(LEUTHOLD CORE INVESTMENT FUND LOGO)
Annual Report
September 30, 2000
DEAR FELLOW SHAREHOLDERS,
The last twelve months have been a rough and disappointing period for most
investors. However, your fund's emphasis on defense combined with exceptionally
good industry group and stock picking produced A TWELVE MONTH TOTAL RETURN OF
21%. This ranked in the top 7% of our Morningstar Fund category: Domestic Hybrid
(flexible funds that invest in both stocks and bonds).
The Leuthold Core Investment Fund has been awarded a Morningstar Category
Rating of "5" (the highest) and the Wall Street Journal's "Mutual Funds
Quarterly Review" awarded the fund an "A" both on a three month and THREE YEAR
BASIS.
OUR KIND OF MARKET
With our flexible portfolio management approach, managing both risk and
return, our best relative performance often comes during difficult markets. An
example is the third quarter of 2000 when your fund posted a 5.2% total return
gain while the S&P 500 was down 1% and the NASDAQ was down 7.5%.
I might add that our performance, when compared to the stock market indices,
probably won't look so great in roaring bull markets. Per its guidelines, the
fund will rarely have more than 70% of assets committed in the stock market,
with the remaining 30% in other areas such as bonds and real estate investment
trusts (REITs). Historically we do our best work in the mud, not on the race
track. ON A LONG-TERM BASIS THIS PAYS OFF, BECAUSE LONG-TERM INVESTMENT SUCCESS
IS MAKING IT AND KEEPING IT.
--------------
MEASURES OF RISK CAN BE MISLEADING
Analysts will employ a number of quantitative measures to statistically
evaluate an investment portfolio's overall risk and a portfolio's return,
adjusted for risk. Currently, based on comparisons with over 600 similar funds,
the Leuthold Core Investment Fund ranks extremely high, per Morningstar's data
comparisons.
O FUND'S BETA (VOLATILITY/RISK) IS IN THE LOW 4% OF THIS UNIVERSE
(LEAST RISKY).
O FUND'S ALPHA (A MEASURE OF MANAGERS' "VALUE-ADDED") IS 7.76,
RANKING IN THE TOP 1% OF THE UNIVERSE.
O FUND'S SHARPE RATIO (MEASURE OF RETURN ADJUSTED FOR RISK) IS 1.12,
RANKING IN THE TOP 1% OF THE UNIVERSE.
Thus, the fund's quantitative risk/return adjusted report card is top of the
class, but frankly, I think it also is at least SOMEWHAT MISLEADING IN TERMS OF
IMPLICATIONS FOR THE FUTURE. The quantitative risk profile can be expected to
rise when your fund increases its equity commitment. Investors should know,
after this year's disappointing performance of most other funds, that past
performance is not necessarily a good guide to the future_to some degree the
same can be said for these quantitative risk measures.
THIS YEAR'S TECH WRECK
The tech heavy NASDAQ Index peaked in early March at over 5000 and is now
threatening to break below 3000 as the "Tech Wreck" continues. IN THE FIRST
QUARTER OF THE YEAR 2000, ABOUT TWO-THIRDS OF INVESTOR DOLLARS DIRECTED TO
MUTUAL FUNDS WENT INTO FUNDS WITH A TECHNOLOGY FOCUS, CHASING SUPERIOR PAST
PERFORMANCE . . . AT JUST THE WRONG TIME.
-----
From YTD highs, here is a sampling of the biggest technology and
communication group declines, through the end of the third quarter (per Leuthold
Group indices).
PERCENT DOWN
GROUP: FROM YTD HIGH
------ -------------
Internet Retail -80%
Internet Software & Services -68%
Office Electronics -67%
Alternative Telcom Carriers -65%
Semiconductor Equipment -63%
B2B Software & Services -59%
If you own (or owned) a tech sector fund, you are well aware of the
performance disaster and the additional declines taking place in October.
Fortunately, your fund has avoided most of this tech and communication stock
carnage, having decisively reduced exposure in these areas during the first
quarter and essentially eliminating all exposure in the second quarter.
O SOMETIMES WHAT YOU DON'T HOLD IN A PORTFOLIO CAN BE MORE IMPORTANT
THAN WHAT YOU DO HOLD.
--
RECENT PORTFOLIO CHANGES
Within the equity portfolio, Energy emphasis was shifted from Drillers and
Equipment to Oil & Gas Exploration and Production. Health Care commitments
remain high and emphasis on Value stocks has been significantly increased. Major
broad areas of equity concentration are now REIT's, Health Care, Energy and
Value stocks.
During the third quarter, holdings in high quality corporate bonds were
increased from 11% to 18% of assets. Additional commitments are planned in
periods of market weakness. High Quality Bond yields are now attractive WITH
SIGNIFICANT CAPITAL GAINS POTENTIAL WHEN RATES DECLINE. Very recently we added a
"starter position" in High Yield Bonds.
CURRENT OUTLOOK
As this is being written, the technology stock debacle continues. However, in
October, your fund was down only 0.6%. While a short term rally is expected
momentarily, the bear market beginning in late March is probably not over.
VALUATIONS FOR THE BROAD TECH SECTOR HAVE COME DOWN BUT ARE STILL EXCESSIVE AT
60X EARNINGS (historical median is 33x earnings). The defensive overall
portfolio stance is still warranted. Your fund increased its equity hedge in the
fourth quarter.
Earnings growth, particularly in tech stocks, continues to disappoint. The
global economy continues to fade and the stock market weakness and high energy
costs are having an impact on U.S. consumer confidence and spending. A recession
in 2001? . . .Maybe, but HISTORY TELLS US RECESSIONS CAN BE GREAT STOCK MARKET
BUYING OPPORTUNITIES!
Sincerely,
/s/Steve Leuthold
Steve Leuthold
Chairman
NOTE: Two new Leuthold specialty funds are open to investors. The funds are new
but the methodologies employed are not. Both are no-load, and have complete
exchange privileges with the Leuthold Core Investment Fund and a money market
fund.
O GRIZZLY SHORT FUND: (Up 13.6% in Q3). Always 100% short. Designed for
------------------
investors who want to hedge potential losses in other investments during
declining markets. It is also appropriate for traders, speculators, and
"neutral" investors.
O LEUTHOLD SELECT INDUSTRIES FUND: (Up 17.6% in Q3). Always 100% invested
-------------------------------
in stocks employing the flexible industry concentration approach that
has worked so well for us in the Leuthold Core Investment Fund. This is
designed to be a high performance fund for aggressive investors and may
have a higher level of risk than the overall stock market.
o THE TWO NEW FUNDS ARE AVAILABLE DIRECTLY THROUGH LEUTHOLD FUNDS.
(BROADER ACCESSIBILITY IS IN THE PROCESS OF DEVELOPMENT.)
o REGISTERED INVESTMENT ADVISORS CURRENTLY HAVE ACCESS TO THE NEW FUNDS
VIA TD WATERHOUSE.
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED SEPTEMBER 30, 2000
<TABLE>
LEUTHOLD CORE COMBINED LIPPER FLEXIBLE MORNINGSTAR S&P 500
INVESTMENT FUND INDEX FUND INDEX DOMESTIC HYBRID INDEX INDEX
---------------- -------- --------------- --------------------- -------
<S> <C> <C> <C> <C> <C>
3 month 5.16% 3.49% 1.51% 2.01% -0.97%
6 month 8.91% 3.07% 0.10% 1.11% -3.60%
1 year 20.98% 16.04% 10.65% 11.17% 13.28%
3 year 13.84% 9.95% 9.95% 8.53% 16.42%
Since Inception 13.25% 12.00% 13.17% 12.04% 21.75%
</TABLE>
A $10,000 INVESTMENT IN THE LEUTHOLD CORE INVESTMENT FUND
<TABLE>
LEUTHOLD CORE INVESTMENT COMBINED INDEX LIPPER FLEXIBLE MORNINGSTAR DOMESTIC
DATE FUND $18,355 $17,280 FUND INDEX $18,256 HYBRID $16,983
---- ------------ ------- ------------------ --------------
<S> <C> <C> <C> <C>
11/95 $10,000 $10,000 $10,000 $10,000
3/96 $10,142 $10,396 $10,600 $10,242
6/96 $10,341 $10,618 $10,880 $10,476
9/96 $10,543 $10,817 $11,126 $10,740
12/96 $11,185 $11,286 $11,715 $11,295
3/97 $10,970 $11,179 $11,698 $11,374
6/97 $11,432 $12,165 $12,871 $12,473
9/97 $12,439 $13,055 $13,735 $13,293
12/97 $13,114 $13,257 $13,904 $13,443
3/98 $13,709 $14,052 $15,165 $14,418
6/98 $13,859 $14,149 $15,399 $14,575
9/98 $14,234 $13,549 $14,290 $13,725
12/98 $14,637 $14,861 $16,208 $15,119
3/99 $14,733 $14,635 $16,464 $15,241
6/99 $15,335 $15,361 $17,136 $15,857
9/99 $15,172 $14,952 $16,496 $15,281
12/99 $16,037 $16,081 $17,795 $16,365
3/00 $16,853 $16,764 $18,236 $16,800
6/00 $17,455 $16,697 $17,984 $16,649
9/00 $18,355 $17,280 $18,256 $16,983
</TABLE>
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.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
ASSETS:
Investments, at value
(cost $66,531,478) $ 74,249,326
Receivable from broker for proceeds
on securities sold short 8,686,217
Deposit for short sales 6,994,818
Receivable for investments sold 16,702,086
Interest receivable 612,594
Dividends receivable 99,505
Organizational expenses, net of
accumulated amortization 1,135
Other assets 34,234
------------
Total Assets 107,379,915
------------
LIABILITIES:
Securities sold short, at market value
(proceeds $9,109,530) 8,084,493
Payable for investments purchased 12,099,675
Payable to Adviser 63,426
Accrued expenses and other liabilities 57,670
------------
Total Liabilities 20,305,264
------------
NET ASSETS $ 87,074,651
------------
------------
NET ASSETS CONSIST OF:
Capital stock $ 74,438,121
Accumulated undistributed net
investment income 58,673
Accumulated undistributed net
realized gain (loss) on:
Investments 6,482,992
Short Positions (2,614,151)
Net unrealized appreciation
(depreciation) on:
Investments 7,717,848
Short Positions 1,025,037
Foreign Currency (33,869)
------------
Total Net Assets $ 87,074,651
------------
------------
Shares outstanding (250,000,000
shares of $.0001 par value authorized) 6,833,608
Net Asset Value, Redemption Price
and Offering Price Per Share $12.74
------------
------------
See notes to the financial statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
INVESTMENT INCOME:
Dividend income (net of foreign
taxes withheld of $165) $ 1,071,914
Interest income 3,071,486
-----------
Total investment income 4,143,400
-----------
EXPENSES:
Investment advisory fee 633,451
Shareholder servicing and
accounting costs 66,046
Administration fee 58,118
Professional fees 41,064
Federal and state registration 31,401
Reports to shareholders 17,009
Custody fees 13,304
Amortization of organizational expenses 8,627
Directors' fees and expenses 5,186
Other 11,338
-----------
Total expenses before reimbursement
and dividends on short positions 885,544
Less: Reimbursement from Adviser (5,751)
-----------
Net expenses before dividends
on short positions 879,793
Dividends on short positions 69,025
-----------
Total expenses 948,818
-----------
NET INVESTMENT INCOME 3,194,582
-----------
REALIZED AND UNREALIZED
GAINS ON INVESTMENTS:
Net realized gain (loss) on:
Investments 8,039,524
Short positions (2,614,151)
Foreign Currency (1,646,758)
Change in unrealized
appreciation (depreciation) on:
Investments 6,002,889
Short positions 380,106
Foreign Currency (33,781)
-----------
Net realized and unrealized
gain on investments 10,127,829
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $13,322,411
-----------
-----------
See notes to the financial statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,194,582 $ 2,153,113
Net realized gains on investments 3,778,615 1,786,934
Change in unrealized appreciation (depreciation) 6,349,214 (657,075)
----------- -----------
Net increase in net assets from operations 13,322,411 3,282,972
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (3,091,522) (2,088,204)
From net realized gains (733,046) (4,599,364)
----------- -----------
Total distributions (3,824,568) (6,687,568)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 26,921,376 18,506,997
Proceeds from shares issued to holders in
reinvestment of dividends 3,521,246 6,008,486
Cost of shares redeemed (11,286,346) (8,957,373)
----------- -----------
Net increase in net assets from capital
share transactions 19,156,276 15,558,110
----------- -----------
TOTAL INCREASE IN NET ASSETS 28,654,119 12,153,514
NET ASSETS:
Beginning of period 58,420,532 46,267,018
----------- -----------
End of period (including undistributed
net investment income of $58,673
and $30,674, respectively) $87,074,651 $58,420,532
----------- -----------
----------- -----------
</TABLE>
See notes to the financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED NOVEMBER 20, 1995(1)<F1>
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, THROUGH
2000 1999 1998 1997 SEPTEMBER 30, 1996
------------- ------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $11.12 $11.97 $11.17 $10.18 $10.00
------ ------ ------ ------ ------
Income from investment operations:
Net investment income(4)<F4> 0.52 0.45 0.40 0.44 0.38
Net realized and unrealized
gains on investment 1.75 0.28 1.16 1.32 0.16
------ ------ ------ ------ ------
Total from investment operations 2.27 0.73 1.56 1.76 0.54
------ ------ ------ ------ ------
Less distributions:
From net investment income (0.51) (0.44) (0.40) (0.46) (0.36)
In excess of net investment income -- -- -- (0.05) --
From net realized gains (0.14) (1.14) (0.36) (0.26) --
------ ------ ------ ------ ------
Total distributions (0.65) (1.58) (0.76) (0.77) (0.36)
------ ------ ------ ------ ------
Net asset value, end of period $12.74 $11.12 $11.97 $11.17 $10.18
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total return 20.98% 6.59% 14.45% 17.96% 5.43%(2)<F2>
Supplemental data and ratios:
Net assets, end of period $87,074,651 $58,420,532 $46,267,018 $30,560,181 $31,740,501
Ratio of expenses to
average net assets:
Before expense reimbursement 1.36%(5)<F5> 1.42%(5)<F5> 1.41% 1.47% 1.55%(3)<F3>
After expense reimbursement 1.35%(5)<F5> 1.35%(5)<F5> 1.25% 1.25% 1.25%(3)<F3>
Ratio of net investment income
to average net assets:
Before expense reimbursement 4.53%(6)<F6> 3.93%(6)<F6> 3.50% 4.05% 4.14%(3)<F3>
After expense reimbursement 4.54%(6)<F6> 4.00%(6)<F6> 3.66% 4.27% 4.44%(3)<F3>
Portfolio turnover rate 129.74%(7)<F7> 159.02%(7)<F7> 73.43% 35.62% 103.30%
</TABLE>
(1)<F1> Commencement of operations.
(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 include dividends on short positions. The
before expense reimbursement and after expense reimbursement ratios
excluding dividends on short positions were 1.26% and 1.25%,
respectively, for the year ended September 30, 2000 and 1.32% and
1.25%, respectively, for the year ended September 30, 1999.
(6)<F6> The net investment income ratios include dividends on short positions.
(7)<F7> The portfolio turnover ratio excludes purchases and sales of short
positions as the Adviser does not intend to hold the short positions
for more than one year.
See notes to the financial statements.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2000
NUMBER MARKET
OF SHARES VALUE
--------- ------
COMMON STOCKS - 41.3%+<F10>
AEROSPACE - 3.5%+<F10>
2,900 Alliant Techsystems Inc.*<F8> $ 238,162
13,200 The Boeing Company 831,600
10,100 General Dynamics Corporation 634,406
16,600 Lockheed Martin Corporation 547,136
7,400 Northrop Grumman
Corporation 672,475
15,200 Orbital Sciences Corporation*<F8> 127,300
-----------
3,051,079
-----------
EDUCATION - 4.8%+<F10>
18,500 Apollo Group, Inc.*<F8> 737,687
22,500 Career Education Corporation*<F8> 1,001,250
15,200 click2learn.com, Inc.*<F8> 223,250
10,400 Corinthian Colleges, Inc.*<F8> 613,600
7,400 DeVry, Inc.*<F8> 278,425
32,600 Education Management
Corporation*<F8> 878,162
5,200 Learning Tree
International, Inc.*<F8> 247,650
14,000 Sylvan Learning Systems, Inc.*<F8> 207,375
-----------
4,187,399
-----------
HEALTH CARE FACILITIES - 4.5%+<F10>
35,000 Health Management
Associates, Inc.*<F8> 728,437
23,100 Province Healthcare Company*<F8> 922,556
36,500 Sunrise Assisted Living, Inc. 791,594
12,300 Tenet Healthcare Corporation*<F8> 447,413
11,600 Universal Health Services, Inc. 993,250
-----------
3,883,250
-----------
LIFE INSURANCE - 2.1%+<F10>
3,500 American General
Corporation 273,000
3,800 Jefferson-Pilot Corporation 257,925
10,300 Lincoln National Corporation 495,687
22,000 MetLife, Inc.*<F8> 576,125
9,300 Torchmark Corporation 258,656
-----------
1,861,393
-----------
OIL & GAS EXPLORATION - 4.6%+<F10>
6,800 Anadarko Petroleum
Corporation 451,928
10,100 Apache Corporation 597,162
24,600 Cross Timbers Oil Company 472,012
8,600 Devon Energy Corporation 517,290
17,400 EOG Resources, Inc. 676,425
7,400 Equitable Resources, Inc. 468,975
9,300 Noble Affiliates, Inc. 345,263
5,800 St. Mary Land &
Exploration Company 133,763
6,100 Stone Energy Corporation*<F8> 335,500
-----------
3,998,318
-----------
OIL & GAS REFINING
& MARKETING - 1.9%+<F10>
8,300 Sunoco, Inc. 223,581
19,700 Tesoro Petroleum Corporation 195,769
14,300 Tosco Corporation 445,981
9,000 Ultramar Diamond Shamrock
Corporation 228,375
14,700 Valero Energy Corporation 517,256
-----------
1,610,962
-----------
PHARMACEUTICALS - 4.6%+<F10>
13,800 Abbott Laboratories 656,362
5,900 American Home Products
Corporation 333,719
4,758 Elan Corporation plc - ADR*<F8> 260,500
10,800 Elan Corporation
plc-Rights*<F8> 10,463
6,100 Eli Lilly and Company 494,862
19,300 IVAX Corporation 887,800
11,200 Pfizer Inc. 503,300
6,800 SmithKline Beecham Plc 466,650
6,200 Watson Pharmaceuticals, Inc.*<F8> 402,225
-----------
4,015,881
-----------
REAL ESTATE INVESTMENT
TRUSTS - 9.3%+<F10>
14,800 Apartment Investment
& Management Company 681,725
16,500 CBL & Associates
Properties, Inc. 413,531
17,400 CarrAmerica Realty
Corporation 526,350
27,100 Crescent Real Estate
Equities Company 604,669
11,592 Duke-Weeks Realty
Corporation 279,657
13,709 Equity Residential
Properties Trust 658,032
23,000 Golf Trust of America, Inc. 310,500
47,500 Innkeepers USA Trust 486,875
15,500 Liberty Property Trust 426,250
138,400 Meditrust Companies*<F8> 406,550
29,200 Nationwide Health
Properties, Inc. 465,375
11,200 Pacific Gulf Properties, Inc. 299,600
15,400 Parkway Properties, Inc. 469,700
9,700 Post Properties, Inc. 422,556
6,000 Prentiss Properties Trust 156,750
15,900 ProLogis Trust 377,625
8,700 Spieker Properties, Inc. 500,794
69,700 Winston Hotels, Inc. 601,163
-----------
8,087,702
-----------
SMALL CAP VALUE - 2.0%+<F10>
11,600 The Earthgrains Company 213,875
16,800 Extended Stay America, Inc.*<F8> 222,600
14,200 Precision Castparts Corp. 544,925
10,100 Pulte Corporation 333,300
11,700 Russell Corporation 185,738
9,000 The Men's Wearhouse, Inc.*<F8> 254,813
-----------
1,755,251
-----------
UNDERVALUED AND
UNLOVED +<F11>- 4.0%+<F10>
17,400 ACE Limited 682,950
10,900 AmerUs Group Co. 280,675
22,400 Hibernia Corporation 274,400
9,700 Lennar Corporation 287,969
16,000 NL Industries, Inc. 339,000
25,100 Old Republic International
Corporation 603,969
14,400 Pinnacle West Capital
Corporation 732,600
10,200 V.F. Corporation 251,813
-----------
3,453,376
-----------
Total Common Stocks
(Cost $28,737,687) 35,904,611
-----------
INVESTMENT
COMPANIES - 3.7%+<F10>
EMERGING COUNTRY
FUNDS - 3.7%+<F10>
13,100 Asia Pacific Fund 114,625
16,600 Asia Tigers Fund 127,613
23,300 Scudder Brazil Fund 399,013
13,399 China Fund 127,291
26,400 Fidelity Advisors Emerging
Asia Fund 355,608
27,900 First Philippine Fund *<F8> 95,906
44,800 Greater China Fund 394,800
20,100 iShares MSCI Singapore 138,188
24,900 iShares MSCI Malaysia 130,725
12,800 Korea Fund *<F8> 153,600
29,600 Mexico Fund 466,200
41,900 Morgan Stanley Dean
Witter Asia-Pacific Fund 395,431
9,300 Scudder New Asia Fund 114,506
28,500 Templeton China World Fund 219,094
-----------
3,232,600
-----------
Total Investment Companies
(Cost $2,760,782) 3,232,600
-----------
PRINCIPAL
AMOUNT
---------
FIXED INCOME
SECURITIES - 31.4%+<F10>
FOREIGN BONDS - 14.8%+<F10>
AUD 7,931,000 New South Wales Treasury
Corp., 6.50%, 5/1/2006 4,285,738
NZD 8,193,000 New Zealand Government
Bond, 8.00%, 11/15/2006 3,532,509
CAD 7,825,000 Province of Ontario, 5.70%,
12/01/2008 5,073,768
-----------
12,892,015
-----------
CORPORATE BONDS - 16.6%+<F10>
3,896,000 American General Finance,
8.50%, 7/1/2030 3,908,194
2,002,000 American Re Corp, 7.45%,
12/15/2026 1,898,587
2,022,000 Aon Capital Trust, 8.2050%,
1/1/2027 1,853,315
1,845,000 Deere & Co., 8.10%, 5/15/2030 1,855,409
1,370,000 GE Global, 6.45%, 3/1/2019 1,209,546
2,051,000 Nationsbank Corporation,
6.80%, 3/15/2028 1,821,676
$2,220,000 Northern Illinois Gas,
6.58%, 2/15/2028 1,918,748
-----------
14,465,475
-----------
Total Fixed Income
Securities
(Cost $27,278,384) 27,357,490
-----------
SHORT-TERM
INVESTMENTS - 8.9%+<F10>
VARIABLE DEMAND NOTES - 8.9%+<F10>
1,121,601 American Family Financial
Services, Inc., 6.2352%, #<F9> 1,121,601
2,065,743 Firstar Bank, 6.3700%, #<F9> 2,065,743
4,247,887 Sara Lee Corporation,
6.2200%, #<F9> 4,247,887
318,394 Wisconsin Corporate Central
Credit Union, 6.2900%, #<F9> 318,394
-----------
7,753,625
-----------
NUMBER
OF SHARES
---------
MUTUAL FUNDS - 0.0%+<F10>
1,000 Firstar Stellar Treasury Fund 1,000
-----------
Total Short-Term
Investments
(Cost $7,754,625) 7,754,625
-----------
TOTAL INVESTMENTS - 85.3%+<F10>
(COST $66,531,478) $74,249,326
-----------
-----------
*<F8> Non-income producing security.
#<F9> Variable rate security. The rates listed are as of 9/30/00.
+<F10> Calculated as a percentage of net assets.
+<F11> To qualify as an "Undervalued & Unloved" security, six of the following
seven criteria must be met: 1) Price to book ratio less than 2.0x; 2)
S&P rating minimum of "B-"; 3) Cash to market capitalization ratio of
at least 10%; 4) Indicated dividend yield of at least 3.0%; 5) Total
long-term debt to market capitalization ratio of less than 50%; 6)
Price to normalized earnings ratio less than 12.0x and 7) Price to
cash flow ratio less than 80% of S&P 500 cash flow ratio.
ADR American Depository Receipts.
See notes to the financial statements.
SECURITIES SOLD SHORT
SEPTEMBER 30, 2000
NUMBER MARKET
OF SHARES VALUE
--------- ------
COMMON STOCKS
1,900 Alcoa Inc. $ 48,094
5,100 Allegiance Telecom, Inc. 189,975
1,300 Amazon.com, Inc. 49,969
12,800 Answerthink Inc. 208,000
4,800 Autodesk, Inc. 121,800
4,400 AutoZone, Inc. 99,825
2,300 Best Buy Co., Inc. 146,337
6,300 Broadwing Inc. 161,044
2,200 Cablevision Systems
Corporation 145,887
12,600 Callaway Golf Company 193,725
3,300 Cintas Corporation 143,756
9,100 Citizens Communications
Company 122,281
1,900 Clear Channel
Communications, Inc. 107,350
2,900 The Clorox Company 114,731
4,600 CNET Networks, Inc. 112,053
2,300 Colgate-Palmolive Company 108,560
4,300 Conexant Systems, Inc. 180,062
4,600 Costco Wholesale Corporation 160,713
3,400 Cymer, Inc. 104,337
3,300 Danaher Corporation 164,175
1,300 Dell Computer Corporation 40,056
5,700 Dendrite International, Inc. 152,831
2,700 Digital Island 50,625
7,200 E*TRADE Group, Inc. 118,350
2,000 eBay Inc. 137,375
1,600 Entercom Communications
Corp. 47,900
3,400 The Estee Lauder
Companies Inc. 124,525
1,900 FreeMarkets, Inc. 108,537
2,500 Gateway, Inc. 116,875
6,100 Gentex Corporation 152,500
1,800 Inktomi Corporation 205,200
1,200 International Business
Machine Corporation 135,000
5,800 International Speedway
Corporation 226,200
2,800 Intersil Holding Corporation 139,650
6,400 Intimate Brands, Inc. 119,600
2,200 Kana Communications, Inc. 48,950
2,700 Keane, Inc. 46,980
4,800 Keynote Systems, Inc. 128,400
2,800 Lamar Advertising Company 106,050
1,600 Level 3 Communications, Inc. 123,400
13,000 McLeodUSA Incorporated 186,063
3,600 Metasolv Software, Inc. 147,150
3,800 Michaels Stores, Inc. 152,000
2,900 Molex Incorporated 157,869
4,300 National Instruments
Corporation 189,738
5,000 Net2Phone, Inc. 112,500
6,000 New Era of Networks, Inc. 145,969
4,200 Nextel Communications, Inc. 196,350
3,900 NEXTLINK
Communications, Inc. 137,231
3,600 NIKE, Inc. 144,225
5,000 NorthPoint Communications
Group, Inc. 44,375
700 NTL Incorporated 32,419
1,400 Omnicom Group Inc. 102,113
5,000 RCN Corporation 103,750
3,300 SBS Broadcasting SA 131,381
13,700 Sinclair Broadcast Group, Inc. 149,844
1,500 Sprint Corp (PCS Group) 52,594
3,300 Symbol Technologies, Inc. 118,594
2,000 TeleCorp PCS, Inc. 38,000
2,400 Tellabs, Inc. 114,600
3,600 The Walt Disney Company 137,700
2,400 Verizon Communications 116,250
4,500 Viatel, Inc. 46,125
5,200 VISX, Incorporated 140,075
2,200 Wal-Mart Stores, Inc. 105,875
2,400 Winstar Communications, Inc. 37,200
1,300 Xircom, Inc. 32,825
----------
Total Common
Stocks Sold Short 8,084,493
----------
TOTAL SECURITIES
SOLD SHORT
(PROCEEDS $9,109,530) $8,084,493
----------
----------
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 Leuthold
Core Investment Fund, formerly known as Leuthold Asset Allocation Fund, (the
"Fund") is one of three series of the Company. 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, 2000, reclassifications were recorded to decrease
accumulated net investment income by $75,061, increase accumulated net
realized gains on investments by $104,358 and decrease paid in capital
by $29,297.
d) Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States
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) 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 valued consistent with Note 1a above. 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 proceeds on securities sold short.
g) Other - Investment and shareholder transactions are recorded on the
trade date. The Fund determines the gain or loss realized from the
investment transactions by comparing the original cost of the security
lot sold with the net sales proceeds. Dividend income is recognized on
the ex-dividend date or as soon as information is available to the Fund,
and interest income is recognized on an accrual basis. Discounts and
premiums on bonds are amortized over the life of the respective bond.
2. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
YEAR ENDED YEAR ENDED
SEPT. 30, 2000 SEPT. 30, 1999
-------------- --------------
Shares sold 2,242,510 1,629,144
Shares issued to
holders in
reinvestment
of dividends 296,241 547,186
Shares redeemed (960,075) (787,354)
--------- ---------
Net increase 1,578,676 1,388,976
--------- ---------
--------- ---------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term investments,
options and short positions, for the year ended September 30, 2000 were as
follows:
PURCHASES SALES
---------------------- ----------------------
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
---------- ----- ---------- -----
$4,284,450 $75,355,842 $10,556,437 $55,650,142
At September 30, 2000, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
Appreciation $8,782,838
Depreciation (1,033,295)
----------
Net appreciation on
investments $7,749,543
----------
----------
At September 30, 2000, the cost of investments, excluding short positions,
for federal income tax purposes was $66,499,783.
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. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with Leuthold
Weeden Capital Management, LLC. 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, dividends on short positions 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, N.A. serves as
custodian for the Fund.
For the year ended September 30, 2000, the Fund paid Weeden & Co., L.P., an
affiliate of the Adviser, $253,173 of brokerage commissions.
5. INCOME TAX INFORMATION
The Fund hereby designates $4,417,273 as long-term capital gain
distributions for purposes of the dividends paid deduction.
6. DISTRIBUTIONS
Five percent of dividends paid during the fiscal year ended September 30,
2000, 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.
AND THE SHAREHOLDERS OF THE LEUTHOLD CORE INVESTMENT FUND:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Leuthold Core Investment Fund (one of the
portfolios constituting the Leuthold Funds, Inc., a Maryland corporation) as of
September 30, 2000, and the related statement of operations for the year then
ended, the 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
presented. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2000, by correspondence with the custodian and
brokers. 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 the
Leuthold Core Investment Fund of the Leuthold Funds, Inc., as of September 30,
2000, 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 presented, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
November 2, 2000
(LEUTHOLD CORE INVESTMENT FUND LOGO)
INVESTMENT ADVISER:
Leuthold Weeden Capital
Management, LLC, Minnesota
ADMINISTRATOR, TRANSFER AGENT,
DIVIDEND PAYING AGENT,
SHAREHOLDER SERVICING AGENT:
Firstar Mutual Fund Services, LLC,
Wisconsin
CUSTODIAN:
Firstar Bank, N.A., Ohio
COUNSEL:
Foley & Lardner, Wisconsin
INDEPENDENT PUBLIC ACCOUNTANTS:
Arthur Andersen LLP, Wisconsin
This report is authorized for distribution only when preceded or accompanied by
a current prospectus.
