objective
as the Fund
We are providing historical performance data of investment advisory
accounts managed by the Adviser. The data illustrates the investment performance
of portfolios similar to the Fund and compares the performance to specified
market indices. The Leuthold & Anderson, Inc. Composite includes all active
accounts of the Adviser invested in the Adviser's conventional portfolio. The
Composite does not include 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 used by the Fund. All
performance data 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.
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<PAGE>
All returns are time-weighted total rates of return and include the
reinvestment of dividends and interest. The performance information for the
Composite is net of the advisory fees charged by the Adviser to the accounts
comprising the Composite. The performance information for the Composite does not
reflect the assessment of the Fund's advisory fee or other expenses equivalent
to the Fund's operating expenses. The fees and expenses of the Composite were
less than the annual expenses of the Fund. The performance of the Composite
would have been lower had the Composite incurred higher fees and expenses. The
net effect of the deduction of the Fund's advisory fee and other operating
expenses on annualized performance, including the compounded effect over time,
may be substantial. The Composite was not subject to certain investment
limitations, diversification requirements and other restrictions imposed by the
Investment Company Act of 1940 and the Internal Revenue Code.
The performance information of the Composite, the Combined Index and the
Lipper Flexible Fund Index is based on data supplied by the Adviser or from
statistical services, reports or other sources which the Adviser believes are
reliable. This performance information has not been verified by any third party
and is unaudited.
<TABLE>
Annual Rates of Return(1)
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------ ------ ----- ------ ------- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Leuthold & Anderson, Inc. 18.11% 9.94% 18.36% (4.13%) 14.57% 1.39% 17.93% 1.56% 24.88% 20.14%
Composite*
Leuthold Core Investment Fund 17.25 9.32 n/a n/a n/a n/a n/a n/a n/a n/a
Combined Index(2) 17.46 10.10 22.14 (2.23) 1l.08 9.09 25.71 (0.29) 18.72 12.61
Lipper Flexible Fund Index(3) 18.68 14.05 23.59 (2.67) 12.74 5.67 26.98 0.94 17.25 8.69
</TABLE>
Compounded Annual Rates of Return(1)
(For the Period Ended December 31, 1997)
1 Year 3 Years 5 Years 10 Years
- --------------------------------------- -------- --------- --------- ----------
Leuthold & Anderson, Inc. Composite* 18.11 15.40% 11.04% 11.89%
Leuthold Core Investment Fund 17.25 n/a n/a n/a
Combined Index(2) 17.46 16.46 11.40 12.11
Lipper Flexible Fund Index(3) 18.68 18.71 12.92 12.22
* Includes the Leuthold Core Investment Fund since 11/30/95.
(1) The calculation of the rates of return was performed in accordance with
the principles set forth in 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,
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.
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<PAGE>
(2) The Combined Index is an unmanaged portfolio composed of 45% common
stocks represented by the Standard & Poor's Composite Index of 500
Stocks (15%), the Standard & Poor's 400 Mid-Cap Index (15%) and the
Russell 2000 Index (15%); 45% bonds represented by the Lehman Bros.
Government/Corporate Bond Index; and 10% cash represented by 90-day
United States Treasury Bills
(3) The Lipper Flexible Fund Index is an index of mutual funds having an
investment objective similar to the Fund's investment objective.
Please remember that past performance is not necessarily an indication of future
performance. 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.
Year 2000
The Fund is aware of the "Year 2000" issue. The "Year 2000" issue stems
from the use of a two-digit format to define the year in certain date-sensitive
computer application systems rather than the use of a four digit format. As a
result, date-sensitive software programs could recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major systems or
process failures or the generation of erroneous data, which would lead to
disruptions in the Fund's business operations.
The Fund has no application systems of its own and is entirely dependent on
its service providers' systems and software. The Fund is working with its
service providers (including its investment adviser, administrator, transfer
agent and custodian) to identify and remedy any Year 2000 issues. However, the
Fund cannot guarantee that all Year 2000 issues will be identified and remedied,
and the failure to successfully identify and remedy all Year 2000 issues could
result in an adverse impact on the Fund.
THE FUND'S SHARE PRICE
The price at which investors purchase shares of the Fund and at which
shareholders redeem shares of the Fund is called its net asset value. The Fund
calculates its net asset value as of the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. Eastern Time) on each day the New York
Stock Exchange is open for trading. The Fund calculates its net asset value
based on the market prices of the securities (other than money market
instruments) it holds. It values most money market instruments it holds at their
amortized cost. The Fund will process purchase orders that it receives and
accepts and redemption orders that it receives prior to the close of regular
trading on a day in which the New York Stock Exchange is open at the net asset
value determined later that day. It will process purchase orders that it
receives and accepts and redemption orders that it receives after the close of
regular trading at the net asset value determined at the close of regular
trading on the next day the New York Stock Exchange is open.
The Fund's net asset value can be found daily in the mutual fund listings
of many major newspapers under the heading "LeutholdCI". The Fund's NASDAQ
symbol is "LCORX".
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<PAGE>
PURCHASING SHARES
How to Purchase Shares from the Fund
1. Read this Prospectus carefully
2. Determine how much you want to invest keeping in mind the
following minimums:
a. New accounts
* Individual Retirement Accounts $ 1,000
* All other accounts $10,000*
----------------
*The Fund may, but is not required to, accept initial
investments of not less than $1,000 from investors who are
related to, or affiliated with, shareholders who have invested
$10,000 in the Fund.
b. Existing accounts
* Dividend reinvestment No Minimum
* Automatic Investment Plan $ 50
* All other accounts $100
3. Complete the Purchase Application accompanying this
Prospectus, carefully following the instructions. For
additional investments, complete the Additional Investment
Form attached to your Fund's confirmation statements. (The
Fund has additional Purchase Applications and Additional
Investment Forms if you need them.) If you have any questions,
please call 1-800-273-6886.
4. Make your check payable to "Leuthold Core Investment Fund."
All checks must be drawn on U.S. banks. The Fund will not
accept cash or third party checks. Firstar Mutual Fund
Services, LLC, the Fund's transfer agent, will charge a $25
fee against a shareholder's account for any payment check
returned for insufficient funds. The shareholder will also be
responsible for any losses suffered by the Fund as a result.
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<PAGE>
5. Send the application and check to:
FOR FIRST CLASS MAIL
Leuthold Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
FOR OVERNIGHT DELIVERY SERVICE OR REGISTERED MAIL
Leuthold Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202-5207
Please do not mail letters by overnight delivery service or
registered mail to the Post Office Box address.
6. If you wish to open an account by wire, please call
1-800-273-6886 prior to wiring funds in order to obtain a
confirmation number and to ensure prompt and accurate handling
of funds. Funds should be wired to:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA #075000022
Credit:
Firstar Mutual Fund Services, LLC
Account #112-952-137
Further Credit:
Leuthold Core Investment Fund
(shareholder registration)
(shareholder account number, if known)
You should then send a properly signed Purchase Application marked
"FOLLOW-UP" to either of the addresses listed above. Please remember that
Firstar Bank Milwaukee, N.A. must receive your wired funds prior to the close of
regular trading on the New York Stock Exchange for you to receive same day
pricing. The Fund and Firstar Bank Milwaukee, N.A. are not responsible for the
consequences of delays resulting from the banking or Federal Reserve Wire
system, or from incomplete wiring instructions.
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<PAGE>
Purchasing Shares from Broker-dealers, Financial Institutions and Others
Some broker-dealers may sell shares of the Fund. These broker-dealers may
charge investors a fee either at the time of purchase or redemption. The fee, if
charged, is retained by the broker-dealer and not remitted to the Fund or the
Adviser.
The Fund may enter into agreements with broker-dealers, financial
institutions or other service providers ("Servicing Agents") that may include
the Fund as an investment alternative in the programs they offer or administer.
Servicing agents may:
1. Become shareholders of record of the Fund. This means all requests to
purchase additional shares and all redemption requests must be sent
through the Servicing Agent. This also means that purchases made
through Servicing Agents are not subject to the Fund's minimum
purchase requirement.
2. Use procedures and impose restrictions that may be in addition to, or
different from, those applicable to investors purchasing shares
directly from the Fund.
3. Charge fees to their customers for the services they provide them.
Also, the Fund and/or the Adviser may pay fees to Servicing Agents to
compensate them for the services they provide their customers.
4. Be allowed to purchase shares by telephone with payment to follow the
next day. If the telephone purchase is made prior to the close of
regular trading on the New York Stock Exchange, it will receive same
day pricing.
5. Be authorized to accept purchase orders on the Fund's behalf. This
means that the Fund will process the purchase order at the net asset
value which is determined following the Servicing Agent's acceptance
of the customer's order.
If you decide to purchase shares through Servicing Agents, please carefully
review the program materials provided to you by the Servicing Agent. When you
purchase shares of the Fund through a Servicing Agent, it is the responsibility
of the Servicing Agent to place your order with the Fund on a timely basis. If
the Servicing Agent does not, or if it does not pay the purchase price to the
Fund within the period specified in its agreement with the Fund, it may be held
liable for any resulting fees or losses.
Other Information about Purchasing Shares of the Fund
The Fund may reject any share purchase applications for any reason. The
Fund will not accept initial purchase orders made by telephone, unless they are
from a Servicing Agent which has an agreement with the Fund.
The Fund will issue certificates evidencing shares purchased only upon
request. The Fund will send investors a written confirmation for all purchases
of shares.
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<PAGE>
The Fund offers an automatic investment plan allowing shareholders to make
purchases on a regular and convenient basis. The Fund also offers a telephone
purchase option permitting shareholders to make additional purchases by
telephone. The Fund offers the following retirement plans:
* Traditional IRA
* Roth IRA
Investors can obtain further information about the automatic investment
plan, the telephone purchase plan and the IRAs by calling the Fund at
1-800-273-6886. The Fund recommends that investors consult with a competent
financial and tax advisor regarding the IRAs before investing through them.
REDEEMING SHARES
How to Redeem (Sell) Shares by Mail
1. Prepare a letter of instruction containing:
* account number(s)
* the amount of money or number of shares being redeemed
* the name(s) on the account
* daytime phone number
* additional information that the Fund may require for redemptions
by corporations, executors, administrators, trustees, guardians,
or others who hold shares in a fiduciary or representative
capacity. Please contact the Fund's transfer agent, Firstar
Mutual Fund Services, LLC, in advance, at 1-800-273-6886 if you
have any questions.
2. Sign the letter of instruction exactly as the shares are registered.
Joint ownership accounts must be signed by all owners.
3. Have the signatures guaranteed by a commercial bank or trust company
in the United States, a member firm of the New York Stock Exchange or
other eligible guarantor institution in the following situations: o
* The redemption proceeds are to be sent to a person other than the
person in whose name the shares are registered
* The redemption proceeds are to be sent to an address other than
the address of record
-17-
<PAGE>
* The redemption request is received within 30 days after an
address change.
A notarized signature is not an acceptable substitute for a signature
guarantee.
4. Send the letter of instruction to:
FOR FIRST CLASS MAIL
Leuthold Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
FOR OVERNIGHT DELIVERY SERVICE OR REGISTERED MAIL
Leuthold Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202-5207
Please do not mail letters by overnight delivery service or
registered mail to the Post Office Box address.
How to Redeem (Sell) Shares by Telephone
1. Instruct Firstar Mutual Fund Services, LLC that you want the
option of redeeming shares by telephone. This can be done by
completing the appropriate section on the Purchase Application.
Shares held in IRAs cannot be redeemed by telephone.
2. Assemble the same information that you would include in the
letter of instruction for a written redemption request.
3. Call Firstar Mutual Fund Services, LLC at 1-800-273-6886. Please
do not call the Fund or the Adviser.
How to Redeem (Sell) Shares through Servicing Agents
If your shares are held by a Servicing Agent, you must redeem your shares
through the Servicing Agent. Contact the Servicing Agent for instructions on how
to do so.
Payment of Redemption Proceeds
The redemption price per share you receive for redemption requests is the
next determined net asset value after:
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<PAGE>
1. Firstar Mutual Fund Services, LLC receives your written request in
proper form with all required information.
2. Firstar Mutual Fund Services, LLC receives your authorized telephone
request with all required information.
3. A Servicing Agent that has been authorized to accept redemption
requests on behalf of the Fund receives your request in accordance
with its procedures.
For those shareholders who redeem shares by mail, Firstar Mutual Fund
Services, LLC will mail a check in the amount of the redemption proceeds no
later than the seventh day after it receives the written request in proper form
with all required information. For those shareholders who redeem by telephone,
Firstar Mutual Fund Services, LLC normally will transfer the redemption proceeds
to your designated bank account if you have elected to receive redemption
proceeds by either Electronic Funds Transfer or wire. An Electronic Funds
Transfer generally takes up to 3 business days to reach the shareholder's
account whereas Firstar Mutual Fund Services, LLC generally wires redemption
proceeds on the business day following the calculation of the redemption price.
However, the Fund may direct Firstar Mutual Fund Services, LLC to pay the
proceeds of a telephone redemption on a date no later than the seventh day after
the redemption request. Firstar Mutual Fund Services, LLC currently charges $12
for each wire redemption but does not charge a fee for Electronic Funds
Transfers. Those shareholders who redeem shares through Servicing Agents will
receive their redemption proceeds in accordance with the procedures established
by the Servicing Agent.
Other Redemption Considerations
When redeeming shares of the Fund, shareholders should consider the
following:
1. The redemption may result in a taxable gain.
2. Shareholders who redeem shares held in an IRA must indicate on their
redemption request whether or not to withhold federal income taxes. If
not, these redemptions will be subject to federal income tax
withholding.
3. The Fund may delay the payment of redemption proceeds for up to seven
days in all cases.
4. If you purchased shares by check, the Fund may delay the payment of
redemption proceeds until it is reasonably satisfied the check has
cleared (which may take up to 15 days from the date of purchase).
5. Firstar Mutual Fund Services, LLC will send the proceeds of telephone
redemptions to an address or account other than that shown on its
records only if the shareholder has sent in a written request with
signatures guaranteed.
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<PAGE>
6. Firstar Mutual Fund Services, LLC will not accept telephone redemption
requests made within 30 days after an address change.
7. The Fund reserves the right to refuse a telephone redemption request
if it believes it is advisable to do so. Both the Fund and Firstar
Mutual Fund Services, LLC may modify or terminate its procedures for
telephone redemptions at any time. Neither the Fund nor Firstar Mutual
Fund Services, LLC will be liable for following instructions for
telephone redemption transactions that they reasonably believe to be
genuine, provided they use reasonable procedures to confirm the
genuineness of the telephone instructions. They may be liable for
unauthorized transactions if they fail to follow such procedures.
These procedures include requiring some form of personal
identification prior to acting upon the telephone instructions and
recording all telephone calls. During periods of substantial economic
or market change, telephone redemptions may be difficult to implement.
If a shareholder cannot contact Firstar Mutual Fund Services, LLC by
telephone, he or she should make a redemption request in writing in
the manner described earlier.
8. If your account balance falls below $1,000 because you redeem shares,
you will be given 60 days to make additional investments so that your
account balance is $1,000 or more. If you do not, the Fund may close
your account and mail the redemption proceeds to you.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net investment income
quarterly and substantially all of its capital gains annually. You have three
distribution options:
* Automatic Reinvestment Option - Both dividend and capital gains
distributions will be reinvested in additional Fund Shares.
* Cash Dividend Option - Your dividends will be paid in cash and
your capital gains will be reinvested in additional Fund shares.
* All Cash Option - Both dividend and capital gains distributions
will be paid in cash.
You may make this election on the Purchase Application. You may change your
election by writing to Firstar Mutual Fund Services, LLC or by calling
1-800-273-6886.
The Fund's distributions, whether received in cash or additional shares of
the Fund, may be subject to federal and state income tax. These distributions
may be taxed as ordinary income and capital gains (which may be taxed at
different rates depending on the length of time the Fund holds the assets
generating the capital gains). In managing the Fund, our Adviser considers the
tax effects of its investment decisions to be of secondary importance.
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<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Arthur Andersen LLP, whose
report, along with the Fund's financial statements, are included in the Annual
Report which is available upon request.
For the Years Ended
Nov. 20, 1995
9/30/98 9/30/97 (1) through
Sept. 30, 1996
Net Asset Value, Beginning of Period.... $11.17 $10.18 $10.00
Income from investment operations:
Net Investment Income (2)............... 0.40 0.44 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:
Dividends (from net investment income).. (0.40) (0.46) (0.36)
Distributions (from net realized gains). (0.36) (0.26) ____
Returns of Capital...................... ---- (0.05) ____
------
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)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in 000s)..... 46,267 30,560 31,740
Ratio of Expenses to Average Net
Assets:
Before expense reimbursement............ 1.41% 1.47% 1.55%(4)
After expense reimbursement............. 1.25% 1.25% 1.25%(4)
Ratio of Net Investment Income to
Average Net Assets:
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<PAGE>
For the Years
Ended
Before expense reimbursement............ 3.50% 4.05% 4.14% (4)
After expense reimbursement............. 3.66% 4.27% 4.44%(4)
Portfolio Turnover Rate................. 73.43% 35.62% 103.50%
(1) Commencement of operations.
(2) Net investment income per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax
differences.
(3) Not annualized.
(4) Annualized.
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<PAGE>
To learn more about Leuthold Core Investment Fund you may want to read
Leuthold Core Investment Fund's Statement of Additional Information (or "SAI")
which contains additional information about the Fund. Leuthold Core Investment
Fund has incorporated by reference the SAI into the Prospectus. This means that
you should consider the contents of the SAI to be part of the Prospectus.
You also may learn more about Leuthold Core Investment Fund's investments
by reading the Fund's annual and semi-annual reports to shareholders. The annual
report includes a discussion of the market conditions and investment strategies
that significantly affected the performance of Leuthold Core Investment Fund
during its last fiscal year.
The SAI and the annual and semi-annual reports are all available to
shareholders and prospective investors without charge, simply by calling Firstar
Mutual Fund Services, LLC at 1-800-273-6886.
Prospective investors and shareholders who have questions about Leuthold
Core Investment Fund may also call the following number or write to the
following address.
Leuthold Core Investment Fund
100 North Sixth Street
Suite 700A
Minneapolis, MN 55403
1-888-200-0409
The general public can review and copy information about Leuthold Core
Investment Fund (including the SAI) at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. (Please call 1-800-SEC-0330 for
information on the operations of the Public Reference Room.) Reports and other
information about Leuthold Core Investment Fund are also available at the
Securities and Exchange Commission's Internet site at http://www.sec.gov and
copies of this information may be obtained, upon payment of a duplicating fee,
by writing to:
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
Please refer to Leuthold Core Investment Fund's Investment Company Act File
No. 811-09094 when seeking information about the Fund from the Securities and
Exchange Commission.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION JANUARY 31, 1999
for LEUTHOLD CORE INVESTMENT FUND
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 Core Investment Fund dated
January 31, 1999. 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.
The following financial statements are incorporated by reference to the
Annual Report, dated September 30, 1998, of Leuthold Funds, Inc. (File No.
811-9094) as filed with the Securities and Exchange Commission on November 30,
1998:
Report of Independent Public Accountants
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Asset
Financial Highlights
Schedule of Investments
Notes to the Financial Statements
<PAGE>
Leuthold Funds, Inc.
TABLE OF CONTENTS
Page No.
--------
FUND HISTORY AND CLASSIFICATION .................................... 1
INVESTMENT RESTRICTIONS ............................................ 1
INVESTMENT CONSIDERATIONS .......................................... 3
DIRECTORS AND OFFICERS OF THE CORPORATION .......................... 13
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS ................. 16
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNT SERVICES AGENT .......................... 17
DETERMINATION OF NET ASSET VALUE ................................... 20
REDEMPTION OF SHARES ............................................... 21
SYSTEMATIC WITHDRAWAL PLAN ......................................... 22
AUTOMATIC INVESTMENT PLAN AND TELEPHONE PURCHASES .................. 23
ALLOCATION OF PORTFOLIO BROKERAGE .................................. 23
TAXES .............................................................. 25
STOCKHOLDER MEETINGS ............................................... 26
CAPITAL STRUCTURE .................................................. 27
PERFORMANCE INFORMATION ............................................ 27
DESCRIPTION OF SECURITIES RATINGS .................................. 28
INDEPENDENT ACCOUNTANTS ............................................ 32
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 January 31, 1999, 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.
(i)
<PAGE>
FUND HISTORY AND CLASSIFICATION
Leuthold Funds, Inc. (the "Corporation") is an open-end management
investment company consisting of a single diversified portfolio, the Leuthold
Core Investment Fund. Leuthold Funds, Inc. is registered under the Investment
Company Act of 1940. Leuthold Funds, Inc. was incorporated as a Maryland
corporation on August 30, 1995. (Prior to January 30, 1998 Leuthold Core
Investment Fund was called "Leuthold Asset Allocation Fund.")
INVESTMENT RESTRICTIONS
Leuthold Core Investment Fund (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 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
<PAGE>
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
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
-2-
<PAGE>
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
The Fund may purchase 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).
-3-
<PAGE>
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. Warrants do not carry the right to receive
dividends or vote with respect to the securities they entitle the holder to
purchase, and they have no rights to the assets of the issuer. Warrants are more
speculative than the underlying investment. A warrant ceases to have value if it
is not exercised prior to its expiration date.
Preferred Stocks
The Fund may invest in preferred stocks. 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.
Zero Coupon U.S. Treasury Securities 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. securities are generally subject to greater fluctuations
in value in response to changing interest rates than debt obligations that pay
interest currently.
Money Market Instruments
The money market instruments in which the Fund invests include
conservative fixed-income securities, such as United States Treasury Bills,
commercial paper rated A-1 by Standard & Poor's Corporation ("S&P"), or Prime-1
by Moody's Investors Service, Inc. ("Moody's"), commercial paper master notes
and repurchase agreements. Commercial paper
-4-
<PAGE>
master notes are unsecured promissory notes issued by corporations to finance
short-term credit needs. They permit a series of short-term borrowings under a
single note. Borrowings under commercial paper master notes are payable in whole
or in part at any time upon demand, may be prepaid in whole or in part at any
time, and bear interest at rates which are fixed to known lending rates and
automatically adjusted when such known lending rates change. There is no
secondary market for commercial paper master notes. The Fund's investment
adviser will monitor the creditworthiness of the issuer of the commercial paper
master notes while any borrowings are outstanding.
Repurchase agreements are agreements under which the seller of a
security agrees at the time of sale to repurchase the security at an agreed time
and price. The Fund will not enter into repurchase agreements with entities
other than banks or invest over 5% of its net assets in repurchase agreements
with maturities of more than seven days. If a seller of a repurchase agreement
defaults and does not repurchase the security subject to the agreement, the Fund
will look to the collateral security underlying the seller's repurchase
agreement, including the securities subject to the repurchase agreement, for
satisfaction of the seller's obligation to the Fund. In such event, the Fund
might incur disposition costs in liquidating the collateral and might suffer a
loss if the value of the collateral declines. In addition, if bankruptcy
proceedings are instituted against a seller of a repurchase agreement,
realization upon the collateral may be delayed or limited.
Foreign Securities
The Fund may invest 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 generally are not 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 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
from foreign investments 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
-5-
<PAGE>
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 Depository Receipts ("ADRs") or American Depository 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.
Short Sales
The Fund may seek to realize additional gains through effecting short
sales in securities. Short selling involves the sale of borrowed securities. At
the time a short sale is effected, the Fund incurs an obligation to replace the
security borrowed at whatever its price may be at the time the Fund purchases it
for delivery to the lender. The price at such time may be more or less than the
price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to pay the lender amounts equal to any dividend
or interest which accrue during the period of the loan. To borrow the security,
the Fund also may be required to pay a premium, which would increase the cost of
the security sold. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet margin requirements, until the short
position is closed. Until a Fund closes its short position or replaces the
borrowed security, the Fund will: (a) maintain a segregated account containing
cash or liquid securities at such a level that the amount deposited in the
account plus the amount deposited with the broker as collateral will equal the
current value of the security sold short; or (b) otherwise cover the Fund's
short position.
-6-
<PAGE>
High Yield and Other 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 may, at times, invest) 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.
The high yield market 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 therefor tend to be more volatile than the 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
-7-
<PAGE>
(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) net 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.
Registered Investment Companies
The Fund may invest up to 25% of its net assets in shares of
registered investment companies. 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 stockholders 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
-8-
<PAGE>
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.
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.
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
-9-
<PAGE>
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
-10-
<PAGE>
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.
-11-
<PAGE>
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 or liquid 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
-12-
<PAGE>
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
In order to generate additional income, the Fund may lend portfolio
securities constituting up to 30% of its total assets to unaffiliated
broker-dealers, banks or other recognized institutional borrowers of securities,
provided that the borrower at all times maintains cash, U.S. government
securities or equivalent collateral or provides an irrevocable letter of credit
in favor of the Fund equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Fund an amount equivalent to any dividends or interest paid on
such securities, and the Fund may receive an agreed-upon amount of interest
income from the borrower who delivered equivalent collateral or provided a
letter of credit. Loans are subject to termination at the option of the Fund or
the borrower. The Fund may pay reasonable administrative and custodial fees in
connection with a loan of portfolio securities and may pay a negotiated portion
of the interest earned on the cash or equivalent collateral to the borrower or
placing broker. The Fund does not have the right to vote securities on loan, but
could terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
The primary risk in securities lending is a default by the borrower
during a sharp rise in price of the borrowed security resulting in a deficiency
in the collateral posted by the borrower. The Fund will seek to minimize this
risk by requiring that the value of the securities loaned will be computed each
day and additional collateral be furnished each day if required.
DIRECTORS AND OFFICERS OF THE CORPORATION
As a Maryland corporation, the business and affairs of the Corporation
are managed by its officers under the direction of its Board of Directors. 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:
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<PAGE>
*Thomas F. Elsen -- Director and Vice President. Mr. Elsen, 42, has
been Managing Director and Chief Operating Officer of Leuthold & Anderson, Inc.
(the "Adviser") since March 1, 1997. Prior to joining the Adviser, Mr. Elsen was
the sole proprietor of T. Elsen Marketing, a financial services marketing
consulting firm, from May, 1991 until February, 1997. Prior to founding T. Elsen
Marketing, Mr. Elsen was employed by the Trust & Investments department of
Norwest Bank, Minnesota, N.A., in Minneapolis as the Marketing Director from
December, 1986 until May, 1991. Mr. Elsen graduated from Macalester College with
a B.A. in Economics in 1978. 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, 61, 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. 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, 53, 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.
John S. Chipman -- Director. Mr. Chipman, 72, 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, 64, 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.
Mr. Horsch attended the College of St. Thomas and Northwestern University, where
*Messrs. Leuthold, Elsen and Zender are "interested persons" of the Corporation
(as difined in the Act)
*Messrs. Leuthold, Elsen and Zender are "interested persons" of the Corporation
(as difined in the Investment Company Act of 1940).
-14-
<PAGE>
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, 55, 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 and Secretary. Ms. Page, 39, 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, 35, has been
Account Administrator of the Adviser since 1990 and Manager of Administration &
Client Services since January, 1997. 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 table below sets forth the compensation paid by the Corporation to
each of the directors of the Corporation during the fiscal year ended September
30, 1998:
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<PAGE>
<TABLE>
COMPENSATION TABLE
<CAPTION>
Total
Compensation
from Corporation
Pension or Retirement Estimated Annual and Fund
Name of Aggregate Compensation Benefits Accrued As Benefits Upon Complex Paid to
Person from Corporation Part of Fund Expenses Retirement Directors
------ ---------------------- --------------------- ---------------- ---------
<S> <C> <C> <C> <C>
Thomas F. Elsen $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 STOCKHOLDERS
Set forth below are the names and addresses of all holders of the
Fund's shares who as of October 31, 1998 owned of record or to the knowledge of
the Fund, 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
American Express Trust Company, Trustee
Gray, Plant, Mooty, Mooty & Bennett
Retirement Savings Plan
33 South Sixth Street
Suite 3400
Minneapolis, MN 55402-3796 412,519 10.20%
Donaldson Lufkin & Jenrette (1)
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303-2052 372,211 9.20%
Charles Schwab & Co., Inc. (1)
101 Montgomery Street
San Francisco, CA 94104-4122 313,051 7.74%
Norwest Bank Minnesota, Trustee
Fairview 401(k) Plan
U/A dated 6/1/84
733 Marquette Avenue, #0036
Minneapolis, MN 55479-0001 222,101 5.49%
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<PAGE>
Name and Address
of Beneficial Owner Number of shares Percent of Class
Officers and Directors as a Group 128,693(2)(3) 3.19%
(8 persons)
- -----------------------------
(1) The shares held by Donaldson Lufkin & Jenrette Securities Corp. and
Charles Schwab & Co., Inc. were owned of record only.
(2) Includes 11,285 shares held in the Leuthold & Anderson Retirement
Plan
(3) Includes 73,291 shares held by the Steven Leuthold Trust, for
which Albert Andrews, Jr. serves as sole trustee, and 11,891
shares held by the Steven C. Leuthold Family Foundation, a
charitable trust controlled by Steven C. Leuthold.
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNT SERVICES AGENT
The Adviser
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 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 Fund pays 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 stockholders, the cost of director and officer liability insurance,
reports to stockholders, reports to government authorities and proxy statements,
interest charges, brokerage commissions, and expenses incurred in connection
with portfolio transactions. The Fund also pays the fees of directors who are
not officers of the Fund, salaries of administrative and
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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 stockholder records and accounts and handling any problems relating
thereto.
The Fund did not commence operations until November 20, 1995. During
the period from November 20, 1995 through September 30, 1996, the fiscal year
ended September 30, 1997, and the fiscal year ended September 30, 1998, the Fund
incurred advisory fees payable to the Adviser of $236,333, $269,461 and
$329,152, respectively
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 hereof, no
such state law provision was applicable to the Fund. 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. During the period from November 20, 1995 (commencement of operations)
through September 30, 1996, the fiscal year ended September 30, 1997, and the
fiscal year ended September 30, 1998, the Adviser reimbursed the Fund $77,769,
$65,500 and $59,492, respectively, for excess expenses.
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.
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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.
The Administrator
The administrator to the Corporation is Firstar Mutual Fund Services,
LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202 (the "Administrator").
Under the Fund Administration Servicing Agreement entered into between the
Corporation and the Administrator (the "Administration Agreement"), the
Administrator prepared and maintains the books, accounts and other documents
required by the Investment Company Act of 1940, responds to stockholder
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 $35,000.
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. The Fund did not commence operations until November 20, 1995.
During the period from November 20, 1995 through September 30, 1996, the fiscal
year ended September 30, 1997, and the fiscal year ended September 30,1998 the
Fund incurred fees of $24,689, $31,718 and $29,277, respectively, payable to the
Administrator pursuant to the Administration Agreement.
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.
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The Custodian
Firstar Bank Milwaukee, N.A., an affiliate of Firstar Mutual Fund
Services, LLC, serves as custodian of the Corporation's assets pursuant to a
Custody Agreement. Under the Custody Agreement, Firstar Bank Milwaukee, N.A. 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 stockholders,
security brokers and others relating to its duties and (v) make periodic reports
to the Fund concerning the Fund's operations. Firstar Bank Milwaukee, N.A. does
not exercise any supervisory function over the purchase and sale of securities.
The Transfer Agent
Firstar Mutual Fund Services, LLC serves as transfer agent and
dividend disbursing agent for the Fund under a Shareholder Servicing Agent
Agreement. As transfer and dividend disbursing agent, Firstar Mutual Fund
Services, LLC has agreed to (i) issue and redeem shares of the Fund, (ii) make
dividend and other distributions to stockholders of the Fund, (iii) respond to
correspondence by Fund stockholders and others relating to its duties, (iv)
maintain stockholder accounts, and (v) make periodic reports to the Fund.
The Accounting Servicing Agent
In addition the Corporation has entered into a Fund Accounting
Servicing Agreement with Firstar Mutual Fund Services, LLC pursuant to which
Firstar Mutual Fund Services, LLC 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 Mutual Fund Services, LLC is entitled to
receive fees, payable monthly, based on the total annual rate of $22,000 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 Mutual Fund Services, LLC is also entitled to certain out of
pocket expenses, including pricing expenses. During the period from November 20,
1995 (commencement of operations) through September 30, 1996, the fiscal year
ended September 30, 1997, and the fiscal year ended September 30, 1998, the Fund
incurred fees of $20,751, $24,906 and $20,648, respectively, payable to Firstar
Mutual Fund Services, LLC pursuant to the Fund Accounting Servicing Agreement.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund is 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. The New York Stock Exchange is open for
trading Monday through Friday except New Year's Day, Dr. Martin Luther King, Jr.
Day, President's Day, 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
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or the yearly accounting period. The New York Stock Exchange also may be closed
on national days of mourning.
Common stocks that are listed on a securities exchange are valued at
the last quoted sales price on the day he 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.
The Fund prices foreign securities in terms of U.S. dollars at the
official exchange rate. Alternatively, it may price these securities at the
average of the current bid and asked price of such currencies against the dollar
last quoted by a major bank that is a regular participant in the foreign
exchange market, or on the basis of a pricing service that takes into account
the quotes provided by a number of such major banks. If the Fund does not have
either of these alternatives available to it or the alternatives do not provide
a suitable method for converting a foreign currency into U.S. dollars, the Board
of Directors in good faith will establish a conversion rate for such currency.
Generally, U.S. government securities and other fixed income
securities complete trading at various times prior to the close of the New York
Stock Exchange. For purposes of computing net asset value, the Fund uses the
market value of such securities as of the time their trading day ends.
Occasionally, events affecting the value of such securities may occur between
such times and the close of the New York Stock Exchange, which events will not
be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of the Fund's securities occur during such a
period, then these securities may be valued at their fair value as determined in
good faith by the Directors.
Foreign securities trading may not take place on all days when the New
York Stock Exchange is open, or may take place on Saturdays and other days when
the New York Stock Exchange is not open and the Fund's net asset value is not
calculated. When determining net asset value, the Fund values foreign securities
primarily listed and/or traded in foreign markets at their market value as of
the close of the last primary market where the securities traded. Securities
trading in European countries and Pacific Rim countries is normally completed
well before 3:00 P.M. Central Time. Events affecting the valuation of Fund
securities occurring between the time its net asset value is determined and the
close of the New York Stock Exchange are not reflected in such net asset value.
REDEMPTION OF SHARES
The Fund reserves the right to suspend or postpone redemptions during
any period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the
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Securities and Exchange Commission, or that the Exchange is closed for other
than customary weekend and holiday closings; (b) the Securities and Exchange
Commission has by order permitted such suspension; (c) an emergency, as
determined by the Securities and Exchange Commission, exists, making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable.
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 accordance with the requirements of Rule 17a-7.
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 Mutual Fund Services, LLC, 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.
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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 Mutual Fund Services, LLC in writing thirty (30) days prior
to the next payment.
AUTOMATIC INVESTMENT PLAN AND TELEPHONE PURCHASES
The Fund offers an automatic investment option pursuant to which money
will be moved from a stockholder's bank account to the stockholder's Fund
account on the schedule (e.g., monthly, bimonthly [every other month], quarterly
or yearly) the stockholder selects. The minimum transaction amount is $50.
The Fund offers a telephone purchase option pursuant to which money
will be moved from the stockholder's bank account to the stockholder's Fund
account upon request. Only bank accounts held at domestic financial institutions
that are automated Clearing House (ACH) members can be used for telephone
transactions. To have Fund shares purchased at the net asset value determined as
of the close of regular trading on a given date, Firstar Mutual Fund Services,
LLC must receive both the purchase order and payment by Electronic Funds
Transfer through the ACH System before the close of regular trading on such
date. Most transfers are completed within 3 business days. The minimum amount
that can be transferred by telephone is $100.
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.
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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 November 20, 1995. During
the period from November 20, 1995 through September 30, 1996, the Fund paid
brokerage commissions of $45,325 on transactions having a total market value of
$121,323,358. During the same period, the Fund paid Weeden brokerage commissions
of $27,821 (or 61.4% of the total commissions paid) on transactions having a
total market value of $104,631,000 (or 86.2% of the Fund's aggregate amount of
transactions). During the fiscal year ended September 30, 1997, the Fund paid
brokerage commissions of $33,952 on transactions having a total market value of
$18,038,053. During the same period, the Fund paid Weeden brokerage commissions
of $18,636 (or 54.9% of the total commissions paid) on transactions having a
total market value of $9,746,418 (or 54.0% of the Fund's aggregate amount of
transactions). During the fiscal year ended September 30, 1998, the Fund paid
brokerage commissions of $57,801 on transactions having a total market value of
$31,829,425. During the same period, the Fund paid Weeden brokerage commissions
of $35,665 (or 61.7% of the total commissions paid) on transactions having a
total market value of $15,341,956 or (48.2% of the Fund's aggregate amount of
transactions). All of the brokers to whom commissions were paid provided
research services to the Adviser.
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TAXES
The Fund annually will endeavor to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund has so qualified in each of its fiscal years. If the Fund fails to qualify
as a registered investment company under Subchapter M in any fiscal year, it
will be treated as a corporation for federal income tax purposes. As such the
Fund would be required to pay income taxes on its net investment income and net
realized capital gains, if any, at the rates generally applicable to
corporations. Stockholders of the Fund would not be liable for income tax on the
Fund's net investment income or net realized capital gains in their individual
capacities. Distributions to stockholders, whether from the Fund's net
investment income or net realized capital gains, would be treated as taxable
dividends to the extent of current or accumulated earnings and profits of the
Fund.
Dividends from the Fund's net investment income and distributions from
the Fund's net realized short-term capital gains are taxable to stockholders as
ordinary income, whereas distributions from the Fund's net realized long-term
capital gains are taxable as long-term capital gain regardless of the
stockholder's holding period for the shares. Such dividends and distributions
are taxable to stockholders whether received in cash or in additional shares.
The 70% dividends-received deduction for corporations will apply to dividends
from the Fund's net investment income, subject to proportionate reductions if
the aggregate dividends received by the Fund from domestic corporations in any
year are less than 100% of the net investment company taxable income
distributions made by the Fund.
Any dividend or capital gains distribution paid shortly after a
purchase of Fund shares will have the effect of reducing the per share net asset
value of such shares by the amount of the dividend or distribution. Furthermore,
if the net asset value of the Fund shares immediately after a dividend or
distribution is less than the cost of such shares to the stockholder, the
dividend or distribution will be taxable to the stockholder even though it
results in a return of capital to him.
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 distribution of
net long-term capital gains during that period, then such loss is treated as a
long-term capital loss to the extent of the capital gain distribution received.
The Fund may be required to withhold Federal income tax at a rate of
31% ("backup withholding") from dividend payments and redemption proceeds if a
stockholder fails to furnish the Fund with his social security or other tax
identification number and certify under penalty of perjury that such number is
correct and that such stockholder is not subject to backup withholding due to
the underreporting of income. The certification form is included as part of the
Purchase Application and should be completed when the account is opened.
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
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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 Investment Company Act of 1940. 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 Investment Company Act of 1940.
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.
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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.
CAPITAL STRUCTURE
The Fund's 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.
PERFORMANCE INFORMATION
The Fund may provide from time to time in advertisements, reports to
stockholders and other communications with stockholders its average annual
compounded rate of return as well as its total return and cumulative total
return. An average annual compounded rate of return refers to the rate of return
which, if applied to an initial investment at the beginning of a stated period
and compounded over the period, would result in the redeemable value of the
investment at the end of the stated period assuming reinvestment of all
dividends and distributions and reflecting the effect of all recurring fees.
Total return and cumulative total return similarly reflect net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments of the Fund for a stated period,
assuming the reinvestment of all dividends and distributions and reflecting the
effect of all recurring fees. Total return figures are not annualized or
compounded and represent the aggregate percentage of dollar value change over
the period in question. Cumulative total return reflects the Fund's total return
since inception.
The Fund's average annual compounded rate of 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:
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P(1 + T)n = 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 on 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.
The Fund's average annual compounded rate of return for the period
from the Fund's commencement of operations (November 20, 1995) through September
30, 1998 was 13.04% and for the one year period ended September 30, 1998 was
14.45%. 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 September 30, 1998 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.
The Fund may compare its performance to other mutual funds with
similar investment objectives and to the industry as a whole, as represented by
Lipper Analytical Services, Inc., Morningstar, Inc., Money, Forbes, Business
Week and Barron's magazines and The Wall Street Journal. (Lipper Analytical
Services, Inc. and Morningstar, Inc. are independent fund ranking services that
rank mutual funds based upon total return performance.) The Fund also may
compare its performance to the Standard & Poor's Composite Index of 500 Stocks,
the Lehman Brothers Government/Corporate Bond Index, U.S. Treasury Bills and to
various combinations thereof.
DESCRIPTION OF SECURITIES RATINGS
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
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<PAGE>
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.
-29-
<PAGE>
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
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<PAGE>
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.
-31-
<PAGE>
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, serves as the independent accountants for the Fund.
-32-
<PAGE>
PART C
OTHER INFORMATION
Item 23 Exhibits
(a) Registrant's Articles of Incorporation (1)
(b) Registrant's Bylaws (1)
(c) None
(d) Investment Advisory Agreement with Leuthold & Anderson, Inc.
(1)
(e) None
(f) None
(g) Custodian Agreement with Firstar Trust Company (predecessor
to Firstar Bank Milwaukee, N.A. (1)
(h)(1) Fund Administration Servicing Agreement with Firstar Trust
Company (predecessor to Firstar Mutual Fund Services, LLC)
(1)
(h)(2) Transfer Agent Agreement with Firstar Trust Company
(predecessor to Firstar Mutual Fund Services, LLC) (1)
(h)(3) Fund Accounting Servicing Agreement with Firstar Trust
Company (predecessor to Firstar Mutual Fund Services, LLC)
(1)
(i) Opinion of Foley & Lardner, counsel for Registrant.
(g) Consent of Arthur Andersen LLP.
(h) None
(i) Subscription Agreement (1)
(j) None
(k) Financial Data Schedule
(l) None
------------------
(1) Previously filed as an exhibit to Post-Effective Amendment No. 3 to
the Registration Statement and incorporated by reference thereto.
Post-Effective Amendment No. 3 was filed on January 23, 1998 and its
accession number is 0000897069-98-000011.
S-1
<PAGE>
Item 24 Persons Controlled by or under Common Control with Registrant
Registrant is not controlled by any person. Registrant neither
controls any person nor is under common control with any other person.
Item 25 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,
S-2
<PAGE>
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
S-3
<PAGE>
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 26 Business and Other Connections of Investment Adviser
Incorporated by reference to pages __ through __ of the Statement of
Additional Information pursuant to Rule 411 under the Securities Act of 1933.
Item 27 Principal Underwriters
Not Applicable.
Item 28 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 Mutual Fund Services, LLC, 615 East Michigan Street,
Milwaukee, Wisconsin.
Item 29 Management Services
All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 30 Undertakings
Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
S-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund 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 30th
day of November, 1998.
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 (Principal November 30, 1998
- ----------------------
Steven C. Leuthold Executive, Financial and
Accounting Officer) and a Director
/s/ Thomas F. Elsen Director November 30, 1998
- ----------------------
Thomas F. Elsen
/s/ Charles D. Zender Director November 30, 1998
- ----------------------
Charles D. Zender
/s/ John S. Chipman Director November 30, 1998
- ----------------------
John S. Chipman
/s/ Lawrence L. Horsch Director November 30, 1998
- ----------------------
Lawrence L. Horsch
/s/ Paul M. Kelnberger Director November 30, 1998
- ----------------------
Paul M. Kelnberger
S-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(a)(I) Registrant's Articles of Incorporation*
(b) Registrant's Bylaws*
(c) None
(d) Investment Advisory Agreement with Leuthold and Anderson,
Inc.*
(e) None
(f) None
(g) Custodian Agreement with Firstar Trust Company
(predecessor to Firstar Bank Milwaukee, N.A.)*
(h)(1) Fund Administration Servicing Agreement with Firstar
Trust Company (predecessor to Firstar Bank Milwaukee,
N.A.)*
(h)(2) Transfer Agent Agreement with Firstar Trust Company
(predecessor to Firstar Bank Milwaukee, N.A.)*
(h)(3) Fund Accounting Servicing Agreement with Firstar Trust
Company (predecessor to Firstar Bank Milwaukee, N.A.)*
(i) Opinion of Foley & Lardner, counsel for Registrant
(j) Consent of Arthur Andersen LLP
(k) None
(l) Subscription Agreement*
(m) None
(n) Financial Data Schedule
(o) None
- -------------
* Previously filed as an exhibit to Post-Effective Amendment No. 3 to
the Registration Statement and incorporated by reference thereto.
Post-Effective Amendment No. 3 was filed on January 23, 1998 and its
accession number is 0000897069-98-000011.
CHICAGO FIRSTAR CENTER SACRAMENTO
DENVER 777 EAST WISCONSIN AVENUE SAN DIEGO
JACKSONVILLE MILWAUKEE, WISCONSIN 53202-5367 SAN FRANCISCO
LOS ANGELES TELEPHONE (414) 271-2400 TALLAHASSEE
MADISON FACSIMILE (414) 297-4900 TAMPA
MILWAUKEE WASHINGTON, D.C.
ORLANDO WEST PALM BEACH
December 2, 1998
Leuthold Funds, Inc.
100 North Sixth Street
Suite 700A
Minneapolis, MN 55403
Ladies & Gentlemen:
We have acted as counsel for you in connection with the preparation of
an Amended Registration Statement on Form N-1A relating to the sale by you of an
indefinite amount of Leuthold Funds, Inc. Common Stock (such Common Stock being
hereinafter referred to as the "Stock") in the manner set forth in the Amended
Registration Statement to which reference is made. In this connection we have
examined: (a) the Amended Registration Statement on Form N-1A; (b) your Articles
of Incorporation and Bylaws, as amended to date; (c) corporate proceedings
relative to the authorization for issuance of the Stock; and (d) such other
proceedings, documents and records as we have deemed necessary to enable us to
render this opinion.
Based upon the foregoing, we are of the opinion that the shares of
Stock when sold as contemplated in the Amended Registration Statement will be
legally issued, fully paid and nonassessable
We hereby consent to the use of this opinion as an exhibit to the
Amended Registration Statement on Form N-1A. In giving this consent, we do not
admit that we are experts within the meaning of Section 11 of the Securities Act
of 1933, as amended, or within the category of persons whose consent is required
by Section 7 of said Act.
Very truly yours,
Foley & Lardner
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report,
and to all references to our firm, included in or made a part of this Form N-1A
registration statement for Leuthold Funds.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
November 25, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LEUTHOLD FUNDS, INC. AS OF AND FOR THE YEAR
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 42,915,073
<INVESTMENTS-AT-VALUE> 45,932,167
<RECEIVABLES> 391,599
<ASSETS-OTHER> 27,506
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46,351,272
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 84,254
<TOTAL-LIABILITIES> 84,254
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,725,276
<SHARES-COMMON-STOCK> 3,865,956
<SHARES-COMMON-PRIOR> 2,736,025
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,524,865
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,016,877
<NET-ASSETS> 46,267,018
<DIVIDEND-INCOME> 343,938
<INTEREST-INCOME> 1,453,645
<OTHER-INCOME> 0
<EXPENSES-NET> (457,155)
<NET-INVESTMENT-INCOME> 1,340,428
<REALIZED-GAINS-CURRENT> 3,731,847
<APPREC-INCREASE-CURRENT> (119,116)
<NET-CHANGE-FROM-OPS> 4,953,159
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,299,705)
<DISTRIBUTIONS-OF-GAINS> (1,049,550)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,420,345
<NUMBER-OF-SHARES-REDEEMED> (484,113)
<SHARES-REINVESTED> 193,699
<NET-CHANGE-IN-ASSETS> 15,706,837
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 796,771
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 329,152
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 516,647
<AVERAGE-NET-ASSETS> 36,637,946
<PER-SHARE-NAV-BEGIN> 11.17
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> 1.16
<PER-SHARE-DIVIDEND> (0.40)
<PER-SHARE-DISTRIBUTIONS> (0.36)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.97
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
