(GRIZZLY SHORT FUND LOGO)
Annual Report
September 30, 2000
DEAR FELLOW SHAREHOLDERS:
If you don't understand how short selling works, you don't belong in this
fund. It is also important to understand the Fund endeavors to be approximately
100% short individual stocks, REGARDLESS OF WHAT OUR OWN STOCK MARKET OPINION
MIGHT BE. In periods when the U.S. stock market is strong, expect to lose money
owning this fund.
The short portfolio of stocks is carefully selected. This is not a short
index fund, WE DO NOT amplify market movements and gains or losses via options,
---------
futures contracts or leverage, as other "short" funds may do. Per a rigorous set
of quantitative, fundamental and technical disciplines, we initially select
fifty stocks that rate "most vulnerable". Short positions equal to 2% of fund
assets are established in each of the fifty stocks.
On a daily basis, each position is closely monitored and adjusted per a rigid
set of disciplines. THESE ARE AT LEAST AS IMPORTANT AS THE SELECTION
DISCIPLINES. An individual short position is typically held from nine to
thirteen weeks, although some could be held a year or more.
HOW TO USE THE GRIZZLY SHORT FUND
o HEDGING: The fund is appropriate for investors concerned
about stock market risk, fearing a decline in the value of
their existing portfolios. The Grizzly Short Fund can be
employed as an off-setting hedge, anticipating the value of
the Grizzly Short Fund will rise while the value of the
investor's existing long portfolio declines.
o REDUCING TAX LIABILITY: Investors reluctant to reduce stock
market risk by selling existing holdings with big gains
(thereby realizing large capital gains) may prefer to reduce
market risk via the Grizzly Short Fund.
o TRADING AND SPECULATING: The Grizzly Short Fund can be a
simple, easily employed vehicle for those who expect the
stock market to go down and want to profit from it.
o LONG/SHORT: Sophisticated investors have become increasingly
drawn to "neutral" funds, funds that balance long positions
against short positions. If the long positions go up (or go
down less than the market) and short positions go down (or go
up less than the market), the investor may realize a positive
return with reduced risk.
...Pairing the Grizzly Short Fund with Leuthold Select
Industries Fund or another aggressive fund is a simple way
to accomplish the same result.
PERFORMANCE SO FAR
The Grizzly Short Fund is a new fund, but we have been managing short
portfolios with much the same disciplines for almost a decade. The Grizzly
Short Fund was first offered to individual investors on June 19, 2000. IN THE
FIRST FULL QUARTER OF OPERATION (Q3, 2000), THE FUND PRODUCED A 13.6% GAIN,
compared to a 1% gain for the Russell 2000, a 1% loss for the S&P 500 and a 7.5%
loss for the NASDAQ.
This isn't much performance history, but Leuthold Weeden Capital Management,
the fund's manager, has been managing 100% short portfolios since June 1, 1992,
using a substantially identical approach. The year by year record of these short
accounts appears in the Grizzly Short Fund's prospectus_we might note that the
year 2000 is shaping up as our best year, but of course in previous years, the
stock market, as measured by the S&P 500, was rising at a 20.7% annual rate
(June 1, 1992 through year-end 1999).
METHODOLOGY
Stocks are currently chosen from a universe of U.S. traded common stocks that
have market capitalizations in excess of $1 billion, and where average daily
trading is $6 million or more.
The Grizzly Short Fund uses a disciplined, unemotional and quantitative
analytical approach to select its short positions. Developed by The Leuthold
Group, this is called "THE VULNERABILITY INDEX". This work is designed to
identify stocks that are most likely to decline in price, or underperform the
market.
In addition to the assessment of a stock's Vulnerability Index rating, each
stock currently held in the Grizzly Short Fund is monitored on a continuing
basis. Individual short positions are increased, decreased or eliminated based
on a set of disciplines based on these factors.
Sincerely,
/s/Steve Leuthold /s/Chuck Zender
Steve Leuthold Chuck Zender
Co-Portfolio Manager Co-Portfolio Manager
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED SEPTEMBER 30, 2000
GRIZZLY RUSSELL 2000 S&P 500
SHORT FUND INDEX INDEX
---------- ------------ -------
3 month 13.56% 1.14% -0.97%
Since Inception 11.40% 0.12% -3.04%
A $10,000 INVESTMENT IN THE GRIZZLY SHORT FUND
GRIZZLY SHORT S&P 500 RUSSELL 2000
DATE FUND $11,138 INDEX $9,696 INDEX $10,012
---- ------------ ------------ -------------
Inception 6/19/00 $10,000 $10,000 $10,000
6/23/00 $9,920 $9,701 $9,764
6/30/00 $9,810 $9,791 $9,899
7/7/00 $9,730 $9,958 $10,112
7/14/00 $9,250 $10,168 $10,390
7/21/00 $9,680 $9,968 $10,009
7/28/00 $10,340 $9,564 $9,390
8/4/00 $10,030 $9,857 $9,649
8/11/00 $10,190 $9,921 $9,781
8/18/00 $9,950 $10,057 $9,884
8/25/00 $9,810 $10,157 $10,070
9/1/00 $9,680 $10,257 $10,395
9/8/00 $10,070 $10,081 $10,277
9/15/00 $10,340 $9,890 $10,188
9/22/00 $10,860 $9,776 $9,958
Quarter End 9/29/00 $11,138 $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.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
ASSETS:
Investments, at value
(cost $54,600) $ 54,600
Receivable from broker for proceeds
on securities sold short 2,348,422
Deposit for short sales 2,094,119
Receivable for investments sold 223,667
Interest receivable 106
Expense reimbursement by Adviser 9,913
Other assets 18,110
----------
Total Assets 4,748,937
----------
LIABILITIES:
Securities sold short, at market value
(proceeds $2,440,024) 2,270,165
Payable for investments purchased 100,037
Dividends payable 325
Accrued expenses and other liabilities 34,432
----------
Total Liabilities 2,404,959
----------
NET ASSETS $2,343,978
----------
----------
NET ASSETS CONSIST OF:
Capital stock $2,124,002
Accumulated undistributed net
investment income 1,788
Accumulated undistributed net
realized gain on short positions 48,329
Net unrealized appreciation
on short positions 169,859
----------
Total Net Assets $2,343,978
----------
----------
Shares outstanding (250,000,000
shares of $.0001 par value authorized) 212,832
Net Asset Value, Redemption Price
and Offering Price Per Share $11.01
------
------
See notes to the financial statements.
STATEMENT OF OPERATIONS
FOR THE PERIOD JUNE 19, 2000(1)<F1> TO
SEPTEMBER 30, 2000
INVESTMENT INCOME:
Interest income $ 37,722
--------
Total investment income 37,722
--------
EXPENSES:
Shareholder servicing and
accounting costs 20,072
Administration fee 10,735
Professional fees 7,072
Federal and state registration 5,720
Investment advisory fee 4,181
Custody fees 2,600
Reports to shareholders 1,664
Directors' fees and expenses 1,040
Other 520
--------
Total expenses before reimbursement
and dividends on short positions 53,604
Less: Reimbursement from Adviser (45,242)
--------
Net expenses before dividends
on short positions 8,362
Dividends on short positions 838
--------
Total expenses 9,200
--------
NET INVESTMENT INCOME 28,522
--------
REALIZED AND UNREALIZED
GAINS ON SHORT POSITIONS:
Net realized gain on short positions 48,329
Change in unrealized
appreciation on short positions 169,859
--------
Net realized and unrealized
gain on short positions 218,188
--------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $246,710
--------
--------
(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 income $ 28,522
Net realized gain on short positions 48,329
Change in unrealized appreciation on short positions 169,859
----------
Net increase in net assets from operations 246,710
----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (26,734)
----------
Total distributions (26,734)
----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 2,074,329
Proceeds from shares issued to holders in
reinvestment of dividends 25,458
Cost of shares redeemed (75,785)
----------
Net increase in net assets from capital
share transactions 2,024,002
----------
TOTAL INCREASE IN NET ASSETS 2,243,978
NET ASSETS:
Beginning of period 100,000
----------
End of period (including undistributed net
investment income of $1,788) $2,343,978
----------
----------
(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 income 0.14(2)<F4>
Net realized and unrealized gains on short positions 1.00
------
Total from investment operations 1.14
------
Less distributions:
From net investment income (0.13)
------
Total distributions (0.13)
------
Net asset value, end of period $11.01
------
------
Total return 11.40%(3)<F5>
Supplemental data and ratios:
Net assets, end of period $2,343,978
Ratio of expenses to average net assets:
Before expense reimbursement 16.28%(4) (5)
<F6><F7>
After expense reimbursement 2.75%(4) (5)
<F6><F7>
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement (5.00)%(4) (6)
<F6><F8>
After expense reimbursement 8.53%(4) (6)
<F6><F8>
Portfolio turnover rate 0%(7)
<F9>
(1)<F3> Commencement of operations.
(2)<F4> Net investment income 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.
(5)<F7> The operating expense ratios include dividends on short positions.
The before expense reimbursement and after expense reimbursement
ratios excluding dividends on short positions were 16.03% and 2.50%,
respectively, for the period ended September 30, 2000.
(6)<F8> The net investment income ratios include dividends on short positions.
(7)<F9> 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
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
SHORT-TERM
INVESTMENTS - 2.3%+<F11>
$28,877 Firstar Bank, 6.370% #<F10> $28,877
25,723 Sara Lee, 6.220% #<F10> 25,723
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Total Short-Term
Investments
(Cost $54,600) 54,600
-------
TOTAL INVESTMENTS - 2.3%+<F11>
(COST $54,600) $54,600
-------
-------
#<F10> Variable rate security. The rates listed are as of 9/30/00.
+<F11> Calculated as a percentage of net assets.
See notes to the financial statements.
SECURITIES SOLD SHORT
SEPTEMBER 30, 2000
NUMBER MARKET
OF SHARES VALUE
--------- ------
COMMON STOCKS
790 Alcoa Inc. $ 19,997
1,400 Allegiance Telecom, Inc. 52,150
440 Amazon.com, Inc. 16,912
3,100 Answerthink Inc. 50,375
1,330 Autodesk, Inc. 33,749
1,380 AutoZone, Inc. 31,309
700 Best Buy Co., Inc. 44,537
1,800 Broadwing Inc. 46,012
1,330 CNET Networks, Inc. 32,398
600 Cablevision Systems
Corporation 39,787
2,530 Callaway Golf Company 38,899
1,000 Cintas Corporation 43,562
2,600 Citizens Communications
Company 34,937
530 Clear Channel
Communications, Inc. 29,945
940 The Clorox Company 37,189
740 Colgate-Palmolive Company 34,928
1,340 Conexant Systems, Inc. 56,112
1,400 Costco Wholesale Corporation 48,912
1,000 Cymer, Inc. 30,687
900 Danaher Corporation 44,775
400 Dell Computer Corporation 12,325
1,500 Dendrite International, Inc. 40,219
800 Digital Island 15,000
2,130 E*TRADE Group, Inc. 35,012
530 eBay Inc. 36,404
500 Entercom Communications
Corp. 14,969
500 FreeMarkets, Inc. 28,563
700 Gateway, Inc. 32,725
1,700 Gentex Corporation 42,500
400 Inktomi Corporation 45,600
420 International Business
Machines Corporation 47,250
1,300 International Speedway
Corporation 50,700
800 Intersil Holding Corporation 39,900
2,100 Intimate Brands, Inc. 39,244
600 Kana Communications, Inc. 13,350
680 Keane, Inc. 11,832
1,400 Keynote Systems, Inc. 37,450
360 Lamar Advertising Company 13,635
1,000 The Estee Lauder
Companies Inc. 36,625
430 Level 3 Communications, Inc. 33,164
3,600 McLeodUSA Incorporated 51,525
1,100 Metasolv Software, Inc. 44,963
1,100 Michaels Stores, Inc. 44,000
800 Molex Incorporated 43,550
330 NTL Incorporated 15,283
1,350 National Instruments
Corporation 59,569
1,400 Net2Phone, Inc. 31,500
1,700 New Era of Networks, Inc. 41,358
1,200 Nextel Communications, Inc. 56,100
1,150 NEXTLINK
Communications, Inc. 40,466
1,000 NIKE, Inc. 40,063
1,440 NorthPoint Communications
Group, Inc. 12,780
420 Omnicom Group Inc. 30,634
1,100 RCN Corporation 22,825
900 SBS Broadcasting SA 35,831
3,900 Sinclair Broadcast Group, Inc. 42,656
400 Sprint Corp (PCS Group) 14,025
900 Symbol Technologies, Inc. 32,344
500 TeleCorp PCS, Inc. 9,500
700 Tellabs, Inc. 33,425
740 Verizon Communications 35,844
1,270 Viatel, Inc. 13,018
1,500 VISX, Incorporated 40,406
730 Wal-Mart Stores, Inc. 35,131
660 The Walt Disney Company 25,245
700 Winstar Communications, Inc. 10,850
540 Xircom, Inc. 13,635
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TOTAL SECURITIES
SOLD SHORT
(PROCEEDS $2,440,024) $2,270,165
----------
----------
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 Grizzly
Short Fund (the "Fund") is one of three series of the Company. The
investment objective of the Fund is capital appreciation. However, as its
principal investment strategy is to sell stocks short, it may be difficult
for the Fund to achieve its goal in rising stock markets. 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.
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) 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.
f) 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 207,985
Shares issued to holders in
reinvestment of dividends 2,346
Shares redeemed (7,499)
-------
Net increase 202,832
-------
-------
3. INVESTMENT TRANSACTIONS
The Fund did not make any purchases or sales of investments, other than
short-term investments and short positions, for the period ended September
30, 2000.
At September 30, 2000, gross unrealized appreciation and depreciation of
investments for tax purposes was zero.
At September 30, 2000, the cost of investments, excluding short positions,
for federal income tax purposes was $54,600.
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 1.25% 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 2.50%
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 period ended September 30, 2000, the Fund paid Weeden & Co., L.P.,
an affiliate of the Adviser, $5,899 of brokerage commissions.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF LEUTHOLD FUNDS, INC.
AND THE SHAREHOLDERS OF THE GRIZZLY SHORT FUND:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Grizzly Short 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
Grizzly Short 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
(GRIZZLY SHORT 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.
