(LEUTHOLD CORE INVESTMENT FUND LOGO)
ANNUAL REPORT
September 30, 1999
(LEUTHOLD CORE INVESTMENT FUND LOGO)
DEAR FELLOW SHAREHOLDERS:
The course is getting tougher. Newer stock market investors have come to
expect annual returns of 20% or more from the stock market and equity mutual
funds. But, in the first nine months of 1999, the average equity mutual fund
has produced a total return of 5.2%, little more than a money market fund. For
the two years ending September 30, 1999, the average annual return is 9.5%, less
than half of what post 1992 investors have come to expect. Yes, the investment
course is getting tougher as the old bull ages, just as a golf course gets
tougher as old golfers turn the calendar. Eventually, old golfers and old bulls
die. The probabilities and risk increase with age.
THE OLDEST AND GREATEST BULL MARKET EVER
- ----------------------------------------
The following chart tracks the longest and strongest bull market in U.S.
economic history. Since the second quarter of 1982, an investment in the S&P
500 Index has grown at a rate of almost 19% per year, the rate of return many of
today's investors have come to expect. $1,000 invested in mid 1982 had grown to
$21,000 by mid 1999. FOR MOST OF TODAY'S INVESTORS, THIS IS STOCK MARKET
HISTORY.
THE GREAT BULL MARKET 1982 TO ?
S&P 500 Dividends Average Long Term
Reinvested: 19.2% ACR Stock Market Returns: 10% ACR
--------------------- -----------------------------
7/31/82 1000.00 1000.00
8/31/82 1085.35
9/30/82 1098.78
10/31/82 1225.28
11/30/82 1274.81
12/31/82 1299.32
1/31/83 1347.82
2/28/83 1378.95
3/31/83 1430.12
4/30/83 1542.74
5/31/83 1529.21
6/30/83 1588.71
7/31/83 1541.81 1100.00
8/31/83 1564.83
9/30/83 1586.38
10/31/83 1567.94
11/30/83 1601.00
12/31/83 1592.49
1/31/84 1583.50
2/29/84 1527.75
3/31/84 1554.07
4/30/84 1568.34
5/31/84 1481.01
6/30/84 1512.76
7/31/84 1494.06 1210.00
8/31/84 1659.16
9/30/84 1659.63
10/31/84 1665.78
11/30/84 1646.91
12/31/84 1690.07
1/31/85 1821.57
2/28/85 1843.72
3/31/85 1844.78
4/30/85 1842.77
5/31/85 1948.81
6/30/85 1979.00
7/31/85 1976.07 1331.00
8/31/85 1959.06
9/30/85 1897.81
10/31/85 1985.27
11/30/85 2121.37
12/31/85 2224.02
1/31/86 2236.30
2/28/86 2403.19
3/31/86 2537.19
4/30/86 2508.45
5/31/86 2641.70
6/30/86 2686.34
7/31/86 2536.02 1464.10
8/31/86 2724.01
9/30/86 2498.61
10/31/86 2642.96
11/30/86 2707.32
12/31/86 2638.39
1/31/87 2993.71
2/28/87 3111.94
3/31/87 3201.78
4/30/87 3172.85
5/31/87 3199.74
6/30/87 3360.82
7/31/87 3530.95 1610.51
8/31/87 3662.47
9/30/87 3582.06
10/31/87 2810.61
11/30/87 2578.87
12/31/87 2774.93
1/31/88 2895.74
2/29/88 3025.47
3/31/88 2933.25
4/30/88 2969.58
5/31/88 2988.06
6/30/88 3126.47
7/31/88 3118.75 1771.56
8/31/88 3007.77
9/30/88 3136.81
10/31/88 3227.82
11/30/88 3176.48
12/31/88 3232.81
1/31/89 3472.70
2/28/89 3382.35
3/31/89 3462.97
4/30/89 3646.92
5/31/89 3785.45
6/30/89 3765.96
7/31/89 4109.60 1948.72
8/31/89 4184.20
9/30/89 4167.73
10/31/89 4073.75
11/30/89 4152.11
12/31/89 4251.79
1/31/90 3971.45
2/28/90 4017.43
3/31/90 4126.98
4/30/90 4028.16
5/31/90 4410.88
6/30/90 4383.89
7/31/90 4373.24 2143.59
8/31/90 3973.06
9/30/90 3782.02
10/31/90 3769.05
11/30/90 4007.34
12/31/90 4119.27
1/31/91 4302.92
2/28/91 4605.09
3/31/91 4720.04
4/30/91 4734.42
5/31/91 4929.83
6/30/91 4706.53
7/31/91 4930.50 2357.95
8/31/91 5040.25
9/30/91 4956.67
10/31/91 5028.39
11/30/91 4820.48
12/31/91 5371.39
1/31/92 5277.60
2/29/92 5341.20
3/31/92 5237.75
4/30/92 5397.09
5/31/92 5415.57
6/30/92 5334.87
7/31/92 5558.38 2593.74
8/31/92 5438.48
9/30/92 5501.57
10/31/92 5526.82
11/30/92 5707.77
12/31/92 5779.24
1/31/93 5833.78
2/28/93 5908.79
3/31/93 6033.15
4/30/93 5893.72
5/31/93 6041.56
6/30/93 6060.10
7/31/93 6041.93 2853.12
8/31/93 6264.11
9/30/93 6215.72
10/31/93 6350.47
11/30/93 6282.73
12/31/93 6360.40
1/31/94 6581.42
2/28/94 6398.02
3/31/94 6119.70
4/30/94 6204.67
5/31/94 6296.03
6/30/94 6128.43
7/31/94 6322.48 3138.43
8/31/94 6561.27
9/30/94 6398.01
10/31/94 6544.98
11/30/94 6299.84
12/31/94 6390.77
1/31/95 6561.46
2/28/95 6813.74
3/31/95 7015.56
4/30/95 7227.37
5/31/95 7505.49
6/30/95 7681.37
7/31/95 7941.91 3452.27
8/31/95 7956.09
9/30/95 8291.86
10/31/95 8267.36
11/30/95 8623.55
12/31/95 8790.84
1/31/96 9094.70
2/29/96 9175.04
3/31/96 9264.98
4/30/96 9300.00
5/31/96 9350.00
6/30/96 9400.00
7/30/96 9050.00 3797.50
8/30/96 9450.00
9/30/96 9800.00
10/30/96 10172.40
11/30/96 10986.19
12/30/96 10766.47
1/30/97 11423.22
2/28/97 11514.61
3/30/97 11042.51
4/30/97 11705.60
5/30/97 12407.36
6/30/97 12965.70
7/30/97 14002.95 4177.25
8/30/97 13218.79
9/30/97 13910.13
10/30/97 13451.10
11/30/97 14069.85
12/30/97 14309.03
1/30/98 14466.43
2/28/98 15508.02
3/30/98 16298.92
4/30/98 16461.91
5/30/98 16165.60
6/30/98 16828.39
7/30/98 16660.11 4594.97
8/30/98 14244.39
9/30/98 15156.03
10/30/98 16398.83
11/30/98 17382.75
12/30/98 18373.57
1/30/99 19145.26
2/28/99 18551.76
3/30/99 19497.90
4/30/99 20258.32
5/30/99 19772.12
6/30/99 20859.58
7/30/99 20212.94 5054.47
8/30/99 20111.87
9/30/99 19568.85
10/30/99 20821.26 5176.35
11/30/99
12/30/99
NORMAL STOCK MARKET RETURNS
- ---------------------------
For all of the available U.S. economic history, an investment in a broad
market average has produced between a 9% and 10% annual return, including
dividends. The lower line on the chart reflects this "normal" 10% return rate
from mid 1982 to date. At this 10% growth rate, $1,000 invested in mid 1982
would have grown to $5,000 by mid 1999, compared to the great bull market's
$21,000.
THE NEW ERA THESIS
- ------------------
Trees don't grow to the sky and neither do stock markets. Just ask the man
who bought Japan in the 1980's. Past new stock market eras have never been
permanent, regardless of country. The current new era for the U.S. stock market
will not be an exception.
Is today's communications "new era" of greater significance than the age of
electricity? The transportation revolutions resulting in the automobile, the
railroads or air travel? Or, for that matter, the telephone and telegraph? If
your answer is "yes", I'm somewhat surprised you are an investor in our fund.
THIRD QUARTER AGAIN DISAPPOINTS MOST MUTUAL FUND INVESTORS
- ----------------------------------------------------------
During the third quarter your fund posted a 1.1% loss. We never like to
lose, but your fund did fare much better than most. The typical equity mutual
fund was down 5.4%, with some down 10% or more. The S&P 500 Index posted a
total return loss of 6.2%. Flexible funds like ours, (holding a combination of
stocks and bonds), experienced an average loss of 3.7%.
No, it was not a great quarter for most investors, but certainly better than
last year's third quarter, when the average stock fund lost 15% and some of the
most aggressive funds were down 30%. Shareholders may recall that Leuthold Core
Investment Fund actually posted a 2.7% gain during this traumatic period.
LOWER RISK DOES NOT ALWAYS MEAN LOWER RETURNS
- ---------------------------------------------
I think the performance of the fund during these two periods is a good
example of THE FUND'S OBJECTIVE TO MANAGE RISK AS WELL AS RETURN. I might also
note the fund has a total investment gain of 22% for the two years ending
September 30, 1999, which is better than the average U.S. Stock fund's 19% gain.
While the performance differential is not that wide, THE IMPORTANT THING IS
THAT YOUR FUND WAS ASSUMING MUCH LESS MARKET RISK. In terms of Beta (a measure
of volatility/risk), Leuthold Core Investment Fund, with a beta of 0.25,
produced better returns than the average stock fund with ONE FOURTH OF THE RISK.
IN STRONG RISING MARKET PERIODS OUR FUND CAN BE EXPECTED TO LAG THE
TYPICAL EQUITY MUTUAL FUND. BUT IN LESS DYNAMIC PERIODS AND IN BEAR
MARKETS, OUR FUND CAN BE EXPECTED TO PRODUCE SIGNIFICANTLY BETTER
RESULTS.
Our primary investment objective is to make it and keep it for shareholders,
avoiding the sometimes terrifying ups and downs of the roller coaster stock
market, and limiting the potential devastation of a major Bear Market. That is
why the fund is meant to be the core of a prudent investment program.
PORTFOLIO CHANGES . . . THIRD QUARTER
- -------------------------------------
As noted in the last quarterly update, the fund entered the third quarter in
a defensive mode. During the quarter equity holdings were reduced from 40% to
35%, primarily because emerging country investments were reduced from 9% to 5%
with large profits realized. (Y2K could produce problems in lesser-developed
countries.) Of the 35% common stock holdings, 24% remains hedged. Thus, net
equity exposure is now a very low 11%.
In the bond portion of the portfolio, high yield bond positions were trimmed
from 15% to 12% of assets, while 24 year U.S. Treasury bonds were increased from
5% to 10%. Overall, fixed income holdings now account for 37% of assets
compared to 35% last quarter.
THE OUTLOOK
- -----------
Stock market vulnerability concerns remain, while the bond market looks
increasingly attractive. Stock market valuation measures remain extreme,
(except for smaller capitalization stocks.) Profit margins for most U.S.
companies continue to shrink with costs rising and little or no pricing power.
While the Internet is a revolution, it also is producing intense price
competition and lower profit margins. The trends in inflation and interest
rates are both negatives for stocks.
As Y2K approaches, the negative investment implications may have a greater
impact on investors as individual investors are becoming increasingly
disappointed with their stock market returns. In sum, at this point a very
cautious view of the stock market seems most appropriate over at least the next
few months.
Sincerely,
/s/ Steve Leuthold
Steve Leuthold
Chairman
A $10,000 INVESTMENT IN THE LEUTHOLD CORE INVESTMENT FUND
LEUTHOLD CORE LIPPER FLEXIBLE
INVESTMENT FUND COMBINED INDEX FUND INDEX
DATE $15,172 $14,952 $16,496
- ----- -------------- -------------- ---------------
11/95 $10,000 $10,000 $10,000
12/96 $10,232 $10,251 $10,272
3/96 $10,142 $10,396 $10,600
6/96 $10,341 $10,618 $10,880
9/96 $10,543 $10,817 $11,126
12/96 $11,185 $11,286 $11,715
3/97 $10,970 $11,179 $11,698
6/97 $11,432 $12,165 $12,871
9/97 $12,439 $13,055 $13,735
12/97 $13,114 $13,257 $13,904
3/98 $13,709 $14,052 $15,165
6/98 $13,859 $14,149 $15,399
9/98 $14,234 $13,549 $14,290
12/98 $14,637 $14,861 $16,208
3/99 $14,733 $14,635 $16,464
6/99 $15,335 $15,361 $17,136
9/99 $15,172 $14,952 $16,496
The Combined Index consists of an unmanaged portfolio of 45% common stocks
(15% S&P 500 Index, 15% S&P 400 Midcap Index and 15% Russell 2000 Index), 45%
bonds (Lehman Bros. Govt./Corporate Bond Index ("LB G/C BI"), and 10% money
market instruments (90-day U.S. T-bills). The Fund believes this index more
closely reflects the Fund's investment strategy, and therefore, is a more
appropriate performance comparator than using the S&P 500 alone for the stock
portion of the index. This chart assumes an initial gross investment of
$10,000 made on 11/20/95 (commencement of operations). Returns shown include
the reinvestment of all dividends. The Fund's past performance is not
necessarily an indication of its future performance. It may perform better
or worse in the future.
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED SEPTEMBER 30, 1999
LEUTHOLD CORE COMBINED LIPPER FLEXIBLE
INVESTMENT FUND INDEX FUND INDEX
--------------- -------- ---------------
3 month (1.06)% (2.66)% (3.73)%
6 month 2.98% 0.20% 2.17%
1 year 6.59% 10.35% 15.45%
2 year 10.45% 7.02% 9.60%
Since Inception 11.34% 10.97% 13.84%
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
ASSETS:
Investments, at market value
(cost $55,360,989) $57,075,948
Receivable from broker
for proceeds on securities
sold short 14,070,155
Receivable for investments sold 648,994
Receivable for fund shares sold 112,319
Cash 113,285
Interest receivable 232,907
Dividends receivable 55,571
Organizational expenses, net of
accumulated amortization 9,762
Other assets 38,450
-----------
Total Assets 72,357,391
-----------
LIABILITIES:
Securities sold short, at market value
(proceeds of $13,939,031) 13,294,100
Payable for investments purchased 560,784
Payable to Adviser 26,680
Accrued expenses and
other liabilities 55,295
-----------
Total Liabilities 13,936,859
-----------
NET ASSETS $58,420,532
-----------
-----------
NET ASSETS CONSIST OF:
Capital stock $55,311,142
Accumulated undistributed
net investment income 30,674
Accumulated undistributed
net realized gains on
investments 718,914
Net unrealized appreciation
(depreciation) on:
Investments 1,714,959
Short positions 644,931
Foreign currency (88)
-----------
Total Net Assets $58,420,532
-----------
-----------
Shares outstanding (250,000,000
shares of $.0001 par value authorized) 5,254,932
Net Asset Value, Redemption
Price and Offering Price
Per Share $11.12
------
------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
INVESTMENT INCOME:
Dividend income (net of
foreign taxes withheld of $1,732) $1,315,714
Interest income 1,566,274
----------
Total investment income 2,881,988
----------
EXPENSES:
Investment advisory fee 483,572
Administration fee 41,625
Shareholder servicing and
accounting costs 69,381
Custody fees 19,504
Federal and state registration 23,245
Professional fees 41,780
Amortization of
organizational expenses 8,603
Reports to shareholders 6,245
Directors' fees and expenses 7,105
Other 7,245
----------
Total expenses before reimbursement
and dividends on short positions 708,305
Less: Reimbursement
from Adviser (36,678)
----------
Net expenses before dividends
on short positions 671,627
Dividends on short positions 57,248
----------
Total expenses 728,875
----------
NET INVESTMENT INCOME 2,153,113
----------
REALIZED AND UNREALIZED
GAINS ON INVESTMENTS:
Net realized gain (loss) on:
Investments 3,530,722
Short positions (1,012,896)
Written options (730,892)
Change in unrealized
appreciation/depreciation on:
Investments (1,302,135)
Short positions 644,931
Foreign currency 129
----------
Net realized and unrealized
gains on investments 1,129,859
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $3,282,972
----------
----------
See notes to the financial statements.
STATEMENT OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
OPERATIONS:
Net investment income $ 2,153,113 $ 1,340,428
Net realized gains on investments 1,786,934 3,731,847
Change in unrealized appreciation/
depreciation on:
Investments (1,302,135) (110,421)
Short positions 644,931 --
Foreign currency 129 (8,695)
----------- -----------
Net increase in net assets from operations 3,282,972 4,953,159
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (2,088,204) (1,299,705)
From net realized gains (4,599,364) (1,049,550)
----------- -----------
Total distributions (6,687,568) (2,349,255)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 18,506,997 16,547,279
Proceeds from shares issued to holders in
reinvestment of dividends 6,008,486 2,226,762
Cost of shares redeemed (8,957,373) (5,671,108)
----------- -----------
Net increase in net assets
from capital share transactions 15,558,110 13,102,933
----------- -----------
TOTAL INCREASE IN NET ASSETS 12,153,514 15,706,837
NET ASSETS:
Beginning of period 46,267,018 30,560,181
----------- -----------
End of period (including undistributed
net investment income of $30,674
and $0, respectively) $58,420,532 $46,267,018
----------- -----------
----------- -----------
See notes to the financial statements.
<TABLE>
FINANCIAL HIGHLIGHTS
YEAR YEAR YEAR NOVEMBER 20, 1995(1)<F1>
ENDED ENDED ENDED THROUGH
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $11.97 $11.17 $10.18 $10.00
------ ------ ------ ------
Income from investment operations:
Net investment income(4)<F4> 0.45 0.40 0.44 0.38
Net realized and unrealized
gains on investments 0.28 1.16 1.32 0.16
------ ------ ------ ------
Total from investment operations 0.73 1.56 1.76 0.54
------ ------ ------ ------
Less distributions:
From net investment income (0.44) (0.40) (0.46) (0.36)
In excess of net investment income -- -- (0.05) --
From net realized gains (1.14) (0.36) (0.26) --
------ ------ ------ ------
Total distributions (1.58) (0.76) (0.77) (0.36)
------ ------ ------ ------
Net asset value, end of period $11.12 $11.97 $11.17 $10.18
------ ------ ------ ------
------ ------ ------ ------
Total return 6.59% 14.45% 17.96% 5.43%(2)<F2>
Supplemental data and ratios:
Net assets, end of period $58,420,532 $46,267,018 $30,560,181 $31,740,501
Ratio of expenses to average net assets:
Before expense reimbursement 1.32%(5)<F5> 1.41% 1.47% 1.55%(3)<F3>
After expense reimbursement 1.25%(5)<F5> 1.25% 1.25% 1.25%(3)<F3>
Ratio of net investment income to
average net assets:
Before expense reimbursement 3.93% 3.50% 4.05% 4.14%(3)<F3>
After expense reimbursement 4.00%(6)<F6> 3.66% 4.27% 4.44%(3)<F3>
Portfolio turnover rate 159.02% 73.43% 35.62% 103.30%
</TABLE>
(1)<F1> Commencement of operation.
(2)<F2> Not annualized.
(3)<F3> Annualized.
(4)<F4> Net investment income per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax
differences.
(5)<F5> The operating expense ratios exclude dividends on short positions.
The before expense reimbursement and after expense reimbursement
ratios including dividends on short positions were 1.42% and 1.35%,
respectively, for the year ended September 30, 1999.
(6)<F6> The net investment income ratio includes dividends on short positions.
The ratio excluding dividends on short positions was 4.10% for the
year ended September 30, 1999.
See notes to the financial statements.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1999
NUMBER MARKET
OF SHARES VALUE
- --------- ------
COMMON STOCKS - 28.5%+<F9>
DEFENSE - CONTRACTORS - 1.8%+<F9>
9,400 GenCorp, Inc. $ 172,138
3,100 General Dynamics
Corporation 193,556
5,100 Lockheed Martin Corporation 166,706
5,300 Northrop Grumman
Corporation 336,881
3,100 Raytheon Company Class B 153,837
-----------
1,023,118
-----------
ENERGY - EQUIPMENT &
SERVICES - 2.3%+<F9>
1,500 Atwood Oceanics, Inc. *<F7> 45,844
7,200 Baker Hughes, Inc. 208,800
15,500 Global Marine, Inc. *<F7> 254,781
4,300 McDermott International, Inc. 87,075
6,100 Patterson Energy, Inc. *<F7> 92,644
23,000 Pride International, Inc. *<F7> 326,312
3,900 Tidewater, Inc. 99,450
6,600 Weatherford
International, Inc. *<F7> 211,200
-----------
1,326,106
-----------
ENERGY - NATURAL GAS - 1.5%+<F9>
3,200 Apache Corporation 138,200
8,600 Canadian Occidental
Petroleum Ltd. 156,950
3,700 The Coastal Corporation 151,469
9,600 Marine Drilling
Companies, Inc. *<F7> 151,800
5,300 Noble Affiliates, Inc. 153,700
5,900 Noble Drilling Corporation *<F7> 129,062
-----------
881,181
-----------
HEALTH CARE -
BIOTECHNOLOGY - 3.0%+<F9>
4,200 Amgen, Inc. *<F7> 342,300
5,800 Biogen, Inc. *<F7> 457,113
13,700 Cephalon, Inc. *<F7> 246,172
6,200 COR Therapeutics, Inc. *<F7> 117,800
15,600 The Liposome Company, Inc. *<F7> 118,706
4,700 Protein Design Labs, Inc. *<F7> 169,787
29,200 Regeneron
Pharmaceutical, Inc. *<F7> 237,250
22,000 SICOR, Inc. *<F7> 87,313
-----------
1,776,441
-----------
HEALTH CARE - COST
CONTAINMENT - 1.7%+<F9>
27,200 Apria Healthcare Group Inc. *<F7> 455,600
4,800 Barr Laboratories, Inc. *<F7> 152,400
22,800 IVAX Corporation 376,200
-----------
984,200
-----------
HEALTH CARE -
MANAGEMENT - 1.5%+<F9>
12,700 Coventry Health Care, Inc. *<F7> 120,650
11,800 First Health Group
Corporation *<F7> 264,762
16,200 Mid Atlantic Medical
Services, Inc. *<F7> 144,787
3,200 PacifiCare Health
Systems, Inc. *<F7> 138,400
7,300 Sierra Health Services, Inc. *<F7> 73,912
2,000 Wellpoint Health
Networks, Inc. *<F7> 114,000
-----------
856,511
-----------
REAL ESTATE INVESTMENT
TRUSTS - 9.2%+<F9>
14,800 Apartment Investment &
Management Company
Class A 566,100
16,500 CBL & Associates
Properties, Inc. 403,219
17,400 CarrAmerica Realty
Corporation 381,712
14,000 Colonial Properties Trust 374,500
6,900 Crescent Real Estate
Equities Company 124,200
11,592 Duke-Weeks Realty
Corporation 226,044
13,709 Equity Residential
Properties Trust 580,919
16,300 Highwoods Properties, Inc. 421,763
13,300 Mack-Cali Realty Corporation 356,606
11,200 Pacific Gulf Properties, Inc. 223,300
9,700 Post Properties, Inc. 381,331
37,900 Prime Retail, Inc. 279,513
9,600 Prison Realty Trust, Inc. 103,200
15,900 ProLogis Trust 300,112
8,500 Sovran Self Storage, Inc. 193,375
53,300 Winston Hotels, Inc. 473,037
-----------
5,388,931
-----------
TECHNOLOGY -
NETWORKING - 1.8%+<F9>
8,500 3Com Corporation *<F7> 244,375
12,800 Computer Network
Technology Corporation *<F7> 119,200
12,600 Concentric Network
Corporation *<F7> 255,938
6,600 Lucent Technologies, Inc. 428,175
-----------
1,047,688
-----------
TECHNOLOGY - WIRELESS
EQUIPMENT - 3.3%+<F9>
8,300 ANADIGICS, Inc. *<F7> 233,438
14,800 DSP Communications, Inc. *<F7> 281,200
9,000 Nortel Networks Corporation 459,000
10,700 Powerwave Technologies, Inc. *<F7> 515,941
10,000 Western Wireless Corporation
Class A *<F7> 448,437
-----------
1,938,016
-----------
U.S. STOCKS - ASIA
EXPOSURE - 2.4%+<F9>
4,600 The Boeing Company 196,075
7,500 Ericcson Telefonaktiebolaget
ADR 234,375
2,520 Koninklijke Philips
Electronics NV 254,520
5,100 Schlumberger Limited 317,794
4,000 United Technologies
Corporation 237,250
4,900 Unocal Corporation 181,606
-----------
1,421,620
-----------
Total Common Stocks
(Cost $15,262,009) 16,643,812
-----------
INVESTMENT
COMPANIES - 16.2%+<F9>
EMERGING COUNTRY FUNDS - 4.8%+<F9>
13,100 Asia Pacific Fund 117,900
16,600 Asia Tigers Fund 137,988
23,300 Brazil Fund 308,725
13,399 China Fund 137,340
26,400 Fidelity Adviser Emerging
Asia Fund 389,136
27,900 First Philippine Fund *<F7> 177,863
17,400 Greater China Fund 132,675
12,800 Korea Fund *<F7> 160,800
29,600 Mexico Fund 412,550
41,900 Morgan Stanley Asia-
Pacific Fund 413,763
9,300 Scudder New Asia Fund 135,431
24,900 WEBS-Malaysia 121,388
20,100 WEBS-Singapore 153,262
-----------
2,798,821
-----------
BOND FUNDS - 11.4%+<F9>
204,368 Federated High Yield Fund 1,700,341
408,451 Invesco High Yield Fund 2,589,579
189,713 Offitbank High Yield Fund 1,754,845
56,108 Strong High Yield Bond Fund 597,549
-----------
6,642,314
-----------
Total Investment Companies
(Cost $8,844,076) 9,441,135
-----------
PRINCIPAL
AMOUNT
- ---------
FIXED INCOME
SECURITIES - 25.0%+<F9>
FOREIGN BONDS - 15.0%+<F9>
$4,250,000 New South Wales Treasury
Corp., 8.00%, 3/01/2008 3,011,723
5,120,000 New Zealand Government
Bond, 7.00%, 7/15/2009 2,652,963
4,700,000 Province of Ontario, 5.70%,
12/01/2008 3,117,448
-----------
8,782,134
-----------
U.S. TREASURY BONDS - 10.0%+<F9>
5,955,000 6.250%, due 08/15/2023 5,858,231
-----------
Total Fixed Income
Securities
(Cost $14,904,268) 14,640,365
-----------
SHORT-TERM
INVESTMENTS - 28.0%+<F9>
VARIABLE DEMAND NOTES - 28.0%+<F9>
2,900,000 Firstar Bank, 5.130%, #<F8> 2,900,000
2,900,000 General Mills, 4.985%, #<F8> 2,900,000
2,900,000 Pitney Bowes, 4.985%, #<F8> 2,900,000
559,893 Sara Lee, 4.980%, #<F8> 559,893
2,900,000 Warner Lambert, 5.023%, #<F8> 2,900,000
2,311,690 Wisconsin Corp. Central
Credit Union, 5.050%, #<F8> 2,311,690
1,879,053 Wisconsin Electric, 5.023%, #<F8> 1,879,053
-----------
16,350,636
-----------
Total Short-Term
Investments
(Cost $16,350,636) 16,350,636
-----------
TOTAL INVESTMENTS - 97.7%+<F9>
(COST $55,360,989) $57,075,948
-----------
-----------
*<F7> Non-income producing security.
#<F8> Variable rate security. The rates listed are as of 9/30/99.
+<F9> Calculated as a percentage of net assets.
ADR American Depository Receipts.
WEBS World Equity Benchmark Shares
See notes to the financial statements.
SCHEDULE OF SECURITIES SOLD SHORT
SEPTEMBER 30, 1999
NUMBER MARKET
OF SHARES VALUE
- --------- ------
S & P DEPOSITORY
RECEIPTS
43,600 S & P 500 Depository
Receipt $ 5,613,500
-----------
Total S & P 500 Depository
Receipts Sold Short 5,613,500
-----------
COMMON STOCK
4,700 AMFM, Inc. 286,113
7,400 American Power Conversion
Corporation 140,600
2,050 Barnes & Noble, Inc. 53,300
11,000 CK Witco Corporation 160,187
6,200 Cabot Corporation 147,250
3,100 Cadence Design Systems, Inc. 41,075
1,900 Cardinal Health, Inc. 103,550
3,800 Centex Corporation 112,338
1,900 Cintas Corporation 109,844
1,100 The Clorox Company 42,075
2,100 The Coca-Cola Company 100,931
3,200 Continental Airlines Class B 104,800
1,800 Costco Wholesale Corporation 129,600
3,500 D.R. Horton, Inc. 45,281
3,600 Deere & Company 139,275
4,600 The Walt Disney Company 119,025
9,300 Dollar General Corporation 287,138
3,600 Federated Department
Stores, Inc. 157,275
5,200 Fox Entertainment
Group, Inc. 109,850
5,000 Franklin Resources, Inc. 153,750
3,700 The Goodyear Tire &
Rubber Company 178,063
16,900 Hilton Hotels Corporation 166,888
6,000 Kaydon Corporation 149,250
4,000 Longs Drug Stores
Corporation 119,500
15,400 Loral Space &
Communications Ltd. 264,687
4,000 MGIC Investment
Corporation 191,000
3,200 McDonald's Corporation 137,600
7,400 Medtronic, Inc. 262,700
4,500 Molex, Inc. 163,687
3,600 NOVA Corporation 90,000
6,500 Northwest Airlines 165,750
2,700 Omnicare, Inc. 25,988
3,300 PanAmSat Corporation 119,212
13,600 PeopleSoft, Inc. 230,350
5,100 PepsiCo, Inc. 154,275
2,300 Radian Group, Inc. 98,756
5,600 Safeway, Inc. 213,150
5,400 Schering Plough Corporation 235,575
2,300 The Seagram Company Ltd. 104,650
5,000 Southdown, Inc. 267,500
1,500 Sterling Commerce, Inc. 27,844
3,700 Stewart Enterprises, Inc.
Class A 22,431
1,700 Stryker Corporation 86,912
3,400 SunGard Data Systems, Inc. 89,463
18,700 Thermo Electron Corporation 251,281
2,700 Time Warner, Inc. 164,025
8,150 Total System Services, Inc. 130,400
2,100 UAL Corporation 137,156
3,900 U.S. Bancorp 117,731
10,000 United Asset Management
Corporation 192,500
3,500 Wal-Mart Stores, Inc. 166,469
6,000 Walgreen Co. 152,250
1,500 Wm. Wrigley Jr. Company 103,219
4,100 Zale Corporation 157,081
-----------
Total Common
Stocks Sold Short 7,680,600
-----------
TOTAL SECURITIES
SOLD SHORT
(PROCEEDS $13,939,031) $13,294,100
-----------
-----------
See notes to the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES
Leuthold Funds, Inc. (the "Company") was incorporated on August 30, 1995,
as a Maryland Corporation and is registered as an open-end management
investment company under the Investment Company Act of 1940. The Company
currently consists of one series, Leuthold Core Investment Fund, formerly
known as Leuthold Asset Allocation Fund, (the "Fund"). The investment
objective of the Fund is to seek total return consistent with prudent
investment risk over the long term. The Fund commenced operations on
November 20, 1995.
The costs incurred in connection with the organization, initial registration
and public offering of shares, aggregating $43,019, have been paid by the
Fund. These costs are being amortized over the period of benefit, but not to
exceed sixty months from the Fund's commencement of operations.
The following is a summary of significant accounting policies consistently
followed by the Fund.
a) Investment Valuation - Common stocks that are listed on a securities
exchange are valued at the last quoted sales price on the day the
valuation is made. Price information on listed stocks is taken from the
exchange where the security is primarily traded. Options and securities
which are listed on an exchange but which are not traded on the
valuation date are valued at the most recent bid prices. Unlisted
securities for which market quotations are readily available are valued
at the latest quoted bid price. Debt securities are valued at the
latest bid prices furnished by independent pricing services. Other
assets and securities for which no quotations are readily available are
valued at fair value as determined in good faith by the Directors.
Short-term instruments (those with remaining maturities of 60 days or
less) are valued at amortized cost, which approximates market.
b) Federal Income Taxes - It is the Fund's policy to meet the requirements
of the Internal Revenue Code applicable to regulated investment
companies and the Fund intends to distribute investment company net
taxable income and net capital gains to shareholders. Therefore, no
federal income tax provision is required.
c) Distributions to Shareholders - Dividends from net investment income
are declared and paid quarterly. Distributions of net realized capital
gains, if any, will be declared and paid at least annually. The
character of distributions made during the period from net investment
income or net realized gains may differ from the characterization for
federal income tax purposes due to differences in the recognition of
income, expense and gain items for financial statement and tax
purposes. Where appropriate, reclassifications between net asset
accounts are made for such differences that are permanent in nature.
Accordingly, at September 30, 1999, reclassifications were recorded to
decrease accumulated net investment income by $34,235, increase
accumulated net realized gains on investments by $6,479 and increase
paid in capital by $27,756.
d) Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
e) Purchased Option Accounting - Option contracts purchased are included
in the Statement of Assets and Liabilities as an asset and are valued
at the last bid price reported on the date of valuation. When option
contracts expire or are closed, realized gains or losses are recognized
without regard to any unrealized gains or losses on the underlying
securities. Option contracts are held by the Fund for trading and
hedging purposes.
f) Written Option Accounting - The Fund may write put or call options.
Premiums received by the Fund upon writing put or call options are
recorded as an asset with a corresponding liability which is
subsequently adjusted to the current market value of the option. When
an option expires, is exercised, or is closed, the Fund realizes a gain
or loss, and the liability is eliminated. The Fund continues to bear
the risk of adverse movements in the price of the underlying asset
during the period of the option, although any potential loss during the
period would be reduced by the amount of the option premium received.
g) Short Positions - For financial statement purposes, an amount equal to
the settlement amount is included in the Statement of Assets and
Liabilities as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current value
of the short position. Subsequent fluctuations in the market prices of
securities sold, but not yet purchased, may require purchasing the
securities at prices which differ from the market value reflected on
the Statement of Assets and Liabilities. The Fund is liable for any
dividends payable on securities while those securities are in a short
position. As collateral for its short positions, the Fund is required
under the Investment Company Act of 1940 to maintain segregated assets
consisting of cash, cash equivalents or liquid securities. These
segregated assets are required to be adjusted daily to reflect changes
in the market value of the securities sold short.
The Fund's receivable from broker for proceeds on securities sold short
is with one major security dealer. The Fund does not require this
broker to maintain collateral in support of the receivable from broker
for securities sold short.
h) Other - Investment and shareholder transactions are recorded on the
trade date. The Fund determines the gain or loss realized from the
investment transactions by comparing the original costs of the security
lot sold with the net sales proceeds. Dividend income is recognized on
the ex-dividend date or as soon as information is available to the
Fund, and interest income is recognized on an accrual basis. Discounts
and premiums on bonds are amortized over the life of the respective
bond.
2. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
YEAR YEAR
ENDED ENDED
SEPT. 30, 1999 SEPT. 30, 1998
-------------- --------------
Shares sold 1,629,144 1,420,345
Shares issued to
holders in
reinvestment
of dividends 547,186 193,699
Shares redeemed (787,354) (484,113)
--------- ---------
Net increase 1,388,976 1,129,931
--------- ---------
--------- ---------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term investments,
options and short positions, for the year ended September 30, 1999 were as
follows:
PURCHASES SALES
------------------------ -----------------------
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
---------- ----- ---------- -----
$5,896,786 $49,845,262 $13,579,749 $37,286,464
At September 30, 1999, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
Appreciation $3,755,953
(Depreciation) (2,010,031)
----------
Net appreciation on
investments $1,745,922
----------
----------
At September 30, 1999, the cost of investments, excluding short positions,
for federal income tax purposes was $55,330,026.
At the close of business on January 19, 1996, the unit holders of the Piper
Trust Common Leuthold Flexible Fund transferred their assets to the Fund. As
a result of the tax-free transfer, the Fund acquired $860,971 of unrealized
appreciation for tax purposes. Since inception, the Fund has realized
$843,494 of the appreciation.
4. PUT OPTION CONTRACTS WRITTEN
The premium amount and the number of option contracts written during the
year ended September 30, 1999, were as follows:
PREMIUM NUMBER OF
AMOUNT CONTRACTS
------ ---------
Options outstanding at
September 30, 1998 $1,556,180 230
Options written 366,600 30
Options closed (1,922,780) (260)
---------- ----
Options outstanding at
September 30, 1999 $ -- --
---------- ----
---------- ----
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with Leuthold &
Anderson, Inc. Pursuant to its advisory agreement with the Fund, the
Investment Adviser is entitled to receive a fee, calculated daily and
payable monthly, at the annual rate of 0.90% as applied to the Fund's daily
net assets.
The Investment Adviser has voluntarily agreed to reimburse the Fund to the
extent necessary to ensure that total operating expenses (exclusive of
interest, taxes, brokerage commissions and other costs incurred in
connection with the purchase or sale of portfolio securities, and
extraordinary items) do not exceed the annual rate of 1.25% of the net
assets of the Fund, computed on a daily basis.
Firstar Mutual Fund Services, LLC serves as transfer agent, administrator
and accounting services agent for the Fund. Firstar Bank Milwaukee, NA
serves as custodian for the Fund.
For the year ended September 30, 1999, the Fund paid Weeden & Co., L.P., an
affiliate of the Adviser $163,027 of brokerage commissions.
6. INCOME TAX INFORMATION
The Fund hereby designates $5,658,615 as long-term capital gain
distributions for purposes of the dividends paid deduction.
7. DISTRIBUTIONS
Three percent of dividends paid during the fiscal year ended September 30,
1999, qualify for the dividend received deduction available to corporate
shareholders.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF LEUTHOLD FUNDS, INC.:
We have audited the accompanying statement of assets and liabilities of Leuthold
Funds, Inc. (a Maryland corporation, which includes the Leuthold Core Investment
Fund), including the schedule of investments, as of September 30, 1999, and the
related statement of operations for the year then ended and statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Leuthold Funds, Inc. as of September 30, 1999, and the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and its financial highlights for each of the periods
indicated, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
October 22, 1999.
INVESTMENT ADVISER:
Leuthold & Anderson, Inc., Minnesota
ADMINISTRATOR, TRANSFER AGENT,
DIVIDEND PAYING AGENT,
SHAREHOLDER SERVICING AGENT:
Firstar Mutual Fund Services, LLC,
Wisconsin
CUSTODIAN:
Firstar Bank Milwaukee, NA
COUNSEL:
Foley & Lardner, Wisconsin
AUDITORS:
Arthur Andersen LLP, Wisconsin
This report is authorized for distribution only when preceded or accompanied by
a current prospectus.
