STATEMENT OF ADDITIONAL INFORMATION June 15, 2000
for LEUTHOLD SELECT INDUSTRIES FUND
GRIZZLY SHORT FUND
LEUTHOLD FUNDS, INC.
100 North Sixth Street
Suite 700A
Minneapolis, Minnesota 55403
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of Leuthold Select Industries
Fund and Grizzly Short Fund dated June 15, 2000. Requests for copies of the
Prospectus should be made by writing to Leuthold Funds, Inc., 100 North Sixth
Street, Suite 700A, Minneapolis, Minnesota 55403, Attention: Corporate
Secretary, or by calling 1-800-273-6886.
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Leuthold Funds, Inc.
TABLE OF CONTENTS
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Page No.
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FUND HISTORY AND CLASSIFICATION...............................................1
INVESTMENT RESTRICTIONS.......................................................1
INVESTMENT CONSIDERATIONS.....................................................3
DIRECTORS AND OFFICERS OF THE CORPORATION.....................................7
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS............................9
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN, TRANSFER AGENT
AND ACCOUNT SERVICES AGENT...................................................10
SERVICE PLANS................................................................14
DETERMINATION OF NET ASSET VALUE.............................................14
REDEMPTION OF SHARES.........................................................15
SYSTEMATIC WITHDRAWAL PLAN...................................................15
AUTOMATIC INVESTMENT PLAN AND TELEPHONE PURCHASES............................16
ALLOCATION OF PORTFOLIO BROKERAGE............................................16
TAXES........................................................................17
STOCKHOLDER MEETINGS.........................................................18
CAPITAL STRUCTURE............................................................19
PERFORMANCE INFORMATION......................................................20
INDEPENDENT ACCOUNTANTS......................................................21
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated June 15, 2000, and, if given or made, such
information or representations may not be relied upon as having been authorized
by Leuthold Funds, Inc.
This Statement of Additional Information does not constitute an offer
to sell securities.
(i)
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FUND HISTORY AND CLASSIFICATION
Leuthold Funds, Inc. (the "Corporation") is an open-end management
investment company consisting of three diversified portfolios, the Leuthold Core
Investment Fund, the Leuthold Select Industries Fund and the Grizzly Short Fund
(individually a "Fund" and collectively the "Funds"). This Statement of
Additional Information provides information about the Leuthold Select Industries
Fund and the Grizzly Short Fund. Leuthold Funds, Inc. is registered under the
Investment Company Act of 1940 (the "Act"). Leuthold Funds, Inc. was
incorporated as a Maryland corporation on August 30, 1995.
INVESTMENT RESTRICTIONS
The Leuthold Select Industries and the Grizzly Short Fund have adopted
the following investment restrictions which are matters of fundamental policy.
Each Fund's investment restrictions cannot be changed without approval of the
holders of the lesser of: (i) 67% of that Fund's shares present or represented
at a stockholder's meeting at which the holders of more than 50% of such shares
are present or represented; or (ii) more than 50% of the outstanding shares of
that Fund.
1. Each Fund will diversify its assets in different companies and
will not purchase securities of any issuer if, as a result of such
purchase, the Fund would own more than 10% of the outstanding voting
securities of such issuer or more than 5% of the Fund's assets would
be invested in securities of such issuer (except that up to 25% of
that value of each Fund's total assets may be invested without regard
to this limitation). This restriction does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities.
2. Neither Fund will buy securities on margin (except for such
short term credits as are necessary for the clearance of
transactions); provided, however, that each Fund may (i) borrow money
to the extent set forth in investment restriction no. 4; (ii) purchase
or sell futures contracts and options on futures contracts; (iii) make
initial and variation margin payments in connection with purchases or
sales of futures contracts or options on futures contracts; and (iv)
write or invest in put or call options.
3. Each Fund may sell securities short and write put and call
options to the extent permitted by the Act. Neither Fund has any
present intention of writing put or call options. The Leuthold Select
Industries Fund has no present intention of selling securities short.
4. Each Fund may borrow money or issue senior securities to the
extent permitted by the Act.
5. Each Fund may pledge or hypothecate its assets to secure its
borrowings. For purposes of this investment restriction assets held in
a segregated
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account or by a broker in connection with short sales effected by
a Fund are not considered to be pledged or hypothecated.
6. Neither Fund will act as an underwriter or distributor of
securities other than of its shares (except to the extent a Fund may
be deemed to be an underwriter within the meaning of the Securities
Act of 1933, as amended, in the disposition of restricted securities).
7. Neither Fund will make loans, except each Fund may enter into
repurchase agreements or acquire debt securities from the issuer or
others which are publicly distributed or are of a type normally
acquired by institutional investors and except that each Fund may make
loans of portfolio securities if any such loans are secured
continuously by collateral at least equal to the market value of the
securities loaned in the form of cash and/or securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
and provided that no such loan will be made if upon the making of that
loan more than 30% of the value of the Fund's total assets would be
the subject of such loans.
8. Neither Fund will concentrate 25% or more of its total assets
in securities of issuers in any one industry. This restriction does
not apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities.
9. Neither Fund will make investments for the purpose of
exercising control or management of any company.
10. Neither Fund will purchase or sell real estate or real estate
mortgage loans and neither Fund will make any investments in real
estate limited partnerships.
11. Neither Fund will purchase or sell commodities or commodity
contracts, except that each Fund may enter into futures contracts and
options on futures contracts. Neither Fund has any present intention
of entering into futures contracts or options on futures contracts.
12. Neither Fund will purchase or sell any interest in any oil,
gas or other mineral exploration or development program, including any
oil, gas or mineral leases.
Each Fund has adopted certain other investment restrictions which are
not fundamental policies and which may be changed by the Corporation's Board of
Directors without stockholder approval. These additional restrictions are as
follows:
1. Neither Fund will acquire or retain any security issued by a
company, an officer or director of which is an officer or director of
the Corporation or an officer, director or other affiliated person of
any Fund's investment adviser.
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2. Neither Fund will purchase illiquid securities if, as a result
of such purchase, more than 5% of the value of its total assets would
be invested in such securities.
3. Neither Fund will purchase the securities of other investment
companies except: (a) as part of a plan of merger, consolidation or
reorganization approved by the stockholders of such Fund; (b)
securities of registered open-end investment companies; or (c)
securities of registered closed-end investment companies on the open
market where no commission results, other than the usual and customary
broker's commission. No purchases described in (b) and (c) will be
made if as a result of such purchases (i) a Fund and its affiliated
persons would hold more than 3% of any class of securities, including
voting securities, of any registered investment company; (ii) more
than 5% of such Fund's net assets would be invested in shares of any
one registered investment company; and (iii) more than 25% of such
Fund's net assets would be invested in shares of registered investment
companies.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is made.
If these restrictions are adhered to at the time an investment is made, and such
percentage subsequently changes as a result of changing market values or some
similar event, no violation of a Fund's fundamental restrictions will be deemed
to have occurred. Any changes in a Fund's investment restrictions made by the
Board of Directors will be communicated to stockholders prior to their
implementation.
INVESTMENT CONSIDERATIONS
The prospectus for the Leuthold Select Industries Fund and the Grizzly
Short Fund describe their principal investment strategies and risks. This
section expands upon that discussion and also discusses non-principal investment
strategies and risks.
Money Market Instruments
The money market instruments in which the Funds may invest include
conservative fixed-income securities, such as U.S. Treasury Bills, commercial
paper rated A-1 by Standard & Poor's Corporation ("S&P"), or Prime-1 by Moody's
Investors Service, Inc. ("Moody's"), commercial paper master notes and
repurchase agreements. Commercial paper master notes are unsecured promissory
notes issued by corporations to finance short-term credit needs. They permit a
series of short-term borrowings under a single note. Borrowings under commercial
paper master notes are payable in whole or in part at any time upon demand, may
be prepaid in whole or in part at any time, and bear interest at rates which are
fixed to known lending rates and automatically adjusted when such known lending
rates change. There is no secondary market for commercial paper master notes.
The Funds' investment adviser will monitor the creditworthiness of the issuer of
the commercial paper master notes while any borrowings are outstanding.
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Repurchase agreements are agreements under which the seller of a
security agrees at the time of sale to repurchase the security at an agreed time
and price. Neither Fund will enter into repurchase agreements with entities
other than banks or invest over 5% of its net assets in repurchase agreements
with maturities of more than seven days. If a seller of a repurchase agreement
defaults and does not repurchase the security subject to the agreement, the Fund
will look to the collateral security underlying the seller's repurchase
agreement, including the securities subject to the repurchase agreement, for
satisfaction of the seller's obligation to the Fund. In such event, the Fund
might incur disposition costs in liquidating the collateral and might suffer a
loss if the value of the collateral declines. In addition, if bankruptcy
proceedings are instituted against a seller of a repurchase agreement,
realization upon the collateral may be delayed or limited.
Foreign Securities
The Leuthold Select Industries Fund may invest in securities of
foreign issuers traded in the U.S. securities markets, either directly or
through American Depository Receipts ("ADRs"). Investments in foreign securities
involve special risks and considerations that are not present when the Fund
invests in domestic securities. The Grizzly Short Fund may sell short ADRs.
There is often less information publicly available about a foreign
issuer than about a U.S. issuer. Foreign issuers generally are not subject to
accounting, auditing and financial reporting standards and practices comparable
to those in the United States.
ADR facilities may be either "sponsored" or "unsponsored." While
similar, distinctions exist relating to the rights and duties of ADR holders and
market practices. A depository may establish an unsponsored facility without the
participation by or consent of the issuer of the deposited securities, although
a letter of non-objection from the issuer is often requested. Holders of
unsponsored ADRs generally bear all the costs of such facility, which can
include deposit and withdrawal fees, currency conversion fees and other service
fees. The depository of an unsponsored facility may be under no duty to
distribute shareholder communications from the issuer or pass through voting
rights. Issuers of unsponsored ADRs are not obligated to disclose material
information in the U.S. and, therefore, there may not be a correlation between
such information and the market value of the ADR. Sponsored facilities enter
into an agreement with the issuer that sets out rights and duties of the issuer,
the depository and the ADR holder. This agreement also allocates fees among the
parties. Most sponsored agreements also provide that the depository will
distribute shareholder notices, voting instruments and other communications. The
Leuthold Select Industries Fund may invest in sponsored and unsponsored ADRs and
the Grizzly Short Fund may sell short sponsored and unsponsored ADRs.
Short Sales
The Grizzly Short Fund will seek to realize additional gains through
effecting short sales of securities. Short selling involves the sale of borrowed
securities. At the time a short sale is effected, the Fund incurs an obligation
to replace the security borrowed at
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whatever its price may be at the time the Fund purchases it for delivery to the
lender. The price at such time may be more or less than the price at which the
security was sold by the Fund. Until the security is replaced, the Fund is
required to pay the lender amounts equal to any dividend or interest which
accrue during the period of the loan. To borrow the security, the Fund also may
be required to pay a premium, which would increase the cost of the security
sold. The proceeds of the short sale will be retained by the broker, to the
extent necessary to meet margin requirements, until the short position is
closed. Until the Grizzly Short Fund closes its short position or replaces the
borrowed security, the Fund will: (a) maintain cash or liquid securities at such
a level that the amount so maintained plus the amount deposited with the broker
as collateral will equal the current value of the security sold short; or (b)
otherwise cover the Fund's short position. For example if the Fund believes the
price of the stock of XYZ Corp. (which is currently $50 per share) will decline,
it will borrow shares of XYZ Corp. from a securities lender and then sell the
borrowed shares in the open market. Later the Fund will purchase shares of XYZ
Corp. in the open market to return to the securities lender. If it purchases
shares of XYZ Corp. for less than $50 per share, it will have realized a gain,
and if it purchases shares of XYZ Corp. for more than $50 per share, it will
have realized a loss. The Fund's goal when effecting short sales is to "Sell
high and Buy low."
Both Funds may make short sales "against the box" (i.e. when a
security identical to or convertible or exchangeable into one owned by the Fund
is borrowed and sold short). Selling short "against the box" is not a principal
investment strategy of either Fund.
Registered Investment Companies
Each Fund may invest up to 25% of its net assets in shares of
registered investment companies. Neither Fund will purchase or otherwise acquire
shares of any registered investment company (except as part of a plan of merger,
consolidation or reorganization approved by the stockholders of the Fund) if (a)
that Fund and its affiliated persons would own more than 3% of any class of
securities of such registered investment company or (b) more than 5% of its net
assets would be invested in the shares of any one registered investment company.
If a Fund purchases more than 1% of any class of security of a registered
open-end investment company, such investment will be considered an illiquid
investment.
Any investment in a registered investment company involves investment
risk. Additionally an investor could invest directly in the registered
investment companies in which the Funds invest. By investing indirectly through
a Fund, an investor bears not only his or her proportionate share of the
expenses of the Fund (including operating costs and investment advisory fees)
but also indirect similar expenses of the registered investment companies in
which the Fund invests. An investor may also indirectly bear expenses paid by
registered investment companies in which a Fund invests related to the
distribution of such registered investment company's shares.
Under certain circumstances an open-end investment company in which a
Fund invests may determine to make payment of a redemption by the Fund (wholly
or in part) by a
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distribution in kind of securities from its portfolio, instead of in cash. As a
result, the Fund may hold such securities until its investment adviser
determines it appropriate to dispose of them. Such disposition will impose
additional costs on the Fund.
Investment decisions by the investment advisers to the registered
investment companies in which the Funds invest are made independently of the
Funds and their investment adviser. At any particular time, one registered
investment company in which a Fund invests may be purchasing shares of an issuer
whose shares are being sold by another registered investment company in which
the Fund invests. As a result, the Fund would incur certain transactional costs
without accomplishing any investment purpose.
Illiquid Securities
Each Fund may invest up to 5% of its net assets in securities for
which there is no readily available market ("illiquid securities"). The 5%
limitation includes securities whose disposition would be subject to legal
restrictions ("restricted securities"). Illiquid and restricted securities often
have a market value lower than the market price of unrestricted securities of
the same issuer and are not readily marketable without some time delay. This
could result in a Fund being unable to realize a favorable price upon
disposition of such securities and in some cases might make disposition of such
securities at the time desired by the Fund impossible.
Lending Portfolio Securities
In order to generate additional income, each Fund may lend portfolio
securities constituting up to 30% of its total assets to unaffiliated
broker-dealers, banks or other recognized institutional borrowers of securities,
provided that the borrower at all times maintains cash, U.S. government
securities or equivalent collateral or provides an irrevocable letter of credit
in favor of the Fund equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the lending Fund an amount equivalent to any dividends or interest
paid on such securities, and the Fund may receive an agreed-upon amount of
interest income from the borrower who delivered equivalent collateral or
provided a letter of credit. Loans are subject to termination at the option of
the lending Fund or the borrower. The lending Fund may pay reasonable
administrative and custodial fees in connection with a loan of portfolio
securities and may pay a negotiated portion of the interest earned on the cash
or equivalent collateral to the borrower or placing broker. The lending Fund
does not have the right to vote securities on loan, but could terminate the loan
and regain the right to vote if that were considered important with respect to
the investment.
The primary risk in securities lending is a default by the borrower
during a sharp rise in price of the borrowed security resulting in a deficiency
in the collateral posted by the borrower. The Funds will seek to minimize this
risk by requiring that the value of the securities loaned will be computed each
day and additional collateral be furnished each day if required.
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Borrowing
Each Fund is authorized to borrow money from banks but may not borrow
money for investment purposes. Neither Fund will purchase any portfolio
securities or effect short sales while any borrowed amounts remain outstanding.
Typically, if a Fund borrows money, it will be for the purpose of facilitating
portfolio management by enabling the Fund to meet redemption requests when the
liquidation of portfolio investments would be inconvenient or disadvantageous.
If a Fund's borrowing exceeds 5% of its net assets or if not repaid within sixty
days, it must maintain asset coverage (total assets less liabilities exclusive
of borrowings) of 300% of all amounts borrowed. If, at any time, the value of a
Fund's assets should fail to meet this 300% coverage test, the Fund within three
business days will reduce the amount of the Fund's borrowings to the extent
necessary to meet this 300% coverage. Maintenance of this percentage limitation
may result in the sale of portfolio securities at a time when investment
considerations otherwise indicate that it would be disadvantageous to do so.
Portfolio Turnover
Each Fund's annual portfolio turnover rate indicates changes in the
Fund's portfolio and is calculated by dividing the lesser of purchases or sales
of securities (excluding securities having maturities at acquisition of one year
or less) for the fiscal year by the monthly average of the value of the
portfolio securities (excluding securities having maturities at acquisition of
one year or less) owned by the Fund during the fiscal year. Both the Leuthold
Select Industries Fund and the Grizzly Short Fund anticipate that their annual
portfolio turnover rates will exceed 100%.
DIRECTORS AND OFFICERS OF THE CORPORATION
As a Maryland corporation, the business and affairs of the Corporation
are managed by its officers under the direction of its Board of Directors. The
name, age, address, principal occupation(s) during the past five years, and
other information with respect to each of the directors and officers of the
Corporation are as follows:
*Steven C. Leuthold -- Director, President and Treasurer. Mr.
Leuthold, 62, is the chief executive officer of the managing member of Leuthold
Weeden Capital Management, LLC (the "Adviser"). He has also been a Portfolio
Manager for the predecessors to the Adviser, Leuthold & Anderson, Inc. (since
1987) and Leuthold, Weeden & Associates, L.P. (since 1991), and Chairman of The
Leuthold Group since November, 1981. Mr. Leuthold graduated from the University
of Minnesota with a B.S. in History in 1960. His address is c/o Leuthold Weeden
Capital Management, LLC, 100 North Sixth Street, Suite 700A, Minneapolis, MN
55403.
*Charles D. Zender -- Director. Mr. Zender, 54, has been Managing
Director of The Leuthold Group since January, 1991. Prior to such time, he
served as a
------------------
* Messrs. Leuthold and Zender are "interested persons" of the Corporation
(as defined in the Act).
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marketing/sales executive of The Leuthold Group since May, 1988. Mr. Zender
graduated from the University of Northern Iowa with a B.A. in
Accounting/Business Administration in 1970. His address is c/o Leuthold Weeden
Capital Management, LLC, 100 North Sixth Street, Suite 700A, Minneapolis, MN
55403.
John S. Chipman -- Director. Mr. Chipman, 73, has been Regent's
Professor of Economics at the University of Minnesota since 1981. He was a Guest
Professor at the University of Konstanz, Germany from 1986 to 1991 and was
awarded an honorary doctorate from such institution in 1991. Mr. Chipman
received his Ph.D. in Economics from Johns Hopkins University in 1950. His
address is c/o Leuthold Weeden Capital Management, LLC, 100 North Sixth Street,
Suite 700A, Minneapolis, MN 55403.
Lawrence L. Horsch -- Director. Mr. Horsch, 65, has been a member of
the Board of Directors of Boston Scientific Corp., a public company engaged in
developing, producing and marketing medical devices, since February, 1995, when
SCIMED Life Systems, Inc., a medical products company he helped organize in
1971, merged with Boston Scientific Corp. Prior to such merger, Mr. Horsch
served in various capacities with SCIMED. Life Systems, Inc., including Acting
Chief Financial Officer from 1994 to 1995, Chairman of the Board from 1977 to
1994, and as a director from 1977 to 1995. He has also served as Chairman of
Eagle Management & Financial Corp., a management consulting firm, since 1990.
Mr. Horsch attended the College of St. Thomas and Northwestern University, where
he received an M.B.A. in Finance in 1958. His address is c/o Leuthold Weeden
Capital Management, LLC, 100 North Sixth Street, Suite 700A, Minneapolis, MN
55403.
Paul M. Kelnberger -- Director. Mr. Kelnberger, 56, joined Johnson,
West & Co., PLC, a public accounting firm, in 1969 and has been a partner since
1975. He is also a director of Video Update, Inc., a public company engaged in
owning, operating and franchising video rental superstores. Mr. Kelnberger is a
Certified Public Accountant (CPA). His address is c/o Johnson, West & Co., PLC,
336 Robert Street North, Suite 1400, St. Paul, MN 55101.
Edward C. Favreau - Vice President. Mr. Favreau, 48, has been Manager
of Marketing and Sales of the Adviser since July, 1999. Prior to joining the
Adviser, Mr. Favreau served as Vice President and Sales Manager of U.S. Bancorp
Investments Inc. (formerly First Bank Investment Services) from June, 1993 until
July, 1999. Prior to that time Mr. Favreau served in various capacities for U.S.
Bank from July, 1988 until June, 1993. Mr. Favreau graduated from Mankato State
University with a B.S. in Business Administration in 1977. His address is c/o
Leuthold Weeden Capital Management, LLC, 100 North Sixth Street, Suite 700A,
Minneapolis, MN 55403.
David R. Cragg - Vice President and Secretary. Mr. Cragg, 31, has been
Manager of Compliance of the Adviser since January, 1999. Prior to joining the
Adviser, Mr. Cragg served as Operations Manager of Piper Trust Company from
November, 1997 until January, 1999. Prior to that time, Mr. Cragg served in
various capacities for Piper Trust Company from February, 1993 until November,
1997. Mr. Cragg graduated from Westmont
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College in 1991 with a B.A. in Economics. His address is c/o Leuthold Weeden
Capital Management, LLC, 100 North Sixth Street, Suite 700A, Minneapolis, MN
55403.
The Corporation's standard method of compensating directors is to pay
each director who is not an interested person of the Corporation a fee of $500
for each meeting of the Board of Directors attended. The Corporation also may
reimburse its directors for travel expenses incurred in order to attend meetings
of the Board of Directors.
The table below sets forth the compensation paid by the Corporation to
each of the directors of the Corporation during the fiscal year ended September
30, 1999:
<TABLE>
COMPENSATION TABLE
<CAPTION>
Total
Compensation
Estimated from Corporation
Aggregate Pension or Retirement Annual and Fund
Name of Compensation Benefits Accrued As Benefits Upon Complex Paid to
Person from Corporation Part of Fund Expenses Retirement Directors
------ ---------------- --------------------- ---------- ---------
<S> <C> <C> <C> <C>
Steven C. Leuthold $0 $0 $0 $0
Charles D. Zender $0 $0 $0 $0
John S. Chipman $2,000 $0 $0 $2,000
Lawrence L. Horsch $2,000 $0 $0 $2,000
Paul M. Kelnberger $2,000 $0 $0 $2,000
</TABLE>
The Corporation and the Adviser have adopted a code of ethics pursuant
to Rule 17j-1 under the Act. This code of ethics permits personnel subject
thereto to invest in securities, including securities that may be purchased or
held by a Fund. This code of ethics prohibits, among other things, persons
subject thereto from purchasing or selling securities if they know at the time
of such purchase or sale that the security is being considered for purchase or
sale by a Fund or is being purchased or sold by a Fund.
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Set forth below are the names and addresses of all holders of the
shares of the Leuthold Core Investment Fund who as of February 29, 2000 owned of
record, or to the knowledge of the Corporation, beneficially owned, more than 5%
of such Fund's then outstanding shares, as well as the number of shares of such
Fund beneficially owned by all officers and directors of the Corporation as a
group. (The Leuthold Select Industries Fund and Grizzly Short Fund will commence
operations on June 15, 2000.)
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Name and Address
of Beneficial Owner Number of Shares Percent of Class
------------------- ---------------- ----------------
Charles Schwab & Co., Inc. (1)
101 Montgomery Street
San Francisco, CA 94104-4122 886,771 15.00%
National Investor Services Corp. (1)
55 Water Street
32nd Floor
New York, NY 10041-3299 470,652 7.96%
Fidelity Investments (1)
Institutional Operations Co.
100 Magellan Way
Covington, KY 41015-1987 428,569 7.25%
American Express Trust Company, Trustee
Gray, Plant, Mooty, Mooty & Bennett
Retirement Savings Plan
33 South Sixth Street
Suite 3400
Minneapolis, MN 55402-3796 415,804 7.03%
Donaldson, Lufkin & Jenrette Securities
Corporation
Attn: Mutual Funds
P. O. Box 2052
Jersey City, NJ 07303-2052 412,657 6.98%
Officers and Directors as a Group (8 persons) 136,007(2)(3) 2.30%
-------------------------
(1) The shares held by Charles Schwab & Co., Inc., National Investor
Services Corp., Fidelity Investments and Donaldson, Lufkin & Jenrette
Securities Corporation were owned of record only.
(2) Includes 16,822 shares held in the Leuthold & Anderson, Inc.
Retirement Plan.
(3) Includes 79,016 shares held by the Steven Leuthold Trust, for which
Albert Andrews, Jr. serves as sole trustee, and 13,932 shares held by
the Steven C. Leuthold Family Foundation, a charitable trust
controlled by Steven C. Leuthold.
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNT SERVICES AGENT
The Adviser
The investment adviser to each Fund is Leuthold Weeden Capital
Management, LLC, 100 North Sixth Street, Suite 700A, Minneapolis, Minnesota
55403 (the "Adviser").
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Pursuant to the investment advisory agreements entered into between the
Corporation and the Adviser with respect to each Fund (the "Advisory
Agreements"), the Adviser furnishes continuous investment advisory services to
the Funds. The Adviser is controlled by Steven C. Leuthold who is the chief
executive officer and the principal shareholder of the managing member of the
Adviser. The Adviser supervises and manages the investment portfolio of each
Fund and, subject to such policies as the Board of Directors of the Corporation
may determine, directs the purchase or sale of investment securities in the
day-to-day management of each Fund's investment portfolio. Under the Advisory
Agreements, the Adviser, at its own expense and without reimbursement from the
Funds, furnishes office space and all necessary office facilities, equipment and
executive personnel for managing the investments of the Funds and pays salaries
and fees of all officers and directors of the Corporation (except the fees paid
to directors who are not interested persons of the Adviser).
Each Fund pays all of its expenses not assumed by the Adviser
including, but not limited to, the costs of preparing and printing its
registration statements required under the Securities Act of 1933 and the Act
and any amendments thereto, the expenses of registering its shares with the
Securities and Exchange Commission and in the various states, the printing and
distribution cost of prospectuses mailed to existing stockholders, the cost of
director and officer liability insurance, reports to stockholders, reports to
government authorities and proxy statements, interest charges, brokerage
commissions, and expenses incurred in connection with portfolio transactions.
Each Fund also pays the fees of directors who are not officers of the
Corporation, salaries of administrative and clerical personnel, association
membership dues, auditing and accounting services, fees and expenses of any
custodian or trustees having custody of assets of the Funds, expenses of
calculating the net asset value and repurchasing and redeeming shares, and
charges and expenses of dividend disbursing agents, registrars, and share
transfer agents, including the cost of keeping all necessary stockholder records
and accounts and handling any problems relating thereto.
The Adviser has undertaken to reimburse each Fund to the extent that
the aggregate annual operating expenses, including the investment advisory fee
and the administration fee but excluding interest, reimbursement payments to
securities lenders for dividend and interest payments on securities sold short,
taxes, brokerage commissions and other costs incurred in connection with the
purchase or sale of portfolio securities, and extraordinary items, exceed 1.95%
of the average net assets of the Leuthold Select Industries Fund and 2.50% of
the average net assets of the Grizzly Short Fund for such year, as determined by
valuations made as of the close of each business day of the year. Each Fund
monitors its expense ratio on a monthly basis. If the accrued amount of the
expenses of a Fund exceeds the applicable expense limitation, the Fund creates
an account receivable from the Adviser for the amount of such excess. In such a
situation the monthly payment of the Adviser's fee will be reduced by the amount
of such excess (and if the amount of such excess in any month is greater than
the monthly payment of the Adviser's fee, the Adviser will pay the Fund the
amount of such difference), subject to adjustment month by month during the
balance of the Fund's fiscal year if accrued expenses thereafter fall below this
limit. If, in any of the three fiscal years following any fiscal year in which
the Adviser has reimbursed a Fund for excess expenses, such Fund's expenses, as
a percentage of such Fund's average net assets, are less than the applicable
expense ratio limit, such Fund shall repay to the Adviser the
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amount the Adviser reimbursed the Fund; provided, however, that the Fund's
expense ratio shall not exceed the applicable limit.
Each Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Corporation or by the vote of a majority (as defined in the
Act) of the outstanding shares of the applicable Fund, and (ii) by the vote of a
majority of the directors of the Corporation who are not parties to the Advisory
Agreement or interested persons of the Adviser, cast in person at a meeting
called for the purpose of voting on such approval. Each Advisory Agreement
provides that it may be terminated at any time without the payment of any
penalty, by the Board of Directors of the Corporation or by vote of the majority
of the applicable Fund's stockholders on sixty (60) days' written notice to the
Adviser, and by the Adviser on the same notice to the Corporation, and that it
shall be automatically terminated if it is assigned.
Each Advisory Agreement provides that the Adviser shall not be liable
to the Corporation or its stockholders for anything other than willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties. Each Advisory Agreement also provides that the Adviser
and its officers, directors and employees may engage in other businesses, devote
time and attention to any other business whether of a similar or dissimilar
nature, and render services to others.
The Administrator
The administrator to the Corporation is Firstar Mutual Fund Services,
LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202 (the "Administrator").
Pursuant to separate Fund Administration Servicing Agreements entered into
between the Corporation and the Administrator relating to each Fund (the
"Administration Agreements"), the Administrator prepares and maintains the
books, accounts and other documents required by the Act, responds to stockholder
inquiries, prepares each Fund's financial statements and tax returns, prepares
certain reports and filings with the SEC and with state blue sky authorities,
furnishes statistical and research data, clerical, accounting and bookkeeping
services and stationery and office supplies, keeps and maintains each Fund's
financial and accounting records and generally assists in all aspects of each
Fund's operations. The Administrator, at its own expense and without
reimbursement from the Funds, furnishes office space and all necessary office
facilities, equipment and executive personnel for performing the services
required to be performed by it under the Administration Agreements. For the
foregoing, the Administrator receives from each Fund a fee, paid monthly at an
annual rate of .07% of the first $200,000,000 of the Fund's average net assets,
.06% of the next $500,000,000 of the Fund's average net assets, and .04% of the
Fund's average net assets in excess of $700,000,000. Notwithstanding the
foregoing, the minimum annual fee payable to the Administrator is $25,000 for
the Leuthold Select Industries Fund and $35,000 for the Grizzly Short Fund.
Each Administration Agreement will remain in effect until terminated
by either party. The Administration Agreements may be terminated at any time,
without the payment of any penalty, by the Board of Directors of the Corporation
upon the giving of ninety (90) days'
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written notice to the Administrator, or by the Administrator upon the giving of
ninety (90) days' written notice to the Corporation.
Under the Administration Agreements, the Administrator shall exercise
reasonable care and is not liable for any error or judgment or mistake of law or
for any loss suffered by the Corporation in connection with its performance
under the Administration Agreements, except a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Administrator in the
performance of its duties under the Administration Agreements.
The Custodian
Firstar Bank, N.A., an affiliate of Firstar Mutual Fund Services, LLC,
serves as custodian of the Corporation's assets pursuant to Custody Agreements.
Under the Custody Agreements, Firstar Bank, N.A. has agreed to (i) maintain a
separate account in the name of each Fund, (ii) make receipts and disbursements
of money on behalf of each Fund, (iii) collect and receive all income and other
payments and distributions on account of each Fund's portfolio investments, (iv)
respond to correspondence from stockholders, security brokers and others
relating to its duties, and (v) make periodic reports to each Fund concerning
each Fund's operations. Firstar Bank, N.A. does not exercise any supervisory
function over the purchase and sale of securities.
The Transfer Agent
Firstar Mutual Fund Services, LLC serves as transfer agent and
dividend disbursing agent for the Funds under a Shareholder Servicing Agent
Agreement. As transfer and dividend disbursing agent, Firstar Mutual Fund
Services, LLC has agreed to (i) issue and redeem shares of each Fund, (ii) make
dividend and other distributions to stockholders of each Fund, (iii) respond to
correspondence by Fund stockholders and others relating to its duties, (iv)
maintain stockholder accounts, and (v) make periodic reports to each Fund.
The Accounting Servicing Agent
In addition the Corporation has entered into separate Fund Accounting
Servicing Agreements with Firstar Mutual Fund Services, LLC relating to each
Fund pursuant to which Firstar Mutual Fund Services, LLC has agreed to maintain
the financial accounts and records of each Fund and provide other accounting
services to the Funds. For its accounting services, Firstar Mutual Fund
Services, LLC is entitled to receive fees, payable monthly, (i) from the
Leuthold Select Industries Fund based on the total annual rate of $30,000 for
the first $100 million of average net assets, .0125% on the next $200 million of
average net assets, and .0075% on average net assets exceeding $300 million; and
(ii) from the Grizzly Short Fund based on the total annual rate of $39,000 for
the first $100 million of average net assets, .02% on the next $200 million of
average net assets, and .01% on average net assets in excess of $300 million.
Firstar Mutual Fund Services, LLC is also entitled to certain out of pocket
expenses, including pricing expenses.
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SERVICE PLANS
Each of the Funds has adopted a service plan pursuant to which it may
pay fees of up to 0.25% of its average daily net assets to broker-dealers,
financial institutions or other service providers that provide services to
investors in the Funds. Payments under these plans are authorized by the
officers of the Corporation.
The service plan may be terminated by a Fund at any time upon a vote
of the directors of the Corporation who are not interested persons of the
Corporation and who have no direct or financial interest in the plans and will
be terminated if its continuance is not approved at least annually by such
directors.
The Board of Directors reviews quarterly the amount and purposes of
expenditures pursuant to the service plans as reported to it by the officers of
the Corporation.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund is determined as of the close of
regular trading (currently 4:00 p.m. Eastern time) on each day the New York
Stock Exchange is open for trading. The New York Stock Exchange is open for
trading Monday through Friday except New Year's Day, Dr. Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, when any of the aforementioned
holidays falls on a Saturday, the New York Stock Exchange will not be open for
trading on the preceding Friday and when any such holiday falls on a Sunday, the
New York Stock Exchange will not be open for trading on the succeeding Monday,
unless unusual business conditions exist, such as the ending of a monthly or the
yearly accounting period. The New York Stock Exchange also may be closed on
national days of mourning.
Common stocks that are listed on a securities exchange are valued at
the last quoted sales price on the day the valuation is made. Price information
on listed stocks is taken from the exchange where the security is primarily
traded. Securities which are listed on an exchange but which are not traded on
the valuation date are valued at the most recent bid prices. Securities sold
short which are listed on an exchange but which are not traded on the valuation
date are valued at the average of the current bid and asked prices. Unlisted
securities for which market quotations are readily available are valued at the
latest quoted bid price. Securities sold short which are not listed on an
exchange but for which market quotations are readily available are valued at
average of the current bid and asked prices. Other assets, including investments
in open-end investment companies, and securities for which no quotations are
readily available are valued at fair value as determined in good faith by the
Directors. Short-term instruments (those with remaining maturities of 60 days or
less) are valued at amortized cost, which approximates market.
The Funds have adopted procedures pursuant to Rule 17a-7 under the
Investment Company Act of 1940 pursuant to which the Funds may effect a purchase
and sale transaction between Funds, with an affiliated person of the Funds (or
an affiliated person of
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such an affiliated person) in which a Fund issues its shares in exchange for
securities of a type which are permitted investments for such Fund. For purposes
of determining the number of shares to be issued, the securities to be exchanged
will be valued in accordance with the requirements of Rule 17a-7.
REDEMPTION OF SHARES
The Funds reserve the right to suspend or postpone redemptions during
any period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the Securities and Exchange Commission, or that the Exchange is
closed for other than customary weekend and holiday closings; (b) the Securities
and Exchange Commission has by order permitted such suspension; (c) an
emergency, as determined by the Securities and Exchange Commission, exists,
making disposal of portfolio securities or valuation of net assets of the Funds
not reasonably practicable.
SYSTEMATIC WITHDRAWAL PLAN
An investor who owns shares of any Fund worth at least $10,000 at the
current net asset value may, by completing an application which may be obtained
from the Funds or Firstar Mutual Fund Services, LLC, create a Systematic
Withdrawal Plan from which a fixed sum will be paid to the investor at regular
intervals. To establish the Systematic Withdrawal Plan, the investor deposits
Fund shares with the Corporation and appoints it as agent to effect redemptions
of Fund shares held in the account for the purpose of making monthly or
quarterly withdrawal payments of a fixed amount to the investor out of the
account. Fund shares deposited by the investor in the account need not be
endorsed or accompanied by a stock power if registered in the same name as the
account; otherwise, a properly executed endorsement or stock power, obtained
from any bank, broker-dealer or the Corporation is required. The investor's
signature should be guaranteed by a bank, a member firm of a national stock
exchange or other eligible guarantor.
The minimum amount of a withdrawal payment is $100. These payments
will be made from the proceeds of periodic redemptions of shares in the account
at net asset value. Redemptions will be made in accordance with the schedule
(e.g., monthly, bimonthly [every other month], quarterly or yearly, but in no
event more than monthly) selected by the investor. If a scheduled redemption day
is a weekend day or a holiday, such redemption will be made on the next
preceding business day. Establishment of a Systematic Withdrawal Plan
constitutes an election by the investor to reinvest in additional Fund shares,
at net asset value, all income dividends and capital gains distributions payable
by the Fund on shares held in such account, and shares so acquired will be added
to such account. The investor may deposit additional Fund shares in his account
at any time.
Withdrawal payments cannot be considered as yield or income on the
investor's investment, since portions of each payment will normally consist of a
return of capital. Depending on the size or the frequency of the disbursements
requested, and the fluctuation in the value of the Fund's portfolio, redemptions
for the purpose of making such disbursements may reduce or even exhaust the
investor's account.
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The investor may vary the amount or frequency of withdrawal payments,
temporarily discontinue them, or change the designated payee or payee's address,
by notifying Firstar Mutual Fund Services, LLC in writing thirty (30) days prior
to the next payment.
AUTOMATIC INVESTMENT PLAN AND TELEPHONE PURCHASES
The Funds offer an automatic investment option pursuant to which money
will be moved from a stockholder's bank account to the stockholder's Fund
account on the schedule (e.g., monthly, bimonthly [every other month], quarterly
or yearly) the stockholder selects. The minimum transaction amount is $50.
The Funds offer a telephone purchase option pursuant to which money
will be moved from the stockholder's bank account to the stockholder's Fund
account upon request. Only bank accounts held at domestic financial institutions
that are automated Clearing House (ACH) members can be used for telephone
transactions. To have Fund shares purchased at the net asset value determined as
of the close of regular trading on a given date, Firstar Mutual Fund Services,
LLC must receive both the purchase order and payment by Electronic Funds
Transfer through the ACH System before the close of regular trading on such
date. Most transfers are completed within 3 business days. The minimum amount
that can be transferred by telephone is $100.
ALLOCATION OF PORTFOLIO BROKERAGE
Each Fund's securities trading and brokerage policies and procedures
are reviewed by and subject to the supervision of the Corporation's Board of
Directors. Decisions to buy and sell securities for each Fund are made by the
Adviser subject to review by the Corporation's Board of Directors. In placing
purchase and sale orders for portfolio securities for each Fund, it is the
policy of the Adviser to seek the best execution of orders at the most favorable
price in light of the overall quality of brokerage and research services
provided, as described in this and the following paragraphs. Many of these
transactions involve payment of a brokerage commission by a Fund. In some cases,
transactions are with firms who act as principals for their own accounts. In
selecting brokers to effect portfolio transactions, the determination of what is
expected to result in best execution at the most favorable price involves a
number of largely judgmental considerations. Among these are the Adviser's
evaluation of the broker's efficiency in executing and clearing transactions,
block trading capability (including the broker's willingness to position
securities) and the broker's reputation, financial strength and stability. The
most favorable price to a Fund means the best net price without regard to the
mix between purchase or sale price and commission, if any. Over-the-counter
securities may be purchased and sold directly with principal market makers who
retain the difference in their cost in the security and its selling price. In
some instances, the Adviser feels that better prices are available from
non-principal market makers who are paid commissions directly. Although the
Funds do not initially intend to market their shares through intermediary
broker-dealers, each Fund may place portfolio orders with broker-dealers who
recommend the purchase of Fund shares to clients (if the Adviser believes the
commissions and transaction quality are comparable to that available from other
brokers) and may allocate portfolio brokerage on that basis.
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The Adviser may allocate brokerage to Weeden & Co., L.P. ("Weeden")
but only if the Adviser reasonably believes the commission and transaction
quality are comparable to that available from other qualified brokers. Steven C.
Leuthold is a limited partner of Weeden. Weeden's institutional investment
research division is designated The Leuthold Group, in which Steven C. Leuthold
has a separate 50% pecuniary interest. An affiliate of Weeden, Weeden Investors,
L.P., owns 10% of the membership interests of the Adviser. Under the Act, Weeden
is prohibited from dealing with the Fund as a principal in the purchase and sale
of securities. Weeden, when acting as a broker for the Fund in any of its
portfolio transactions executed on a securities exchange of which Weeden is a
member, will act in accordance with the requirements of Section 11(a) of the
Securities Exchange Act of 1934 and the rules of such exchanges.
In allocating brokerage business for each Fund, the Adviser also takes
into consideration the research, analytical, statistical and other information
and services provided by the broker, such as general economic reports and
information, reports or analyses of particular companies or industry groups,
market timing and technical information, and the availability of the brokerage
firm's analysts for consultation. While the Adviser believes these services have
substantial value, they are considered supplemental to the Adviser's own efforts
in the performance of its duties under the Advisory Agreements. Other clients of
the Adviser may indirectly benefit from the availability of these services to
the Adviser, and the Funds may indirectly benefit from services available to the
Adviser as a result of transactions for other clients. The Advisory Agreements
provide that the Adviser may cause the Funds to pay a broker which provides
brokerage and research services to the Adviser a commission for effecting a
securities transaction in excess of the amount another broker would have charged
for effecting the transaction, if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of brokerage and
research services provided by the executing broker viewed in terms of either the
particular transaction or the Adviser's overall responsibilities with respect to
the Funds and the other accounts as to which he exercises investment discretion.
Weeden will not receive higher commissions because of research services
provided.
TAXES
Each Fund annually will endeavor to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. If
a Fund fails to qualify as a regulated investment company under Subchapter M in
any fiscal year, it will be treated as a corporation for federal income tax
purposes. As such the Fund would be required to pay income taxes on its net
investment income and net realized capital gains, if any, at the rates generally
applicable to corporations. Stockholders of that Fund would not be liable for
income tax on the Fund's net investment income or net realized capital gains in
their individual capacities. Distributions to stockholders, whether from that
Fund's net investment income or net realized capital gains, would be treated as
taxable dividends to the extent of current or accumulated earnings and profits
of the Fund.
Dividends from a Fund's net investment income and distributions from a
Fund's net realized short-term capital gains are taxable to stockholders as
ordinary income, whereas
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distributions from a Fund's net realized long-term capital gains are taxable as
long-term capital gain regardless of the stockholder's holding period for the
shares. Such dividends and distributions are taxable to stockholders whether
received in cash or in additional shares. The 70% dividends-received deduction
for corporations will apply to dividends from a Fund's net investment income,
subject to proportionate reductions if the aggregate dividends received by that
Fund from domestic corporations in any year are less than 100% of the net
investment company taxable income distributions made by the Fund. Gains on short
sales generally are treated as short-term capital gains.
Any dividend or capital gains distribution paid shortly after a
purchase of Fund shares will have the effect of reducing the per share net asset
value of such shares by the amount of the dividend or distribution. Furthermore,
if the net asset value of Fund shares immediately after a dividend or
distribution is less than the cost of such shares to the stockholder, the
dividend or distribution will be taxable to the stockholder even though it
results in a return of capital to him.
Redemption of shares will generally result in a capital gain or loss
for income tax purposes. Such capital gain or loss will be long term or short
term, depending upon the holding period. However, if a loss is realized on
shares held for six months or less, and the investor received a distribution of
net long-term capital gains during that period, then such loss is treated as a
long-term capital loss to the extent of the capital gain distribution received.
Each Fund may be required to withhold Federal income tax at a rate of
31% ("backup withholding") from dividend payments and redemption proceeds if a
stockholder fails to furnish the Fund with his social security or other tax
identification number and certify under penalty of perjury that such number is
correct and that such stockholder is not subject to backup withholding due to
the underreporting of income. The certification form is included as part of the
Purchase Application and should be completed when the account is opened.
This section is not intended to be a complete discussion of present or
proposed federal income tax laws and the effect of such laws on an investor.
Investors are urged to consult with their respective tax advisers for a complete
review of the tax ramifications of an investment in the Funds.
STOCKHOLDER MEETINGS
The Maryland General Corporation Law permits registered investment
companies, such as the Corporation, to operate without an annual meeting of
stockholders under specified circumstances if an annual meeting is not required
by the Act. The Corporation has adopted the appropriate provisions in its Bylaws
and may, at its discretion, not hold an annual meeting in any year in which the
election of directors is not required to be acted on by stockholders under the
Act.
The Corporation's Bylaws also contain procedures for the removal of
directors by its stockholders. At any meeting of stockholders, duly called and
at which a quorum is present, the stockholders may, by the affirmative vote of
the holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a
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successor or successors to fill any resulting vacancies for the unexpired terms
of removed directors.
Upon the written request of the holders of shares entitled to not less
than ten percent (10%) of all the votes entitled to be cast at such meeting, the
Secretary of the Corporation shall promptly call a special meeting of
stockholders for the purpose of voting upon the question of removal of any
director. Whenever ten or more stockholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at least
one percent (1%) of the total outstanding shares, whichever is less, shall apply
to the Corporation's Secretary in writing, stating that they wish to communicate
with other stockholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five business
days after such application either: (1) afford to such applicants access to a
list of the names and addresses of all stockholders as recorded on the books of
the Corporation; or (2) inform such applicants as to the approximate number of
stockholders of record and the approximate cost of mailing to them the proposed
communication and form of request.
If the Secretary elects to follow the course specified in clause (2)
of the last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be mailed
and of the reasonable expenses of mailing, shall, with reasonable promptness,
mail such material to all stockholders of record at their addresses as recorded
on the books unless within five business days after such tender the Secretary
shall mail to such applicants and file with the Securities and Exchange
Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Board of Directors to the effect
that in their opinion either such material contains untrue statements of fact or
omits to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the Securities and Exchange Commission may, and if
demanded by the Board of Directors or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the Securities and Exchange Commission shall enter an order refusing to
sustain any of such objections, or if, after the entry of an order sustaining
one or more of such objections, the Securities and Exchange Commission shall
find, after notice and opportunity for hearing, that all objections so sustained
have been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness after the
entry of such order and the renewal of such tender.
CAPITAL STRUCTURE
The Corporation's Articles of Incorporation permit the Directors to
issue 1,000,000,000 shares of common stock, with a $.0001 par value. The Board
of Directors has the power to designate one or more classes ("series") of shares
of common stock and to
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classify or reclassify any unissued shares with respect to such series.
Currently the Corporation is offering three series, the Leuthold Core Investment
Fund, the Leuthold Select Industries Fund and the Grizzly Short Fund.
The shares of each Fund are fully paid and non-assessable; have no
preference as to conversion, exchange, dividends, retirement or other features;
and have no preemptive rights. Such shares have non-cumulative voting rights,
meaning that the holders of more than 50% of the shares voting for the election
of Directors can elect 100% of the Directors if they so choose. Generally shares
are voted in the aggregate and not by each Fund, except where class voting
rights by Fund is required by Maryland law or the Act.
The shares of each Fund have the same preferences, limitations and
rights, except that all consideration received from the sale of shares of a
Fund, together with all income, earnings, profits and proceeds thereof, belong
to that Fund and are charged with the liabilities in respect of that Fund and of
that Fund's share of the general liabilities of the Corporation in the
proportion that the total net assets of the Fund bears to the total net assets
of all of the Funds. However the Board of Directors of the Corporation may, in
its discretion direct that any one or more general liabilities of the
Corporation be allocated among the Funds on a different basis. The net asset
value per share of each Fund is based on the assets belonging to that Fund less
the liabilities charged to that Fund, and dividends are paid on shares of each
Fund only out of lawfully available assets belonging to that Fund. In the event
of liquidation or dissolution of the Corporation, the shareholders of each Fund
will be entitled, out of the assets of the Corporation available for
distribution, to the assets belonging to such Fund.
PERFORMANCE INFORMATION
Each Fund may provide from time to time in advertisements, reports to
stockholders and other communications with stockholders its average annual
compounded rate of return as well as its total return and cumulative total
return. An average annual compounded rate of return refers to the rate of return
which, if applied to an initial investment at the beginning of a stated period
and compounded over the period, would result in the redeemable value of the
investment at the end of the stated period assuming reinvestment of all
dividends and distributions and reflecting the effect of all recurring fees.
Total return and cumulative total return similarly reflect net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments of a Fund for a stated period,
assuming the reinvestment of all dividends and distributions and reflecting the
effect of all recurring fees. Total return figures are not annualized or
compounded and represent the aggregate percentage of dollar value change over
the period in question. Cumulative total return reflects a Fund's total return
since inception.
Each Fund's average annual compounded rate of return figures are
computed in accordance with the standardized method prescribed by the Securities
and Exchange Commission by determining the average annual compounded rates of
return over the periods indicated, that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
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P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period of a hypothetical
$1,000 payment made at the beginning of such period
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectus, and (ii) deducts all recurring fees, such as advisory fees, charged
as expenses to all investor accounts.
Each Fund may compare its performance to other mutual funds with
similar investment objectives and to the industry as a whole, as represented by
Lipper Analytical Services, Inc., Morningstar, Inc., Money, Forbes, Business
Week and Barron's magazines and The Wall Street Journal. (Lipper Analytical
Services, Inc. and Morningstar, Inc. are independent fund ranking services that
rank mutual funds based upon total return performance.) Each Fund also may
compare its performance to the Standard & Poor's Composite Index of 500 Stocks,
the S&P 400 Midcap Index, the Russell 2000 Index, the Lehman Brothers
Government/Corporate Bond Index, U.S. Treasury Bills and to various combinations
thereof.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, serves as the independent accountants for the Funds.
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