(LEUTHOLD SELECT INDUSTRIES FUND LOGO)
Annual Report
September 30, 2000
DEAR FELLOW SHAREHOLDERS:
The Leuthold Select Industries Fund was officially launched on June 19, 2000,
however, THE INVESTMENT APPROACH AND DISCIPLINES EMPLOYED HERE FOR GROUP AND
EQUITY SELECTION HAVE BEEN ACTIVELY EMPLOYED ON A REAL TIME BASIS SINCE 1996.
The new, all-equity focused fund offers a much more aggressive approach to
investing than does our flagship fund, the Leuthold Core Investment Fund.
VIEW THIS FUND AS AN AGGRESSIVE FUND
THIS FUND, ON A STAND ALONE BASIS, IS NOT APPROPRIATE FOR THE TYPICAL
INVESTOR. It remains essentially 100% invested in common stocks at all times,
with the portfolio concentrated in industry groups and themes that may
significantly outperform the market. The past record of the disciplined approach
employed by this fund has been impressive, BUT THE TECHNIQUES HAVE ONLY BEEN
EMPLOYED SINCE 1996, GENERALLY A STRONG MARKET PERIOD. Frankly, we have no idea
how good or bad performance may be in a less favorable environment.
O THIS FUND IS DESIGNED TO BE USED IN COMBINATION WITH OTHER FUNDS
IN A TOTAL INVESTMENT PROGRAM.
O INVESTORS SHOULD ASSUME VOLATILITY AND MARKET RISK MAY WELL BE
GREATER WITH THE LEUTHOLD SELECT INDUSTRIES FUND THAN WITH A
TYPICAL BROADLY DIVERSIFIED COMMON STOCK FUND.
PERFORMANCE SO FAR. . .
In the third quarter of 2000, the first full quarter of its existence, THE
FUND PRODUCED A 17.6% GAIN (with no IPO's in the portfolio). This compares
favorably to a 1% loss for the S&P 500, and about a 1% gain for the Russell 2000
Index (small cap stock index). While there is a longer term, real time record of
performance based on this strategy (1996 to date), the SEC, at this point, does
not permit its inclusion here.
PORTFOLIO CONCENTRATION
Currently, 27% of the portfolio is invested in Health Care groups, 20% in
Energy groups, and 14% in Education stocks. In addition, 31% is now committed to
value-driven stocks, including Aerospace/Defense, and value screening
disciplines ("Small Cap Value" and "Undervalued & Unloved" screens). THERE ARE
NO TECHNOLOGY OR COMMUNICATIONS STOCKS IN THE PORTFOLIO AT THIS TIME.
THIRD QUARTER PORTFOLIO CHANGES
During the quarter, new commitments were made in Life Insurance and Small Cap
Value stocks. Existing commitments in Aerospace/Defense and "Undervalued &
Unloved" were increased. Pharmaceuticals were reduced from 19% to 13%, and the
"Holding Tank" was eliminated.
Sincerely,
/s/Steve Leuthold /s/James Floyd
Steve Leuthold James Floyd
Co-Portfolio Manager Co-Portfolio Manager
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED SEPTEMBER 30, 2000
LEUTHOLD SELECT RUSSELL 2000 S&P 500
INDUSTRIES FUND INDEX INDEX
--------------- ------------ -------
3 month 17.60% 1.14% -0.97%
Since Inception 19.60% 0.12% -3.04%
A $10,000 INVESTMENT IN THE LEUTHOLD SELECT INDUSTRIES FUND
LEUTHOLD SELECT S&P 500 RUSSELL 2000
DATE INDUSTRIES FUND $11,960 INDEX $9,696 INDEX $10,012
---- ----------------------- ------------ -------------
INCEPTION 6/19/00 $10,000 $10,000 $10,000
6/23/00 $10,030 $9,701 $9,764
6/30/00 $10,170 $9,791 $9,899
7/7/00 $10,190 $9,958 $10,112
7/14/00 $10,240 $10,168 $10,390
7/21/00 $10,040 $9,968 $10,009
7/28/00 $9,970 $9,564 $9,390
8/4/00 $10,540 $9,857 $9,649
8/11/00 $10,730 $9,921 $9,781
8/18/00 $10,720 $10,057 $9,884
8/25/00 $10,900 $10,157 $10,070
9/1/00 $11,290 $10,257 $10,395
9/8/00 $11,300 $10,081 $10,277
9/15/00 $11,500 $9,890 $10,188
9/22/00 $11,690 $9,776 $9,958
QUARTER END 9/30/00 $11,960 $9,696 $10,012
The S&P 500 Index is an unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes
in the aggregate market value of the 500 stocks which represent all major
industries. The Russell 2000 Index is comprised of the smallest 2000 companies
in the Russell 3000 Index, representing approximately 11% of the Russell 3000
total market capitalization. This chart assumes an initial gross investment of
$10,000 made on 6/19/00 (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.
See notes to the financial statements.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
ASSETS:
Investments, at value
(cost $2,195,760) $2,440,897
Interest receivable 637
Dividends receivable 348
Expense reimbursement by Adviser 9,446
Other assets 11,612
----------
Total Assets 2,462,940
----------
LIABILITIES:
Payable for investments purchased 115,299
Payable to custodian 6,874
Accrued expenses and other liabilities 26,634
----------
Total Liabilities 148,807
----------
NET ASSETS $2,314,133
----------
----------
NET ASSETS CONSIST OF:
Capital stock $2,076,801
Accumulated undistributed net
realized loss on investments (7,805)
Net unrealized appreciation
on investments 245,137
----------
Total Net Assets $2,314,133
----------
----------
Shares outstanding (250,000,000
shares of $.0001 par value authorized) 193,521
Net Asset Value, Redemption Price
and Offering Price Per Share $11.96
------
------
See notes to the financial statements.
STATEMENT OF OPERATIONS
FOR THE PERIOD JUNE 19, 2000(1)<F1> TO
SEPTEMBER 30, 2000
INVESTMENT INCOME:
Dividend income (net of foreign
taxes withheld of $2) $ 2,159
Interest income 1,971
--------
Total investment income 4,130
--------
EXPENSES:
Shareholder servicing and
accounting costs 17,472
Administration fee 7,781
Professional fees 7,072
Federal and state registration 5,720
Investment advisory fee 2,928
Custody fees 2,600
Reports to shareholders 1,664
Directors' fees and expenses 1,040
Other 520
--------
Total expenses before reimbursement 46,797
Less: Reimbursement from Adviser (41,088)
--------
Net expenses 5,709
--------
NET INVESTMENT LOSS (1,579)
--------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (6,226)
Change in unrealized
appreciation on investments 245,137
--------
Net realized and unrealized
gain on investments 238,911
--------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $237,332
--------
--------
(1)<F1> Commencement of operations.
See notes to the financial statements.
STATEMENT OF CHANGES IN NET ASSETS
JUNE 19, 2000(1)<F2>
TO
SEPTEMBER 30, 2000
------------------
OPERATIONS:
Net investment loss $ (1,579)
Net realized loss on investments (6,226)
Change in unrealized appreciation on investments 245,137
----------
Net increase in net assets from operations 237,332
----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 2,076,801
Cost of shares redeemed (100,000)
----------
Net increase in net assets from capital
share transactions 1,976,801
----------
TOTAL INCREASE IN NET ASSETS 2,214,133
NET ASSETS:
Beginning of period 100,000
----------
End of period (including undistributed net
investment income of $0) $2,314,133
----------
----------
(1)<F2> Commencement of operations.
See notes to the financial statements.
FINANCIAL HIGHLIGHTS
JUNE 19, 2000(1)<F3>
TO
SEPTEMBER 30, 2000
------------------
PER SHARE DATA:
Net asset value, beginning of period $10.00
------
Income from investment operations:
Net investment loss (0.01)(2)<F4>
Net realized and unrealized gain on investment 1.97
------
Total from investment operations 1.96
------
Net asset value, end of period $11.96
------
------
Total return 19.60%(3)<F5>
Supplemental data and ratios:
Net assets, end of period $2,314,133
Ratio of expenses to average net assets:
Before expense reimbursement 15.98%(4)<F6>
After expense reimbursement 1.95%(4)<F6>
Ratio of net investment loss to average net assets:
Before expense reimbursement (14.57)%(4)<F6>
After expense reimbursement (0.54)%(4)<F6>
Portfolio turnover rate 27.11%(3)<F5>
(1)<F3> Commencement of operations.
(2)<F4> Net investment loss per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax
differences.
(3)<F5> Not annualized.
(4)<F6> Annualized.
See notes to the financial statements.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2000
NUMBER MARKET
OF SHARES VALUE
--------- ------
COMMON STOCKS - 98.0%+<F9>
AEROSPACE - 10.9%+<F9>
200 Alliant Techsystems Inc.*<F7> $ 16,425
1,380 The Boeing Company 86,940
890 General Dynamics Corporation 55,903
1,450 Lockheed Martin Corporation 47,792
465 Northrop Grumman
Corporation 42,257
465 Orbital Sciences Corporation*<F7> 3,894
----------
253,211
----------
EDUCATION - 14.2%+<F9>
1,570 Apollo Group, Inc.*<F7> 62,604
1,700 Career Education Corporation*<F7> 75,650
1,435 click2learn.com, Inc.*<F7> 21,077
880 Corinthian Colleges, Inc.*<F7> 51,920
465 DeVry, Inc.*<F7> 17,496
2,400 Education Management
Corporation*<F7> 64,650
345 Learning Tree
International, Inc.*<F7> 16,431
1,220 Sylvan Learning
Systems, Inc.*<F7> 18,071
----------
327,899
----------
HEALTH CARE
FACILITIES - 14.3%+<F9>
2,910 Health Management
Associates, Inc.*<F7> 60,564
1,800 Province Healthcare Company*<F7> 71,888
2,915 Sunrise Assisted Living, Inc. 63,219
1,220 Tenet Healthcare Corporation*<F7> 44,378
1,060 Universal Health Services, Inc. 90,763
----------
330,812
----------
LIFE INSURANCE - 6.4%+<F9>
330 American General
Corporation 25,740
330 Jefferson-Pilot Corporation 22,399
750 Lincoln National Corporation 36,094
1,800 MetLife, Inc.*<F7> 47,137
600 Torchmark Corporation 16,688
----------
148,058
----------
OIL & GAS EXPLORATION - 13.6%+<F9>
460 Anadarko Petroleum
Corporation 30,572
895 Apache Corporation 52,917
2,045 Cross Timbers Oil Company 39,238
670 Devon Energy Corporation 40,300
1,500 EOG Resources, Inc. 58,312
465 Equitable Resources, Inc. 29,469
780 Noble Affiliates, Inc. 28,957
650 St. Mary Land &
Exploration Company 14,991
345 Stone Energy Corporation*<F7> 18,975
----------
313,731
----------
OIL & GAS REFINING
& MARKETING - 6.0%+<F9>
575 Sunoco, Inc. 15,489
1,675 Tesoro Petroleum Corporation 16,645
1,220 Tosco Corporation 38,049
880 Ultramar Diamond
Shamrock Corporation 22,330
1,330 Valero Energy Corporation 46,799
----------
139,312
----------
PHARMACEUTICALS - 13.0%+<F9>
1,220 Abbott Laboratories 58,026
350 American Home
Products Corporation 19,797
345 Elan Corporation plc - ADR*<F7> 18,889
355 Eli Lilly and Company 28,799
1,570 IVAX Corporation 72,220
1,095 Pfizer Inc. 49,207
460 SmithKline Beecham Plc 31,568
355 Watson Pharmaceuticals, Inc.*<F7> 23,031
----------
301,537
----------
SMALL CAP VALUE - 6.9%+<F9>
1,100 The Earthgrains Company 20,281
1,400 Extended Stay America, Inc.*<F7> 18,550
1,360 Precision Castparts Corp. 52,190
1,000 Pulte Corporation 33,000
1,100 Russell Corporation 17,463
600 The Men's Wearhouse, Inc.*<F7> 16,987
----------
158,471
----------
UNDERVALUED AND
UNLOVED +<F10> - 12.7%+<F9>
1,425 ACE Limited 55,931
1,100 AmerUs Group Co. 28,325
1,770 Hibernia Corporation 21,682
900 Lennar Corporation 26,719
1,425 NL Industries, Inc. 30,192
2,015 Old Republic International
Corporation 48,486
1,215 Pinnacle West Capital
Corporation 61,813
880 V.F. Corporation 21,725
----------
294,873
----------
Total Common Stocks
(Cost $2,022,767) 2,267,904
----------
PRINCIPAL
AMOUNT
---------
SHORT-TERM
INVESTMENTS - 7.5%+<F9>
VARIABLE DEMAND NOTES - 7.5%+<F9>
$61,520 Firstar Bank, 6.3700%, #<F8> 61,520
12,060 Sara Lee Corporation,
6.2200%, #<F8> 12,060
47,451 Wisconsin Corporate Central
Credit Union, 6.2900%, #<F8> 47,451
51,962 Wisconsin Electric Power
Company, 6.2352%, #<F8> 51,962
----------
172,993
----------
Total Short-Term
Investments
(Cost $172,993) 172,993
----------
TOTAL INVESTMENTS - 105.5%+<F9>
(COST $2,195,760) 2,440,897
----------
----------
*<F7> Non-income producing security.
#<F8> Variable rate security. The rates listed are as of 9/30/00.
+<F9> Calculated as a percentage of net assets.
+<F10> 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.
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. Leuthold Select
Industries Fund (the "Fund") is one of three series of the Company. The
investment objective of the Fund is capital appreciation. The Fund commenced
operations on June 19, 2000.
During the period prior to commencement of Fund operations, the Investment
Adviser reimbursed the Fund for organizational expenses of $18,519.
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 loss by $1,579 and increase accumulated
undistributed net realized loss on investments by $1,579.
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) 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:
JUNE 19, 2000
TO
SEPT. 30, 2000
--------------
Shares sold 193,501
Shares redeemed (9,980)
-------
Net increase 183,521
-------
-------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investments, other than short-term investments,
options and short positions, for the period ended September 30, 2000 were as
follows:
PURCHASES SALES
----------------------- ---------------------
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
---------- ----- ---------- -----
$0 $2,263,682 $0 $234,550
At September 30, 2000, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
Appreciation $272,357
Depreciation (35,198)
--------
Net appreciation on
investments $237,159
--------
--------
At September 30, 2000, the cost of investments for federal income tax
purposes was $2,203,738.
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 1.00% 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 1.95% 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 $3,292 of brokerage commissions.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF LEUTHOLD FUNDS, INC.
AND THE SHAREHOLDERS OF THE LEUTHOLD SELECT INDUSTRIES FUND:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Leuthold Select Industries Fund (one of the
portfolios constituting the Leuthold Funds, Inc., a Maryland corporation) as of
September 30, 2000, and the related statement of operations, the statement of
changes in net assets, and the financial highlights for the periods indicated.
These financial statements and financial highlights are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit 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 audit provides 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 Select Industries Fund of the Leuthold Funds, Inc. as of September 30,
2000, the results of its operations, the changes in its net assets, and its
financial highlights for the periods indicated, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
November 2, 2000
(LEUTHOLD SELECT INDUSTRIES 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.
