<PAGE>
1933 Act File No. 2-25984
1940 Act File No. 811-1467
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____ X
Post-Effective Amendment No. __56__ X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. __35__ X
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
(Exact Name of Registrant as Specified in Charter)
625 Fourth Avenue South, Minneapolis, Minnesota 55415
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (612) 340-7215
Otis F. Hilbert, Secretary
The Lutheran Brotherhood Family of Funds
625 Fourth Avenue South
Minneapolis, Minnesota 55415
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
__X__ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on (date) pursuant to paragraph (b) of Rule 485
_____ on (date) pursuant to paragraph (a)(i) of Rule 485
_____ on (date) pursuant to paragraph (a)(i) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
_____ on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
=============================================================================
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:
_____ filed the Notice required by that Rule on February 16, 1995; or
_____ intends to file the Notice required by that Rule on or about (date); or
__X__ during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant
to Rule 24f-2(b)(2), need not file the Notice.
<PAGE>
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
Part A
------
Caption Or Location In Prospectus
For Lutheran Brotherhood
Opportunity Growth Fund, Lutheran
Brotherhood World Growth Fund,
Lutheran Brotherhood Fund, Lutheran
Brotherhood High Yield Fund,
Lutheran Brotherhood Income Fund,
Lutheran Brotherhood Municipal Bond
Lutheran Brotherhood Money Market
Item Number and Caption Fund
- ----------------------- ---------------------------------
1. Cover Page Same
2. Synopsis Summary of Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objectives
and Policies; Investment
Limitations; Investment Risks;
The Funds and Their Shares
5. Management of the Fund Fund Management; Fund
Administration
6. Capital Stock and Other Securities Dividends and Capital Gains;
Taxes; The Funds and Their
Shares
7. Purchase of Securities Being Offered Buying Shares of the Lutheran
Brotherhood Family of Funds;
Net Asset Value of Your Shares;
Sales Changes; Receiving Your
Order; Certificates and
Statements
8. Redemption or Repurchase Redeeming Shares
9. Legal Proceedings Not Applicable
<PAGE>
Part B
------
Caption Or Location In Prospectus
For Lutheran Brotherhood
Opportunity Growth Fund, Lutheran
Brotherhood World Growth Fund,
Lutheran Brotherhood Fund, Lutheran
Brotherhood High Yield Fund,
Lutheran Brotherhood Income Fund,
Lutheran Brotherhood Municipal Bond
Fund and Lutheran Brotherhood
Item Number and Caption Money Market Fund
- ----------------------- ---------------------------------
10. Cover Page Same
11. Table of Contents Same
12. General Information and History General Information
13. Investment Objectives and Policies Investment Policies and
and Restrictions; Additional
Information Concerning Certain
Investment Techniques; Brokerage
Transactions
14. Management of the Registrant Fund Management
15. Control Persons and Principal Holders
of Securities Fund Management
16. Investment Advisory and Other
Services Investment Advisory Services;
Administration Services;
Distributor
17. Brokerage Allocation Brokerage Transactions
18. Capital Stock and Other Securities General Information
19. Purchase, Redemption and Pricing of
Securities Being Offered Purchasing Shares; Sales Change;
Net Asset Value; Redeeming Shares
20. Tax Status Tax Status
21. Underwriters Distributor
22. Calculation of Performance Data Calculation of Performance
Data
23. Financial Statements Financial Statements
<PAGE>
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
LUTHERAN BROTHERHOOD FUND
LUTHERAN BROTHERHOOD HIGH YIELD FUND
LUTHERAN BROTHERHOOD INCOME FUND
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
LUTHERAN BROTHERHOOD MONEY MARKET FUND
PROSPECTUS December 28, 1995
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND ("LB Opportunity Growth Fund")
seeks long term growth of capital by investing primarily in a professionally
managed diversified portfolio of smaller capitalization common stocks. See
page P-11.
LUTHERAN BROTHERHOOD WORLD GROWTH FUND ("LB World Growth Fund") seeks high
total return from long-term growth of capital by investing primarily in a
professionally managed diversified portfolio of common stocks of established,
non-U.S. companies. See page P-11.
LUTHERAN BROTHERHOOD FUND ("LB Fund") seeks growth of capital and income by
investing in a professionally managed diversified portfolio of common stocks
and other securities issued by leading companies. See page P-13.
LUTHERAN BROTHERHOOD HIGH YIELD FUND ("LB High Yield Fund") seeks high current
income by investing primarily in a professionally managed diversified
portfolio of high yield, high risk securities. The Fund will also consider
growth of capital as a secondary investment objective. See page P-13.
LUTHERAN BROTHERHOOD INCOME FUND ("LB Income Fund") seeks high current income
while preserving principal, with possible long term growth of capital, by
investing primarily in a professionally managed diversified portfolio of debt
securities and dividend paying common and preferred stocks. See page P-14.
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND ("LB Municipal Bond Fund") seeks to
provide high current income exempt from federal income tax by investing
primarily in a professionally managed diversified portfolio of municipal
bonds. See page P-14.
LUTHERAN BROTHERHOOD MONEY MARKET FUND ("LB Money Market Fund") seeks to
provide current income consistent with stability of principal. See page P-15.
Lutheran Brotherhood Research Corp. ("LB Research"), an indirect wholly-owned
subsidiary of Lutheran Brotherhood, serves as investment adviser for the
Funds. Lutheran Brotherhood and LB Research personnel have developed skills in
the investment advisory business over the past 25 years, and Lutheran
Brotherhood personnel have extensive skill in managing over $10.5 billion of
Lutheran Brotherhood assets and had over $5.9 billion in mutual fund assets
under management as of September 30, 1995. Lutheran Brotherhood Securities
Corp. ("LB Securities") serves as distributor for the LB Family of Funds. LB
Research currently engages Rowe Price-Fleming International, Inc. ("Price-
Fleming" or "Sub-advisor") as investment sub-advisor for LB World Growth Fund.
This Prospectus sets forth concisely the information a prospective investor
ought to know about the Funds before investing. It should be retained for
future reference. A Statement of Additional Information about the Funds dated
December 28, 1995 has been filed with the Securities and Exchange Commission
and is incorporated by reference in this Prospectus. It is available, at no
charge, upon request by writing LB Securities or by calling toll free (800)
328-4552 or (612) 339-8091.
Each Fund is a diversified series of The Lutheran Brotherhood Family of Funds
(the "Trust"), an open-end management investment company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
Summary of Fund Expenses P-3
Financial Highlights P-4
Investment Objectives and Policies P-11
Investment Limitations P-21
Investment Risks P-22
Buying Shares of The Lutheran Brotherhood Family of Funds P-25
Net Asset Value of Your Shares P-27
Sales Charges P-27
Receiving Your Order P-29
Certificates and Statements P-29
Redeeming Shares P-29
Dividends and Capital Gains P-31
Taxes P-32
Optimum Account P-33
IRAs and Other Tax-Deferred Plans P-33
Fund Performance P-34
The Funds and Their Shares P-34
Fund Management P-35
Fund Administration P-37
Description of Debt Ratings P-37
How to Invest P-40
Addresses P-40
<TABLE>
SUMMARY OF FUND EXPENSES
<CAPTION>
LB Opportunity Growth Fund
LB World Growth Fund
LB Fund
LB High Yield Fund
LB Income Fund LB Money
LB Municipal Bond Fund Market Fund
------------------------- -----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5% None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or redemption proceeds, as applicable) None None
Redemption Fees (as a percentage
of amount redeemed, if applicable) None None
Exchange Fees None None
</TABLE>
Shareholders of the LB Money Market Fund may elect the OPTIMUM ACCOUNT(R)
package, which is subject to a one-time new account fee of $25 and a monthly
administrative fee of $5. Exchanges of LB Money Market Fund shares for shares
of other Funds incur the normal sales charge for those Funds' shares, unless
the LB Money Market Fund shares were previously acquired through an exchange
of shares from other Funds for which a sales charge was previously paid.
Sales charges vary from 1/2% to 5% of the public offering price, depending
upon the amount of your investment. For a complete description of sales
charges, see "Sales Charges".
<TABLE>
<CAPTION>
LB LB LB LB LB
Opportunity World High LB Municipal Money
Growth Growth LB Yield Income Bond Market
Fund Fund Fund Fund Fund Fund Fund
----------- ------ ---- ----- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Net Management Fees 0.73% 0.31%* 0.64% 0.65% 0.59% 0.57% 0.42%*
12b-1 Fees None None None None None None None
Other Expenses 0.70% 1.64% 0.38% 0.28% 0.24% 0.17% 0.68%
----- ----- ----- ----- ----- ----- -----
Total Fund Operating Expenses 1.43% 1.95%* 1.02% 0.93% 0.83% 0.74% 1.10%*
==== ===== ==== ==== ==== ==== ====
_____________________
* After fee waiver.
</TABLE>
EXAMPLE:
You would pay the following expenses
on a $1,000 investment assuming
(1)5% annual return and
(2)redemption at the end
of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
LB Opportunity Growth Fund $ 64 $ 93 $124 $213
LB World Growth Fund $ 69 $108 $150 $266
LB Fund $ 60 $ 81 $104 $169
LB High Yield Fund $ 59 $ 78 $ 99 $159
LB Income Fund $ 58 $ 75 $ 94 $147
LB Municipal Bond Fund $ 57 $ 72 $ 89 $137
LB Money Market Fund $ 11 $ 35 $ 61 $134
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED AS A REPRESENTATION OF PAST OR FUTURE
RETURN OR EXPENSES. ACTUAL RETURN OR EXPENSES MAY BE GREATER OR LESS THAN
SHOWN.
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. Actual expense levels for the current and future years may vary
from the amounts shown. The table does not reflect charges for optional
services elected by certain shareholders. For more complete information and
descriptions of various costs and expenses, see "Sales Charges" and "Fund
Administration".
LB Research has undertaken to limit the LB World Growth Fund's operating
expenses to 1.95% of its average net assets by means of a voluntary waiver
of advisory fees. Net Management Fees and Total Fund Operating Expenses for
LB World Growth Fund for the fiscal year ending October 31, 1995 would be
1.25% and 2.89%, respectively, of average net assets of the Fund without the
partial waiver of advisory fees, which is estimated to amount to 0.94% of
average net assets of the Fund. This waiver of fees are voluntary and may be
discontinued at any time after the conclusion of the Fund's first full
fiscal year.
LB Research has undertaken to limit the LB Money Market Fund's total
expenses to 1.10% of its average net assets by means of a voluntary waiver
of advisory fees. For the fiscal year ended October 31, 1995, Net Management
Fees and Total Fund Operating Expenses would have been 0.50% and 1.18%,
respectively, of average net assets of the LB Money Market Fund without the
partial waiver of advisory fees, which amounted to 0.08% of average net
assets of the LB Money Market Fund. This waiver of fees is voluntary and
may be discontinued at any time.
FINANCIAL HIGHLIGHTS
The tables below for each of the Funds, to the extent and for the periods
indicated in its report, have been examined by Price Waterhouse LLP,
independent accountants, whose reports are is included in the Annual Reports
to Shareholders for the fiscal year ended October 31, 1995. The tables should
be read in conjunction with the financial statements and notes thereto that
appear in such reports, which are incorporated by reference into the
Statement of Additional Information.
<PAGE>
<TABLE>
LB OPPORTUNITY GROWTH FUND
<CAPTION>
For the Period
January 8, 1993
Year Ended Year Ended effective date) to
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) 10/31/95 10/31/94 October 31, 1993
---------- ---------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.76 $10.66 $ 8.43
------ ------ ------
Investment Operations:
Net Investment Income (.09) (0.06) (0.07)
Net Realized and Unrealized Gain (Loss)
on Investments 3.16 0.16 2.30
------ ------ ------
Total from Investment Operations 3.07 0.10 2.23
------ ------ ------
Net Asset Value, End of Period $13.83 $10.76 $10.66
====== ====== ======
Total Investment Return at Net Asset Value(%)(a) 28.53% 0.94% 26.45%
Net Assets, End of Period (in millions) $165.7 $99.6 $40.8
Ratio of Expenses to Average Net Assets (%) 1.43% 1.66% 2.33%(b)
Ratio of Net Investment Income to Average
Net Assets (%) -0.88% -0.83% -1.76%(b)
Portfolio Turnover (%) 213% 64% 97%
________________________
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Computed on an annualized basis.
</TABLE>
<PAGE>
LB WORLD GROWTH FUND
For the Period From
September 5, 1995
(effective date) to
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) October 31, 1995
-------------------
Net Asset Value, Beginning of Period $8.50
-----
Income From Investment Operations:
Net Investment Income 0.01
Net Realized and Unrealized Gain (Loss)
on Investments (0.07)
-----
Total from Investment Operations (0.06)
-----
Net Asset Value, End of Period $8.44
=====
Total Investment Return at Net Asset Value(a) (0.71%)
Net Assets, End of Period (in millions) $14.0
Ratio of Expenses to Average Net Assets 1.95%(b,C)
Ratio of Net Investment Income to Average
Net Assets 1.60%(b,c)
Portfolio Turnover Rate 0%
________________________
(a) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(b) Computed on an annualized basis.
(c) During the period from September 5, 1995 to October 31, 1995, LB Research
has voluntarily undertaken to limit the Fund's expense ratio at 1.95%.
Had LB Research not undertaken such action, the ratio of expenses to
average net assets would have been 2.89%, and the ratio of net investment
income to average net assets would have been 0.66%.
<PAGE>
<TABLE>
LB FUND
<CAPTION>
Nine
(FOR A SHARE OUTSTANDING months
THROUGHOUT THE PERIOD) Year Year ended
Ended Ended October 31, Years ended January 31,
----------------------------------------------------------
10/31/95 10/31/94 1993 1993 1992 1991 1990 1989 1988 1987
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $17.67 $18.85 $18.53 $19.14 $17.10 $15.83 $15.97 $14.44 18.38 $16.92
------ ------ ------ ------ ----- ------ ------ ------ ----- ------
Investment Operations:
Net Investment Income 0.22 0.19 0.29 0.27 0.32 0.37 0.36 0.47 0.49 0.64
Net Realized and
Unrealized Gain (Loss)
on Investments 3.52 (0.20) 1.04 1.42 3.90 1.34 1.32 1.54 (2.19) 2.77
------ ------ ------ ------ ----- ------ ------ ------ ----- ------
Total from Investment
Operations 3.74 (0.01) 1.33 1.69 4.22 1.71 1.68 2.01 (1.70) 3.41
------ ------ ------ ------ ----- ------ ------ ------ ----- ------
Less Distributions from:
Net Investment Income (0.22) (0.20) (0.28) (0.27) (0.31) (0.38) (0.32) (0.48) (0.48) (0.65)
Net Realized Gain on
Investments -- (0.97) (0.73) (2.03) (1.87) (0.06) (1.50) - (1.76) (1.30)
------ ------ ------ ------ ----- ------ ------ ------ ----- ------
Total Distributions (0.22) (1.17) (1.01) (2.30) (2.18) (0.44) (1.82) (0.48) (2.24) (1.95)
------ ------ ------ ------ ----- ------ ------ ------ ----- ------
Net Asset Value,
End of Period $21.19 $17.67 $18.85 $18.53 $19.14 $17.10 $15.83 $15.97 $14.44 $18.38
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Investment
Return at Net Asset
Value(%)(a) 21.34% -0.11% 7.41% 9.47% 24.67% 10.92% 9.77% 14.26% -8.70% 21.42%
Net Assets, End of
Period (in millions) $645.5 $548.6 $527.3 $460.9 $380.3 $303.4 $273.3 $275.9 $258.9 $232.1
Ratio of Expenses to
Average Net Assets (%) 1.02% 1.04% 1.01%(b) 0.97% 1.00% 1.05% 1.04% 1.08% 1.07% 1.11%
Ratio of Net Investment
Income to Average Net
Assets (%) 1.15% 1.10% 2.15%(b) 1.44% 1.69% 2.21% 1.99% 3.24% 2.69% 3.66%
Portfolio Turnover (%) 127% 234% 237% 249% 175% 148% 145% 89% 88% 16%
____________________
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Computed on an annualized basis.
</TABLE>
<PAGE>
<TABLE>
LB HIGH YIELD FUND
<CAPTION>
Nine
(FOR A SHARE OUTSTANDING months
THROUGHOUT THE PERIOD) Year Year ended
Ended Ended October 31, Years ended January 31,
----------------------------------------------------
10/31/95 10/31/94 1993 1993 1992 1991 1990 1989 1988*
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $8.86 $9.73 $9.12 $8.45 $6.72 $7.93 $9.72 $9.86 $10.44
----- ----- ----- ----- ----- ----- ----- ----- ------
Investment Operations:
Net Investment Income 0.83 0.83 0.61 0.88 0.93 0.92 1.12 1.14 0.87
Net Realized and
Unrealized Gain (Loss)
on Investments 0.24 (0.86) 0.60 0.68 1.72 (1.21) (1.76) (0.17) (0.60)
----- ----- ----- ----- ----- ----- ----- ----- ------
Total from Investment
Operations 1.07 (0.03) 1.21 1.56 2.65 (0.29) (0.64) 0.97 0.27
----- ----- ----- ----- ----- ----- ----- ----- ------
Less Distributions from:
Net Investment Income (0.85) (0.82) (0.60) (0.89) (0.92) (0.92) (1.15) (1.11) (0.85)
Net Realized Gain on
Investments (0.05) (0.02) - - - - - - -
----- ----- ---- ---- ---- ---- ---- ----- ------
Total Distributions (0.90) (0.84) (0.60) (0.89) (0.92) (0.92) (1.15) (1.11) (0.85)
----- ----- ---- ----- ----- ----- ----- ----- ------
Net Asset Value,
End of Period $9.03 $8.86 $9.73 $9.12 $8.45 $6.72 $7.93 $9.72 $9.86
===== ===== ===== ===== ===== ===== ===== ===== =====
Total Investment
Return at Net Asset
Value(%)(a) 12.93% -0.47% 13.72% 19.51% 41.59% -3.98% -7.52% 10.52% 3.54%
Net Assets, End of
Period (in millions) $594.3 $499.6 $440.3 $330.2 $217.0 $137.0 $149.6 $126.5 $61.3
Ratio of Expenses to
Average Net Assets (%) 0.93% 0.95% 0.94%(b) 0.99% 1.16% 1.23% 1.19% 1.21% 1.50%(b)
Ratio of Net Investment
Income to Average Net
Assets (%) 9.53% 8.92% 8.72%(b) 10.04% 11.95% 12.51% 12.23% 11.72% 10.95%(b)
Portfolio Turnover (%) 71% 50% 66% 86% 145% 120% 86% 73% 67%
_________________
* For the period April 3, 1987 (effective date) to January 31, 1988.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Computed on an annualized basis.
</TABLE>
<PAGE>
<TABLE>
LB INCOME FUND
<CAPTION>
Nine
(FOR A SHARE OUTSTANDING months
THROUGHOUT THE PERIOD) Year Year ended
Ended Ended October 31, Years ended January 31,
---------------------------------------------------------
10/31/95 10/31/94 1993 1993 1992 1991 1990 1989 1988 1987
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $8.01 $9.43 $9.10 $8.79 $8.35 $8.47 $8.52 $8.62 $9.07 $8.95
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Investment Operations
Net Investment Income 0.59 0.58 0.47 0.66 0.72 0.78 0.82 0.80 0.80 0.88
Net Realized and
Unrealized Gain (Loss)
on Investments 0.69 (1.19) 0.33 0.31 0.44 (0.11) (0.06) (0.10) (0.44) 0.13
----- ----- ----- ----- ----- ----- ----- ----- ------ ----
Total from Investment
Operations 1.28 (0.61) 0.80 0.97 1.16 0.67 0.76 0.70 0.36 1.01
----- ----- ----- ----- ----- ----- ----- ----- ----- ----
Less Distributions from:
Net Investment Income (0.57) (0.56) (0.47) (0.66) (0.72) (0.79) (0.81) (0.80) (0.81) (0.89)
Net Realized Gain on
Investments -- (0.25) - - - - - - - -
----- ----- ----- ----- ----- ----- ----- ----- ------ -----
Total Distributions (0.57) (0.81) (0.47) (0.66) (0.72) (0.79) (0.81) (0.80) (0.81) (0.89)
Net Asset Value,
End of Period $8.72 $8.01 $9.43 $9.10 $8.79 $8.35 $8.47 $8.52 $8.62 $9.07
===== ===== ===== ===== ===== ===== ===== ===== =====
Total Investment
Return at Net Asset
Value(%)(a) 16.53% -6.81% 8.97% 11.50% 14.48% 8.39% 9.18% 8.69% 4.53% 11.92%
Net Assets, End of
Period (in millions) $942.1 $907.2 $1,042.2 $944.6 $819.5 $736.5 $719.8 $725.5 $711.8 $609.8
Ratio of Expenses to
Average Net Assets (%) 0.83% 0.82% 0.80%(b,c) 0.90% 0.97% 1.02% 1.02% 1.03% 1.03% 1.04%
Ratio of Net Investment
Income to Average Net
Assets (%) 7.01% 6.77% 6.87%(b,c) 7.40% 8.38% 9.35% 9.53% 9.52% 9.47% 9.82%
Portfolio Turnover (%) 131% 155% 84% 104% 117% 118% 113% 68% 48% 47%
____________________
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Computed on an annualized basis.
(c) During the nine month period ended October 31, 1993, LB Research voluntarily assumed certain operating expenses of
the Fund. Had LB Research not undertaken such action, the ratio of expenses to average net assets would have been
0.90% and the ratio of net investment income to average net assets would have been 6.77%.
</TABLE>
<PAGE>
<TABLE>
LB MUNICIPAL BOND FUND
<CAPTION>
Nine
(FOR A SHARE OUTSTANDING months
THROUGHOUT THE PERIOD) Year Year ended
Ended Ended October 31, Years ended January 31,
-----------------------------------------------------
10/31/95 10/31/94 1993 1993 1992 1991 1990 1989 1988 1987
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $7.88 $9.00 $8.52 $8.45 $8.32 $8.15 $8.18 $8.09 $8.45 $7.82
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Investment Operations:
Net Investment Income 0.45 0.46 0.37 0.53 0.56 0.58 0.58 0.60 0.59 0.59
Net Realized and Unrealized
Gain (Loss) on Investments 0.70 (0.96) 0.51 0.28 0.29 0.16 (0.02) 0.07 (0.37) 0.64
----- ----- ----- ----- ----- ----- ----- ----- ------ -----
Total from Investment
Operations 1.15 (0.50) 0.88 0.81 0.85 0.74 0.56 0.67 0.22 1.23
----- ----- ----- ----- ----- ---- ----- ----- ------ -----
Less Distributions from:
Net Investment Income (0.45) (0.46) (0.37) (0.52) (0.56) (0.57) (0.59) (0.58) (0.58) (0.60)
Net Realized Gain on
Investments -- (0.16) (0.03) (0.22) (0.16) - - - - -
----- ----- ----- ----- ----- ----- ----- ----- ------ -----
Total Distributions (0.45) (0.62) (0.40) (0.74) (0.72) (0.57) (0.59) (0.58) (0.58) (0.60)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value,
End of Period $8.58 $7.88 $9.00 $8.52 $8.45 $8.32 $8.15 $8.18 $8.09 $8.45
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Investment
Return at Net Asset
Value(%)(a) 14/97% -5.93% 10.73% 9.96% 10.64% 9.54% 7.02% 8.70% 2.95% 16.27%
Net Assets, End of
Period (in millions) $628.7 $595.2 $629.7 $532.6 $448.4 $382.5 $348.2 $306.5 $283.6 $249.5
Ratio of Expenses to
Average Net Assets (%) 0.74% 0.75% 0.74%(b,c) 0.80% 0.83% 0.86% 0.86% 0.92% 0.91% 0.94%
Ratio of Net Investment
Income to Average Net
Assets (%) 5.43% 5.44% 5.69%(b,c) 6.22% 6.65% 7.06% 7.04% 7.37% 7.39% 7.31%
Portfolio Turnover (%) 36% 38% 46% 77% 78% 68% 60% 70% 61% 8%
_____________________
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Computed on an annualized basis.
(c) During the nine month period ended October 31, 1993, LB Research voluntarily assumed certain operating expenses
of the Fund. Had LB Research not undertaken such action, the ratio of expenses to average net assets would have
been 0.79% and the ratio of net investment income to average net assets would have been 5.64%.
</TABLE>
<PAGE>
<TABLE>
LB MONEY MARKET FUND
<CAPTION>
Nine
(FOR A SHARE OUTSTANDING months
THROUGHOUT THE PERIOD) Year Year ended
Ended Ended October 31, Years ended January 31,
-------------------------------------------------------
10/31/95 10/31/94 1993 1993 1992 1991 1990 1989 1988 1987
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Investment Operations:
Net Investment Income 0.05 0.03 0.02 0.03 0.05 0.07 0.08 0.07 0.06 0.06
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions from:
Net Investment Income (0.05) (0.03) (0.02) (0.03) (0.05) (0.07) (0.08) (0.07) (0.06) (0.06)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value,
End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Investment
Return at Net Asset
Value(%)(a) 4.95% 2.89% 1.63% 2.77% 5.10% 7.40% 8.44% 7.01% 5.98% 5.87%
Net Assets, End of
Period (in thousands) $341.1 $276.9 $275.1 $317.0 $412.3 $473.4 $423.5 $309.3 $263.6 $293.7
Ratio of Expenses to
Average Net Assets (%) 1.10%(c) 1.10%(c) 1.10%(b,c) 1.10%(c) 1.08% 1.07% 1.09% 1.07% 1.07% 1.06%
Ratio of Net Investment
Income to Average Net
Assets (%) 4.85%(c) 2.85%(c) 2.16%(b,c) 2.76%(c) 5.01% 7.16% 8.10% 6.83% 5.80% 5.77%
______________________
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Computed on an annualized basis.
(c) During the years ended October 31, 1995 and 1994, the nine months ended October 31, 1993, and the year ended
January 31, 1993, LB Research has voluntarily undertaken to limit the Fund's expense ratio at 1.10%. Had LB
Research not undertaken such action, the ratio of expenses to average net assets would have been 1.18%, 1.36%,
1.44% and 1.23%, respectively, and the ratio of net investment income to average net assets would have been 4.77%,
2.59%, 1.82% and 2.63%, respectively.
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
Each of the Funds in The Lutheran Brotherhood Family of Funds has a separate
investment objective and investment policies for the pursuit of that
objective. The investment objective of each Fund is fundamental and may not
be changed without the approval of shareholders of that Fund. Except as
otherwise indicated in this Prospectus, the investment policies of each Fund
may be changed from time to time by the Board of Trustees of the Trust.
There is no assurance that any of the Funds will achieve its investment
objective, but it will strive to do so by following the policies set forth
below.
Lutheran Brotherhood Opportunity Growth Fund
The investment objective of the LB Opportunity Growth Fund is to achieve
long term growth of capital.
The Fund will pursue its objective by seeking realized and unrealized
capital gains through the active management of a portfolio consisting
primarily of common stocks. Such active management may involve a high level
of portfolio turnover. The Fund will invest primarily in common stocks of
domestic and foreign companies that in the opinion of LB Research have a
potential for above average sales and earnings growth that is expected to
lead to capital appreciation. The Fund's investment adviser believes that
over a long period of time, smaller companies that have a competitive
advantage will be able to grow faster than larger companies, leading to a
higher rate of growth in capital. For a description of the risks associated
with investments in such companies, see "Investment Risks - LB Opportunity
Growth Fund Investment Risks".
The Fund may also invest in bonds and preferred stocks, convertible bonds,
convertible preferred stocks, warrants, American Depository Receipts (ADR's)
and other debt or equity securities. In addition, the Fund may invest in
U.S. Government securities or cash. The Fund will not use any minimum level
of credit quality. At no time will the Fund invest more than 5% of its net
assets in debt obligations. Debt obligations may be rated less than
investment grade, which is defined as having a quality rating below "Baa",
as rated by Moody's Investors Service, Inc. ("Moody's), or below "BBB", as
rated by Standard & Poor's Corporation ("S&P"). For a description of Moody's
and S&P's ratings, see "Description of Debt Ratings". Securities rated below
investment grade are considered to be speculative and involve certain risks,
including a higher risk of default and greater sensitivity to interest rate
and economic changes.
LB Research will use fundamental investment research techniques to seek out
those companies that have a competitively superior product or service in an
unsaturated market with large potential for growth. These will often be
companies with shorter histories and less seasoned operations. Many of such
companies will have market capitalizations that are less than $1 billion,
with lower daily trading volume in their stocks and less overall liquidity
than larger, more well established companies. LB Research anticipates that
the common stocks of such companies may increase in market value more
rapidly than the stocks of other companies.
The Fund will focus primarily on companies that possess superior earnings
prospects over a three to five year time horizon. The stocks that the Fund
invests in may be traded on national exchanges or in the over-the-counter
market ("OTC"). There will be no limit on the proportion of the Fund's
investment portfolio that may consist of OTC stocks.
The Fund may dispose of securities held for a short period if the Fund's
investment adviser believes such disposition to be advisable. While LB
Research does not intend to select portfolio securities for the specific
purpose of trading them within a short period of time, LB Research does
intend to use an active method of management which will result in the sale
of some securities after a relatively brief holding period. This method of
management necessarily results in higher cost to the Fund due to the fees
associated with portfolio securities transactions. A higher portfolio
turnover rate may also result in taxes on realized capital gains to be borne
by shareholders. However, it is LB Research's belief that this method of
management can produce added value to the Fund and its shareholders that
exceeds the additional costs of such transactions. The annual portfolio
turnover rates of the Fund for the fiscal years ended October 31, 1995 and
October 31, 1994 were 213% and 64%, respectively.
For more information on other investment policies of the Fund, see
"Additional Investment Practices" below.
Lutheran Brotherhood World Growth Fund
The investment objective of the LB World Growth Fund is to seek total return
from long-term growth of capital. The Fund will pursue its objective
principally through investments in common stocks of established, non-U.S.
companies. Total return consists of capital appreciation or depreciation,
dividend income, and currency gains or losses.
The Fund intends to diversify investments broadly among countries and to
normally have at least three different countries represented in the Fund.
The Fund may invest in countries of the Far East and Western Europe as well
as South Africa, Australia, Canada and other areas (including developing
countries). As a temporary defensive measure, the Fund may invest
substantially all of its assets in one or two countries.
In seeking its objective, the Fund will invest primarily in common stocks of
established foreign companies which have the potential for growth of
capital. In order to increase total return, the Fund may also invest in
bonds and preferred stocks, convertible bonds, convertible preferred stocks,
warrants, American Depository Receipts (ADR's) and other debt or equity
securities. In addition, the Fund may invest in U.S. Government securities
or cash. The Fund will not use any minimum level of credit quality. At no
time will the Fund invest more than 5% of its net assets in debt obligations
or other securities that may be converted to debt obligations. Debt
obligations may be rated less than investment grade, which is defined as
having a quality rating below "Baa", as rated by Moody's Investors Service,
Inc. ("Moody's"), or below "BBB", as rated by Standard & Poor's Corporation
("S&P"). Debt obligations rated "Baa" or "BBB" are considered to have
speculative characteristics. For a description of Moody's and S&P's ratings,
see "Description of Debt Ratings". Securities rated below investment grade
are considered to be speculative and involve certain risks, including a
higher risk of default and greater sensitivity to interest rate and economic
changes.
In determining the appropriate distribution of investments among various
countries and geographic regions, the Sub-advisor considers the following
factors: prospects for relative economic growth between foreign countries;
expected levels of inflation; government policies influencing business
conditions; the outlook for currency relationships; and the range of
individual investment opportunities available to international investors.
In analyzing companies for investment, the Sub-advisor looks for one or more
of the following characteristics: an above-average earnings growth per
share; high return on invested capital; healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management;
and general operating characteristics which will enable the companies to
compete successfully in their market place. While current dividend income is
not a prerequisite in the selection of portfolio companies, the companies in
which the Fund invests normally will have a record of paying dividends, and
will generally be expected to increase the amounts of such dividends in
future years as earnings increase.
The Fund's investments also may include, but are not limited to, European
Depository Receipts ("EDRs"), other debt and equity securities of foreign
issuers, and the securities of foreign investment funds or trusts (including
passive foreign investment companies). For a discussion of the risks
involved in foreign investing see the section of this Prospectus entitled
"Foreign Issuers".
The Fund may engage in certain forms of options and futures transactions
that are commonly known as derivative securities transactions. These
derivative securities transactions are identified and described in the
sections of this Prospectus entitled "Put and Call Options" and "Financial
Futures and Options on Futures."
The Fund may use foreign currency exchange-related securities including
foreign currency warrants, principal exchange rate linked securities, and
performance indexed paper. The Fund does not expect to hold more than 5% of
its total assets in foreign currency exchange-related securities.
The Fund will normally conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering into forward contracts
to purchase or sell foreign currencies. The Fund will generally not enter
into a forward contract with a term of greater than one year.
The Fund will generally enter into forward foreign currency exchange
contracts only under two circumstances. First, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
Second, when Sub-advisor believes that the currency of a particular foreign
country may suffer or enjoy a substantial movement against another currency,
it may enter into a forward contract to sell or buy the former foreign
currency (or another currency which acts as a proxy for that currency)
approximating the value of some or all of the Fund's securities denominated
in such foreign currency. Under certain circumstances, the Fund may commit a
substantial portion of the entire value of its portfolio to the consummation
of these contracts. Sub-advisor will consider the effect such a commitment
of its portfolio to forward contracts would have on the investment program
of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted and the
Fund's total return could be adversely affected as a result.
For a discussion of foreign currency contracts and the risks involved
therein, see the section of this Prospectus entitled, "Investment Risks."
The Fund will not generally trade in securities for short-term profits, but,
when circumstances warrant, securities may be purchased and sold without
regard to the length of time held. The annual portfolio turnover rate of the
Fund is expected to be no more than 50%.
For more information on other investment policies of the Fund, see
"Additional Investment Practices" below.
Lutheran Brotherhood Fund
The investment objective of the LB Fund is to seek growth of capital and
income.
The Fund seeks to achieve its objective by investing in securities issued by
leading companies. The Fund may invest in the common stocks and other
securities of leading companies, including corporate bonds, notes, preferred
stock, and warrants. The Fund may also invest in U.S. Government securities
and cash. For purposes of the Fund's investment objective, companies are
deemed "leading" in terms of market share, asset size, cash flow and other
fundamental factors.
LB Research will use fundamental investment research techniques to seek out
those companies that have a leading position within their industry or within
the capital markets generally. LB Research will focus upon market shares,
growth in sales and earnings, market capitalization and asset size and
competitive dominance. These will often be mature companies with a lengthy
history and seasoned operations. Many of them will have market
capitalizations in excess of $1 billion.
The Fund may dispose of securities held for a short period if the Fund's
investment adviser believes such disposition to be advisable. LB Research
intends to use an active method of management and may select portfolio
securities for the specific purpose of trading them within a short period of
time, which will result in the sale of some securities after a relatively
brief holding period. This method of management necessarily results in
higher cost to the Fund due to the fees associated with portfolio securities
transactions. However, it is LB Research's belief that this method of
management can produce added value to the Fund and its shareholders that
exceeds the additional costs of such transactions. The annual portfolio
turnover rates of the Fund for the the fiscal years ended October 31, 1995
and October 31, 1994 were 127% and 234%, respectively.
For information on other investment policies of the Fund, see "Additional
Investment Practices" below.
Lutheran Brotherhood High Yield Fund
The investment objective of the LB High Yield Fund is to obtain high current
income and, secondarily, growth of capital.
The Fund seeks to achieve its investment objectives by investing primarily
in a diversified portfolio of professionally managed high yield, high risk
securities, many of which involve greater risks than higher quality
investments. The Fund may invest in high yield, high risk bonds, notes,
debentures and other income producing debt obligations and dividend paying
preferred stocks. These securities are commonly known as "junk bonds". High
yield, high risk securities will ordinarily carry a quality rating "Ba" or
lower by Moody's, "BB" or lower by S&P, or, if not rated, such securities
will be of comparable quality as determined by the Fund's investment
adviser. The Fund will use no minimum level of quality rating and may
purchase and hold securities in default. Securities having a quality rating
of Ba or BB and lower are considered to be speculative. See "Investment
Risks - LB High Yield Fund Investment Risks". For a description of Moody's
and S&P's ratings, see "Description of Debt Ratings".
The Fund may also invest in common stocks, warrants to purchase stocks,
bonds or preferred stock convertible into common stock, and other equity
securities. Investments in such securities will be made in pursuit of the
income and capital growth objectives of the Fund, but at no time will the
Fund invest more than 20% of its total assets in equity securities.
As a nonfundamental policy, during normal market conditions the Fund will
maintain at least 65% of its total assets, taken at market value, in lower
rated securities. The Fund may invest, without limit, in short-term money
market instruments when, in the opinion of LB Research, short-term
investments provide a better opportunity for achieving the Fund's objectives
than do longer term investments. When making short-term investments for such
purpose, the Fund will not be limited to a minimum quality level and may use
unrated instruments.
The Fund does not intend to engage in short-term trading but may dispose of
securities held for a short time if LB Research believes such disposition to
be advisable. The annual portfolio turnover rates of the Fund for the the
fiscal years ended October 31, 1995 and October 31, 1994 were 71% and 50%,
respectively.
For information on other investment policies of the Fund, see "Additional
Investment Practices" below.
Lutheran Brotherhood Income Fund
The investment objective of the LB Income Fund is to seek high current
income while preserving principal. The Fund's secondary investment objective
is to obtain long-term growth of capital in order to maintain investors'
purchasing power.
The Fund seeks to achieve its investment objectives by investing primarily
in debt securities such as bonds, notes, debentures, mortgage-backed
securities, other income producing debt obligations, and dividend paying
common and preferred stocks. Debt securities and preferred stock will be
rated "Baa" or higher by Moody's, "BBB" or higher by S&P, or, if not rated,
such securities will be of comparable quality in the opinion of LB Research.
Securities of such quality levels, although considered to be investment
grade or higher, have speculative characteristics. If a portfolio security's
quality rating drops below investment grade after the Fund has acquired the
security, the Fund may continue to hold the security in its portfolio.
Debt securities may bear fixed or variable rates of interest. They may
involve equity features such as conversion or exchange rights, warrants for
the acquisition of common stock of the same or a different issuer,
participation based on revenues, sales or profits, or the purchase of common
stock in a unit transaction (where corporate debt securities and common
stock are offered as a unit).
The Fund may engage in short-term trading and dispose of securities held for
a short time if LB Research believes such disposition to be advisable. This
method of management necessarily results in higher cost to the Fund due to
the fees associated with portfolio securities transactions. However, it is
LB Research's belief that this method of management can produce added value
to the Fund and its shareholders that exceeds the additional costs of such
transactions. The annual portfolio turnover rates of the Fund for the the
fiscal years ended October 31, 1995 and October 31, 1994 were 131% and 155%,
respectively.
For information on other investment policies of the Fund, see "Additional
Investment Practices" below.
Lutheran Brotherhood Municipal Bond Fund
The investment objective of the LB Municipal Bond Fund is to provide its
shareholders with a high level of current income which is exempt from
federal income tax.
The Fund seeks to achieve its investment objective by investing in a
diversified portfolio of municipal bonds. Municipal bonds are debt
obligations issued by or on behalf of states (including the District of
Columbia), territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities, the interest from
which is exempt from federal income tax. At least 80% of the Fund's total
assets will be invested in municipal bonds unless LB Research determines
that market conditions call for a temporary defensive posture.
The Fund does not generally intend to purchase securities if, as a result of
such purchase, more than 25% of the value of its total assets would be
invested in the securities of governmental subdivisions located in any one
state, territory or possession of the United States. The Fund may invest
more than 25% of the value of its total assets in industrial development
bonds. As to industrial development bonds, the Fund may invest up to 25% of
its total assets in securities issued in connection with the financing of
projects with similar characteristics, such as toll road revenue bonds,
housing revenue bonds or electric power project revenue bonds, or in
industrial development revenue bonds which are based, directly or
indirectly, on the credit of private entities in any one industry. This may
make the Fund more susceptible to economic, political or regulatory
occurrences affecting a particular industry or sector and increase the
potential for fluctuation of net asset value.
Municipal Bonds: Municipal bonds are generally issued to finance public
works, such as bridges and highways, housing, mass transportation projects,
schools and hospitals. Municipal bonds are also issued to repay outstanding
obligations, to raise funds for general operating expenses and to make loans
to other public institutions and facilities. The two principal
classifications of municipal bonds are "general obligation" and "revenue"
bonds. General obligation bonds are secured by the issuer's pledge and
ability to raise taxes to repay the principal and interest. Revenue bonds
are repayable only from the income earned from the facility financed by the
bond or other specific source of revenue. For example, income earned by a
housing development can be used to repay the bonds that raised the funds for
its construction.
Industrial Development Bonds: Industrial development bonds are considered
municipal bonds if the interest paid on them is exempt from federal income
tax. Industrial development bonds which qualify as municipal bonds are
almost always revenue bonds. They are issued by or on behalf of public
authorities to raise money for privately-operated housing facilities, sports
facilities, convention or trade show centers, airports, mass transit, port
facilities, parking areas, air or water pollution control facilities and
certain local facilities for water supply, gas, electricity or sewage
disposal.
Municipal Bonds Suitable for Investment: The Fund generally restricts its
investments to municipal bonds rated Aaa, Aa, A or Baa by Moody's, or AAA,
AA, A or BBB by S&P. Municipal bonds in the lowest rated category have
speculative characteristics. The Fund also may invest in municipal bonds
(but not industrial development bonds) that are not rated by Moody's or S&P
but, in the opinion of LB Research, would qualify for Standard & Poor's BBB
or Moody's Baa rating. Subsequent to its purchase by the Fund, an issue of
municipal bonds may cease to be rated or its rating may be reduced below the
minimums required for purchase by the Fund. Neither event requires the
elimination of such obligation from the Fund's portfolio, but LB Research
will consider such an event in its determination of whether the Fund should
continue to hold such obligation in its portfolio.
The annual portfolio turnover rates of the Fund for the the fiscal years
ended October 31, 1995 and October 31, 1994 were 36% and 38%, respectively.
For information on other investment policies of the Fund, see "Additional
Investment Practices" below.
Lutheran Brotherhood Money Market Fund
The LB Money Market Fund's investment objective is current income consistent
with stability of principal.
The Fund pursues this investment objective by investing in a portfolio of
money market instruments that mature in 397 days or less in order to obtain
current income and maintain a stable principal. The dollar-weighted average
maturity of money market instruments held by the LB Money Market Fund will
be 90 days or less. The policy of the Fund is generally to hold instruments
until maturity. However, the Fund may attempt to increase yield by trading
portfolio securities to take advantage of short-term market variations.
Permissible LB Money Market Fund investments include, but are not limited
to: U.S. Treasury bills and all other marketable obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
instruments of domestic and foreign banks and savings and loans; prime
commercial paper; variable amount demand master notes; repurchase
agreements; instruments secured by the obligations described above and
asset-backed securities.
The Fund will not purchase a security (other than U.S. Government
obligations) unless the security (i) is rated by at least two nationally
recognized statistical rating organizations (NRSROs) with the highest rating
assigned to short-term debt securities (or, if rated by only one NRSRO by
that NRSRO, or if not rated, is determined to be of comparable quality), or
(ii) is rated by at least two such NRSROs within the two highest ratings
assigned to short-term debt securities (or, if rated by only one NRSRO by
that NRSRO, or if not rated, is determined to be of comparable quality) and
not more than 5% of the assets of the Fund would be invested in such
securities. In addition, the Fund may not invest more than 1% of its total
assets or $1 million (whichever is greater) in the securities of a single
issuer included in clause (ii) above. Determinations of comparable quality
are made by LB Research in accordance with procedures established by the
Board of Trustees.
U.S. Government Obligations: The types of U.S. Government obligations in
which the Fund may invest include, but are not limited to: direct
obligations of the U.S. Treasury, such as U.S. Treasury bills, bonds and
notes; and instruments issued or guaranteed by the U.S. Government, its
agencies or instrumentalities which are backed by the full faith and credit
of the United States, the credit of the agency or instrumentality (a
governmental agency organized under federal charter with government
supervision) issuing the obligations, or the issuer's right to borrow from
the U.S. Treasury. These U.S. Government obligations may include notes,
bonds and discount notes issued by following agencies: Federal Land Banks;
Central Bank for Cooperatives; Federal Intermediate Credit Banks; Federal
Home Loan Banks; Farmers Home Administration; and Federal National Home
Mortgage Association.
Bank Instruments: The Fund invests only in instruments of domestic and
foreign banks and savings and loans if they have capital and surplus of over
$100,000,000 or the principal amount of the instrument in which the Fund is
investing is insured by the Federal Deposit Insurance Corporation (FDIC),
including domestic or Eurodollar certificates of deposit, demand and time
deposits, savings shares and bankers' acceptances.
Asset-Backed Securities: Asset-backed securities represent interests in
pools of consumer loans such as credit card receivables, leases on equipment
such as computers and other financial instruments. These securities provide
a flow-through of interest and principal payments as payments are received
on the loans or leases and may be supported by letters of credit or similar
guarantees of payment by a financial institution. These securities are
subject to the risks of non-payment of the underlying loans as well as the
risks of prepayment. An interest in a bank sponsored master trust which
holds the receivables for a major international credit card is an example of
an asset backed security; an interest in a trust which holds the customer
receivable for a large consumer products company is another example.
For information on other investment policies of the Fund, see "Additional
Investment Practices" below.
ADDITIONAL INVESTMENT PRACTICES
Various of the Funds may purchase the following securities or may engage in
the following transactions.
REPURCHASE AGREEMENTS
Each of the Funds may engage in repurchase agreement transactions in pursuit
of its investment objective. A repurchase agreement consists of a purchase
and a simultaneous agreement to resell for later delivery at an agreed upon
price and rate of interest U.S. Government obligations. The Fund or its
custodian will take possession of the obligations subject to a repurchase
agreement. If the original seller of a security subject to a repurchase
agreement fails to repurchase the security at the agreed upon time, the Fund
could incur a loss due to a drop in the market value of the security during
the time it takes the Fund to either sell the security or take action to
enforce the original seller's agreement to repurchase the security. Also, if
a defaulting original seller filed for bankruptcy or became insolvent,
disposition of such security might be delayed by pending court action. The
Fund may only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are found by
LB Research (or the Sub-advisor) to be creditworthy.
REVERSE REPURCHASE AGREEMENTS
Each of the Funds except the LB Money Market Fund also may enter into
reverse repurchase agreements, which are similar to borrowing cash. A
reverse repurchase agreement is a transaction in which the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker or dealer, in return for a percentage of the
instrument's market value in cash, with an agreement that at a stipulated
date in the future the Fund will repurchase the portfolio instrument by
remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not assure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time. The Fund will engage in reverse
repurchase agreements which are not in excess of 60 days to maturity and
will do so to avoid borrowing cash and not for the purpose of investment
leverage or to speculate on interest rate changes.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued and delayed
delivery basis. When-issued and delayed delivery transactions arise when
U.S. Government obligations and other types of securities are bought by the
Fund with payment and delivery taking place in the future. The settlement
dates of these transactions, which may be a month or more after entering
into the transaction, are determined by mutual agreement of the parties.
There are no fees or other expenses associated with these types of
transactions other than normal transaction costs. To the extent a Fund
engages in when-issued and delayed delivery transactions, it will do so for
the purpose of acquiring portfolio instruments consistent with its
investment objective and policies and not for the purpose of investment
leverage or to speculate on interest rate changes. On the settlement date,
the value of such instruments may be less than the cost thereof. When
effecting when-issued and delayed delivery transactions, cash, cash
equivalents or high grade debt obligations of a dollar amount sufficient to
make payment for the obligations to be purchased will be segregated at the
trade date and maintained until the transaction has been settled.
LENDING SECURITIES
Each of the Funds may from time to time lend the securities it holds to
broker-dealers, provided that such loans are made pursuant to written
agreements and are continuously secured by collateral in the form of cash,
U.S. Government securities, or irrevocable standby letters of credit in an
amount at all times equal to at least the market value of the loaned
securities plus the accrued interest and dividends. For the period during
which the securities are on loan, the lending Fund will be entitled to
receive the interest and dividends, or amounts equivalent thereto, on the
loaned securities and a fee from the borrower or interest on the investment
of the cash collateral. The right to terminate the loan will be given to
either party subject to appropriate notice. Upon termination of the loan,
the borrower will return to the Fund securities identical to the loaned
securities.
The primary risk in lending securities is that the borrower may become
insolvent on a day on which the loaned security is rapidly increasing in
value. In such event, if the borrower fails to return the loaned security,
the existing collateral might be insufficient to purchase back the full
amount of the security loaned, and the borrower would be unable to furnish
additional collateral. The borrower would be liable for any shortage, but
the lending Fund would be an unsecured creditor with respect to such
shortage and might not be able to recover all or any thereof. However, this
risk may be minimized by a careful selection of borrowers and securities to
be lent and by monitoring collateral.
No Fund will not lend securities to broker-dealers affiliated with LB
Research or the Sub-advisor. This will not affect the Fund's ability to
maximize its securities lending opportunities. No Fund may lend any security
or make any other loan if, as a result, more than one-third of its total
assets would be lent to other parties.
PUT AND CALL OPTIONS
(All Funds except the LB Money Market Fund)
SELLING ("WRITING") COVERED CALL OPTIONS: Certain of the Funds may from time
to time sell ("WRITE") covered call options on any portion of its portfolio
as a hedge to provide partial protection against adverse movements in prices
of securities in those Funds and, subject to the limitations described
below, for the non-hedging purpose of attempting to create additional
income. A call option gives the buyer of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of
a security on or before a fixed date at a predetermined ("strike") price. As
the writer of a call option, a Fund assumes the obligation to deliver the
underlying security to the holder of the option on demand at the strike
price.
If the price of a security hedged by a call option falls below or remains
below the strike price of the option, a Fund will generally not be called
upon to deliver the security. A Fund will, however, retain the premium
received for the option as additional income, offsetting all or part of any
decline in the value of the security. If the price of a hedged security
rises above or remains above the strike price of the option, the Fund will
generally be called upon to deliver the security. In this event, a Fund
limits its potential gain by limiting the value it can receive from the
security to the strike price of the option plus the option premium.
BUYING CALL OPTIONS: Certain of the Funds may also from time to time
purchase call options on securities in which those Funds may invest. As the
holder of a call option, a Fund has the right to purchase the underlying
security or currency at the exercise price at any time during the option
period (American style) or at the expiration of the option (European style).
A Fund generally will purchase such options as a hedge to provide protection
against adverse movements in the prices of securities which the Fund intends
to purchase. In purchasing a call option, a Fund would realize a gain if,
during the option period, the price of the underlying security increased by
more than the amount of the premium paid. A Fund would realize a loss equal
to all or a portion of the premium paid if the price of the underlying
security decreased, remained the same, or did not increase by more than the
premium paid.
BUYING PUT OPTIONS: Certain of the Funds may from time to time purchase put
options on any portion of its portfolio. A put option gives the buyer of the
option, upon payment of a premium, the right to deliver a specified amount
of a security to the writer of the option on or before a fixed date at a
predetermined ("strike") price. A Fund generally will purchase such options
as a hedge to provide protection against adverse movements in the prices of
securities in the Fund. In purchasing a put option, a Fund would realize a
gain if, during the option period, the price of the security declined by an
amount in excess of the premium paid. A Fund would realize a loss equal to
all or a portion of the premium paid if the price of the security increased,
remained the same, or did not decrease by more than the premium paid.
OPTIONS ON FOREIGN CURRENCIES: The LB World Growth Fund may also write
covered call options and purchase put and call options on foreign currencies
as a hedge against changes in prevailing levels of currency exchange rates.
SELLING PUT OPTIONS: The Funds may not sell put options, except in the case
of a closing purchase transaction (see Closing Transactions).
INDEX OPTIONS: As part of its options transactions, certain of the Funds may
also purchase and sell call options and purchase put options on stock and
bond indices. Options on securities indices are similar to options on a
security except that, upon the exercise of an option on a securities index,
settlement is made in cash rather than in specific securities.
CLOSING TRANSACTIONS: Certain of the Funds may dispose of options which they
have written by entering into "closing purchase transactions". Those Funds
may dispose of options which they have purchased by entering into "closing
sale transactions". A closing transaction terminates the rights of a holder,
or the obligation of a writer, of an option and does not result in the
ownership of an option.
A Fund realizes a profit from a closing purchase transaction if the premium
paid to close the option is less than the premium received by the Fund from
writing the option. The Fund realizes a loss if the premium paid is more
than the premium received. The Fund may not enter into a closing purchase
transaction with respect to an option it has written after it has been
notified of the exercise of such option.
A Fund realizes a profit from a closing sale transaction if the premium
received to close out the option is more than the premium paid for the
option. A Fund realizes a loss if the premium received is less than the
premium paid.
SPREADS AND STRADDLES: Certain of the Funds may also engage in "straddle"
and "spread" transactions in order to enhance return, which is a
speculative, non-hedging purpose. A straddle is established by buying both a
call and a put option onthe same underlying security, each with the same
exercise price and expirationdate. A spread is a combination of two or more
call options or put options onthe same security with differing exercise
prices or times to maturity. The particular strategies employed by a Fund
will depend on LB Research's or the Sub-advisor's perception of anticipated
market movements.
NEGOTIATED TRANSACTIONS: Certain of the Funds will generally purchase and
sell options traded on a national securities or options exchange. Where
options are not readily available on such exchanges, a Fund may purchase and
sell options in negotiated transactions. A Fund effects negotiated
transactions only with investment dealers and other financial institutions
deemed creditworthy by its investment adviser. Despite the investment
adviser's or sub-advisor's best efforts to enter into negotiated options
transactions with only creditworthy parties, there is always a risk that the
opposite party to the transaction may default in its obligation to either
purchase or sell the underlying security at the agreed upon time and price,
resulting in a possible loss by the Fund. This risk is described more
completely in the section of this Prospectus entitled, "Risks of
Transactions in Options and Futures". Options written or purchased by a Fund
in negotiated transactions are illiquid and there is no assurance that a
Fund will be able to effect a closing purchase or closing sale transaction
at a time when its Investment Adviser or Sub-advisor believes it would be
advantageous to do so. In the event the Fund is unable to effect a closing
transaction with the holder of a call option written by the Fund, the Fund
may not sell the security underlying the option until the call written by
the Fund expires or is exercised. The underlying securities on such
transactions will also be considered illiquid and are subject to the Fund's
15% illiquid securities limitations.
LIMITATIONS: A Fund will not purchase any option if, immediately thereafter,
the aggregate cost of all outstanding options purchased and held by the Fund
would exceed 5% of the market value of the Fund's total assets. A Fund will
not write any option if, immediately thereafter, the aggregate value of the
Fund's securities subject to outstanding options would exceed 30% of the
market value of the Fund's total assets.
FINANCIAL FUTURES AND OPTIONS ON FUTURES
(All Funds except the LB Money Market Fund)
SELLING FUTURES CONTRACTS: Certain of the Funds may sell financial futures
contracts ("futures contracts") as a hedge against adverse movements in the
prices of securities in those Funds. Such contracts may involve futures on
items such as U.S. Government Treasury bonds, notes and bills, government
mortgage-backed securities; corporate and municipal bond indices; and stock
indices. A futures contract sale creates an obligation for the Fund, as
seller, to deliver the specific type of instrument called for in the
contract at a specified future time for a specified price. In selling a
futures contract, the Fund would realize a gain on the contract if, during
the contract period, the price of the securities underlying the futures
contract decreased. Such a gain would be expected to approximately offset
the decrease in value of the same or similar securities in the Fund. The
Fund would realize a loss if the price of the securities underlying the
contract increased. Such a loss would be expected to approximately offset
the increase in value of the same or similar securities in the Fund.
Futures contracts have been designed by and are traded on boards of trade
which have been designated "contract markets" by the Commodity Futures
Trading Commission ("CFTC"). These boards of trade, through their clearing
corporations, guarantee performance of the contracts. Although the terms of
some financial futures contracts specify actual delivery or receipt of
securities, in most instances these contracts are closed out before the
settlement due date without the making or taking of delivery of the
securities. Other financial futures contracts, such as futures contracts on
a securities index, by their terms call for cash settlements. The closing
out of a futures contract is effected by entering into an offsetting
purchase or sale transaction.
When a Fund sells a futures contract, or a call option on a futures
contract, it is required to make payments to the commodities broker which
are called "margin" by commodities exchanges and brokers.
The payment of "margin" in these transactions is different than purchasing
securities "on margin". In purchasing securities "on margin" an investor
pays part of the purchase price in cash and receives an extension of credit
from the broker, in the form of a loan secured by the securities, for the
unpaid balance. There are two categories of "margin" involved in these
transactions: initial margin and variation margin. Initial margin does not
represent a loan between a Fund and its broker, but rather is a "good faith
deposit" by a Fund to secure its obligations under a futures contract or an
option. Each day during the term of certain futures transactions, a Fund
will receive or pay "variation margin" equal to the daily change in the
value of the position held by the Fund.
BUYING FUTURES CONTRACTS: Certain of the Funds may also purchase financial
futures contracts as a hedge against adverse movements in the prices of
securities which they intend to purchase. A futures contract purchase
creates an obligation by a Fund, as buyer, to take delivery of the specific
type of instrument called for in the contract at a specified future time for
a specified price. In purchasing a futures contract, a Fund would realize a
gain if, during the contract period, the price of the securities underlying
the futures contract increased. Such a gain would approximately offset the
increase in cost of the same or similar securities which a Fund intends to
purchase. a Fund would realize a loss if the price of the securities
underlying the contract decreased. Such a loss would approximately offset
the decrease in cost of the same or similar securities which a Fund intends
to purchase.
OPTIONS ON FUTURES CONTRACTS: Certain of the Funds may also sell ("write")
covered call options on futures contracts and purchase put and call options
on futures contracts in connection with hedging strategies. A Fund may not
sell put options on futures contracts. An option on a futures contract gives
the buyer of the option, in return for the premium paid for the option, the
right to assume a position in the underlying futures contract (a long
position if the option is a call and a short position if the option is a
put). The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of securities underlying the futures
contract to the extent of the premium received for the option. The purchase
of a put option on a futures contract constitutes a hedge against price
declines below the exercise price of the option and net of the premium paid
for the option. The purchase of a call option constitutes a hedge, net of
the premium, against an increase in cost of securities which a Fund intends
to purchase.
CURRENCY FUTURES CONTRACTS AND OPTIONS: The LB World Growth Fund may also
sell and purchase currency futures contracts (or options thereon) as a hedge
against changes in prevailing levels of currency exchange rates. Such
contracts may be traded on U.S. or foreign exchanges. The Fund will not use
such contracts or options for leveraging purposes.
LIMITATIONS: Certain of the Funds may engage in futures transactions, and
transactions involving options on futures, only on regulated commodity
exchanges or boards of trade. A Fund will not enter into a futures contract
or purchase or sell related options if immediately thereafter (a) the sum of
the amount of initial margin deposits on the Fund's existing futures and
related options positions and premiums paid for options with respect to
futures and options used for non-hedging purposes would exceed 5% of the
market value of the Fund's total assets or (b) the sum of the then aggregate
value of open futures contracts sales, the aggregate purchase prices under
open futures contract purchases, and the aggregate value of futures
contracts subject to outstanding options would exceed 30% of the market
value of the Fund's total assets. In addition, in instances involving the
purchase of futures contracts or call options thereon, a Fund will maintain
cash or cash equivalents, less any related margin deposits, in an amount
equal to the market value of such contracts. "Cash and cash equivalents" may
include cash, government securities, or liquid high quality debt
obligations.
HYBRID INVESTMENTS
As part of its investment program and to maintain greater flexibility, the
Fund may invest in hybrid instruments (a potentially high risk derivative)
which have the characteristics of futures, options and securities. Such
instruments may take a variety of forms, such as debt instruments with
interest or principal payments determined by reference to the value of a
currency, security index or commodity at a future point in time. The risks
of such investments would reflect both the risks of investing in futures,
options, currencies and securities, including volatility and illiquidity.
Under certain conditions, the redemption value of a hybrid instrument could
be zero. The Fund does not expect to hold more than 5% of its total assets
in hybrid instruments. For a discussion of hybrid investments and the risks
involved therein, see the Trust's Statement of Additional Information under
"Additional Information Concerning Certain Investment Techniques".
RISKS OF TRANSACTIONS IN OPTIONS AND FUTURES
There are certain risks involved in the use of futures contracts, options on
securities and securities index options, and options on futures contracts,
as hedging devices. There is a risk that the movement in the prices of the
index or instrument underlying an option or futures contract may not
correlate perfectly with the movement in the prices of the assets being
hedged. The lack of correlation could render a Fund's hedging strategy
unsuccessful and could result in losses. The loss from investing in futures
transactions is potentially unlimited.
There is a risk that LB Research or the Sub-advisor could be incorrect in
their expectations about the direction or extent of market factors such as
interest rate movements. In such a case a Fund would have been better off
without the hedge. In addition, while the principal purpose of hedging is to
limit the effects of adverse market movements, the attendant expense may
cause a Fund's return to be less than if hedging had not taken place. The
overall effectiveness of hedging therefore depends on the expense of hedging
and LB Research's or the Sub-advisor's accuracy in predicting the future
changes in interest rate levels and securities price movements.
A Fund will generally purchase and sell options traded on a national
securities or options exchange. Where options are not readily available on
such exchanges a Fund may purchase and sell options in negotiated
transactions. When a Fund uses negotiated options transactions it will seek
to enter into such transactions involving only those options and futures
contracts for which there appears to be an active secondary market. There is
nonetheless no assurance that a liquid secondary market such as an exchange
or board of trade will exist for any particular option or futures contract
at any particular time. If a futures market were to become unavailable, in
the event of an adverse movement, a Fund would be required to continue to
make daily cash payments of maintenance margin if it could not close a
futures position. If an options market were to become unavailable and a
closing transaction could not be entered into, an option holder would be
able to realize profits or limit losses only by exercising an option, and an
option writer would remain obligated until exercise or expiration. In
addition, exchanges may establish daily price fluctuation limits for options
and futures contracts, and may halt trading if a contract's price moves
upward or downward more than the limit in a given day. On volatile trading
days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for a Fund to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent
prompt liquidation of unfavorable positions, and potentially could require a
Fund to continue to hold a position until delivery or expiration regardless
of changes in its value. As a result, a Fund's access to other assets held
to cover its options or futures positions could also be impaired.
When conducting negotiated options transactions there is a risk that the
opposite party to the transaction may default in its obligation to either
purchase or sell the underlying security at the agreed upon time and price.
In the event of such a default, a Fund could lose all or part of benefit it
would otherwise have realized from the transaction, including the ability to
sell securities it holds at a price above the current market price or to
purchase a security from another party at a price below the current market
price.
The Funds intend to continue to meet the requirements of federal law to be
treated as a regulated investment company. One of these requirements is that
a Fund realize less than 30% of its annual gross income from the sale of
securities held for less than three months. Accordingly, the extent to which
a Fund may engage in futures contracts and related options may be materially
limited by this 30% test. Options activities of a Fund may increase the
amount of gains from the sale of securities held for less than three months,
because gains from the expiration of, or from closing transactions with
respect to, call options written by a Fund will be treated as short-term
gains and because the exercise of call options written by the Fund would
cause it to sell the underlying securities before it otherwise might.
Finally, if a broker or clearing member of an options or futures clearing
corporation were to become insolvent, a Fund could experience delays and
might not be able to trade or exercise options or futures purchased through
that broker or clearing member. In addition, a Fund could have some or all
of its positions closed out without its consent. If substantial and
widespread, these insolvencies could ultimately impair the ability of the
clearing corporations themselves.
TEMPORARY DEFENSIVE INVESTMENTS
The LB Opportunity Growth Fund, LB World Growth Fund, LB Fund, LB High Yield
Fund, LB Income Fund, and LB Municipal Bond Fund, may hold up to 100% of
their assets in cash or short-term debt securities for temporary defensive
position when, in the opinion of LB Research or the Sub-advisor such a
position is more likely to provide protection against unfavorable market
conditions than adherence to the Funds' other investment policies. The types
of short-term instruments in which the Funds may invest for such purposes
include short-term money market securities such as repurchase agreements and
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, Eurodollar certificates of
deposit, commercial paper and banker's acceptances issued by domestic and
foreign corporations and banks. When investing in short-term money market
obligations for temporary defensive purposes, a Fund will invest only in
securities rated at the time of purchase Prime-1 or Prime-2 by Moody's, A-1
or A-2 by S&P, F-1 or F-2 by Fitch Investors Service, Inc., or unrated
instruments that are determined by LB Research or the Sub-advisor to be of a
comparable level of quality. When a Fund adopts a temporary defensive
position its investment objective may not be achieved.
INVESTMENT LIMITATIONS
In seeking to lessen investment risk, each Fund operates under certain
investment restrictions. The restrictions in the following paragraphs may
not be changed with respect to any Fund except by a vote of a majority of
the outstanding voting securities of that Fund.
No Fund may, with respect to 75% of its total assets, purchase the
securities of any issuer (except Government Securities, as such term is
defined in the Investment Company Act of 1940) if, as a result, the Fund
would own more than 10% of the outstanding voting securities of such issuer
or the Fund would have more than 5% of its total assets invested in the
securities of such issuer. The LB Opportunity Growth Fund, LB World Growth
Fund, LB Fund, LB High Yield Fund, LB Income Fund, and LB Money Market Fund
may not invest in a security if the transaction would result in 25% or more
of the Fund's total assets being invested in any one industry.
A Fund other than the LB Money Market Fund may borrow (through reverse
repurchase agreements or otherwise) up to one-third of its total assets. If
a Fund borrows money its share price will be subject to greater fluctuation
until the borrowing is paid off. If a Fund makes additional investments
while borrowings are outstanding, this may be considered a form of leverage.
If borrowings, including reverse repurchase agreements, exceed 5% of a
Fund's total assets, such Fund will not purchase portfolio securities.
For further information on these and other investment restrictions,
including nonfundamental investment restrictions which may be changed
without a shareholder vote, see the Statement of Additional Information.
INVESTMENT RISKS
Special risks are associated with investments in some of the Funds, beyond
the standard level of risks. These risks are described below. An investor
should take into account his or her investment objectives and ability to
absorb a loss or decline in his or her investment when considering an
investment in such Funds. Investors in certain of the Funds assume an above
average risk of loss, and should not consider an investment those Funds to
be a complete investment program.
LB Opportunity Growth Fund Investment Risks
The LB Opportunity Growth Fund is aggressively managed and invests primarily
in the stocks of smaller, less seasoned companies many of which are traded
on an over-the-counter basis, rather than on a national exchange. These
companies represent a relatively higher degree of risk than do the stocks of
larger, more established companies. The companies the LB Opportunity Growth
Fund invests in also tend to be more dependent on the success of a single
product line and have less experienced management. They tend to have smaller
market shares, smaller capitalization, and less access to sources of
additional capital. As a result, these companies tend to have less ability
to cope with problems and market downturns and their shares of stock tend to
be less liquid and more volatile in price.
LB World Growth Fund Investment Risks
The Fund, may invest in stocks of foreign issuers and in "ADRs" "EDRs" of
foreign stocks. When investing in foreign stocks, ADRs and EDRs, the Fund
assumes certain additional risks that are not present with investments in
stocks of domestic companies. These risks include political and economic
developments such as possible expropriation or confiscatory taxation that
might adversely affect the market value of such stocks, ADRs and EDRs. In
addition, there may be less publicly available information about such
foreign issuers than about domestic issuers, and such foreign issuers may
not be subject to the same accounting, auditing and financial standards and
requirements as domestic issuers.
OTHER RISKS OF FOREIGN INVESTING INCLUDE:
Foreign Securities. Investments in securities of foreign issuers may involve
risks that are not present with domestic investments. While investments in
foreign securities are intended to reduce risk by providing further
diversification, such investments involve sovereign risk in addition to
credit and market risks. Sovereign risk includes local political or economic
developments, potential nationalization, withholding taxes on dividend or
interest payments, and currency blockage (which would prevent cash from
being brought back to the United States). Compared to United States issuers,
there is generally less publicly available information about foreign issuers
and there may be less governmental regulation and supervision of foreign
stock exchanges, brokers and listed companies. Fixed brokerage commissions
on foreign securities exchanges are generally higher than in the United
States. Foreign issuers are not generally subject to uniform accounting and
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic issuers. Securities of some
foreign issuers are less liquid and their prices are more volatile than
securities of comparable domestic issuers. In some countries, there may also
be the possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, difficulty in enforcing contractual
and other obligations, political or social instability or revolution, or
diplomatic developments which could affect investments in those countries.
Settlement of transactions in some foreign markets may be delayed or less
frequent than in the United States, which could affect the liquidity of
investments. For example, securities which are listed on foreign exchanges
or traded in foreign markets may trade on days (such as Saturday) when the
Fund does not compute its price or accept orders for the purchase,
redemption or exchange of its shares. As a result, the net asset value of
the Fund may be significantly affected by trading on days when shareholders
cannot make transactions. Further, it may be more difficult for the Trust's
agents to keep currently informed about corporate actions which may affect
the price of portfolio securities. Communications between the U.S. and
foreign countries may be less reliable than within the U.S., increasing the
risk of delayed settlements or loss of certificates for portfolio
securities.
Investments by the Fund in foreign companies may require the Fund to hold
securities and funds denominated in a foreign currency. Foreign investments
may be affected favorably or unfavorably by changes in currency rates and
exchange control regulations. Thus, the Fund's net asset value per share
will be affected by changes in currency exchange rates. Changes in foreign
currency exchange rates may also affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to shareholders of
the Fund. They generally are determined by the forces of supply and demand
in foreign exchange markets and the relative merits of investment in
different countries, actual or perceived changes in interest rates or other
complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. In
addition, the Fund may incur costs in connection with conversions between
various currencies. Investors should understand and consider carefully the
special risks involved in foreign investing. These risks are often
heightened for investments in emerging or developing countries.
Developing Countries. Investing in developing countries involves certain
risks not typically associated with investing in U.S. securities, and
imposes risks greater than, or in addition to, risks of investing in
foreign, developed countries. These risks include: the risk of
nationalization or expropriation of assets or confiscatory taxation;
currency devaluations and other currency exchange rate fluctuations; social,
economic and political uncertainty and instability (including the risk of
war); more substantial government involvement in the economy; higher rates
of inflation; less government supervision and regulation of the securities
markets and participants in those markets; controls on foreign investment
and limitations on repatriation of invested capital and on the Fund's
ability to exchange local currencies for U.S. dollars; unavailability of
currency hedging techniques in certain developing countries; the fact that
companies in developing countries may be smaller, less seasoned and newly
organized companies; the difference in, or lack of, auditing and financial
reporting standards, which may result in unavailability of material
information about issuers; the risk that it may be more difficult to obtain
and/or enforce a judgment in a court outside the United States; and greater
price volatility, substantially less liquidity and significantly smaller
market capitalization of securities markets.
American Depository Receipts (ADRs) and European Depository Receipts (EDRs):
ADRs are dollar-denominated receipts generally issued by a domestic bank
that represents the deposit of a security of a foreign issuer. ADRs may be
publicly traded on exchanges or over-the-counter in the United States. EDRs
are receipts similar to ADRs and are issued and traded in Europe. ADRs and
EDRs may be issued as sponsored or unsponsored programs. In sponsored
programs, the issuer makes arrangements to have its securities traded in the
form of ADRs or EDRs. In unsponsored programs, the issuer may not be
directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are
generally similar, the issuers of unsponsored ADRs or EDRs are not obligated
to disclose material information in the United States and, therefore, the
import of such information may not be reflected in the market value of such
securities.
CURRENCY FLUCTUATIONS. Investment in securities denominated in foreign
currencies involves certain risks. A change in the value of any such
currency against the U.S. dollar will result in a corresponding change in
the U.S. dollar value of a Fund's assets denominated in that currency. Such
changes will also affect a Fund's income. Generally, when a given currency
appreciates against the dollar (the dollar weakens) the value of a Fund's
securities denominated in that currency will rise. When a given currency
depreciates against the dollar (the dollar strengthens) the value of a
Fund's securities denominated in that currency would be expected to decline.
LB High Yield Fund Investment Risks
Investment in high yield, high risk securities (sometimes referred to as
"junk bonds") involves a greater degree of risk than investment in higher
quality securities. Investment in high yield, high risk securities involves
increased financial risk due to the higher risk of default by the issuers of
bonds and other debt securities having quality rating of "Ba" or lower by
Moody's or "BB" or lower by Standard & Poor's. The higher risk of default
may be due to higher debt leverage ratios, a history of low profitability or
losses, or other fundamental factors that weaken the ability of the issuer
to service its debt obligations.
In addition to the factors of issuer creditworthiness described above, high
yield, high risk securities generally involve a number of additional market
risks. These risks include:
Youth and Growth of High Yield, High Risk Market: The high yield, high risk
bond market is relatively new. While many of the high yield issues currently
outstanding have endured an economic recession, there can be no assurance
that this will be true in the event of increased interest rates or
widespread defaults brought about by a more severe and sustained economic
downturn.
Sensitivity to Interest Rate and Economic Changes: The market value of high
yield, high risk securities have been found to be less sensitive to interest
rate changes on a short-term basis than higher-rated investments, but more
sensitive to adverse economic developments or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may be more likely to experience
financial stress which would impair their ability to service their principal
and interest payment obligations or obtain additional financing. In the
event the issuer of a bond defaults on payments, the LB High Yield Fund may
incur additional expenses in seeking recovery. In periods of economic change
and uncertainty, market values of high yield, high risk securities and the
LB High Yield Fund's assets value may become more volatile. Furthermore, in
the case of zero coupon or payment-in-kind high yield, high risk securities,
market values tend to be more greatly affected by interest rate changes than
securities which pay interest periodically and in cash. Changes in the
market value of securities owned by the LB High Yield Fund will not affect
cash income but will affect the net asset value of the Fund's shares.
Payment Expectations: High yield, high risk securities, like higher quality
securities, may contain redemption or call provisions, which allow the
issuer to redeem a security in the event interest rates drop. In this event,
the LB High Yield Fund would have to replace the issue with a lower yielding
security, resulting in a decreased yield for investors.
Liquidity and Valuation: High yield, high risk securities at times tend to
be more thinly traded and are less likely to have an estimated retail
secondary market than investment grade securities. This may adversely impact
the LB High Yield Fund's ability to dispose of particular issues and to
accurately value securities in the LB High Yield Fund's portfolios. Also,
adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease market values and liquidity, especially
on thinly traded issues.
Taxation: High yield, high risk securities structured as zero coupon or
payment-in-kind issues may require the LB High Yield Fund to report interest
on such securities as income even though the LB High Yield Fund receives no
cash interest on such securities until the maturity or payment date. The LB
High Yield Fund may be required to sell other securities to generate cash to
make any required dividend distribution.
Limiting Investment Risk
LB Research believes that the risks of investing in high yield, high risk
securities can be reduced by the use of professional portfolio management
techniques including:
Credit Research: LB Research will perform it owns credit analysis in
addition to using recognized rating agencies and other sources, including
discussions with the issuer's management, the judgment of other investment
analysts and its own judgment. The adviser's credit analysis will consider
such factors as the issuer's financial soundness, its responsiveness to
changes in interest rates and business conditions, its anticipated cash
flow, asset values, interest or dividend coverage and earnings.
Diversification: The LB High Yield Fund invests in widely diversified
portfolio of securities to minimize the impact of a loss in any single
investment and to reduce portfolio risk. As of October 31, 1995, the LB High
Yield Fund held securities of 104 corporate issuers, and the LB High Yield
Fund's holdings had the following credit quality characteristics:
Percentage of
Investment Net Assets
- ---------- ------------
Short-term securities
AAA equivalent 5.2%
Government obligations --
Corporate obligations
AAA/Aaa --
AA/Aa --
A/A --
BBB/Baa 0.3%
BB/Ba 8.6%
B/B 48.1%
CCC/Caa 14.0%
CC/Ca 1.3%
D/D 0.2%
Not rated 3.8%
Other Net Assets 18.5%
------
Total 100.0%
Economic and Market Analysis: LB Research will analyze current developments
and trends in the economy and in the financial markets. The LB High Yield
Fund may invest in higher quality securities in the event that investment in
high yield, high risk securities is deemed to present unacceptable market or
financial risk.
BUYING SHARES OF THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
INITIAL PURCHASES
The Funds are a family of mutual funds offering investment opportunities to
members of Lutheran Brotherhood and to Lutheran church organizations,
trusts, and employee benefit plans. Lutheran Brotherhood membership is open
to any person who is (1) baptized in the Christian faith or affiliated with
a Lutheran church organization and (2) professes to be a Lutheran, or to any
non-Lutheran who is a spouse, dependent child, or grandchild of a member or
qualified proposed member.
To make your first purchase of shares of the Funds:
* complete and sign an application included in this booklet;
* enclose a check made payable to the Fund you have chosen: Lutheran
Brotherhood Opportunity Growth Fund, Lutheran Brotherhood World Growth Fund,
Lutheran Brotherhood Fund, Lutheran Brotherhood High Yield Fund, Lutheran
Brotherhood Income Fund, Lutheran Brotherhood Municipal Bond Fund, or
Lutheran Brotherhood Money Market Fund; and
* mail your application and check to Lutheran Brotherhood Securities, 625
Fourth Avenue S., Minneapolis, MN 55415.
SUBSEQUENT PURCHASES
To purchase additional shares of any of The Lutheran Brotherhood Family of
Funds, send a check payable to the Fund to LB Securities together with a
completed To Invest By Mail form. You may also buy additional Fund shares
through:
* your LB Securities representative;
* the Systematic Investment Plan (SIP), under which you authorize
automatic monthly payments to the Fund from your checking account;
* the automatic Payroll Deduction Plan;
* Invest-by-Phone; or
* Federal Reserve or bank wire.
INVEST-BY-PHONE
The Fund's Invest-by-Phone service allows you to telephone LB Securities to
request the purchase of Fund shares. You must first complete an Account
Privileges Application permitting LB Securities to accept your telephoned
requests. When LB Securities receives your telephoned request, it will draw
funds directly from your preauthorized bank account at a commercial or
savings bank or credit union. The bank or credit union must be a member of
the Automated Clearing House system. To use this service, you may call 800-
328-4552 or (612) 339-8091 before 4:00 p.m. (Eastern time). Funds will be
withdrawn from your bank or credit union account and shares will be
purchased for you at the price next calculated by the Fund after receipt of
funds from your bank. This service may also be used to redeem shares. See
"Redeeming Shares."
FEDERAL RESERVE OR BANK WIRE
You may purchase shares by Federal Reserve or bank wire directly to Norwest
Bank Minnesota, N.A. This method will result in a more rapid investment in
Fund shares. To wire Funds:
Notify LBSC of a pending wire, call: (800) 328-4552, or (612) 339-8091
(local)
Wire to: Norwest Bank of Minneapolis, NA
Norwest Bank
6th Street and Marquette Avenue
Minneapolis, MN 55479
ABA Routing #: 091000019
Account #: 00-003-156
Account Name: Lutheran Brotherhood Securities Corp.
Use text message to indicate:
Transfer for - shareholder name(s), fund and account number, LB
Representative name and number.
Your LB Securities representative can explain any of these investment plans.
MINIMUM INVESTMENTS REQUIRED
Minimum investments required for the Fund are $500 for an initial purchase
and $50 for additional purchases. An initial purchase of $50 is permitted
for tax-deferred retirement plans, and Systematic Investment plans, and
payroll plans.
Minimum investments required for each of The Lutheran Brotherhood Family of
Funds are outlined below.
<TABLE>
<CAPTION>
First Additional
Purchase Purchases
-------- ---------
<S> <C> <C>
Lutheran Brotherhood Opportunity Growth Fund $ 500(1)(2) $50
Lutheran Brotherhood World Growth Fund $ 500(1)(2) $50
Lutheran Brotherhood Fund $ 500(1)(2) $50
Lutheran Brotherhood High Yield Fund $ 500(1)(2) $50
Lutheran Brotherhood Income Fund $ 500(1)(2) $50
Lutheran Brotherhood Municipal Bond Fund $ 500(2) $50
Lutheran Brotherhood Money Market Fund $1,500(3) $50
______________________
</TABLE>
(1) $50 initial purchase for tax-deferred retirement plans.
(2) $50 initial purchase under Systematic Investment Plan and payroll
deduction plans.
(3) $100 initial purchase under Systematic Investment Plan and payroll
deduction plans.
EXCHANGING SHARES BETWEEN FUNDS
You may exchange at relative net asset value shares of the Fund for any of
the other funds in the Lutheran Brotherhood Family of Funds, including LB
Opportunity Growth Fund, LB World Growth Fund, LB Fund, LB High Yield Fund,
LB Income Fund, and LB Municipal Bond Fund.
Shares of the LB Money Market Fund acquired in such exchanges, including
shares of that Fund acquired by reinvestment of dividends and held in the LB
Money Market Fund may be re-exchanged at relative net asset value for shares
of the Fund and the other Lutheran Brotherhood Funds. Shares of the LB Money
Market Fund not acquired in such an exchange may be exchanged at relative
net asset value plus the applicable sales load for shares of the Fund. Each
exchange constitutes a sale of shares requiring the calculation of a capital
gain or loss for tax reporting purposes. To obtain an exchange form or to
receive more information about making exchanges between funds, contact your
LB Securities representative. This exchange offer may be modified or
terminated in the future. If the exchange offer is materially modified or
terminated, you will receive at least 60 days prior notice.
TELEPHONE EXCHANGES
You may make the type of exchanges between Funds described above by
telephone unless otherwise indicated on the account application. You may
make an unlimited number of telephone exchanges. Telephone exchanges must be
for a minimum amount of $500. Telephone exchanges may be made only into
existing Fund or LB Money Market Fund accounts, and all accounts involved in
telephone exchanges must have the same ownership registration. To request a
telephone exchange, call toll-free (800) 328-4552; or (612) 339-8091.
The Funds reserve the right to refuse a wire or telephone redemption or
exchange if it is reasonably believed to be unauthorized. Procedures for
redeeming or exchanging Fund shares by wire or telephone may be modified or
terminated at any time by the Funds. When requesting a redemption or
exchange by telephone, shareholders should have available the correct
account registration and account number or tax identification number. All
telephone redemptions and exchanges are recorded and written confirmations
are subsequently mailed to an address of record. Neither the Funds nor LB
Securities will be liable for following redemption or exchange instructions
received by telephone, which are reasonably believed to be genuine, and the
shareholder will bear the risk of loss in the event of unauthorized or
fraudulent telephone instructions. The Funds and LB Securities will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. The Funds and/or LB Securities may be liable for any losses due
to unauthorized or fraudulent instructions in the absence of following these
procedures.
WHAT YOUR SHARES WILL COST
The offering price of the Fund is the next determined net asset value (which
will fluctuate) plus any applicable sales charge.
NET ASSET VALUE OF YOUR SHARES
LB Money Market Fund seeks to maintain a stable $1.00 net asset value
pursuant to procedures established by the Board of Trustees in connection
with the amortized cost method of portfolio valuation. The net asset value
for the other six Funds varies with the value of their investments. Each
Fund determines its net asset value by adding the value of its portfolio
securities to all other Fund assets, subtracting the Fund's liabilities, and
dividing the result by the number of shares outstanding.
The Funds determine their net asset value on each day the New York Stock
Exchange is open for business, except July 5, 1996, the day after
Thanksgiving, and the day before Christmas. The calculation is made as of
the close of regular trading of the New York Stock Exchange (currently 4:00
p.m. Eastern time) after the Fund has declared any applicable dividends.
SALES CHARGES
Sales charges apply to purchases of each Fund except the LB Money Market
Fund. These sales charges vary from 1/2 of 1% to 5% of the offering price,
depending upon the amount purchased, including the value of existing
investments. The larger your purchase, the smaller the sales charge.
Offering prices in this table apply to purchases by an individual or by an
individual together with spouse and children under the age of 21. The LB
Money Market Fund has no sales charge.
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS A AS A
PERCENTAGE OF PERCENTAGE OF
AMOUNT INVESTED OFFERING PRICE AMOUNT INVESTED
- -------------------------------------------------------------------------
<S> <C> <C>
$500,000 or more 0.5% 0.5%
$250,000 and above but less than $500,000 1% 1%
$100,000 and above but less than $250,000 2% 2%
$50,000 and above but less than $100,000 3% 3.1%
$25,000 and above but less than $50,000 4% 4.2%
$15,000 and above but less than $25,000 4.5% 4.7%
Less than $15,000 5% 5.3%
</TABLE>
EXCHANGING SHARES
If you already paid a sales charge on your shares, you may exchange shares
between Funds without paying additional sales charges.
REDUCTION IN SALES CHARGES
Ways to reduce the sales charge include:
CUMULATIVE DISCOUNT: All current holdings of shares of LB Opportunity Growth
Fund, LB World Growth Fund, LB Fund, LB High Yield Fund, LB Income Fund, LB
Municipal Bond Fund, or LB Money Market Fund will be aggregated to permit
you to enjoy any sales charge reduction allowed for larger sales. The Funds
will combine purchases, including the value of existing investments, made by
you, your spouse and your children under age 21 when it calculates your
sales charge. In addition, reduced sales charges are available for purchases
made at one time by a trustee or fiduciary for a single trust estate or a
single fiduciary account. You must inform LB Securities that you qualify for
this discount.
REINVESTMENT OF DIVIDENDS: Shares purchased by automatic reinvestment of
dividends will not be subject to any sales charges.
THIRTEEN-MONTH LETTER OF INTENT: If you intend to accumulate $15,000 or
more, including the value of existing investments, in one or more of the
Funds within the next 13 months, you may sign a letter of intent and receive
a reduced sales charge on your share purchases.
REINVESTMENT UPON REDEMPTION: If you redeem any or all of your LB
Opportunity Growth Fund, LB World Growth Fund, LB Fund, LB High Yield Fund,
LB Income Fund, or LB Municipal Bond Fund shares or received cash dividends
from one of the Funds, you may reinvest the amount in any of these six Funds
without paying a sales charge. You must make your reinvestment within 30
days after redeeming your shares.
FUNDS FROM LUTHERAN BROTHERHOOD AND OTHER LIFE INSURANCE AND ANNUITIES: If
Fund shares are purchased with lump sum proceeds (does not apply to period
payments) that are payable in the form of death benefits from any life
insurance or annuity contract, insured endowment benefits, or matured
annuity benefits issued by Lutheran Brotherhood, and are purchased within 90
days of the issuance of such benefits, the sales charge for such shares will
be reduced to one-half of the usual charge for such a purchase. If
additional shares are also purchased with benefits payable under similar
contracts or policies of other insurance companies, and such benefits have
become payable as a result of the same occurrence for which the Lutheran
Brotherhood benefits became payable, the sales charge for such additional
purchase will also be reduced to one-half of the usual charge for such a
purchase. To qualify for the reduction in sales charge, either such purchase
must be made within 90 days of the date that such benefits were issued.
PURCHASES BY TAX-EXEMPT ORGANIZATIONS: Fund shares are available at one-
half of the regular sales charge if purchased by organizations qualifying
for tax-exemption under Sections 501(c)(3) and 501(c)(13) of the Internal
Revenue Code. Section 501(c)(3) generally would include organizations such
as community chests, churches, universities and colleges, libraries and
other foundations or organizations operated exclusively for charitable
purposes. Section 501(c)(13) would generally include companies such as
cemetery companies and other companies owned and operated exclusively for
the benefit of their members and also includes not-for-profit companies.
RECEIVING YOUR ORDER
Shares of the Funds are issued on days on which the New York Stock Exchange
is open, except July 5, 1996, the day after Thanksgiving, and the day before
Christmas. The net asset value of the shares you are buying will be
determined at the close of the regular trading session of the New York Stock
Exchange after your order is received.
Your order will be considered received when your check or other payment is
received by the home office of LB Securities. The Funds reserve the right to
reject any purchase request.
CERTIFICATES AND STATEMENTS
As transfer agent for the Funds, LB Securities will maintain a share account
for you. Share certificates will not be issued. Systematic Investment Plan,
Systematic Withdrawal Plan and Systematic Exchange Plan transactions, as
well as dividend transactions (including dividends reinvested to other
funds) will be confirmed on the quarterly consolidated statement. All
transactions will be reported as they occur.
REDEEMING SHARES
One of the advantages of owning shares in The Lutheran Brotherhood Family of
Funds is the rapid access you have to your investment. Once your request for
redemption has been received at the home office of LB Securities, your
shares will be redeemed at the next computed net asset value on any day on
which the New York Stock Exchange is open for business, except the day after
Thanksgiving, or any other day as provided under the rules of the Securities
and Exchange Commission. That net asset value may be more or less than the
net asset value at the time you bought the shares.
You may redeem your shares at any time you choose. The redemption method you
choose will determine exactly when you will receive your funds.
All seven Lutheran Brotherhood funds allow you to redeem your shares:
* in writing;
* through Redeem-by-Phone; or
* through the Fund's systematic withdrawal plan.
The LB Money Market Fund also allows you to redeem funds by writing a check,
or by using your VISA debit card.
WRITTEN REQUESTS
To redeem all or some of your shares, send a written request to:
Lutheran Brotherhood Securities Corp.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
YOUR SIGNATURE: Your signature on the redemption request must be
guaranteed by:
* a trust company or commercial bank;
* a savings association;
* a credit union; or
* a securities broker, dealer, exchange, association, or clearing agency.
The Fund will not accept signatures that are notarized by a notary public.
RECEIVING YOUR CHECK: Normally, each Fund will mail you a check within one
business day after it receives a proper redemption request, but in no event
more than three days, unless the Fund has not received payment for the
shares to be redeemed. (See "Redemption before Purchase Instruments Clear.")
REDEEM BY PHONE
If you have completed an Account Privileges Application, you may redeem
shares with a net asset value of at least $1,000 and have them transmitted
electronically to your commercial bank by the second business day after your
redemption request. This feature is NOT available on IRA or other Tax
Deferred Plans.
SYSTEMATIC WITHDRAWAL
Shareholders owning or buying shares with a net asset value of at least
$5,000 may order automatic monthly, quarterly, semiannual or annual
redemptions in any amount. The proceeds will be sent to the shareholder or
other designated payee, or may be deposited in the shareholder's commercial
bank, savings bank or credit union.
Income dividends and capital gains distributions will continue to be
reinvested in additional Fund shares. Shares will be redeemed as necessary
to make automatic payments to the shareholder.
You may, at any time, elect to have Federal income taxes withheld from your
IRA or TSCA distributions, or change the amount currently being withheld. To
make the election, please complete and return a Redemption form, or the
Systematic Withdrawal section or the IRA/TSCA Distributions section of the
Account Features Application which includes the IRS required Substitute W4P.
Shareholders who are making automatic withdrawals ordinarily should not
purchase Fund shares, but rather should terminate withdrawals in order to
avoid sales charges.
Writing a Check
Redeeming by check allows you to continue earning daily income dividends
until your check clears. This service is offered for LB Money Market Fund
shares only.
Establishing a checking account: Upon opening your LB Money Market
Account, State Street Bank will automatically establish an LB Money Market
Fund checking account for you.
Using your LB Money Market checking account: With a LB Money Market Fund
checking account, you may redeem your shares simply by writing a check in
any amount over $250. However, you may not write a check for the entire
balance of your account. If you redeem shares by check before State Street
Bank has collected your payment for shares purchased by check, State Street
Bank will return your check marked "insufficient funds."
The check may be cashed or deposited like any other check. When it is
received by State Street Bank for payment, the bank will present the check
to the Fund and redeem enough of your shares to cover the amount. The
redemption will be made at the net asset value on the date that State Street
Bank presents the check. Your cancelled checks and a statement will be sent
to you each month.
When you open a LB Money Market Fund checking account, you will be subject
to State Street Bank's checking account rules and regulations. State Street
Bank and the LB Money Market Fund have the right to modify or terminate
checking account privileges or to charge for establishing or maintaining a
checking account. There are no current charges for establishing or
maintaining a checking account.
VISA Debit Cards
At your request, and subject to credit approval (unless you have an Optimum
Account), State Street Bank will establish a VISA account for you. This
service is offered for LB Money Market Fund shares only.
With a VISA debit card, you authorize the redemption of your shares by using
the card. You may request a VISA account by asking your LB Securities
representative.
Using your VISA debit card: The VISA debit card may be used to purchase
merchandise or services from merchants honoring VISA or to obtain cash
advances (which a bank may limit to $5,000 per account per day) from any
bank honoring VISA.
Redeeming your shares: a) Purchases. Purchase transactions are escrowed,
or held against your current Money Market account balance. At month end the
total escrowed purchases are redeemed from your Money Market account. b)
Cash Advances. Enough shares will be redeemed from your LB Money Market Fund
account on the date the cash advance advice reaches State Street Bank. You
will continue to earn daily income dividends on Fund shares up to the date
they are redeemed.
Rules and fees: When you receive a LB Money Market Fund VISA debit card,
you will be subject to State Street Bank's VISA account regulations. State
Street Bank charges an annual VISA fee of $25 to cover its fees and
administrative costs. A fee of $1.75 is charged each time an Automated
Teller Machine (ATM) is used. Enough shares will be redeemed automatically
from your account to pay the fee. Lost or stolen cards should be reported
immediately to State Street Bank at toll-free (800) 543-6325.
State Street Bank and the LB Money Market Fund have the right to modify or
terminate the VISA debit card privilege or to impose additional charges for
establishing or maintaining a VISA account upon 30 days prior written
notice.
Statements: In addition to the quarterly LB Money Market Fund account
statement, you will receive a monthly statement from State Street Bank
listing VISA transactions.
DIVIDENDS ON REDEMPTION
If you redeem all your shares, the redemption proceeds will include all
dividends to which you have become entitled since they were last paid.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
If you redeem shares purchased by check before State Street Bank has
collected your payment for such shares, State Street Bank reserves the right
to hold payment on such redemption until it is reasonably satisfied that the
investment has been collected (which could take up to 15 days from the
purchase date).
UNDELIVERABLE MAIL
If mail from LB Securities to a shareholder is returned as undeliverable on
two or more consecutive occasions, LB Securities will not send any future
mail to the shareholder unless it receives notification of a correct mailing
address for the shareholder. Any dividends that would be payable by check to
such shareholders will be held in escrow by LB Securities until LB
Securities receives notification of the shareholder's correct mailing
address or until it becomes escheatable under the applicable state law.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Funds
may redeem shares in any account if the net asset value of shares in the
account falls below a certain minimum. The required minimum net asset value
for share accounts is $500 for all Funds except LB Money Market Fund, which
has a minimum net asset value for share accounts of $1,000.
Before shares are redeemed to close an account, the shareholder is notified
in writing and allowed 60 days to purchase additional shares. Shares will
not be redeemed if the account's value drops below the minimum only because
of market fluctuations.
BACKUP WITHHOLDING
When you sign your account application you will be asked to certify that
your social security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failure to report income
to the IRS. If you violate IRS regulations, the IRS can generally require
the Funds to withhold 31% of your taxable distributions and redemptions.
FOR MORE INFORMATION
For more information about the Fund or your shares, see your LB Securities
representative or call toll-free:
* (800) 328-4552 or
* (612) 339-8091 local.
DIVIDENDS AND CAPITAL GAINS
DIVIDENDS
Each Fund declares and pays dividends from net income at regular intervals.
LB High Yield Fund, LB Income Fund, and LB Municipal Bond Fund declare and
pay dividends monthly. LB Fund declares and pays dividends quarterly. LB
Opportunity Growth Fund and LB World Growth Fund declare and pay dividends
annually in years that it has accumulated enough net income to require the
payment of a dividend. LB Money Market Fund declares dividends daily and
pays accumulated dividends monthly.
Unless you ask to receive your dividends in cash, they will automatically be
reinvested in shares of the Fund. You may also choose to have your dividends
reinvested into an existing account in another Fund within The Lutheran
Brotherhood Family of Funds. On the dividend payable date, your dividend
will be invested in the designated Fund account at net asset value. In order
to receive your dividends in cash, you must notify LB Securities in writing
or indicate this choice in the appropriate place on your account
application. Your request to receive dividends and other distributions in
cash must be received by LB Securities at least ten days before the record
date of the dividend or other distribution.
STATEMENTS
You will receive quarterly statements of dividends and capital gains paid
the previous quarter.
CAPITAL GAINS
The Funds distribute their realized gains in accordance with federal tax
regulations. Distributions from any net realized capital gains will usually
be declared in December.
TAXES
FUNDS' TAX STATUS
The Funds expect to pay no federal income tax because they intend to meet
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to receive the special tax treatment afforded to
such companies.
SHAREHOLDERS' TAX POSITION
Except for dividends you receive from Lutheran Brotherhood Municipal Bond
Fund, unless you are otherwise exempt, you will be required to pay federal
income tax on any dividends and other distribution that you receive. This
applies whether you receive dividends or distributions in cash or as
additional shares. To the extent any of the Funds earn interest from U.S.
Government obligations, a number of states may allow pass-through treatment
and permit a shareholder to exclude a portion of their dividends from state
income tax. For corporate shareholders, dividends paid to shareholders may
qualify for the 70% dividends received deduction to the extent the Fund
earns dividend income from domestic corporations. The Funds will mail
annually to each shareholder advice as to the tax status of each year's
dividends and distributions.
You will not be required to pay federal income tax on any Lutheran
Brotherhood Municipal Bond Fund dividends you receive which represent net
interest received on tax-exempt municipal bonds. The portion of that Fund's
distributions representing net interest income from taxable temporary
investments, market discount on tax-exempt municipal bonds, and net short-
term capital gains realized by the Fund, if any, will be taxable to
shareholders as ordinary income. Most of that Fund's income is expected to
be free of federal income tax. This applies whether you receive dividends in
cash or as additional shares. The Fund's income, however, is not necessarily
free from state income taxes. State laws differ on this issue and
shareholders are advised to consult their own tax advisers. The Fund will
provide to shareholders an annual breakdown of the percentage of its income
from each state. Information on the tax status of dividends will be provided
annually.
Dividends and certain interest income earned by a Fund from foreign
securities may be subject to foreign withholding taxes or other income
taxes. A Fund may elect, for U.S. income tax purposes, to treat certain
foreign taxes paid by it as paid by its shareholders. Should a Fund make
that election, a pro rata portion of such foreign taxes paid by the Fund
will constitute income to you (in addition to taxable dividends actually
received by you), and you may be entitled to claim an offsetting tax credit
or itemized deduction for that amount of foreign taxes.
Under current tax law, distributions by the Fund representing short-term and
long-term capital gains are included in shareholders' gross income for tax
purposes. Distributions representing net long-term capital gains realized by
the Fund will be taxable to a shareholder as long-term capital gains no
matter how long the shareholder may have held the shares.
OPTIMUM ACCOUNT(R)
LB Securities offers Optimum Account to all LB Money Market Fund
shareholders. The features of Optimum Account include the following:
* VISA Debit Card Privilege. You can use the VISA card to purchase
merchandise or obtain cash advances. Purchase transactions are escrowed, or
held against your current Money Market Account balance. At month end the
total escrowed purchases are redeemed from your money market account.
Although the escrowed shares are not available for use, they do continue to
earn interest. All cash advances are redeemed from your account
immediately.
* Checkwriting Privileges. You can write as many checks as you want with
no minimum and at no charge per check. Checks will be returned to you for
recordkeeping. State Street Bank will redeem enough shares from your LB
Money Market Fund account to cover the checks you write on the date the
check reaches the Bank.
* Tax-free Money Market Fund. You have access to Tax-Free Instruments
Trust, a money market fund with dividends exempt from federal income tax.
* Discount Brokerage. You can use Optimum Account Discount Brokerage
Services for direct purchases of general securities.
* Automatic Settlement. Purchase and sale transactions for general
securities placed through Optimum Account Discount Brokerage Services will
clear automatically through your LB Money Market Fund account.
* Automatic Purchases and Redemptions. You may arrange to have your Social
Security or payroll check automatically invested in your LB Money Market
Fund account. You can also arrange to have LB Money Market Fund shares
redeemed to pay Lutheran Brotherhood insurance premiums.
* Toll-free Telephone Exchange. You can call toll-free to exchange dollars
among your accounts in The Lutheran Brotherhood Family of Funds and Tax-Free
Instruments Trust or to transfer money from your local bank account to any
mutual fund in The Lutheran Brotherhood Family of Funds.
* Monthly Consolidated Statement. In lieu of an immediate confirmation of
financial transactions, you will receive your monthly Optimum Account
statement. The monthly statement will report all activity in your accounts
held in The Lutheran Brotherhood Family of Funds, Tax-Free Instruments
Trust, Optimum Account Discount Brokerage Account, VISA Debit cards, and
Certificates of Deposit.
* Toll-free Customer Service. You can initiate the transactions described
above and receive up-to-the-minute information on your account by calling
the Optimum Account Customer Service Representatives toll-free (800) 421-
3997 or (612) 339-3596.
* Newsletter. Money management tips and information about Optimum Account
will be sent to you on a regular basis through the quarterly newsletter
offered to Optimum Account holders.
In the future, LB Securities may offer additional features to shareholders
in Optimum Account. In addition, LB Securities may, from time to time, offer
certain items of nominal value to any shareholder or investor deciding to
participate in Optimum Account.
There is a one-time new account fee of $25 for the Optimum Account package.
This fee is waived for LB Money Market Fund shareholders who already have
the LB Money Market Fund VISA debit card when they add the features of
Optimum Account. A monthly administrative fee of $5.00 is charged. These
fees will be automatically redeemed from your LB Money Market Fund account
each month.
IRAs AND OTHER TAX-DEFERRED PLANS
Shares of the Fund may be selected as investments for Individual Retirement
Accounts, the qualified Lutheran Brotherhood prototype plans for the self-
employed, qualified pension and profit-sharing plans and tax-sheltered
custodial accounts (403(b) plans). There are additional fees and procedural
requirements for such plans. See your LB Securities registered
representative for more details.
FUND PERFORMANCE
From time to time, quotations of the Funds' performance in terms of yield or
total return may be included in advertisements, sales literature, or
shareholder reports. All performance figures are based on historical results
and are not intended to indicate future performance. "Total returns" are
based on the change in value of an investment in a Fund for a specified
period. "Average annual total return" is the average annual compounded rate
of return of an investment in a Fund at the maximum public offering price,
if applicable, assuming the investment has been held for one year, five
years and ten years as of a stated ending date. (If the Fund has not been in
operation for at least ten years, the life of the Fund will be used where
applicable.) Average annual return quotations assume a constant rate of
growth. Actual performance fluctuates and will vary from the quoted results
for periods of time within the quoted periods. "Cumulative total return"
represents the cumulative change in value of an investment in a Fund over a
stated period. Average annual total return may be accompanied with
nonstandard total return information computed in the same manner, but for
differing periods and with or without annualizing the total return or taking
sales charges into account. These calculations assume that all dividends and
capital gains distributions during the period were reinvested in shares of a
Fund.
The yield of the LB High Yield Fund, LB Income Fund, LB Municipal Bond Fund
and LB Money Market Fund refers to the income generated by an investment in
the Fund. A Fund's yield is computed by dividing the net investment income,
after recognition of all recurring charges, per share earned during the most
recent month or other specified 30-day period by the applicable maximum
offering price per share on the last day of such period and annualizing the
result. The yield of the LB Money Market Fund refers to the income generated
by an investment in that Fund over a specified seven-day period. The LB
Municipal Bond Fund's tax-equivalent yield is a hypothetical current yield
that the Fund's actual current yield is comparable to when the shareholder
is assumed to pay federal income tax on the entire hypothetical yield at a
specific tax rate. Yields for a Fund are expressed as annualized
percentages. The "effective yield" of the LB Money Market Fund is expressed
similarly but, when annualized, the income earned by an investment in that
Fund is assumed to be reinvested and will reflect the effects of
compounding.
The average annual total return and yield results take sales charges into
account, if applicable, but do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders
elect and which involve nominal fees. Where sale charges are not applicable
and therefore not taken into account in the calculation of average annual
total return and yield, the results will be increased. Any voluntary waiver
of fees or assumption of expenses will also increase performance results.
The Funds' performance reported from time to time in advertisements and
sales literature may be compared to generally accepted indices or analyses
such as those provided by Lipper Analytical Service, Inc., Standard & Poor's
and Dow Jones. Performance ratings reported periodically in financial
publications such as "Money Magazine", "Forbes", "Business Week", "Fortune",
"Financial Planning" and the "Wall Street" Journal will be used.
THE FUNDS AND THEIR SHARES
All the Funds in the Lutheran Brotherhood Family of Funds, except the LB
World Growth Fund, were organized in 1993 as series of The Lutheran
Brotherhood Family of Funds, a Delaware business trust. Each of those Funds
is the successor to a fund of the same name that previously operated as a
separate corporation or trust pursuant to a reorganization that was
effective as of November 1, 1993. The LB World Growth Fund began operating
as a series of the LB Family of Funds on September 5, 1995. The fiscal year
end of the Trust and each Fund is October 31.
The rights of holders of shares may be modified by the Trustees at any time,
so long as such modifications do not have a material, adverse effect on the
rights of any shareholder. On any matter submitted to the shareholders, the
holder of each Fund share is entitled to one vote per share (with
proportionate voting for fractional shares) regardless of the relative net
asset value thereof.
Shares of a Fund have equal dividend, redemption and liquidation rights and
when issued are fully paid and nonassessable by the Trust. Each share has
one vote (with proportionate voting for fractional shares) irrespective of
net asset value.
Under the Trust's Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there will ordinarily be no shareholder
meetings unless required by the Investment Company Act of 1940. The Trustees
may fill vacancies on the Board or appoint new Trustees provided that
immediately after such action at least two-thirds of the Trustees have been
elected by shareholders. Under the Master Trust Agreement, any Trustee may
be removed by vote of two-thirds of the outstanding Trust shares or by
three-fourths of the Trustees; holders of 10% or more of the outstanding
shares of the Trust can require that the Trustees call a meeting of
shareholders for purposes of voting on the removal of one or more Trustees.
In connection with such meetings called by shareholders, the relevant Fund
or Funds will assist shareholders in shareholder communications.
FUND MANAGEMENT
BOARD OF TRUSTEES
The Board of Trustees of the Trust is responsible for the management and
supervision of the Funds' business affairs and for exercising all powers
except those reserved to the shareholders.
INVESTMENT ADVISER
Investment decisions for each of the Funds, except the LB World Growth Fund,
are made by LB Research, subject to the overall direction of the Board of
Trustees. LB Research provides investment research and supervision of the
Funds' investments and conducts a continuous program of investment
evaluation and appropriate disposition and reinvestment of the Funds'
assets. LB Research assumes the expense of providing the personnel to
perform its advisory functions. Lutheran Brotherhood, the indirect parent
company of LB Research, also serves as the investment adviser for LB Series
Fund, Inc.
Michael A. Binger, Assistant Vice President of LB Research, has been the
portfolio manager of LB Opportunity Growth Fund since October 31, 1994. Mr.
Binger has been with LB Research since 1987.
James. M. Walline, Vice President of LB Research and Vice President of the
Funds has been the portfolio manager of LB Fund since October 31, 1994. Mr.
Walline has been with LB Research since 1969.
Thomas N. Haag, Assistant Vice President of LB Research, has been the
portfolio manager of LB High Yield Fund since 1992. Mr. Haag has been with
LB Research since 1986.
Charles E. Heeren, Vice President of LB Research has been the portfolio
manager of LB Income Fund since 1987. Mr. Heeren has been with LB Research
since 1976.
Janet I. Grangaard, Assistant Vice President of LB Research, has been
portfolio manager of LB Municipal Bond Fund since January 1, 1994. Prior to
that time she served as associate portfolio manager of that Fund. Ms.
Grangaard has been with LB Research since 1988.
Gail R. Onan, Assistant Vice President of LB Research, has been the portfolio
manager of LB Money Market Fund since January 1, 1994. Prior to that time she
served as associate portfolio manager of that Fund. Ms. Onan has been with LB
Research since 1986.
LB Research has engaged Rowe Price-Fleming International, Inc. ("Price-
Fleming") as investment sub-advisor for Lutheran Brotherhood World Growth
Fund. Price-Fleming was founded in 1979 as a joint venture between T. Rowe
Price Associates, Inc. and Robert Fleming Holdings Limited. Price-Fleming is
one of the world's largest international mutual fund asset managers with
approximately $17 billion under management as of December 31, 1994 in its
offices in Baltimore, London, Tokyo and Hong Kong. Price-Fleming has an
investment advisory group that has day-to-day responsibility for managing
the Fund and developing and executing the Fund's investment program. The
members of the advisory group are listed below.
Martin G. Wade, Christopher Alderson, Peter Askew, David Boardman, Richard
J. Bruce, Mark T.J. Edwards, John R. Forde, Robert C. Howe, James B.M.
Seddon, Benedict R.F. Thomas, and David J.L. Warren.
Martin Wade joined Price-Fleming in 1979 and has 26 years of experience with
Fleming Group (Fleming Group includes Robert Fleming Holdings Ltd. and/or
Jardine Fleming International Holdings Ltd.) in research, client service and
investment management, including assignments in the Far East and the United
States.
Peter Askew joined Price-Fleming in 1988 and has 20 years of experience
managing multicurrency fixed income portfolios. Christopher Alderson joined
Price-Fleming in 1988, and has eight years of experience with the Fleming
Group in research and portfolio management, including an assignment in Hong
Kong. David Boardman joined Price-Fleming in 1988 and has 20 years
experience in managing multicurrency fixed income portfolios. Richard J.
Bruce joined Price-Fleming in 1991 and has six years of experience in
investment management with the Fleming Group in Tokyo. Mark J.T. Edwards
joined Price-Fleming in 1986 and has 14 years of experience in financial
analysis, including three years in Fleming European research. John R. Ford
joined Price-Fleming in 1982 and has 15 years of experience with Fleming
Group in research and portfolio management, including assignments in the Far
East and the United States. Robert C. Howe joined Price-Fleming in 1986 and
has 15 years of experience in economic research in Japan. James B.M. Seddon
joined Price-Fleming in 1987 and has eight years of experience in investment
management. Benedict R.F. Thomas joined Price-Fleming in 1988 and has six
years of portfolio management experience, including assignments in London
and Baltimore. David J.L. Warren joined Price-Fleming in 1984 and has 15
years experience in equity research, fixed income research and portfolio
management, including an assignment in Japan.
LB Research and Price-Fleming personnel may invest in securities for their
own account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
LB Research receives an annual investment advisory fee from each Fund. The
following schedule lists each Fund and the formula under which LB Research
is compensated by each Fund: LB Opportunity Growth Fund pays an advisory
fee equal to .75% of average daily net assets up to $100 million, .65% of
average daily net assets over $100 million but not over $250 million, .60%
of average daily net assets over $250 million but not over $500 million,
.55% of average daily net assets over $500 million but not over $1 billion,
and .50% of average daily net assets over $1 billion. LB World Growth Fund
pays and advisory fee equal to 1.25% of average daily net assets up to $20
million, 1.10% of average daily net assets over $20 million but not over $50
million, and 1.00% of average daily net assets over $50 million. LB Fund
pays an advisory fee equal to .65% of average daily net assets of $500
million or less, .60% of average daily net assets over $500 million but not
over $1 billion, and .55% of average daily net assets over $1 billion. LB
High Yield Fund pays an advisory fee equal to .65% of average daily net
assets of $500 million or less, .60% of average daily net assets over $500
million but not over $1 billion, and .55% of average daily assets over $1
billion. LB Income Fund pays an advisory fee equal to .60% of average daily
net assets of $500 million or less, .575% of average daily net assets over
$500 million but not over $1 billion, and .55% of average daily net assets
over $1 billion. LB Municipal Bond Fund pays an advisory fee equal to .575%
of average daily net assets of $500 million or less, .5625% of average daily
net assets over $500 million but not over $1 billion, and .55% of average
daily net assets over $1 billion. LB Money Market Fund pays an advisory fee
equal to .50% of average daily net assets of $500 million or less, .475% of
average daily net assets on the next $500 million of average daily net
assets, .45% of average daily net assets on the next $500 million of average
daily net assets, .425% of average daily net assets on the next $500 million
of average daily net assets, and .40% of average daily net assets over $2
billion.
The LB Opportunity Growth Fund advisory fee of .75% of average daily net
assets up to $100 million is considered to be higher than most other mutual
funds, although such fee is approximately average when compared with other
small company growth funds.
During the most recent fiscal year of each Fund, LB Research received fees
amounting to the following percentages of each Fund's average daily net
assets:
LB Opportunity Growth Fund 0.73%
LB World Growth Fund* 0.31%
LB Fund 0.64%
LB High Yield Fund 0.65%
LB Income Fund 0.59%
LB Municipal Bond Fund 0.57%
LB Money Market Fund** 0.42%
* After giving effect to a fee waiver of 0.94%.
** After giving effect to a fee waiver of 0.08%.
LB Research pays the sub-advisor for the Fund, Rowe Price-Fleming
International, Inc., an annual sub-advisory fee for the performance of sub-
advisory services. The fee payable is equal to .75% of average daily net
assets up to $20 million, .60% of average daily net assets over $20 million
but not over $50 million, and .50% of average daily net assets over $50
million.
LB Research has voluntarily agreed to waive a portion of the advisory fees
payable by the LB World Growth Fund and the LB Money Market Fund so that
total expenses for those Funds do not exceed 1.95% and 1.10%, respectively,
of those Funds' average daily net assets. These voluntary partial waivers of
advisory fees may be discontinued at any time.
FUND ADMINISTRATION
ADMINISTRATIVE SERVICES
LB Securities, the Fund's distributor, provides administrative personnel and
services necessary to operate the Fund on a daily basis at for a fee equal
to 0.025 percent of the Fund's average daily net assets. Effective January
1, 1996, the fee will be 0.0225 percent of the Fund's daily net assets.
During the fiscal year ended October 31, 1995, the Funds paid the following
amounts to LB Securities for administrative services:
LB Opportunity Growth Fund $ 33,788
LB World Growth Fund $ 356
LB Fund $144,572
LB High Yield Fund $136,969
LB Income Fund $215,922
LB Municipal Bond Fund $151,391
LB Money Market Fund $ 85,688
CUSTODIAN
State Street Bank and Trust Company ("State Street Bank") is custodian of
the Funds' cash and securities.
TRANSFER AGENT
LB Securities serves as transfer agent for the Funds, with the assistance of
Norwest Bank Minnesota, N.A., respecting cash transactions.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP is the independent accountants for the Funds.
DESCRIPTION OF DEBT RATINGS
Moody's Investors Service, Inc. describes grades of corporate debt
securities and "Prime-1" and "Prime-2" commercial paper as follows:
BONDS:
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
COMMERCIAL PAPER:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics:
* Leading market positions in well-established industries.
* High rates of return of funds employed.
* Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
* Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
* Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earning trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard & Poor's Corporation describes grades of corporate debt securities
and "A" commercial paper as follows:
BONDS:
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
BB Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied B or B- rating.
CC The rating CC typically is applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is
being paid.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PROVISIONAL RATINGS: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
The investor should exercise judgment with respect to such likelihood and
risk.
COMMERCIAL PAPER: Commercial paper rated A by Standard & Poor's Corporation
has the following characteristics: liquidity ratios are better than the
industry average; long-term senior debt rating is "A" or better (however, in
some cases a "BBB" long-term rating may be acceptable); the issuer has
access to at least two additional channels of borrowing; basic earnings and
cash flow have an upward trend with allowances made for unusual
circumstances. Also, the issuer's industry typically is well established,
the issuer has a strong position within its industry and the reliability and
quality of management is unquestioned. Issuers rated A are further referred
to by use of numbers 1, 2 and 3 to denote relative strength within this
classification.
HOW TO INVEST
* Complete and sign the General Application
* Enclose a check made payable to the Fund you have chosen:
Lutheran Brotherhood Opportunity Growth Fund
Lutheran Brotherhood World Growth Fund
Lutheran Brotherhood Fund
Lutheran Brotherhood High Yield Fund
Lutheran Brotherhood Income Fund
Lutheran Brotherhood Municipal Bond Fund
Lutheran Brotherhood Money Market Fund
* Mail your application and check to:
Lutheran Brotherhood Securities Corp.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
ADDRESSES
Lutheran Brotherhood
Lutheran Brotherhood Research Corp.
Lutheran Brotherhood Securities Corp.
The Lutheran Brotherhood Family of Funds
625 Fourth Avenue South
Minneapolis, Minnesota 55415
State Street Bank and Trust Company
P.O. Box 1591
Boston, Massachusetts 02104
Norwest Bank Minnesota, N.A.
Sixth & Marquette Avenue
Minneapolis, Minnesota 55402
Price Waterhouse LLP
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, Minnesota 55402
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
LUTHERAN BROTHERHOOD FUND
LUTHERAN BROTHERHOOD HIGH YIELD FUND
LUTHERAN BROTHERHOOD INCOME FUND
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
LUTHERAN BROTHERHOOD MONEY MARKET FUND
SERIES OF
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 28, 1995
__________________________
TABLE OF CONTENTS
PAGE
Investment Policies and Restrictions
Additional Information Concerning Certain Investment Techniques
Fund Management
Investment Advisory Services
Administrative Services
Distributor
Brokerage Transactions
Purchasing Shares
Sales Charges
Net Asset Value
Redeeming Shares
Tax Status
General Information
Calculation of Performance Data
Report of Independent Public Accountants and Financial Statements
This Statement of Additional Information should be read in conjunction with
the prospectus dated December 28, 1995 of the Lutheran Brotherhood Opportunity
Growth Fund ("LB Opportunity Growth Fund"), Lutheran Brotherhood World Growth
Fund ("LB World Growth Fund"), Lutheran Brotherhood Fund ("LB Fund"), Lutheran
Brotherhood High Yield Fund ("LB High Yield Fund"), Lutheran Brotherhood
Income Fund ("LB Income Fund"), Lutheran Brotherhood Municipal Bond Fund ("LB
Municipal Bond Fund") and Lutheran Brotherhood Money Market Fund ("LB Money
Market Fund") series of The Lutheran Brotherhood Family of Funds (the
"Trust"). This Statement is not a prospectus itself. To receive a copy of the
prospectus, write to Lutheran Brotherhood Securities Corp., 625 Fourth Avenue
South, Minneapolis, Minnesota 55415 or call toll-free (800) 328-4552 or (612)
339-8091.
___________________________
FOR MORE INFORMATION, CALL TOLL-FREE
(800) 328-4552
or (612) 339-8091
INVESTMENT POLICIES AND RESTRICTIONS
As set forth in part under "Investment Limitations" in the Fund's Prospectus,
the Fund has adopted certain fundamental and nonfundamental investment
policies.
The fundamental investment restrictions for the Fund are set forth below.
These fundamental investment restrictions may not be changed by a Fund except
by the affirmative vote of a majority of the outstanding voting securities of
that Fund as defined in the Investment Company Act of 1940. (Under the
Investment Company Act of 1940, a "vote of the majority of the outstanding
voting securities" means the vote, at a meeting of security holders duly
called, (i) of 67% or more of the voting securities present at a meeting if
the holders of more than 50% of the outstanding voting securities are present
or represented by proxy or (ii) of more than 50% of the outstanding voting
securities, whichever is less.) Under these restrictions, with respect to each
Fund:
(1) The Fund may not borrow money, except that the Fund may borrow money
(through the issuance of debt securities or otherwise) in an amount not
exceeding one-third of the Fund's total assets immediately after the time of
such borrowing.
(2) The Fund may not purchase or sell commodities or commodity
contracts, except that the Fund may invest in financial futures contracts,
options thereon and similar instruments.
(3) The Fund may not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments, except that the Fund
may invest in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business or that invest or
deal in real estate.
(4) The Fund may not engage in underwriting or agency distribution of
securities issued by others; provided, however, that this restriction shall
not be construed to prevent or limit in any manner the power of the Fund to
purchase and resell restricted securities or securities for investment.
(5) The Fund may not lend any of its assets except portfolio securities.
The purchase of corporate or U.S. or foreign governmental bonds, debentures,
notes, certificates of indebtedness, repurchase agreements or other debt
securities of an issuer permitted by the Fund's investment objective and
policies will not be considered a loan for purposes of this limitation.
(6) The Fund may not with respect to 75% of its total assets, purchase
the securities of any issuer (except Government Securities, as such term is
defined in the Investment Company Act of 1940) if, as a result, the Fund would
own more than 10% of the outstanding voting securities of such issuer or the
Fund would have more than 5% of its total assets invested in the securities of
such issuer.
(7) The Fund may not issue senior securities, except as permitted under
the Investment Company Act of 1940 or any exemptive order or rule issued by
the Securities and Exchange Commission.
(8) The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies, and limitations as the Fund.
(9) The Fund may not invest in a security if the transaction would
result in 25% or more of the Fund's total assets being invested in any one
industry. This restriction does not apply to the LB Municipal Bond Fund.
The following nonfundamental investment restrictions may be changed without
shareholder approval. Under these restrictions, with respect to the Fund:
(1) The Fund may not purchase securities on margin or sell securities
short, except that the Fund may obtain short-term credits necessary for the
clearance of securities transactions and make short sales against the box. The
deposit or repayment of initial or variation margin in connection with
financial futures contracts or related options will not be deemed to be a
purchase of securities on margin.
(2) The Fund may not purchase or sell interests in oil, gas and other
mineral exploration or development programs or leases, although it may invest
in securities of companies that do.
(3) The Fund may not purchase the securities of any issuer (other than
securities issued or guaranteed by domestic or foreign governments or
political subdivisions thereof) if, as a result, more than 5% of the value of
its total assets would be invested in the securities of business enterprises
(which does not include issuers of asset-backed securities) that, including
predecessors, have a record of less than three years of continuous operations.
(4) The Fund may not purchase or retain the securities of any issuer if
the officers and Trustees of the Fund or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own more
than 5% of the issuer's securities.
(5) The Fund may not invest in securities of other investment companies,
except to the extent permitted under the Investment Company Act of 1940 or
except by purchases in the open market involving only customary brokers'
commissions, or securities acquired as dividends or distributions or in
connection with a merger, consolidation or similar transaction or other
exchange.
(6) The Fund may not invest in warrants, if at the time of such
investment (a) more than 5% of the value of the Fund's total assets would be
invested in warrants or (b) more than 2% of the value of the Fund's total
assets would be invested in warrants that are not listed on the New York Stock
Exchange or the American Stock Exchange (and for this purpose, warrants
attached to securities will be deemed to have no value).
(7) The LB Money Market Fund may not write, purchase, or sell puts,
calls, or any combination of puts and calls.
(8) The LB Opportunity Growth Fund, LB World Growth Fund, LB Fund, LB
High Yield Fund, LB Income Fund, and LB Municipal Bond Fund may not invest
more than 15% of its net assets in illiquid securities, including repurchase
agreements maturing in more than seven days. The LB Money Market Fund may not
invest more than 10% of its net assets in illiquid securities, including
repurchase agreements maturing in more than seven days.
(9) The Fund will not purchase any security while borrowings, including
reverse repurchase agreements, representing more than 5% of the Fund's total
assets are outstanding.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Some of the investment instruments, techniques and methods which may be used
by each Fund to aid in achieving its investment objective, and the risks
attendant thereto, are described below. Other risk factors and investment
methods may be described in the "Investment Objectives and Policies" and
"Investment Risks" sections of the Funds' Prospectus.
SHORT SALES AGAINST THE BOX
The Funds may effect short sales, but only if such transactions are short sale
transactions known as short sales "against the box". A short sale is a
transaction in which a Fund sells a security it does not own by borrowing it
from a broker, and consequently becomes obligated to replace that security. A
short sale against the box is a short sale where a Fund owns the security sold
short or has an immediate and unconditional right to acquire that security
without additional cash consideration upon conversion, exercise or exchange of
options with respect to securities held in its portfolio. The effect of
selling a security short against the box is to insulate that security against
any future gain or loss.
RESTRICTED SECURITIES
Subject to the limitations on illiquid securities noted above, the Funds may
buy or sell restricted securities in accordance with Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities"). Securities may be resold
pursuant to Rule 144A under certain circumstances only to qualified
institutional buyers as defined in the rule, and the markets and trading
practices for such securities are relatively new and still developing;
depending on the development of such markets, such Rule 144A Securities may be
deemed to be liquid as determined by or in accordance with methods adopted by
the Trustees. Under such methods the following factors are considered, among
others: the frequency of trades and quotes for the security, the number of
dealers and potential purchasers in the market, marketmaking activity, and the
nature of the security and marketplace trades. Investments in Rule 144A
Securities could have the effect of increasing the level of a Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, a Fund may be
adversely impacted by the subjective valuation of such securities in the
absence of an active market for them. Each Fund does not expect to hold more
than 10% of its total assets in restricted securities.
FOREIGN FUTURES AND OPTIONS
Participation in foreign futures and foreign options transactions involves the
execution and clearing of trades on or subject to the rules of a foreign board
of trade. Neither the National Futures Association nor any domestic exchange
regulates activities of any foreign boards of trade, including the execution,
delivery and clearing of transactions, or has the power to compel enforcement
of the rules of a foreign board of trade or any applicable foreign law. This
is true even if the exchange is formally linked to a domestic market so that a
position taken on the market may be liquidated by a transaction on another
market. Moreover, such laws or regulations will vary depending on the foreign
country in which the foreign futures or foreign options transaction occurs.
For these reasons, customers who trade foreign futures or foreign options
contracts may not be afforded certain of the protective measures provided by
the Commodity Exchange Act, the CFTC's regulations and the rules of the
National Futures Association and any domestic exchange, including the right to
use reparations proceedings before the Commission and arbitration proceedings
provided by the National Futures Association or any domestic futures exchange.
In particular, funds received from customers for foreign futures or foreign
options transactions may not be provided the same protections as funds
received in respect of transactions on United States futures exchanges. In
addition, the price of any foreign futures or foreign options contract and,
therefore, the potential profit and loss thereon may be affected by any
variance in the foreign exchange rate between the time your order is placed
and the time it is liquidated, offset or exercised.
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
FOREIGN CURRENCY WARRANTS. Foreign currency warrants are warrants which
entitle the holder to receive from their issuer an amount of cash (generally,
for warrants issued in the United States, in U.S. dollars) which is calculated
pursuant to a predetermined formula and based on the exchange rate between a
specified foreign currency and the U.S. dollar as of the exercise date of the
warrant. Foreign currency warrants generally are exercisable upon their
issuance and expire as of a specified date and time. Foreign currency warrants
have been issued in connection with U.S. dollar-denominated debt offerings by
major corporate issuers in an attempt to reduce the foreign currency exchange
risk which, from the point of view of prospective purchasers of the
securities, is inherent in the international fixed-income marketplace. Foreign
currency warrants may attempt to reduce the foreign exchange risk assumed by
purchasers of a security by, for example, providing for a supplemental payment
in the event that the U.S. dollar depreciates against the value of a major
foreign currency such as the Japanese Yen or German Deutschmark. The formula
used to determine the amount payable upon exercise of a foreign currency
warrant may make the warrant worthless unless the applicable foreign currency
exchange rate moves in a particular direction (e.g., unless the U.S. dollar
appreciates or depreciates against the particular foreign currency to which
the warrant is linked or indexed). Foreign currency warrants are severable
from the debt obligations with which they may be offered, and may be listed on
exchanges. Foreign currency warrants may be exercisable only in certain
minimum amounts, and an investor wishing to exercise warrants who possesses
less than the minimum number required for exercise may be required either to
sell the warrants or to purchase additional warrants, thereby incurring
additional transaction costs. In the case of any exercise of warrants, there
may be a time delay between the time a holder of warrants gives instructions
to exercise and the time the exchange rate relating to exercise is determined,
during which time the exchange rate could change significantly, thereby
affecting both the market and cash settlement values of the warrants being
exercised. The expiration date of the warrants may be accelerated if the
warrants should be delisted from an exchange or if their trading should be
suspended permanently, which would result in the loss of any remaining "time
value" of the warrants (i.e., the difference between the current market value
and the exercise value of the warrants), and, in the case the warrants were
"out-of-the-money," in a total loss of the purchase price of the warrants.
Warrants are generally unsecured obligations of their issuers and are not
standardized foreign currency options issued by the Options Clearing
Corporation ("OCC"). Unlike foreign currency options issued by OCC, the terms
of foreign exchange warrants generally will not be amended in the event of
governmental or regulatory actions affecting exchange rates or in the event of
the imposition of other regulatory controls affecting the international
currency markets. The initial public offering price of foreign currency
warrants is generally considerably in excess of the price that a commercial
user of foreign currencies might pay in the interbank market for a comparable
option involving significantly larger amounts of foreign currencies. Foreign
currency warrants are subject to significant foreign exchange risk, including
risks arising from complex political or economic factors.
PRINCIPAL EXCHANGE RATE LINKED SECURITIES. Principal exchange rate linked
securities are debt obligations the principal on which is payable at maturity
in an amount that may vary based on the exchange rate between the U.S. dollar
and a particular foreign currency at or about that time. The return on
"standard" principal exchange rate linked securities is enhanced if the
foreign currency to which the security is linked appreciates against the U.S.
dollar, and is adversely affected by increases in the foreign exchange value
of the U.S. dollar; "reverse" principal exchange rate linked securities are
like the "standard" securities, except that their return is enhanced by
increases in the value of the U.S. dollar and adversely impacted by increases
in the value of foreign currency. Interest payments on the securities are
generally made in U.S. dollars at rates that reflect the degree of foreign
currency risk assumed or given up by the purchaser of the notes (i.e., at
relatively higher interest rates if the purchaser has assumed some of the
foreign exchange risk, or relatively lower interest rates if the issuer has
assumed some of the foreign exchange risk, based on the expectations of the
current market). Principal exchange rate linked securities may in limited
cases be subject to acceleration of maturity (generally, not without the
consent of the holders of the securities), which may have an adverse impact on
the value of the principal payment to be made at maturity.
PERFORMANCE INDEXED PAPER. Performance indexed paper is U.S. dollar-
denominated commercial paper the yield of which is linked to certain foreign
exchange rate movements. The yield to the investor on performance indexed
paper is established at maturity as a function of spot exchange rates between
the U.S. dollar and a designated currency as of or about that time (generally,
the index maturity two days prior to maturity). The yield to the investor will
be within a range stipulated at the time of purchase of the obligation,
generally with a guaranteed minimum rate of return that is below, and a
potential maximum rate of return that is above, market yields on U.S. dollar-
denominated commercial paper, with both the minimum and maximum rates of
return on the investment corresponding to the minimum and maximum values of
the spot exchange rate two business days prior to maturity.
HYBRID INSTRUMENTS.
Hybrid Instruments (a type of potentially high risk derivative) have recently
been developed and combine the elements of futures contracts or options with
those of debt, preferred equity or a depository instrument (hereinafter
"Hybrid Instruments"). Often these Hybrid Instruments are indexed to the
price of a commodity, particular currency, or a domestic foreign debt or
equity securities index. Hybrid Instruments may take a variety of forms,
including, but not limited to, debt instruments with interest or principal
payments or redemption terms determined by reference to the value of a
currency or commodity or securities index at a future point in time, preferred
stock with dividend rates determined by reference to the value of a currency,
or convertible securities with the conversion terms related to a particular
commodity.
The risks of investing in Hybrid Instruments reflect a combination of the
risks from investing in securities, options, futures and currencies, including
volatility and lack of liquidity. Reference is made to the discussion of
futures, options, and forward contracts herein for a discussion of these
risks. Further, the prices of the Hybrid Instrument and the related commodity
or currency may not move in the same direction or at the same time. Hybrid
Instruments may bear interest or pay preferred dividends at below market (or
even relatively nominal) rates. Alternatively, Hybrid Instruments may bear
interest at above market rates but bear an increased risk of principal loss
(or gain). In addition, because the purchase and sale of Hybrid Instruments
could take place in an over-the-counter market or in a private transaction
between the Fund and the seller of the Hybrid Instrument, the creditworthiness
of the contra party to the transaction would be a risk factor which the Fund
would have to consider. Hybrid Instruments also may not be subject to
regulation of the Commodities Futures Trading Commission ("CFTC"), which
generally regulates the trading of commodity futures by U.S. persons, the SEC,
which regulates the offer and sale of securities by and to U.S. persons, or
any other governmental regulatory authority.
INVESTMENT RISKS OF FOREIGN INVESTING
There are special risks in investing in the LB World Growth Fund, as discussed
in the Prospectus. Certain of these risks are inherent in any international
mutual fund while others relate more to the countries in which the Fund will
invest ("Portfolio Companies"). Many of the risks are more pronounced for
investments in developing or emerging countries. Although there is no
universally accepted definition, a developing country is generally considered
to be a country which is in the initial stages of its industrialization cycle
with a per capita gross national product of less than $5,000.
Investors should understand that all investments have a risk factor. There can
be no guarantee against loss resulting from an investment in the Fund, and
there can be no assurance that the Fund's investment policies will be
successful, or that its investment objective will be attained. The Fund is
designed for individual and institutional investors seeking to diversify
beyond the United States in an actively researched and managed portfolio, and
is intended for long-term investors who can accept the risks entailed in
investment in foreign securities. In addition to the general risks of foreign
investing described in the Trust's Prospectus, other risks include:
INVESTMENT AND REPATRIATION RESTRICTIONS. Foreign investment in the securities
markets of certain foreign countries is restricted or controlled in varying
degrees. These restrictions may at times limit or preclude investment in
certain of such countries and may increase the cost and expenses of a Fund.
Investments by foreign investors are subject to a variety of restrictions in
many developing countries. These restrictions may take the form of prior
governmental approval, limits on the amount or type of securities held by
foreigners, and limits on the types of companies in which foreigners may
invest. Additional or different restrictions may be imposed at any time by
these or other countries in which a Fund invests. In addition, the
repatriation of both investment income and capital from several foreign
countries is restricted and controlled under certain regulations, including in
some cases the need for certain government consents. Although these
restrictions may in the future make it undesirable to invest in these
countries, the Advisor and Sub-advisor do not believe that any current
repatriation restrictions would affect its decision to invest in these
countries.
MARKET CHARACTERISTICS. Foreign securities may be purchased in over-the-
counter markets or on stock exchanges located in the countries in which the
respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as, and may be more volatile than,
those in the United States. While growing in volume, they usually have
substantially less volume than U.S. markets and a Fund's portfolio securities
may be less liquid and more volatile than securities of comparable U.S.
companies. Equity securities may trade at price/earnings multiples higher than
comparable United States securities and such levels may not be sustainable.
Fixed commissions on foreign stock exchanges are generally higher than
negotiated commissions on United States exchanges, although a Fund will
endeavor to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
foreign stock exchanges, brokers and listed companies than in the United
States. Moreover, settlement practices for transactions in foreign markets may
differ from those in United States markets, and may include delays beyond
periods customary in the United States.
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy
in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. The internal politics of certain foreign countries are not as stable
as in the United States. For example, the Philippines' National Assembly was
dissolved in 1986 following a period of intense political unrest and the
removal of President Marcos. During the 1960's, the high level of communist
insurgency in Malaysia paralyzed economic activity, but by the 1970's these
communist forces were suppressed and normal economic activity resumed. In
1991, the existing government in Thailand was overthrown in a military coup.
In addition, significant external political risks currently affect some
foreign countries. Both Taiwan and China still claim sovereignty of one
another and there is a demilitarized border between North and South Korea.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economics. Action by these governments could have a significant
effect on market prices of securities and payment of dividends. The economies
of many foreign countries are heavily dependent upon international trade and
are accordingly affected by protective trade barriers and economic conditions
of their trading partners. The enactment by these trading partners of
protectionist trade legislation could have a significant adverse effect upon
the securities markets of such countries.
INFORMATION AND SUPERVISION. There is generally less publicly available
information about foreign companies comparable to reports and ratings that are
published about companies in the United States. Foreign companies are also
generally not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to United
States companies.
TAXES. The dividends and interest payable on certain of a Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Fund's
shareholders. A shareholder otherwise subject to United States federal income
taxes may, subject to certain limitations, be entitled to claim a credit or
deduction for U.S. federal income tax purposes for his or her proportionate
share of such foreign taxes paid by the Fund.
COSTS. Investors should understand that the expense ratio of the Fund can be
expected to be higher than investment companies investing in domestic
securities since the cost of maintaining the custody of foreign securities and
the rate of advisory fees paid by the Fund are higher.
OTHER. With respect to certain foreign countries, especially developing and
emerging ones, there is the possibility of adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation,
limitations on the removal of funds or other assets of the Fund, political or
social instability, or diplomatic developments which could affect investments
by U.S. persons in those countries.
EASTERN EUROPE. Changes occurring in Eastern Europe and Russia today could
have long-term potential consequences. As restrictions fall, this could result
in rising standards of living, lower manufacturing costs, growing consumer
spending, and substantial economic growth. However, investment in the
countries of Eastern Europe and Russia is highly speculative at this time.
Political and economic reforms are too recent to establish a definite trend
away from centrally-planned economies and state owned industries. In many of
the countries of Eastern Europe and Russia, there is no stock exchange or
formal market for securities. Such countries may also have government exchange
controls, currencies with no recognizable market value relative to the
established currencies of western market economies, little or no experience in
trading in securities, no financial reporting standards, a lack of a banking
and securities infrastructure to handle such trading, and a legal tradition
which does not recognize rights in private property. In addition, these
countries may have national policies which restrict investments in companies
deemed sensitive to the country's national interest. Further, the governments
in such countries may require governmental or quasi-governmental authorities
to act as custodian of the Fund's assets invested in such countries and these
authorities may not qualify as a foreign custodian under the Investment
Company Act of 1940 and exemptive relief from such Act may be required. All of
these considerations are among the factors which could cause significant risks
and uncertainties to investment in Eastern Europe and Russia. The Fund will
only invest in a company located in, or a government of, Eastern Europe or
Russia, if the Sub-advisor believes the potential return justifies the risk.
To the extent any securities issued by companies in Eastern Europe and Russia
are considered illiquid, the Fund will be required to include such securities
within its 15% restriction on investing in illiquid securities.
It is contemplated that most foreign securities will be purchased in over-the-
counter markets or on stock exchanges located in the countries in which the
respective principal offices of the issuers of the various securities are
located, if that is the best available market.
The Fund may invest in investment portfolios which have been authorized by the
governments of certain countries specifically to permit foreign investment in
securities of companies listed and traded on the stock exchanges in these
respective countries. The Fund's investment in these portfolios is subject to
the provisions of the 1940 Act discussed below. If the Fund invests in such
investment portfolios, the Fund's shareholders will bear not only their
proportionate share of the expenses of the Fund (including operating expenses
and the fees of the Investment Manager), but also will bear indirectly similar
expenses of the underlying investment portfolios. In addition, the securities
of these investment portfolios may trade at a premium over their net asset
value.
Apart from the matters described herein, the Fund is not aware at this time of
the existence of any investment or exchange control regulations which might
substantially impair the operations of the Fund as described in the Trust's
Prospectus and this Statement. It should be noted, however, that this
situation could change at any time.
FOREIGN CURRENCY TRANSACTIONS. The Fund will generally enter into forward
foreign currency exchange contracts under two circumstances. First, when the
Fund enters into a contract for the purchase or sale of a security denominated
in a foreign currency, it may desire to "lock in" the U.S. dollar price of the
security.
Second, when the Sub-advisor believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, including the U.S. dollar, it may enter into a forward contract to
sell or buy the amount of the former foreign currency, approximating the value
of some or all of the Fund's portfolio securities denominated in such foreign
currency. Alternatively, where appropriate, the Fund may hedge all or part of
its foreign currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an effective proxy for
other currencies. In such a case, the Fund may enter into a forward contract
where the amount of the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Fund. The precise matching of
the forward contract amounts and the value of the securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Other than as set forth above, and immediately
below, the Fund will also not enter into such forward contracts or maintain a
net exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's portfolio securities or other assets denominated in that
currency. The Fund, however, in order to avoid excess transactions and
transaction costs, may maintain a net exposure to forward contracts in excess
of the value of the Fund's portfolio securities or other assets to which the
forward contracts relate (including accrued interest to the maturity of the
forward on such securities) provided the excess amount is "covered" by liquid,
high-grade debt securities, denominated in any currency, at least equal at all
times to the amount of such excess. For these purposes "the securities or
other assets to which the forward contracts relate may be securities or assets
denominated in a single currency, or where proxy forwards are used, securities
denominated in more than one currency. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall
diversification strategies. However, the Sub-advisor believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Fund will be served.
At the maturity of a forward contract, the Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of the forward
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency
the Fund is obligated to deliver and if a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received
upon the sale of the portfolio security if its market value exceeds the amount
of foreign currency the Fund is obligated to deliver. However, as noted, in
order to avoid excessive transactions and transaction costs, the Fund may use
liquid, high-grade debt securities denominated in any currency, to cover the
amount by which the value of a forward contract exceeds the value of the
securities to which it relates.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If the Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between the Fund's entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices increase, the
Fund will suffer a loss to the extent of the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. However, the Fund
reserves the right to enter into forward foreign currency contracts for
different purposes and under different circumstances. Of course, the Fund is
not required to enter into forward contracts with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate
by the Sub-advisor. It also should be realized that this method of hedging
against a decline in the value of a currency does not eliminate fluctuations
in the underlying prices of the securities. It simply establishes a rate of
exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result from an increase in the value of that currency.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on
a daily basis. It will do so from time to time, and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
In addition to the restrictions described above, some foreign countries limit,
or prohibit, all direct foreign investment in the securities of their
companies. However, the governments of some countries have authorized the
organization of investment portfolios to permit indirect foreign investment in
such securities. For tax purposes these portfolios may be known as Passive
Foreign Investment Companies. The Fund is subject to certain percentage
limitations under the 1940 Act and certain states relating to the purchase of
securities of investment companies, and may be subject to the limitation that
no more than 10% of the value of the Fund's total assets may be invested in
such securities.
For an additional discussion of certain risks involved in foreign investing,
see this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
FUND MANAGEMENT
The officers and Trustees of the Trust and their addresses, positions with the
Trust, and principal occupations are set forth below. The officers and
Trustees own less than 1% of any Fund's outstanding shares.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING THE PAST 5 YEARS
- ---------------- ------------- -----------------------
<S> <C> <C>
Rolf F. Bjelland* Chairman, Trustee Executive Vice President and Chief Investment
625 Fourth Avenue South and President Officer, Lutheran Brotherhood; President
Minneapolis, MN and Director, Lutheran Brotherhood Research Corp.; Director
Age 57 and Vice President-Investments, Lutheran
Brotherhood Variable Insurance Products Company;
Director and Executive Vice President, Lutheran
Brotherhood Financial Corporation; Director,
Lutheran Brotherhood Securities Corp.; Director,
Lutheran Brotherhood Real Estate Products Company;
Director, Chairman and President of LB Series Fund,
Inc.
Charles W. Arnason Trustee Lawyer in private practice; formerly member of
101 Judd Street, Suite 1 Head, Hempel, Seifert & Vander Weide;
P. O. Box 150 formerly Executive Director of Minnesota
Marine-On-St. Croix, MN Technology Corridor; formerly Senior Vice President,
Age 67 Secretary and General Counsel of Cowles Media
Company; Officer, Director or Trustee of various
community non-profit boards and organizations;
Director of LB Series Fund, Inc.
Herbert F. Eggerding, Jr. Trustee Retired Executive Vice President and Chief
12587 Glencroft Dr. Financial Officer, Petrolite Corporation;
St. Louis, MO Director, Wheat Ridge Foundation; Director, Lutheran
Age 58 Charities Association of St. Louis, MO.; Director of
LB Series Fund, Inc.
Connie M. Levi Trustee Retired President of the Greater Minneapolis
50 Peninsula Rd. Chamber of Commerce; Director or member of
Dellwood, MN numerous governmental, public service and non-profit
Age 56 boards and organizations; Director of LB Series Fund,
Inc.
Bruce J. Nicholson* Trustee Executive Vice President and Chief Financial Officer,
625 Fourth Avenue South Lutheran Brotherhood; Director, Executive Vice
Minneapolis, MN President and Chief Financial Officer, Lutheran
Age 48 Brotherhood Financial Corporation; Director, Lutheran
Brotherhood Research Corp; Director, Lutheran
Brotherhood Securities Corp.; Director and Chief
Financial Officer, Lutheran Brotherhood Variable
Insurance Products Company; Director, Lutheran
Brotherhood Real Estate Products Company; Director, LB
Series Fund, Inc.
Ruth E. Randall Trustee Interim Dean, Division of Continuing Studies,
University of Nebraska-Lincoln University of Nebraska-Lincoln; formerly
Clifford Hardin Nebraska Center Associate Dean, Teachers College, and Professor,
for Continuing Education, Room 340 Department of Educational Administration, Teachers
P.O. Box 839300 College, University of Nebraska-Lincoln;
Lincoln, NE Commissioner of Education for the State of Minnesota;
Age 66 Director or member of numerous governmental, public
service and non-profit boards and organizations;
Director of LB Series Fund, Inc.
James R. Olson Vice President Vice President, Lutheran Brotherhood; Vice President,
625 Fourth Avenue South Lutheran Brotherhood Variable Insurance Products
Minneapolis, MN Company; Vice President, Lutheran Brotherhood Research
Age 53 Corp.; Vice President, Lutheran Brotherhood Securities
Corp.; Vice President, Lutheran Brotherhood Real
Estate Products Company; Vice President of LB Series
Fund, Inc.
Richard B. Ruckdashel Vice President Assistant Vice President, Lutheran Brotherhood;
625 Fourth Avenue South Vice President of LB Series Fund, Inc.
Minneapolis, MN
Age 40
James M. Walline Vice President Vice President, Lutheran Brotherhood; Vice President,
625 Fourth Avenue South Lutheran Brotherhood Research Corp.; Vice President,
Minneapolis, MN Lutheran Brotherhood Variable Insurance Products
Age 50 Company; Vice President of LB Series Fund, Inc.
Wade M. Voigt Treasurer Assistant Vice President, Mutual Fund Accounting,
625 Fourth Avenue South Lutheran Brotherhood; Treasurer of LB Series Fund,
Minneapolis, MN Inc.
Age 39
Otis F. Hilbert Secretary and Vice President, Lutheran Brotherhood; Counsel,
625 Fourth Avenue South Vice President Vice President and Secretary, Lutheran Brotherhood
Minneapolis, MN Securities Corp.; Counsel and Secretary of Lutheran
Age 58 Brotherhood Research Corp.; Vice President and
Secretary, Lutheran Brotherhood Real Estate Products
Company; Vice President and Assistant Secretary,
Lutheran Brotherhood Variable Insurance Products
Company; Secretary and Vice President of LB Series
Fund, Inc.
_____________________
(*) "Interested person" of the Fund as defined in the Investment Company Act
of 1940 by virtue of his positions with affiliated entities referred to
elsewhere herein.
</TABLE>
Lutheran Brotherhood, directly and through its wholly-owned subsidiary
companies, owned 33.22% of the outstanding shares of LB World Growth Fund and
10.46% of the outstanding shares of LB Money Market Fund as of November 30,
1995.
COMPENSATION OF TRUSTEES AND OFFICERS
The Fund make no payments to any of its officers for services performed for
the Fund. Trustees of the Trust who are not interested persons of the Trust
are paid an annual retainer fee by the Trust of $18,500 and an annual fee of
$9,000 per year to attend meetings of Board of Trustees.
Trustees who are not interested persons of the Trust are reimbursed by the
Trust for any expenses they may incur by reason of attending Board meetings or
in connection with other services they may perform in connection with their
duties as Trustees of the Trust. The Trustees receive no pension or retirement
benefits in connection with their service to the Fund.
For the fiscal year ended October 31, 1995, the Trustees of the Trust received
the following amounts of compensation:
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Name and Position Compensation Paid by Fund and
of Person From Trust Fund Complex(1)
- ----------------- ------------ -----------------
<S> <C> <C>
Rolf F. Bjelland(2) $0 $0
Chairman
and Trustee
Charles W. Arnason $21,398 $26,875
Trustee
Herbert F. Eggerding, Jr. $21,398 $26,875
Trustee
Luther O. Forde(2)(3) $0 $0
Connie M. Levi $21,398 $26,875
Trustee
Bruce J. Nicholson(2) $0 $0
Trustee
Ruth E. Randall $21,398 $26,875
Trustee
(1) The "Fund Complex" includes The Lutheran Brotherhood Family of Funds and
LB Series Fund, Inc.
(2) "Interested person" of the Fund as defined in the Investment Company Act
of 1940.
(3) Retired as a Trustee of the Funds effective April 30, 1995.
</TABLE>
INVESTMENT ADVISORY SERVICES
The Funds' investment adviser, LB Research, was organized as a Pennsylvania
corporation in 1969 and was reincorporated as a Minnesota corporation in 1987.
It has been in the investment advisory business since 1970. LB Research is a
wholly-owned subsidiary of Lutheran Brotherhood Financial Corporation which,
in turn, is a wholly-owned subsidiary of Lutheran Brotherhood, a fraternal
benefit society. The officers and directors of LB Research who are affiliated
with the Trust are set forth under "Fund Management".
Investment decisions for each of the Funds, except the LB World Growth Fund,
are made by LB Research, subject to the overall direction of the Board of
Trustees. LB Research provides overall investment supervision of the LB World
Growth Fund's investments, with investment decisions for that Fund being made
by an investment sub-advisor. Except for the LB World Growth Fund, LB Research
provides investment research and supervision of each Fund's investments and
conducts a continuous program of investment evaluation and appropriate
disposition and reinvestment of each Fund's assets. LB Research assumes the
expense of providing the personnel to perform its advisory functions.
Lutheran Brotherhood, the indirect parent company of LB Research, also serves
as the investment adviser for LB Series Fund, Inc. The Master Advisory
Contract (the "Advisory Contract") for the Funds provides that Lutheran
Brotherhood has reserved the right to grant the non-exclusive use of the name
"Lutheran Brotherhood" or any derivative thereof to any other investment
company, investment adviser, distributor or other business enterprise, and to
withdraw from each Fund the use of the name "Lutheran Brotherhood". The name
"Lutheran Brotherhood" will continue to be used by each Fund as long as such
use is mutually agreeable to Lutheran Brotherhood and the Funds.
Investment decisions for the LB World Growth Fund are made by Rowe Price-
Fleming International, Inc. (the "Sub-advisor"), which LB Research has engaged
the sub-advisor for that Fund. The Sub-advisor manages that Fund on a daily
basis, subject to the overall direction of LB Research and the Funds' Board of
Trustees.
The Sub-advisor was founded in 1979 as a joint venture between T. Rowe Price
Associates, Inc. and Robert Fleming Holdings Limited. The Sub-advisor is one
of the world's largest international mutual fund asset managers with
approximately $17 billion under management as of December 31, 1994 in its
offices in Baltimore, London, Tokyo and Hong Kong.
To the extent required under applicable state regulatory requirements, the
Investment Manager will reduce its management fee up to the amount of any
expenses (exclusive of interest, taxes, brokerage expenses, distribution
expenses, extra-ordinary items and any other items allowed to be excluded by
applicable state law) paid or incurred by any of the Funds in any fiscal year
which exceed specified percentages of the average daily net assets of such
Fund for such fiscal year. The most restrictive of such percentage limitations
is (which does not presently apply to any of the Funds) currently 2.5% of the
first $30 million of average net assets, 2.0% of the next $70 million of
average net assets and 1.5% of the remaining average net assets. These
commitments may be amended or rescinded in response to changes in the
requirements of the various states by the Trustees without shareholder
approval.
The Advisory Contract provides that it shall continue in effect with respect
to each Fund from year to year as long as it is approved at least annually
both (i) by a vote of a majority of the outstanding voting securities of such
Fund (as defined in the 1940 Act) or by the Trustees of the Trust, and (ii) in
either event by a vote of a majority of the Trustees who are not parties to
the Advisory Contract or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically in the event of its assignment, as defined
under the 1940 Act and regulations thereunder. Such regulations provide that a
transaction which does not result in a change of actual control or management
of an adviser is not deemed an assignment.
The Sub-advisory Contract provides that it shall continue in effect with
respect to the LB World Growth Fund from year to year as long as it is
approved at least annually both (i) by a vote of a majority of the outstanding
voting securities of such Fund (as defined in the 1940 Act) or by the Trustees
of the Trust, and (ii) in either event by a vote of a majority of the Trustees
who are not parties to the Sub-advisory Contract or "interested persons" of
any party thereto, cast in person at a meeting called for the purpose of
voting on such approval. The Sub-advisory Contract may be terminated on 60
days' written notice by either party and will terminate automatically in the
event of its assignment, as defined under the 1940 Act and regulations
thereunder. Such regulations provide that a transaction which does not result
in a change of actual control or management of an adviser is not deemed an
assignment.
LB Research receives an annual investment advisory fee from each Fund. The
following schedule lists each Fund and the formula under which LB Research is
compensated by each Fund: LB Opportunity Growth Fund pays an advisory fee
equal to .75% of average daily net assets up to $100 million, .65% of average
daily net assets over $100 million but not over $250 million, .60% of average
daily net assets over $250 million but not over $500 million, .55% of average
daily net assets over $500 million but not over $1 billion, and .50% of
average daily net assets over $1 billion. LB World Growth Fund pays an
advisory fee equal to 1.25% of average daily net assets up to $20 million,
1.10% of average daily net assets over $20 million but not over $50 million,
and 1.00% of average daily net assets over $50 million. LB Fund pays an
advisory fee equal to .65% of average daily net assets of $500 million or
less, .60% of average daily net assets over $500 million but not over $1
billion, and .55% of average daily net assets over $1 billion. LB High Yield
Fund pays an advisory fee equal to .65% of average daily net assets of $500
million or less, .60% of average daily net assets over $500 million but not
over $1 billion, and .55% of average daily assets over $1 billion. LB Income
Fund pays an advisory fee equal to .60% of average daily net assets of $500
million or less, .575% of average daily net assets over $500 million but not
over $1 billion, and .55% of average daily net assets over $1 billion. LB
Municipal Bond Fund pays an advisory fee equal to .575% of average daily net
assets of $500 million or less, .5625% of average daily net assets over $500
million but not over $1 billion, and .55% of average daily net assets over $1
billion. LB Money Market Fund pays an advisory fee equal to .50% of average
daily net assets of $500 million or less, .475% of average daily net assets on
the next $500 million of average daily net assets, .45% of average daily net
assets on the next $500 million of average daily net assets, .425% of average
daily net assets on the next $500 million of average daily net assets, and
.40% of average daily net assets over $2 billion.
LB Research pays the Sub-advisor for the LB World Growth Fund an annual sub-
advisory fee for the performance of sub-advisory services. The fee payable is
equal to a percentage of the that Fund's average daily net assets. The
percentage decreases as the Fund's assets increase. For purposes of
determining the percentage level of the sub-advisory fee for the Fund, the
assets of the Fund are combined with the assets of the World Growth Portfolio
of LB Series Fund, Inc., another fund with investment objectives and policies
that are similar to the LB World Growth Fund and for which the Sub-advisor
also provides sub-advisory services. The sub-advisory fee LB Research pays the
Sub-advisor is equal to the World Growth Fund's pro rata share of the combined
assets of the Fund and the World Growth Portfolio of LB Series Fund, Inc. and
is equal to .75% of combined average daily net assets up to $20 million, .60%
of combined average daily net assets over $20 million but not over $50
million, and .50% of combined average daily net assets over $50 million. When
the combined assets of the LB World Growth Fund and the World Growth Portfolio
of LB Series Fund, Inc. exceed $200 million, the sub-advisory fee for the LB
World Growth Fund is equal to .50% of all of the Fund's average daily net
assets.
The total dollar amounts paid to LB Research under the investment advisory
contract then in effect for the last three fiscal years (other than LB World
Growth Fund, which is in its first year of operations) are as follows:
<TABLE>
<CAPTION>
10/31/95 10/31/94 10/31/93
<S> <C> <C> <C>
LB Opportunity Growth Fund $ 938,166 $ 522,579 $ 114,224
LB World Growth Fund 17,787 -- --
LB Fund 3,726,938 3,430,253 1,962,418
LB High Yield Fund 3,509,710 3,091,898 1,689,296
LB Income Fund 5,431,506 5,721,652 4,758,113
LB Municipal Bond Fund 3,504,880 3,554,569 2,576,809
LB Money Market Fund 1,538,307 1,373,199 1,100,236
</TABLE>
The total dollar amount paid by LB Research to the Sub-advisor of the LB World
Growth Portfolio under the investment sub-advisory contract for the fiscal
period ended October 31, 1995 is $10,672.
Effective February 1, 1992, LB Research has undertaken to limit the LB Money
Market's total expenses to 1.10% of its average net assets by means of a
voluntary waiver of advisory fees. As a result of such waiver, LB Research
waived fees totalling $253,844 for the fiscal year ended October 31, 1995,
$709,407 for the fiscal year ended October 31, 1994, and $755,710 for the
fiscal period ended October 31, 1993. Effective September 5, 1995, LB
Research has undertaken to limit the LB World Growth Fund's total expenses to
1.95% of its average daily net assets by means of a voluntary waiver of
advisory fees. As a result of such waiver, LB Research waived fees totaling
$13,415 for the period from September 5, 1995 to October 31, 1995. These
waivers of fees are voluntary and may be discontinued at any time. LB
Research also undertook during the fiscal period ended October 31, 1993, to
waive portions of the investment advisory fees for the LB Income Fund and the
LB Municipal Bond Fund, amounting to .10% and .05% of average net assets of
those Funds, respectively. As a result, LB Research waived fees totalling
$746,538 for the LB Income Fund and $218,660 for the LB Municipal Bond Fund
for the fiscal period ended October 31, 1993. These waivers of fees were
voluntary and were discontinued on October 31, 1993.
ADMINISTRATIVE SERVICES
Lutheran Brotherhood Securities Corp. ("LB Securities") provides
administrative personnel and services necessary to operate the Funds on a
daily basis for a fee equal to 0.025 percent of the Funds' average daily net
assets. The total dollar amounts paid to LB Securities for administrative
services for the last three fiscal years are as follows:
<TABLE>
<CAPTION>
10/31/95 10/31/94 10/31/93
<S> <C> <C> <C>
LB Opportunity Growth Fund $ 33,788 $ 22,108 $ 4,937
LB World Growth Fund 356 -- --
LB Fund 144,572 115,321 135,216
LB High Yield Fund 136,969 109,494 109,061
LB Income Fund 215,922 123,528 144,703
LB Municipal Bond Fund 151,391 119,601 132,437
LB Money Market Fund 85,688 97,563 94,415
</TABLE>
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian, State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Funds' cash and securities, handling the receipt and delivery
of securities and collecting interest and dividends on the Funds' investments.
TRANSFER AGENT
LB Securities serves as transfer agent for the shares of each Fund. The total
dollar amounts paid to LB Securities for transfer agency services for the last
three fiscal years are as follows:
<TABLE>
<CAPTION>
10/31/95 10/31/94 10/31/93
<S> <C> <C> <C>
LB Opportunity Growth Fund $ 582,903 $ 368,236 $ 89,209
LB World Growth Fund 4,983 -- --
LB Fund 1,478,056 1,386,545 951,959
LB High Yield Fund 944,128 811,121 466,056
LB Income Fund 1,398,946 1,409,791 996,611
LB Municipal Bond Fund 517,010 501,350 332,430
LB Money Market Fund 1,211,889 1,383,080 1,112,030
</TABLE>
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 3100 Multifoods Tower, 33 South Sixth Street,
Minneapolis, Minnesota 55402, serves as the Trust's independent accountants,
providing professional services including audits of the Funds' annual
financial statements, assistance and consultation in connection with
Securities and Exchange Commission filings, and review of the annual income
tax returns filed on behalf of the Funds.
DISTRIBUTOR
The Funds' distributor, LB Securities, is a Pennsylvania corporation organized
in 1969. LB Securities is a wholly-owned subsidiary of LB Research and is
located in Minneapolis, Minnesota. The officers and directors of LB Securities
who are affiliated with the Trust are set forth under "Fund Management". LB
Securities makes a continuous offering of the Funds' shares on a best efforts
basis.
The total dollar amounts of gross underwriting commissions on sales of
shares of the LB Opportunity Growth Fund, LB Fund, LB High Yield Fund, LB
Income Fund, and LB Municipal Bond paid to LB Securities for the last three
fiscal years, and the amounts retained by LB Securities for such years, are as
follows:
<TABLE>
<CAPTION>
10/31/95 10/31/94 10/31/93
Gross Amount Gross Amount Gross Amount
Commissions Retained Commissions Retained Commissions Retained
<S> <C> <C> <C> <C> <C> <C>
LB Opportunity Growth Fund $1,423,809 $315,636 $2,365,893 $521,089 $ 937,562 $202,622
LB World Growth Fund 153,713 33,490 -- -- -- --
LB Fund 1,609,270 352,617 2,173,982 491,875 2,058,826 454,654
LB High Yield Fund 2,422,070 530,028 2,932,618 646,449 3,124,354 691,675
LB Income Fund 1,325,519 288,981 2,862,681 618,854 3,587,813 793,838
LB Municipal Bond Fund 989,735 212,445 2,015,891 440,929 2,294,035 505,795
</TABLE>
BROKERAGE TRANSACTIONS
PORTFOLIO TRANSACTIONS
In connection with the management of the investment and reinvestment of the
assets of the Funds, the Advisory Contract authorizes LB Research, acting by
its own officers, directors or employees or by a duly authorized
subcontractor, including the Sub-advisor, to select the brokers or dealers
that will execute purchase and sale transactions for the Funds. In executing
portfolio transactions and selecting brokers or dealers, if any, LB Research
and the Sub-advisor will use reasonable efforts to seek on behalf of the Funds
the best overall terms available. In assessing the best overall terms
available for any transaction, LB Research and the Sub-advisor will consider
all factors it deems relevant, including the breadth of the market in and the
price of the security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any (for the
specific transaction and on a continuing basis). In evaluating the best
overall terms available, and in selecting the broker or dealer, if any, to
execute a particular transaction, LB Research and the Sub-advisor may also
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to any other
accounts over which LB Research or the Sub-advisor or an affiliate of LB
Research or the Sub-advisor exercises investment discretion. LB Research and
the Sub-advisor may pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction which is
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, LB Research or the
Sub-advisor determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided.
To the extent that the receipt of the above-described services may supplant
services for which LB Research or the Sub-advisor might otherwise have paid,
it would, of course, tend to reduce the expenses of LB Research or the Sub-
advisor.
The investment decisions for a Fund are and will continue to be made
independently from those of other investment companies and accounts managed by
LB Research, the Sub-advisor, or their affiliates. Such other investment
companies and accounts may also invest in the same securities as a Fund. When
purchases and sales of the same security are made at substantially the same
time on behalf of such other investment companies and accounts, transactions
may be averaged as to the price and available investments allocated as to the
amount in a manner which LB Research and its affiliates believe to be
equitable to each investment company or account, including the Fund. In some
instances, this investment procedure may affect the price paid or received by
a Fund or the size of the position obtainable or sold by a Fund.
ROWE PRICE-FLEMING AFFILIATED TRANSACTIONS
Subject to applicable SEC rules, as well as other regulatory requirements, the
Sub-advisor of Fund may allocate orders to brokers or dealers affiliated with
the Sub-advisor. Such allocation shall be in such amounts and proportions as
the Sub-advisor shall determine and the Sub-advisor will report such
allocations either to LB Research, which will report such allocations to the
Board of Trustees, or, if requested, directly to the Board of Trustees.
BROKERAGE COMMISSIONS
During the last three fiscal years, the Funds paid the following brokerage
fees:
<TABLE>
<CAPTION>
10/31/95 10/31/94 10/31/93
<S> <C> <C> <C>
LB Opportunity Growth Fund $ 197,461 $ 68,483 $ 37,703
LB World Growth Fund* 24,302 -- --
LB Fund 1,787,109 3,106,422 2,905,586
LB High Yield Fund 47,583 21,925 16,872
LB Income Fund 56,081 83,788 24,875
LB Municipal Bond Fund 9,518 17,558 31,860
LB Money Market Fund -- -- --
*Amount paid to affiliated broker-dealer is $250.
</TABLE>
Of the brokerage fee amounts stated above, the following percentages were paid
to firms which provided research, statistical, or other services to LB
Research or the Sub-advisor in connection with the management of the Funds:
<TABLE>
<CAPTION>
10/31/95 10/31/94 10/31/93
<S> <C> <C> <C>
LB Opportunity Growth Fund 0.22% 9.06% 0.52%
LB World Growth Fund 0.75 -- --
LB Fund 8.10 9.21 13.35
LB High Yield Fund 20.01 29.69 13.07
LB Income Fund 10.15 3.76 16.69
LB Municipal Bond Fund -- -- --
LB Money Market Fund -- -- --
</TABLE>
PORTFOLIO TURNOVER RATE
The rate of portfolio turnover in the Funds will not be a limiting factor when
LB Research or the Sub-advisor deems changes in a Fund's portfolio appropriate
in view of its investment objectives. As a result, while a Fund will not
purchase or sell securities solely to achieve short term trading profits, a
Fund may sell portfolio securities without regard to the length of time held
if consistent with the Fund's investment objective. A higher degree of equity
portfolio activity will increase brokerage costs to a Fund. The portfolio
turnover rate is computed by dividing the dollar amount of securities
purchased or sold (whichever is smaller) by the average value of securities
owned during the year. Short-term investments such as commercial paper and
short-term U.S. Government securities are not considered when computing the
turnover rate.
For the last three fiscal years, the portfolio turnover rates of the LB
Opportunity Growth Fund, LB World Growth Fund, LB Fund, LB High Yield Fund, LB
Income Fund, and LB Municipal Bond Fund were as follows:
<TABLE>
<CAPTION>
10/31/95 10/31/94 10/31/93
<S> <C> <C> <C>
LB Opportunity Growth Fund 213% 64% 97%
LB World Growth Fund 0% -- --
LB Fund 127% 234% 237%
LB High Yield Fund 71% 50% 66%
LB Income Fund 131% 155% 84%
LB Municipal Bond Fund 36% 38% 46%
</TABLE>
PURCHASING SHARES
Initial purchases of Fund shares must be made by check and accompanied by an
application. Subsequent purchases may be made by:
* check;
* Federal Reserve or bank wire;
* Invest-by-Phone;
* Systematic Investment Plan (SIP); and
* automatic payroll deduction.
Use of checks, Federal Reserve or bank wire and Invest-by-Phone is explained
in the General Information section of the Fund's prospectus under "Buying
Shares of The Lutherab Brotherhood Family of Funds".
SYSTEMATIC INVESTMENT PLAN
Under the Systematic Investment Plan program, funds may be withdrawn monthly
from the shareholder's checking account and invested in the Funds. LB
Securities representatives will provide shareholders with the necessary
authorization forms.
AUTOMATIC PAYROLL DEDUCTION
Under the Automatic Payroll Deduction program, funds may be withdrawn monthly
from the payroll account of any eligible shareholder of a Fund and invested in
a Fund. To be eligible for this program, the shareholder's employer must
permit and be qualified to conduct automatic payroll deductions. LB Securities
representatives will provide shareholders with the necessary authorization
forms.
SALES CHARGES
Initial purchases of Fund shares carry sales charges as explained in the
section of the Funds' prospectus entitled, "Sales Charges", which also lists
ways to reduce or avoid sales charges on subsequent purchases.
In addition to the situations described in the prospectus, sales charges are
waived when shares are purchased by:
* directors and regular full-time and regular part-time employees of
Lutheran Brotherhood;
* registered representatives of LB Securities; and
* any trust, pension, profit-sharing or other benefit plan for such persons.
FULL-TIME EMPLOYEES
Regular full-time and regular part-time employees of Lutheran Brotherhood are
persons who are defined as such by the Lutheran Brotherhood Human Resources
Policy Manual.
RESTRICTION ON SALE OF SHARES PURCHASED
Sales to any of the persons or groups mentioned in this section are made only
with the purchaser's written promise that the shares will not be resold,
except through redemption or repurchase by or on behalf of a Fund.
NET ASSET VALUE
LB Opportunity Growth Fund, LB World Growth Fund, LB Fund,
LB High Yield Fund, LB Income Fund,
and LB Municipal Bond Fund
The net asset value per share is determined at the close of each day the New
York Stock Exchange is open, except July 5, 1996, the day after Thanksgiving,
and the day before Christmas, or any other day as provided by Rule 22c-1 under
the Investment Company Act of 1940. Determination of net asset value may be
suspended when the Exchange is closed or if certain emergencies have been
determined to exist by the Securities and Exchange Commission, as allowed by
the Investment Company Act of 1940.
Net asset value is determined by adding the market or appraised value of all
securities and other assets; subtracting liabilities; and dividing the result
by the number of shares outstanding.
The market value of each Fund's portfolio securities is determined at the
close of regular trading of the New York Stock Exchange (the "Exchange") on
each day the Exchange is open, except the day after Thanksgiving. The value of
portfolio securities is determined in the following manner:
* Equity securities traded on the Exchange or any other national securities
exchange are valued at the last sale price. If there has been no sale on that
day or if the security is unlisted, it is valued at prices within the range of
the current bid and asked prices considered best to represent value in the
circumstances.
* Equity securities not traded on a national securities exchange are valued
at prices within the range of the current bid and asked prices considered best
to represent the value in the circumstances, except that securities for which
quotations are furnished through the nationwide automated quotation system
approved by the NASDAQ will be valued at their last sales prices so furnished
on the date of valuation, if such quotations are available for sales occurring
on that day.
* Bonds and other income securities traded on a national securities exchange
will be valued at the last sale price on such national securities exchange
that day. LB Research may value such securities on the basis of prices
provided by an independent pricing service or within the range of the current
bid and asked prices considered best to represent the value in the
circumstances, if those prices are believed to better reflect the fair market
value of such exchange listed securities.
* Bonds and other income securities not traded on a national securities
exchange will be valued within the range of the current bid and asked prices
considered best to represent the value in the circumstances. Such securities
may also be valued on the basis of prices provided by an independent pricing
service if those prices are believed to reflect the fair market value of such
securities.
For all Funds other than the Money Market Fund, short-term securities with
maturities of 60 days or less are valued at amortized cost; those with
maturities greater than 60 days are valued at the mean between bid and asked
price.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data employed in determining
valuation for such securities.
All other securities and assets will be appraised at fair value as determined
by the Board of Trustees.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is
substantially completed each day at various times prior to the close of the
Exchange. The values of such securities used in computing the net asset value
of shares of a Fund are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the Exchange.
Occasionally, events affecting the value of such securities and exchange rates
may occur between the times at which they are determined and the close of the
Exchange, which will not be reflected in the computation of net asset values.
If during such periods events occur which materially affect the value of such
securities, the securities will be valued at their fair market value as
determined in good faith by the Trustees of the Fund.
For purposes of determining the net asset value of shares of a Fund all assets
and liabilities initially expressed in foreign currencies will be converted
into U.S. dollars quoted by a major bank that is a regular participant in the
foreign exchange market or on the basis of a pricing service that takes into
account the quotes provided by a number of such major banks.
LB Money Market Fund
The net asset value for each share of the LB Money Market Fund remains at
$1.00.
Use of Amortized Cost Method
The Trustees have determined that the best method for determining the value of
portfolio securities of the LB Money Market Fund is the amortized cost method.
The Executive Committee will continue to assess this method of valuation and
recommend changes to assure that the Fund's portfolio instruments are properly
valued.
The LB Money Market Fund's use of the amortized cost method of valuing
portfolio securities depends on its compliance with an order (the "Order") of
permanent exemption from certain provisions of the Investment Company Act of
1940 granted by the Securities and Exchange Commission. Under the Order, the
Fund's Trustees must establish procedures reasonably designed to stabilize the
net asset value per share as computed for purposes of distribution and
redemption at $1.00 per share, taking into account current market conditions
and the Fund's investment objective.
The Trustee's procedures include monitoring the relationship between the
amortized cost value per share and a net asset value per share based upon
available indications of market value. The Trustees will decide if any steps
should be taken if there is a difference of more than .5% between the two.
The Trustees will take any steps they consider appropriate (such as redemption
in kind or shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value.
Investment Restrictions
The Order requires that the LB Money Market Fund limit its investments to
instruments that, in the opinion of the Trustees, present minimal credit risks
and that are of high quality as determined by any major rating agency. If
they are not rated, the Trustees must determine that the instrument is of
comparable quality. It also calls for the Fund to maintain a dollar weighted
average portfolio maturity (not more than 90 days) appropriate to its
objective of maintaining a stable net asset value of $1.00 per share.
The Order also allows the purchase of any instrument with a remaining maturity
of more than one year. Should the disposition of a portfolio security result
in a dollar weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the maturity to 90 days or less as
soon as practicable. The 90-day maximum dollar-weighted average maturity
notwithstanding, it is the Fund's intention to not exceed a dollar-weighted
average maturity of 90 days.
It is the Fund's usual practice to hold portfolio securities to maturity and
realize par, unless sale or other disposition is mandated by redemption
requirements or other extraordinary circumstances. Under the amortized cost
method of valuation traditionally employed by institutions for valuation of
money market instruments, neither the amount of daily income nor the net asset
value is affected by any unrealized appreciation or depreciation of the
portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher than
a similar computation made by using a method of valuation based upon market
prices and estimates.
In periods of rising interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value as computed above may tend to be lower than a
similar computation made by using a method of calculation based upon market
prices and estimates.
Conversion to Federal Funds
It is the LB Money Market Fund's policy to be as fully invested as possible so
that maximum interest may be earned on money market instruments in the Fund's
portfolio. To the end, all payments from investors must be in federal funds
or be converted into federal funds when deposited to State Street Bank's
account at the Boston Federal Reserve Bank. This conversion must be made
before shares are purchased. State Street Bank will act as the investor's
agent in depositing checks and converting them to federal funds. State Street
will convert the funds and enter the investor's order for shares within two
days of receipt of the check.
REDEEMING SHARES
Shares may be redeemed with requests made:
* in writing;
* through Redeem-by-Phone; or
* through the Lutheran Brotherhood systematic withdrawal plan.
All methods of redemption are described in the Funds' prospectus under
"Redeeming Shares".
TAX STATUS
THE FUND'S TAX STATUS
The Funds expect to pay no federal income tax because they intend to meet
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, each Fund must,
among other requirements:
* derive at least 90% of its gross income from dividends, interest and gains
from the sale of securities;
* derive less than 30% of its gross income from the sale of securities held
less than three months;
* invest in securities within certain statutory limits; and
* distribute at least 90% of its ordinary income to shareholders.
It is each Fund's policy to distribute substantially all of its income on a
timely basis, including any net realized gains on investments each year.
To avoid payment of a 4% Excise tax, each Fund is also required to distribute
to shareholders at least 98% of its ordinary income earned during the calendar
year and 98% of its net capital gains realized during the 12-month period
ending October 31.
SHAREHOLDERS' TAX STATUS
Shareholders of each Fund other than the LB Municipal Bond Fund will be
subject to federal income tax on dividends and distributions received as cash
or additional shares. To the extent a Fund earns interest from U.S.
government obligations, a number of states may allow pass-through treatment
and permit a shareholder to exclude a portion of their dividends from state
income tax.
Distributions of the LB Municipal Bond Fund representing net interest received
on tax-exempt municipal bonds will be exempt from federal income tax. The
portion of LB Municipal Bond Fund distributions representing net interest
income from taxable temporary investments, market discount on tax-exempt
bonds, and net short-term capital gains realized by the Fund, if any, will be
taxable to shareholders as ordinary income and will generally not be available
for the dividend exclusion available to individuals. Distributions
representing net interest received on tax-exempt municipal bonds will not
necessarily be free from state income taxes. The Fund will provide to
shareholders an annual breakdown of the percentage of its income from each
state.
Shareholders of each Fund will be subject to federal income tax on dividends
and distributions received as cash or additional shares. To the extent a Fund
earns interest from U.S. government obligations, a number of states may allow
pass-through treatment and permit a shareholder to exclude a portion of their
dividends from state income tax.
The Funds will mail annually to each shareholder advice as to the tax status
of each year's dividends and distributions.
CAPITAL GAINS
Distributions by a Fund representing net long-term capital gains realized by
the Fund will be taxable to shareholders as long-term capital gains no matter
how long the shareholder may have held the shares. While the Funds do not
intend to engage in short-term trading, they may dispose of securities held
for only a short time if LB Research believes it to be advisable. Such changes
may result in the realization of capital gains. Each Fund distributes its
realized gains in accordance with federal tax regulations. Distributions from
any net realized capital gains will usually be declared in December.
GENERAL INFORMATION
The Lutheran Brotherhood Family of Funds, a business trust organized under the
laws of the State of Delaware, was established pursuant to a Master Trust
Agreement dated July 15, 1993. The Trust is authorized to issue shares of
beneficial interest, par value $.001 per share, divisible into an indefinite
number of different series and classes and operates as a "series company" as
provided by Rule 18f-2 under the 1940 Act. The interests of investors in the
various series of the Trust will be separate and distinct. All consideration
received for the sales of shares of a particular series of the Trust, all
assets in which such consideration is invested, and all income earnings and
profits derived from such investments, will be allocated to that series.
Except for the LB World Growth Fund, each Fund is the successor to a fund of
the same name that previously operated as a separate corporation or trust. At
a Special Meeting of Shareholders of each such fund held on October 28, 1993,
the shareholders of each fund approved a reorganization of the respective
funds as separate series of the Trust, which reorganization became effective
on November 1, 1993. The LB World Growth Fund commenced operations as a series
of The Lutheran Brotherhood Family of Funds on September 5, 1995.
CALCULATION OF PERFORMANCE DATA
TOTAL RETURN
Average annual total return is computed by determining the average annual
compounded rates of return over the designated periods that, if applied to the
initial amount invested would produce the ending redeemable value, according
to the following formula:
P(1+T)n = ERV
[In the above formula "n" is an exponent.]
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
designated period assuming a hypothetical $1,000
payment made at the beginning of the designated
period
The calculation is based on the further assumptions that the maximum initial
sales charge applicable to the investment is deducted, and that all dividends
and distributions by the Fund are reinvested at net asset value on the
reinvestment dates during the periods. All accrued expenses are also taken
into account as described later herein.
Average Annual Total Returns For the Indicated Periods Ended October 31, 1995
LB Opportunity Growth Fund LB Fund LB High Yield Fund
1 year 22.06% 1 year 15.28% 1 year 7.24%
Since Fund 5 years 13.76% 5 years 16.36%
Inception 17.12% 10 years 10.99% Since Fund
1/8/93 Inception 8.88%
4/3/87
LB Income Fund LB Municipal Bond Fund LB Money Market Fund
1 year 10.72% 1 year 9.28% 1 year 4.95%
5 years 8.52% 5 years 7.67% 5 years 3.82%
10 years 8.30% 10 years 8.88% 10 years 5.36%
LB World Growth Fund
Since Fund Inception (9/5/95) -5.70%
YIELD
Yield is computed by dividing the net investment income per share earned
during a recent month or other specified 30-day period by the applicable
maximum offering price per share on the last day of the period and annualizing
the result, according to the following formula:
[A formula is expressed here that is as follows:
Yield is equal to 2 times the difference between the sixth power of a
number and 1, where that number is equal to the sum of the quotient of a
divided by b and 1.]
Where: a = dividends and interest earned during the period minus expenses
accrued for the period (net of voluntary expense reductions by the
Investment Manager)
b = the average daily number of shares outstanding during the period
that were entitled to receive dividends multiplied by the maximum
offering price per share on the last day of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, a Fund computes the yield to maturity of each obligation held by
a Fund based on the market value of the obligation (including actual accrued
interest) at the close of the last business day of the preceding period, or,
with respect to obligations purchased during the period, the purchase price
(plus actual accrued interest). The yield to maturity is then divided by 360
and the quotient is multiplied by the market value of the obligation
(including actual accrued interest) to determine the interest income on the
obligation for each day of the period that the obligation is in the portfolio.
Dividend income is recognized daily based on published rates.
In the case of a tax-exempt obligation issued without original issue discount
and having a current market discount, the coupon rate of interest is used in
lieu of the yield to maturity. Where, in the case of a tax-exempt obligation
with original issue discount, the discount based on the current market value
exceeds the then-remaining portion of original issue discount (market
discount), the yield to maturity is the imputed rate based on the original
issue discount calculation. Where, in the case of a tax-exempt obligation
with original issue discount, the discount based on the current market value
is less than the then-remaining portion of original issue discount (market
premium), the yield to maturity is based on the market value. Dividend income
is recognized daily based on published rates.
With respect to the treatment of discount and premium on mortgage or other
receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("paydowns"), a Fund accounts for gain or
loss attributable to actual monthly paydowns as a realized capital gain or
loss during the period. Each Fund has elected not to amortize discount or
premium on such securities.
Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price.
Undeclared earned income is the net investment income which, at the end of the
base period, has not been declared as a dividend, but is reasonably expected
to be declared as a dividend shortly thereafter. The maximum offering price
includes, as applicable, a maximum sales charge of 5.0%.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing a Fund's performance, but because
yields fluctuate, such information cannot necessarily be used to compare an
investment in a Fund's shares with bank deposits, savings accounts and similar
investment alternatives which are insured and/or often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should
remember that yield is a function of the kind and quality of the instruments
in the Fund's portfolio, portfolio maturity and operating expenses and market
conditions.
The 30-day yield for the base period ended October 31, 1995 for the LB High
Yield Fund, LB Income Fund and LB Municipal Bond Fund were 8.45%, 5.62%, and
4.63%, respectively.
Tax Equivalent Yield
The LB Municipal Bond Fund may quote its tax equivalent yield. The LB
Municipal Bond Fund's tax equivalent yield is computed by dividing that
portion of such Fund's yield (computed as described under "Yield" above) which
is tax-exempt, by the complement of the combined federal and state maximum
effective marginal rate and adding the result to that portion, if any, of the
yield of such Fund that is not tax-exempt. The complement, for example, of a
tax rate of 31% is 69%, that is 1.00 - 0.31 = 0.69.
The LB Municipal Bond Fund's tax equivalent yields for the 30-day base period
ended October 31, 1995, assuming a tax rate of 15%, 28%, 31% and 39.6%, were
5.45%, 6.43%, 6.71% and 7.67%, respectively.
Yield - Money Market Fund
When the LB Money Market Fund quotes a "current annualized" yield, it is based
on a specified recent seven calendar-day period. It is computed by (1)
determining the net change, exclusive of capital changes, in the value of a
hypothetical preexisting account having a balance of one share at the
beginning of the period, (2) dividing the net change in account value by the
value of the account at the beginning of the base period to obtain the base
return, then (3) multiplying the base period by 52.14 (365 divided by 7). The
resulting yield figure is carried to the nearest hundredth of one percent.
The calculation includes (1) the value of additional shares purchased with
dividends on the original share, and dividends declared on both the original
share and any such additional shares, and (2) all fees charge to all
shareholder accounts, in proportion to the length of the base period and the
Trust's average account size.
The capital changes excluded from the calculation are realized capital gains
and losses from the sale of securities and unrealized appreciation and
depreciation. The Fund's effective (compounded) yield will be computed by
dividing the seven-day annualized yield as defined above by 365, adding 1 to
the quotient, raising the sum to the 365th power, and subtracting 1 from the
result.
Current and effective yields fluctuate daily and will vary with factors such
as interest rates and the quality, length of maturities, and type of
investments in the portfolio.
Yield For 7-day Period Ended 10/31/95 4.74%
Effective Yield For 7-day Period Ended 10/31/95 4.86%
ACCRUED EXPENSES
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
average annual total return and yield results take sales charges, if
applicable, into account, although the results do not take into account
recurring and nonrecurring charges for optional services which only certain
shareholders elect and which involve nominal fees.
Accrued expenses do not include the subsidization by affiliates of fees or
expenses relating to a Fund, during the subject period.
NONSTANDARDIZED TOTAL RETURN
A Fund may provide the above described average annual total return results for
periods which end no earlier than the most recent calendar quarter end and
which begin twelve months before and at the time of commencement of such
Fund's operations. In addition, a Fund may provide nonstandardized total
return results for differing periods, such as for the most recent six months,
and/or without taking sales charges into account. Such nonstandardized total
return is computed as otherwise described under "Total Return" except that the
result may or may not be annualized, and as noted any applicable sales charge
may not be taken into account and therefore not deducted from the hypothetical
initial payment of $1,000.
REPORT OF INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The Report of Independent Accountants and financial statements included in the
Annual Report to Shareholders for the fiscal year ended October 31, 1995 of
the Funds are a separate report furnished with this Statement of Additional
Information and are incorporated herein by reference.
<PAGE>
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- -------------------------------------------
(a) Financial Statements
(1) Financial Statements included in PART A (Prospectus) of this
Registration Statement:
(A) Financial Highlights for Lutheran Brotherhood Opportunity
Growth Fund for the fiscal year ended October 31, 1995
(B) Financial Highlights for Lutheran Brotherhood World
Growth Fund for the fiscal year ended October 31, 1995
(C) Financial Highlights for Lutheran Brotherhood Fund for
the fiscal year ended October 31, 1995
(D) Financial Highlights for Lutheran Brotherhood High Yield
Fund for the fiscal year ended October 31, 1995
(E) Financial Highlights for Lutheran Brotherhood Income Fund
for the fiscal year ended October 31, 1995
(F) Financial Highlights for Lutheran Brotherhood Municipal
Bond Fund for the fiscal year ended October 31, 1995
(G) Financial Highlights for Lutheran Brotherhood Money
Market Fund for the fiscal year ended October 31, 1995
(2) Financial Statements included in the Annual Report to
Shareholders for the period ended October 31, 1995 as
incorporated by reference into PART B (Statement of Additional
Information) of this Registration Statement for Lutheran
Brotherhood Opportunity Growth Fund, Lutheran Brotherhood
World Growth Fund, Lutheran Brotherhood Fund, Lutheran
Brotherhood High Yield Fund, Lutheran Brotherhood Income Fund,
Lutheran Brotherhood Municipal Bond Fund, Lutheran Brotherhood
Money Market Fund:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements (including Financial
Highlights referenced to the Prospectus)
Report of Independent Accountants
(b) Exhibits
(1) First Amended and Restated Master Trust Agreement of the **
Registrant
(1)(b) Form of Amendment to First Amended and Restated Master
Trust Agreement ***
(2) By-Laws of the Registrant *
(3) Not applicable
(4) Not applicable
(5)(a) Form of Master Advisory Contract between the Registrant
and Lutheran Brotherhood Research Corp.*
(5)(b) Form of Amendment to Master Advisory Contract ***
(5)(c) Form of Sub-Advisory Agreement between Lutheran Brotherhood
Research Corp. and Rowe Price-Fleming International, Inc. ***
(6)(a) Form of Distribution Agreement between the Registrant and
Lutheran Brotherhood Securities Corp. *
(6)(b) Form of Amendment to Distribtuion Agreement ***
(7) Not applicable
(8)(a) Form of Custodian Contract between the Registrant and State
Street Bank and Trust Company *
(8)(b) Form of Transfer Agency Agreement between the Registrant and
Lutheran Brotherhood Securities Corp. *
(8)(c) Form of Administrative Services Agreement between the Registrant
and Lutheran Brotherhood Securities Corp. *
(8)(d) Form of Amendment to Custodian Contract ***
(8)(e) Form of Amendment to Transfer Agency Agreement ***
(8)(f) Administration Contract Between The Lutheran Brotherhood Family of
Funds and Lutheran Brotherhood Securities Corp. ***
(8)(f) Form of Amendment to Administrative Services Agreement ***
(9) Not applicable
(10) Opinion and consent of counsel ***
(11) Not applicable
(12) Not applicable
(13)(a) Subscription and Investment Letter with respect to each of
Lutheran Brotherhood Opportunity Growth Fund, Lutheran
Brotherhood Fund, Lutheran Brotherhood High Yield Fund, Lutheran
Brotherhood Income Fund, Lutheran Brotherhood Municipal Bond Fund
and Lutheran Brotherhood Money Market Fund **
(13)(b) Form of Subscription and Investment Letter with respect to
Lutheran Brotherhood World Growth Fund ***
(14)(a)(i) Lutheran Brotherhood Defined Contribution Plan and
Trust, Standardized Target Benefit Plan and Trust Adoption
Agreement, Target Benefit Plan and Trust Adoption Agreement,
Standardized Nonintegrated Profit Sharing Plan and Trust
Adoption Agreement, Standardized Nonintegrated Money
Purchase Plan and Trust Adoption Agreement, Standardized
Integrated Profit Sharing Plan and Trust Adoption Agreement,
Standardized Integrated Money Purchase Plan and Trust
Adoption Agreement, Integrated Money Purchase Plan and Trust
Adoption Agreement, Nonintegrated Money Purchase Plan and
Trust Adoption Agreement, Nonintegrated Profit Sharing Plan
and Trust Adoption Agreement and Integrated Profit Sharing
Plan and Trust Adoption Agreement *
(14)(a)(ii) Lutheran Brotherhood Defined Benefit Plan and Trust,
Standardized Nonintegrated Defined Benefit Plan Adoption
Agreement and Standardized Integrated Defined Benefit Plan
and Trust Adoption Agreement *
(14)(b) Lutheran Brotherhood Individual Retirement Account, Disclosure
Statement and Custodial Agreement *
(14)(c) Lutheran Brotherhood Self-Directed Individual Retirement
Account, Supplemental Disclosure Statement, Disclosure Statement
and Custodial Agreement *
(14)(d) Lutheran Brotherhood Tax Sheltered Custodial Account *
(14)(e) Lutheran Brotherhood Prototype Simplified Employee Pension Plan
*
(15) Not applicable
(16) Schedule of computation of performance data provided in response
to Item 22 of this Registration Statement **
(17)(a) Powers of Attorney for Rolf F. Bjelland, Wade M. Voigt, Charles
W. Arnason, Herbert F. Eggerding, Jr., Luther O. Forde and Ruth
E. Randall **
(17)(b) Power of Attorney for Connie M. Levi **
(17)(c) Power of Attorney for Bruce J. Nicholson ***
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote
Reference Securities Act of 1933 Amendment Date Filed
--------- -------------------------------- ----------
* Post-Effective Amendment No. 51 August 27, 1993
** Post-Effective Amendment No. 52 October 25, 1993
*** Post-Effective Amendment No. 55 June 16, 1995
Item 25. Persons Controlled by or under Common Control with Registrant
- ----------------------------------------------------------------------
None.
Item 26. Number of Holders of Securities
- ----------------------------------------
As of December 1, 1995 the numbers of record holders of shares of the
Registrant was as follows:
(1) (2)
Number of
Title of Class Record Holders
Shares of Beneficial Interest
Lutheran Brotherhood Opportunity Growth Fund 34,922
Lutheran Brotherhood World Growth Fund 3,314
Lutheran Brotherhood Fund 75,413
Lutheran Brotherhood High Yield Fund 47,383
Lutheran Brotherhood Income Fund 66,106
Lutheran Brotherhood Municipal Bond Fund 24,640
Lutheran Brotherhood Money Market Fund 44,500
Item 27. Indemnification
- ------------------------
Under Article VI of the Registrant's Master Trust Agreement each of its
Trustees and officers or persons serving in such capacity with another entity
at the request of the Registrant ("Covered Person") shall be indemnified
against all liabilities, including, but not limited to, amounts paid in
satisfaction of judgments, in compromises or as fines or penalties, and
expenses, including reasonable legal and accounting fees, in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, before any court or administrative or legislative body, in
which such Covered Person may be or may have been involved as a party or
otherwise or with which such Covered Person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer, director or trustee, except with respect to any
matter as to which it has been determined that such Covered Person had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office (such
conduct referred to hereafter as "Disabling Conduct"). A determination that
the Covered Person is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before which the proceeding
was brought that the person to be indemnified was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of evidence of Disabling
Conduct, or (iii) a reasonable determination, based upon a review of the
facts, that the indemnitee was not liable by reason of Disabling Conduct by
(a) a vote of a majority of a quorum of Trustees who are neither "interested
persons" of the Registrant as defined in section 2(a)(19) of the 1940 Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion.
Under the Distribution Agreement between the Registrant and Lutheran
Brotherhood Securities Corp., the Registrant's distributor, the Registrant has
agreed to indemnify, defend and hold Lutheran Brotherhood Securities Corp.,
its officers, directors, employees and agents and any person who controls
Lutheran Brotherhood Securities Corp. free and harmless from and against any
loss, claim, damage, liability and expense incurred by any of them arising out
of or based upon any untrue or alleged untrue statement of material fact, or
the omission or alleged omission to state a material fact necessary to make
the statements made not misleading, in a Registration Statement, the
Prospectus or Statement of Additional Information of the Registrant, or any
amendment or supplement thereto, unless such statement or omission was made in
reliance upon written information furnished by Lutheran Brotherhood Securities
Corp.
Under the Transfer Agent and Service Agreement between the Registrant and
Lutheran Brotherhood Securities Corp., the Registrant has agreed, provided
that Lutheran Brotherhood Securities Corp. has at all relevant times acted in
good faith and without negligence or willful misconduct, to indemnify and hold
Lutheran Brotherhood Securities Corp. harmless from and against any and all
losses, damages, costs, charges, attorneys fees, payments, expenses and
liability arising out of or attributable to (a) all actions of Lutheran
Brotherhood Securities Corp. or its agents or subcontractors required to be
taken under the Transfer Agency and Service Agreement or which arise out of
the Registrant's lack of good faith, negligence, or willful misconduct or the
breach of any representation or warranty of the Registrant under the Transfer
Agency and Service Agreement, (c) the reliance on or use by Lutheran
Brotherhood Securities Corp. or its agents or subcontractors of information,
records or documents which are furnished by or on behalf of Registrant, (d)
the reliance on or the carrying out by Lutheran Brotherhood Securities Corp.
or its agents or subcontractors of any instructions or requests by Registrant,
or (e) the offer or sale of shares of the Registrant unknown by Lutheran
Brotherhood Securities Corp. to be in violation of law.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act of 1933 may be permitted to trustees, officers,
underwriters and controlling persons of the Registrant, pursuant to Article VI
of the Registrant's Master Trust Agreement, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted
against the Registrant by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
- -------------------------------------------------------------
Lutheran Brotherhood Research Corp. has been engaged in the investment
advisory business since 1970. Lutheran Brotherhood, the indirect parent
company of LB Research, also acts as investment adviser to LB Series Fund,
Inc.
The directors and officers of Lutheran Brotherhood Research Corp. are
listed below, together with their principal occupations during the past two
years. (Their titles may have varied during that period.)
Directors:
Robert P. Gandrud, Chairman (President and Chief Executive Officer of
Lutheran Brotherhood)
Rolf F. Bjelland (Executive Vice President of Lutheran Brotherhood)
Bruce J. Nicholson (Executive Vice President of Lutheran Brotherhood)
Paul R. Ramseth (Executive Vice President of Lutheran Brotherhood)
William H. Reichwald (Executive Vice President of Lutheran Brotherhood)
Officers:
Rolf F. Bjelland, President
Anita J. T. Young, Treasurer (Vice President and Treasurer of Lutheran
Brotherhood)
Otis F. Hilbert, Secretary (Vice President of Lutheran Brotherhood)
Jerald E. Sourdiff, Controller (Senior Vice President and Controller of
Lutheran Brotherhood)
Charles E. Heeren, Vice President (Vice President of Lutheran
Brotherhood)
James R. Olson, Vice President (Vice President of Lutheran Brotherhood)
James M. Walline, Vice President (Vice President of Lutheran Brotherhood)
Michael A. Binger, Assistant Vice President (Associate Portfolio Manager
of Lutheran Brotherhood)
Randall L. Boushek, Assistant Vice President (Vice President of Lutheran
Brotherhood)
Janet I. Grangaard, Assistant Vice President (Associate Portfolio Manager
of Lutheran Brotherhood)
Thomas N. Haag, Assistant Vice President (Assistant Vice President of
Lutheran Brotherhood)
Michael G. Landreville, Assistant Vice President (Associate Portfolio
Manager of Lutheran Brotherhood)
Gail R. Onan, Assistant Vice President (Associate Portfolio Manager of
Lutheran Brotherhood)
Scott A. Vergin, Assistant Vice President (Associate Portfolio Manager of
Lutheran Brotherhood)
Marie A. Sorensen, Assistant Vice President (Assistant Vice President of
Lutheran Brotherhood)
James M. Odland, Assistant Secretary (Assistant Vice President of
Lutheran Brotherhood)
Randall L. Wetherille, Assistant Secretary (Assistant Vice President of
Lutheran Brotherhood)
The business address of each of the above directors and officers employed
by Lutheran Brotherhood is 625 Fourth Avenue South, Minneapolis, Minnesota
55415.
The business and other connections of the officers and directors of Rowe
Price-Fleming International, Inc. ("Sub-advisor") are set forth in the Form
ADV of Sub-advisor currently on file with the Securities and Exchange
Commission (File No. 801-14713)
Item 29. Principal Underwriters
- -------------------------------
(a) Lutheran Brotherhood Securities Corp. also serves as principal
underwriter for LB Series Fund, Inc.
(b) Directors and officers of Lutheran Brotherhood Securities Corp. are
as follows:
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
------------------ ---------------- --------------------
William H. Reichwald President --
625 Fourth Avenue South
Minneapolis, MN 55415
Robert P. Gandrud Chairman and Director --
625 Fourth Avenue South
Minneapolis, MN 55415
Otis F. Hilbert Vice President, Counsel and Vice President and
625 Fourth Avenue South Secretary Secretary
Minneapolis, MN 55415
Anita J. T. Young Treasurer --
625 Fourth Avenue South
Minneapolis, MN 55415
(c) Not Applicable.
Item 30. Location of Accounts and Records
- -----------------------------------------
The Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment Company Act
of 1940 at its principal executive offices at 625 Fourth Avenue South,
Minneapolis, Minnesota 55415. Certain records, including records relating to
Registrant's shareholders and the physical possession of its securities, may
be maintained pursuant to Rule 31a-3 under the Investment Company Act of 1940
by the Registrant's transfer agent or custodian at the following locations:
Name Address
---- -------
Lutheran Brotherhood Securities Corp. 625 Fourth Avenue South
Minneapolis, Minnesota 55415
Norwest Bank Minnesota, N.A. Sixth and Marquette Avenue
Minneapolis, Minnesota 55402
State Street Bank and Trust Company 225 Franklin Street
Boston, Massachusetts 02110
Item 31. Management Services
- ----------------------------
Not Applicable.
Item 32. Undertakings
- ---------------------
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report
to shareholders upon request and without charge.
The Registrant hereby undertakes, if requested to do so by the holders of
at least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
trustee or trustees and to assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of 1940.
The Registrant hereby undertakes to file a post-effective amendment to
its registration for the purposes of filing updated financial statements
(which need not be audited) within the time limit specified by Item 32(b) of
Form N-1A.
Notice
A copy of the Master Trust Agreement of the Registrant is on file with
the Secretary of State of the State of Delaware and notice is hereby given
that the obligations of the Registrant hereunder, and the authorization,
execution and delivery of this amendment to the Registrant's Registration
Statement, shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Registrant as individuals or
personally, but shall bind only the property of the Funds of the Registrant,
as provided in the Master Trust Agreement. Each Fund of the Registrant shall
be solely and exclusively responsible for the payment of any of its direct or
indirect debts, liabilities and obligations, and no other Fund shall be
responsible for the same.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has has duly caused this
amendment to this Registration Statement on Form N-1A to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of
Minneapolis and State of Minnesota, on the 28th day of December, 1995.
THE LUTHERAN BROTHERHOOD
FAMILY OF FUNDS
By: /s/ Randall L. Wetherille
-------------------------
Randall L. Wetherille,
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to this registration statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title Date
* Trustee and President December 28, 1995
- ------------------------ (Principal Executive Officer)
Rolf F. Bjelland
* Treasurer December 28, 1995
- ------------------------ (Principal Financial and
Wade M. Voigt Accounting Officer)
* Trustee December 28, 1995
- ------------------------
Charles W. Arnason
* Trustee December 28, 1995
- -------------------------
Herbert F. Eggerding, Jr.
* Trustee December 28, 1995
- ------------------------
Connie M. Levi
* Trustee December 28, 1995
- ------------------------
Bruce J. Nicholson
* Trustee December 28, 1995
- ------------------------
Ruth E. Randall
By: /s/ Randall L. Wetherille
-------------------------
Randall L. Wetherille,
Attorney-in-Fact under Powers
of Attorney incorporated by
reference from Post-Effective
Amendment Nos. 51, 52 and 55.
<PAGE>
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
INDEX TO EXHIBITS
Exhibit Sequential Page
Number Exhibit Number
24(a) Financial Statements: Annual Report to Shareholders
24(b)(11) Consent of Independent Accountants
LUTHERAN BROTHERHOOD
FAMILY OF FUNDS
Logo Centered Here
Box with picture of a Leaf, Tree and Acorn
Growth Income Stability
Annual Report
October 31, 1995
Logo Centered Here
Lutheran
Brotherhood
Securities Corp.
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, MN 55402-3795
Price Waterhouse Logo Goes here
- ------------------------------------------------------------------
Price Waterhouse LLP
Report of Independent Accountants
To the Trustees and Shareholders of the
Lutheran Brotherhood Family of Funds
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Lutheran Brotherhood Opportunity Growth Fund, Lutheran Brotherhood World
Growth Fund, Lutheran Brotherhood Fund, Lutheran Brotherhood High Yield
Fund, Lutheran Brotherhood Income Fund, Lutheran Brotherhood Municipal
Bond Fund and Lutheran Brotherhood Money Market Fund (constituting the
Lutheran Brotherhood Family of Funds) at October 31, 1995, the results
of each of their operations for the year then ended or period indicated,
the changes in each of their net assets for the year or period ended
October 31, 1995 and the financial highlights for the periods indicated,
in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities at October 31, 1995 by correspondence with the custodian
and brokers and the application of alternative auditing procedures where
confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
/s/Price Waterhouse LLP
December 11, 1995
<TABLE>
<CAPTION>
Lutheran Brotherhood Opportunity Growth Fund
Portfolio of Investments
October 31, 1995
Shares Value
- ----------- ----------------
<S> <C> <C> <C>
COMMON STOCKS - 89.7% (a)
Automotive - 1.9%
129,500 MascoTech, Inc. $ 1,327,375
136,900 Tower Automotive, Inc. 1,882,375 (b)
------------
3,209,750
------------
Computer Software - 12.7%
191,300 Cheyenne Software, Inc. 3,993,388 (b)
44,900 Cooper & Chyan
Technology, Inc. 634,213 (b)
28,500 Hyperion Software Corp. 1,403,625 (b)
164,200 Inference Corp. 1,990,925 (b)
215,600 Intersolv, Inc. 3,395,700 (b)
150,300 MySoftware Company 1,580,498 (b)
123,200 Ovid Technologies, Inc. 1,108,800 (b)
86,400 Sterling Software, Inc. 3,985,200 (b)
275,500 Viasoft, Inc. 3,581,500 (b)
------------
21,673,849
------------
Computers &
Office Equipment - 11.9%
17,100 Ade Corp. 256,500 (b)
77,500 Avid Technology, Inc. 3,390,625 (b)
20,000 DataWorks Corp. 277,500 (b)
35,700 FORE Systems, Inc. 1,892,100 (b)
81,500 In Focus Systems, Inc. 2,679,313 (b)
179,000 InaCom Corp. 1,790,000 (b)
100,400 Madge, N.V. 4,204,250 (b)
69,300 MICROS Systems, Inc. 2,581,425 (b)
16,300 Micro Warehouse, Inc. 725,350 (b)
40,800 NetStar, Inc. 418,200 (b)
41,600 Network Peripherals, Inc. 436,800 (b)
48,900 Optical Data Systems, Inc. 1,460,887 (b)
------------
20,112,950
------------
Construction &
Home Building - 2.0%
53,000 Belmont Homes, Inc. 927,500 (b)
164,000 Southern Energy Homes, Inc. 2,419,000 (b)
------------
3,346,500
------------
Drugs & Health Care - 13.3%
48,900 Agouron Pharmaceuticals, Inc. 1,271,400 (b)
20,400 Circon Corp. 464,100 (b)
57,100 Depotech Corp. 827,950 (b)
161,000 EP Technologies, Inc. 1,992,375 (b)
199,300 Maxxim Medical, Inc. 2,765,287 (b)
107,200 Mentor Corp. 2,358,400
49,700 Orthofix International N.V. 484,575 (b)
100,450 PDT, Inc. 3,867,325 (b)
85,600 SEQUUS Pharmaceuticals, Inc. 1,027,200 (b)
85,600 Speedfam International, Inc. 1,401,700 (b)
64,000 Stryker Corp. 2,888,000
73,300 Summit Technology, Inc. 3,261,850 (b)
------------
22,610,162
------------
Electronics - 7.5%
96,400 Actel Corp. 1,132,700 (b)
59,500 Adaptec, Inc. 2,647,750 (b)
115,800 C-Cor Electronics 2,663,400 (b)
84,000 Etec Systems, Inc. 924,000 (b)
60,000 Integrated Silicon Solution 1,878,750 (b)
214,500 Quality Semiconductor, Inc. 1,823,250 (b)
114,300 Smartflex Systems, Inc. 1,671,637 (b)
------------
12,741,487
------------
Healthcare Management - 1.8%
20,400 Healthsource, Inc. 1,081,200 (b)
72,400 Maxicare Health Plans, Inc. 1,257,950 (b)
70,500 Quantum Health
Resources, Inc. 749,063 (b)
------------
3,088,213
------------
Hospital Management - 2.6%
101,900 Horizon Mental Health
Management, Inc. 1,592,188 (b)
401,300 Physician Computer
Network, Inc. 2,758,938 (b)
------------
4,351,126
------------
Industrial - 0.6%
166,300 Union Switch & Signal, Inc. 997,800 (b)
------------
Leisure &
Entertainment - 6.1%
207,900 Cannondale Corp. 3,326,400 (b)
407,500 Fairfield Communities, Inc. 3,005,312 (b)
105,100 Movie Gallery, Inc. 4,046,350 (b)
------------
10,378,062
------------
Machinery &
Equipment - 0.5%
69,300 Insituform Technologies,
Inc., Class A 866,250 (b)
------------
Pollution Control - 3.7%
171,100 Memtec Limited, ADR 2,887,312 (b)
143,000 U.S. Filter Corp. 3,324,750 (b)
------------
6,212,062
------------
Restaurants - 2.2%
28,500 Outback Steakhouse, Inc. 894,187 (b)
148,300 Quality Dining, Inc. 2,891,850 (b)
------------
3,786,037
------------
Retail - 10.1%
92,300 American Eagle Outfitters 899,925 (b)
12,200 De Rigo S.p.A. 251,625 (b)
82,900 Department 56, Inc. 3,761,588 (b)
212,200 Fingerhut Cos., Inc. 2,891,225
52,000 Fossil, Inc. 565,500 (b)
77,200 General Nutrition Cos. 1,920,350 (b)
45,500 Gymboree Corp. 1,029,437 (b)
25,800 Piercing Pagoda, Inc. 377,325 (b)
90,200 Sports Authority, Inc. (The) 1,961,850 (b)
192,400 Strouds, Inc. 889,850 (b)
205,600 Trend-Lines, Inc., Class A 2,698,500 (b)
------------
17,247,175
------------
Services - 5.8%
216,300 BT Office Products
International, Inc. 2,784,863 (b)
99,200 Career Horizons, Inc. 2,653,600 (b)
54,800 Global DirectMail Corp. 1,493,300 (b)
115,900 ITI Technologies 2,926,475 (b)
------------
9,858,238
------------
Telecommunications
Equipment - 0.9%
24,500 ADC Telecommunications, Inc. 980,000 (b)
34,800 Brite Voice Systems, Inc. 578,550 (b)
------------
1,558,550
------------
Telephone &
Telecommunications - 5.7%
154,300 Metrocall, Inc. 3,857,500 (b)
8,200 Microcom, Inc. 179,375 (b)
20,400 Premisys
Communications, Inc. 1,825,800 (b)
57,700 Pronet, Inc. 1,471,350 (b)
81,500 Teltrend, Inc. 2,404,250 (b)
------------
9,738,275
------------
Textiles & Apparel - 0.4%
108,200 Cutter & Buck, Inc. 703,300 (b)
------------
Total Common Stocks
(cost $143,737,954) 152,479,786
------------
SHORT-TERM
SECURITIES - 10.3% (a)
Commercial Paper
$1,675,000 AI Credit
5.7%, due 11/7/1995 1,673,409
4,300,000 Cargill, Inc.
5.69%, due 11/3/1995 4,298,641
2,500,000 Koch Industries
5.88%, due 11/1/1995 2,500,000
4,000,000 McDonald's Corp.
5.72%, due 11/8/1995 3,995,551
5,000,000 Raytheon Co.
5.72%, due 11/1/1995 5,000,000
------------
Total Short-Term Securities
(at amortized cost) 17,467,601
------------
Total Investments
(cost $161,205,555) $169,947,387 (c)
============
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total
investments of the Lutheran Brotherhood Opportunity Growth Fund.
(b) Currently non-income producing.
(c) At October 31, 1995, the aggregate cost of securities for federal
income tax purposes was $161,382,474 and the net unrealized appreciation
of investments based on that cost was $8,564,913 which is comprised of
$20,823,298 aggregate gross unrealized appreciation and $12,258,385
aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood World Growth Fund
Portfolio of Investments
October 31, 1995
Shares Value
- ----------- --------------
<S> <C> <C> <C>
ARGENTINA - 0.6% (a)
COMMON STOCKS
470 Banco de Galicia
Buenos Aires ADR (USD) $8,989
240 Banco Frances del
Rio de la Plata ADR (USD) 5,250
130 Buenos Aires Embotelladora
ADR (USD) 2,974
150 Enron Global Power &
Pipeline (USD) 3,619
2,350 Naviera Perez "B" 10,362
1,590 Sociedad Comercial del Plata 3,211
150 Sociedad Comercial del Plata
ADR (USD) 3,038
910 Telecom Argentina 3,503
110 Telecom Argentina
ADR (USD) 4,221
1,090 Telefonica de Argentina
ADR (USD) 22,618
340 Transportadora de Gas del
Sur ADR (USD) 3,485
1,080 YPF Sociedad Anonima
ADR (USD) 18,495
-----------
Total Argentina 89,765
-----------
AUSTRALIA - 1.6% (a)
COMMON STOCKS
8,000 Australia Gas & Light 27,727
2,500 Broken Hill Proprietary 33,859
6,000 Burns Philip & Company 13,437
2,000 Coca Cola Amatil 15,478
1,200 Lend Lease Corporation 16,691
3,000 Mayne Nickless 13,574
4,000 News Corporation 20,171
3,000 Publishing & Broadcasting 9,552
14,000 TNT 19,729
2,000 Western Mining 12,828
5,000 Westpac Banking 20,529
4,500 Woodside Petroleum 21,561
-----------
225,136
-----------
MISCELLANEOUS
SECURITIES 8,638 (b)
-----------
Total Australia 233,774
-----------
AUSTRIA - 0.1% (a)
COMMON STOCKS
110 Flughafen Wien 7,066
110 Oesterreische Elektrik
Wirtsch 6,721
-----------
13,787
-----------
PREFERRED STOCKS
80 Creditanstalt Bankverein 3,991
-----------
Total Austria 17,778
-----------
BELGIUM - 0.9% (a)
COMMON STOCKS
95 Generale Banque 30,726
230 Kredietbank 57,699
40 UCB 45,646
-----------
Total Belgium 134,071
-----------
BRAZIL - 0.7% (a)
COMMON STOCKS
470 Brazil Fund (USD) 10,986
290 Cia Energetic Sao Paulo
ADR (USD) 2,919
260 Companhia Energetica Minas
Gerais ADR (USD) 5,720
1,910 Telecomunicacoes Brasilias
ADR (USD) 76,639
340 Usiminas Siderurg Miras
ADR (USD) 3,188
-----------
Total Brazil 99,452
-----------
CANADA - 0.4% (a)
COMMON STOCKS
1,050 Alcan Aluminum 33,601
590 MacMillan Bloedel (USD) 7,744
420 Royal Bank of Canada 9,444
-----------
Total Canada 50,789
-----------
CHILE - 0.6% (a)
COMMON STOCKS
100 AFP Providia ADR (USD) 2,450
750 Chile Fund (USD) 17,063
230 Chilectra ADR (USD) 9,890
340 Chilgener ADR (USD) 8,160
300 Compania Cervecerias Unidas
ADR (USD) 6,938
150 Compania Telecomunicaciones
ADR (USD) 10,800
640 Empresa Nacional De Electric
ADR (USD) 13,760
380 Enersis ADS (USD) 9,548
-----------
Total Chile 78,609
-----------
CHINA - 0.6% (a)
COMMON STOCKS
2,400 Huaneng Power ADR (USD) 39,900 (b)
26,000 Maanshan Iron &
Steel (HKD) 4,742
72,000 Shanghai Petrochemical "H"
(HKD) 20,720
58,000 Yizheng Chemical Fibre "H"
(HKD) 16,879
-----------
Total China 82,241
-----------
DENMARK - 0.3% (a)
COMMON STOCKS
260 Den Danske Bank 17,225
110 Teledanmark 5,738
300 Unidanmark 13,781
-----------
Total Denmark 36,744
-----------
FINLAND - 0.2% (a)
COMMON STOCKS
500 Nokia 28,604
-----------
FRANCE - 6.1% (a)
COMMON STOCKS
425 Accor 50,495
160 Carrefour 93,969
70 Castorama Dubois 11,352
175 Chargeurs 36,001
580 Cie de St. Gobain 69,148
140 Credit Local De France 11,082
1,210 Eaux Cie Generale 112,461
275 Ecco 42,627
200 GTM Entrepose 12,965
470 Lafarge Coppee 31,150
400 Lapeyre 20,090
180 Legrand 30,110
60 L'Oreal 14,662
100 Peugeot 13,026
220 Pinault Printemps Redoute 47,688
350 Poliet 27,484
200 Primagaz 15,533
100 Rexel 16,155
200 Sanofi 12,756
500 Societe Nationale Elf Aquitaine 34,048
70 Sodexho 18,137
720 Television Francaise 74,354
600 Total 37,079
1,000 Valeo 45,173
-----------
Total France 877,545
-----------
GERMANY - 4.2% (a)
COMMON STOCKS
10 Allianz Holdings 9,697
40 Allianz Holdings, Warrants,
Expiring 3/29/1996 74,027 (b)
30 Altana 17,445
190 Bayer 50,537
50 Bilfinger & Berger 18,400
30 Buderas 12,873
840 Deutsche Bank 37,996
162 Gehe 79,527
50 Hoechst 13,132
100 Hornbach Baumarkt 5,044
170 Mannesmann 55,954
260 Praktiker Bau und Heimwerker
Markte 8,220 (b)
350 Rhon Klinikum 32,822
350 Rhon Klinikum, Stock Rights,
Expiring 11/13/1995 6,714 (b)
642 Schering 44,789
1,210 Veba 49,677
110 Veba International Finance,
Warrants, Expiring 4/6/1998 15,669 (b)
70 Volkswagen 22,055
-----------
554,578
-----------
PREFERRED STOCKS
110 Fielmann 6,056
20 Hornbach 20,105
40 Krones 14,322
-----------
40,483
-----------
Total Germany 595,061
-----------
HONG KONG - 2.9% (a)
COMMON STOCKS
28,000 First Pacific 32,231
9,000 Guangdong Investments 5,296
128,000 Guangzhou Investment 26,323
10,000 Guoco Group 46,303
41,786 Hong Kong Land Holdings 75,215
18,000 Hutchison Whampoa 99,176
6,000 Swire Pacific "A" 45,010
26,000 Wharf Holdings 87,769
-----------
Total Hong Kong 417,323
-----------
ITALY - 1.5% (a)
COMMON STOCKS
2,200 Assicurazioni Generali 51,274
9,000 Banca Fideuram 9,598
1,000 Danieli & Company 2,760
1,000 Imi 5,464
5,000 Istituto Naz Delle
Assicurazioni 6,572
4,000 Italgas 10,640
1,000 Rinascente 5,928
1,000 Sasib 4,429
3,000 Sasib Di Risp 7,434
2,000 SME Meridonale Di 4,398
11,000 Stet 31,157
6,000 Stet Di Risp 13,080
19,000 Telecom Italia 28,846
8,000 Telecom Italia Di Risp 9,435
14,000 Telecom Italia Mobile 23,494 (b)
1,000 Unicem 6,274
-----------
Total Italy 220,783
-----------
JAPAN - 21.4% (a)
COMMON STOCKS
2,000 Alps Electric 20,529
4,000 Amada 39,885
5,000 Canon 85,537
2,000 Citizen Watch Company 13,705
4,000 Dai Nippon Screen
Manufacturing 35,740
1,000 Daifuku 11,926
4,000 Daiichi Phamaceutical 55,917
5,000 Daiwa House 74,784
12 East Japan Railway 56,660
1,000 Fanuc 43,306
7,000 Hitachi 71,851
6,000 Hitachi Zosen 29,503
2,000 Honda Motor Company 34,801
2,000 Inax 18,026
2,000 Ishihara Sangyo 5,944
2,000 Ito-Yokado 109,292
2,000 Kokuyo 43,013
5,000 Komatsu 39,103
2,000 Komori 47,314
4,000 Kumagai Gumi 15,328
4,000 Kuraray 39,494
2,000 Kyocera 163,840
3,000 Makita 46,630
4,000 Marui 69,212
4,000 Matsushita Electric Industries 56,699
3,000 Mitsubishi 33,139
12,000 Mitsubishi Heavy Industries 92,556
3,000 Mitsubishi Paper 18,241
20,000 Mitsui Fudosan 228,750
2,000 Mitsui Petrochemical Industries 15,856
1,000 Murata Manufacturing 35,095
1,000 National House 17,010
6,000 NEC 79,183
5,000 Nippon Denso 91,402
1,000 Nippon Hodo 15,543
24,000 Nippon Steel 79,535
4,000 Nomura Securities 73,122
2,000 Pioneer Electronic 30,696
1,000 Sangetsu 22,680
3,000 Sankyo 65,986
6,000 Sekisui Chemical 78,010
4,000 Sekisui House 46,141
18,000 Sharp 249,866
2,000 Shinetsu Chemical 40,862
2,000 Sony 89,936
8,000 Sumitomo 72,731
7,000 Sumitomo Electric 80,747
3,000 Sumitomo Forestry 42,231
1,000 TDK 51,518
7,000 Teijin 32,093
2,000 Tokio Marine & Fire Insurance 20,529
1,000 Tokyo Electronics 43,404
2,000 Tokyo Steel Manufacturing 37,147
2,000 Toppan Printing 26,394
1,000 Yurtec 18,183
-----------
Total Japan 3,056,625
-----------
MALAYSIA - 2.5% (a)
COMMON STOCKS
31,000 Affin Holdings 58,560
7,000 Affin Holdings, Warrants,
Expiring 11/15/1999 4,435 (b)
8,000 Aokam Perdana 13,412
5,000 Commerce Asset Holdings 13,577 (b)
18,000 MBF Capital 17,001
30,000 Multi-Purpose Holdings 40,142
29,000 Renong 44,282
27,000 Technology Resources
Industries 68,536
16,000 United Engineers 99,488
-----------
Total Malaysia 359,433
-----------
MEXICO - 1.4% (a)
COMMON STOCKS
2,850 Cemex "B" 8,800
30,610 Cifra ADR (USD) 32,906
2,080 Gruma "B" 6,131
10,129 Grupo Embotellador de Mexico 18,339
4,740 Grupo Financiero Banamex "C" 8,116
11,810 Grupo Industrial Maseca 7,359
1,000 Grupo Modelo "C" 3,804
3,650 Grupo Sidek "B" 1,732
1,200 Grupo Televisa GDS (USD) 20,550
890 Kimberly-Clark Mexico
(Class A) 11,617
500 Panamerican Beverages
ADR (USD) 13,688
1,850 Telefonos de Mexico
ADS (USD) 50,875
5,200 Tolmex "B" 19,523
-----------
Total Mexico 203,440
-----------
NETHERLANDS - 8.1% (a)
COMMON STOCKS
840 ABN Amro 35,297
660 Ahold 25,015
137 Akzo 15,603
1,300 CSM 54,215
16,870 Elsevier 218,119
560 Fortis AMEV 35,173
290 Hagemeyer 14,447
1,250 International Nederland Groep 74,550
861 Koninklijke PTT Nederland 30,286
250 Nutricia 19,410
1,540 Polygram 96,140
1,410 Royal Dutch Petroleum 175,066
600 Unilever 78,603
3,135 Wolters Kluwer 285,325
-----------
Total Netherlands 1,157,249
-----------
NEW ZEALAND - 0.6% (a)
COMMON STOCKS
6,000 Carter Holt Harvey 14,337
3,000 Fernz 8,872
4,000 Fletcher Challenge 10,588
9,000 Fletcher Challenge,
Forests Division 12,417
11,000 Telecom Corporation of
New Zealand 45,673
-----------
Total New Zealand 91,887
-----------
NORWAY - 1.3% (a)
COMMON STOCKS
370 Bergesen "A" 7,665
460 Kvaerner Industier "A" 19,354
2,040 Norsk Hydro 81,246
1,310 Orkla "A" 67,740
580 Saga Petroleum "B" 6,986
-----------
Total Norway 182,991
-----------
PORTUGAL - 0.2% (a)
COMMON STOCKS
620 Jeronimo Martins 33,008
-----------
SINGAPORE - 2.1% (a)
COMMON STOCKS
10,000 DBS Land 29,582
1,000 Development Bank of
Singapore 11,465
3,000 Far East Levingston
Shipbuilding 12,951
3,000 Jurong Shipyard 19,957
1,000 Keppel 8,209
7,000 Neptune Orient Lines 7,679
4,000 Overseas Union Bank 24,911
3,000 Overseas Union Enterprises 15,924
3,000 Sembawang 14,543
3,000 Singapore Airlines 27,813
5,000 Singapore Land 27,955
2,000 Singapore Press 31,281
13,000 United Industrial 11,592
6,000 United Overseas Bank 52,654
2,000 United Overseas Bank,
Warrants, Expiring
6/17/97 7,572 (b)
-----------
Total Singapore 304,088
-----------
SPAIN - 2.0% (a)
COMMON STOCKS
120 Banco Popular Espanol 19,063
730 Banco Santander 31,818
1,930 Centros Commerciales Pryca 41,113
1,260 Empresa Nacional de
Electridad 62,662
190 Fomento de Construcciones y
Contra 13,418
300 Gas Natural 41,145
3,130 Iberdrola 23,593
1,250 Repsol 37,329
1,910 Sevillana De Electricidad 12,613
-----------
Total Spain 282,754
-----------
SWEDEN - 1.9% (a)
COMMON STOCKS
270 Asea "A" 27,038
2,710 Astra AB "B" 97,943
1,540 Atlas Copco "B" 23,307
960 Electrolux "B" 41,056
320 Esselte "B" 4,698
340 Hennes & Mauritz "B" 22,221
320 Sandvik "A" 5,999
1,800 Sandvik "B" 33,882
430 Scribona "B" 4,241
1,110 Stora Kopparberg "B" 13,456
-----------
Total Sweden 273,841
-----------
SWITZERLAND - 4.0% (a)
COMMON STOCKS
110 BBC Brown Boveri 127,605
40 Ciba Geigy 34,634
270 CS Holding 27,587
95 Nestle 99,577
16 Roche Holdings 116,269
70 Sandoz 57,773
115 Schweizerisch Bankverein 47,203
40 Schweizerische
Bankgesellschaft 43,336
-----------
Total Switzerland 553,984
-----------
THAILAND - 0.9% (a)
COMMON STOCKS
1,200 Advanced Information Service 18,502
2,200 Bangkok Bank 22,730
2,700 Bank of Ayudhya 15,557
400 Land & House 6,453
300 Siam Cement 16,356
2,000 Siam Commercial Bank 23,366
1,500 Thai Farmers Bank 12,398
1,000 Total Access
Communication (USD) 6,050 (b)
800 United Communications 10,046
-----------
Total Thailand 131,458
-----------
UNITED KINGDOM - 12.9% (a)
COMMON STOCKS
10,000 Abbey National 84,664
7,900 Argos 63,824
UNITED KINGDOM - (continued)
COMMON STOCKS (continued)
9,000 Argyll Group 45,747
25,000 Asda Group 40,514
2,000 BAA 15,557
6,000 British Gas 22,862
4,000 British Petroleum 29,407
10,100 Cable & Wireless 65,949
8,400 Cadbury Schweppes 69,391
13,000 Caradon 40,696
5,000 Coats Viyella 14,783
4,000 Compass Group 27,194
4,600 East Midlands Electricity 63,164
5,500 Glaxo Wellcome 74,174
11,000 Grand Metropolitan 76,174
1,000 Heath 2,561
2,000 Heywood Williams Group 6,593
5,000 Hillsdown Holdings 13,241
4,000 John Laing 14,292
9,000 Kingfischer 67,660
7,000 Ladbroke Group 18,371
5,000 London Electricity 71,304
16,000 National Westminster Bank 159,747
8,000 Rank Organisation 53,249
10,000 Reed International 152,095
4,000 Rolls Royce 9,739
3,800 RTZ 52,629
4,000 Sears 6,419
8,000 Shell Transport & Trading 93,597
15,000 SmithKline Beecham,
equity units 153,676
3,000 Smith Holdings 27,320
9,000 T & N 20,419
7,000 Tesco 33,201
20,000 Tomkins 78,893
7,500 United News & Media 61,542
-----------
Total United Kingdom 1,830,648
-----------
SHORT-TERM
SECURITIES - 20.0% (a)
2,850,000 Federal Home Loan Mortgage
Discount Notes,
5.85% Due 11/1/95 2,850,000
-----------
Total Investments $14,273,945 (c,d)
===========
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of
the Lutheran Brotherhood World Growth Fund.
(b) Currently non-income producing.
(c) Security Classification:
% of Portfolio Cost Value
-------------- ------------ -----------
<S> <C> <C> <C>
Common Stocks &
Warrants 79.6% $11,501,558 $11,370,833
Preferred Stocks 0.4 56,103 53,112
Short-Term 20.0 2,850,000 2,850,000
----- ----------- -----------
Total Investments 100.0% $14,407,661 $14,273,945
===== =========== ===========
(d) At October 31, 1995, the aggregate cost of securities for federal income tax
purposes was $14,409,323 and the net unrealized
depreciation of investments based on that cost was $135,378 which is comprised of
$179,710 aggregate gross unrealized appreciation and $315,088 aggregate gross
unrealized depreciation.
(e) Miscellaneous abbreviations:
(ADR) - American Depository Receipts
(ADS) - American Depository Shares
(HKD) - Denominated in Hong Kong Dollars
(USD) - Denominated in U.S. Dollars
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Fund
Portfolio of Investments
October 31, 1995
Shares Value
- ----------- ------------
<S> <C> <C> <C>
COMMON STOCKS - 98.5% (a)
Aerospace - 1.9%
187,700 Boeing Co $ 12,317,812
------------
Airlines - 0.8%
240,000 Southwest Airlines Co 4,800,000
------------
Automotive - 1.8%
270,000 General Motors Corp 11,812,500
------------
Bank & Finance - 11.7%
153,750 American International
Group, Inc 12,972,656
355,000 Banc One Corp 11,981,250
121,900 Federal National
Mortgage Association 12,784,263
124,000 First Bank System, Inc 6,169,000
100,000 First Interstate Bancorp 12,900,000
66,000 Morgan Stanley Group, Inc 5,742,000
158,000 Morgan (J.P.) and Co., Inc 12,185,750
------------
74,734,919
Broadcasting - 2.8%
54,000 Capital Cities/ABC, Inc 6,405,750 (b)
80,000 Infinity Broadcasting
Corp., Class A 2,600,000 (c)
341,000 Tele-Communications, Inc.,
TCI Group, Series A 5,797,000
129,000 Tele-Communications, Inc.,
Liberty Media Group,
Series A 3,176,625 (c)
------------
17,979,375
Chemicals - 1.9%
235,000 Air Products &
Chemicals, Inc 12,131,875
------------
Computer Software - 5.3%
50,000 America Online, Inc 4,000,000 (c)
106,000 Autodesk, Inc 3,604,000
120,000 Computer Associates
International, Inc 6,600,000
128,000 Microsoft Corp 12,800,000 (c)
165,000 Oracle Systems Corp 7,198,125 (c)
------------
34,202,125
Computers & Office
Equipment - 5.5%
135,600 Compaq Computer Corp 7,559,700 (c)
70,000 Digital Equipment Corp 3,788,750 (c)
133,000 International Business
Machines 12,934,250
136,900 Silicon Graphics, Inc 4,551,925 (c)
49,000 Xerox Corp 6,357,750
------------
35,192,375
Drugs & Health Care - 7.2%
308,000 Abbott Laboratories 12,243,000
88,200 Amgen, Inc 4,233,600 (c)
200,000 Becton Dickinson & Co 13,000,000
222,000 Merck & Co., Inc 12,765,000
68,300 St. Jude Medical, Inc 3,636,975 (c)
------------
45,878,575
Electric Utilities - 2.1%
100,000 FPL Group, Inc 4,187,500 (b)
385,000 Southern Co 9,191,875
------------
13,379,375
Electrical Equipment - 2.0%
200,000 General Electric Co 12,650,000
------------
Electronics - 6.7%
100,000 Cypress Semiconductor Corp 3,525,000 (c)
287,000 Intel Corp 20,054,125
100,000 Lam Research Corp 6,087,500 (c)
200,000 Motorola, Inc 13,125,000
------------
42,791,625
Food & Beverage - 4.0%
176,400 Coca-Cola Co 12,678,750
44,500 Salomon, Inc.,
(Snapple, Inc., Equity-Linked
Security) 667,500
422,000 Sara Lee Corp 12,396,250 (b)
------------
25,742,500
Healthcare
Management - 2.1%
253,000 United Healthcare Corp 13,440,625
------------
Household Products - 4.1%
261,600 Gillette Co 12,654,900
165,000 Procter & Gamble 13,365,000
------------
26,019,900
Leisure & Entertainment - 1.8%
115,000 Disney (Walt) Co 6,626,875
100,000 Viacom, Inc., Class B 5,000,000 (c)
------------
11,626,875
Machinery &
Equipment - 4.0%
251,000 Caterpillar, Inc 14,087,375
333,000 Ingersoll Rand Co 11,779,875 (b)
------------
25,867,250
Mining & Metals - 2.6%
264,000 Phelps Dodge Corp 16,731,000
------------
Oil & Oil Service - 7.9%
189,000 Amoco Corp 12,072,375
260,000 Chevron Corp 12,155,000
307,000 Halliburton Co 12,740,500
133,000 Mobil Corp 13,399,750 (b)
------------
50,367,625
Paper &
Forest Products - 4.6%
333,000 International Paper Co 12,321,000
388,500 Weyerhaeuser Co 17,142,562
------------
29,463,562
Railroads - 1.9%
143,000 CSX Corp 11,976,250 (b)
------------
Restaurants - 2.0%
309,000 McDonald's Corp 12,669,000
------------
Retail - 3.8%
125,000 Federated
Department Stores 3,171,875 (c)
85,000 Gap, Inc 3,346,875
30,400 Intimate Brands, Inc 509,200 (c)
145,000 May Department Stores Co 5,691,250
530,000 Wal-Mart Stores, Inc 11,461,250
------------
24,180,450
Services - 3.2%
92,000 Automatic Data Processing, Inc 6,578,000
20,000 DST Systems, Inc 420,000 (c)
197,488 First Data Corp 13,058,894
------------
20,056,894
Telecommunications
Equipment - 0.5%
81,600 DSC Communications Corp 3,019,200 (c)
------------
Telephone &
Telecommunications - 6.3%
242,200 Ameritech Corp 13,078,800
203,000 AT&T Corp 12,992,000
52,500 NEXTEL
Communications, Inc 728,438 (c)
12,100 Paging Network, Inc 278,300 (c)
240,000 SBC Communications, Inc 13,410,000
------------
40,487,538
Total Common Stocks
(cost $543,979,616) 629,519,225
------------
U.S. Treasury - 0.3% (a)
2,000,000 U.S. Treasury Notes,
8.75%, due 10/15/1997
(cost $2,028,653) 2,115,000
------------
SHORT-TERM
SECURITIES - 1.2% (a)
Commercial Paper
4,300,000 Harvard University
5.88%, due 11/1/95 4,300,000
3,600,000 Koch Industries
5.88%, due 11/1/95 3,600,000
------------
Total Short-Term Securities
(at amortized cost) 7,900,000
------------
Total Investments
(cost $553,908,269) $639,534,225 (d)
============
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total
investments of the Lutheran Brotherhood Fund.
(b) Includes stock rights that automatically traded with the stock and had no
separate value at October 31, 1995.
(c) Currently non-income producing.
(d) At October 31, 1995, the aggregate cost of securities for federal income
tax purposes was $555,097,495 and the net unrealized appreciation of
investments based on that cost was $84,436,730 which is comprised of
$91,869,020 aggregate gross unrealized appreciation and $7,432,290 aggregate
gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood High Yield Fund
Portfolio of Investments
October 31, 1995
Principal Maturity
Amount Rate Date Value
- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 77.5% (a)
Airlines - 0.8%
$4,500,000 U.S. Air, Inc., Sr. Secured Equipment Trust, Series 1993-A-3 10.38% 3/1/13 $ 4,365,000
-----------
Automotive - 1.1%
6,000,000 Exide Corp., Sr. Notes 10.00% 4/15/05 6,465,000
-----------
Bank & Finance - 4.6%
1,800,000 American Life Holding Corp., Sr. Subordinated Notes 11.25% 9/15/04 1,881,000
1,500,000 First Nationwide Holdings, Inc., Sr. Notes 12.25% 5/15/01 1,680,000
7,950,000 GPA Delaware, Inc., Debentures 8.75% 12/15/98 7,075,500
7,000,000 Mutual Life Insurance Company of New York, Surplus Notes Zero Coupon 8/15/24 5,530,000
2,750,000 Scotsman Group, Inc., Sr. Secured Notes 9.50% 12/15/00 2,722,500
2,600,000 Terra Nova (U.K.) Holdings, plc, Sr. Notes 10.75% 7/1/05 2,814,500
5,250,000 Trizec Finance, Ltd., Sr. Notes 10.88% 10/15/05 5,302,500
-----------
27,006,000
-----------
Broadcasting - 21.4%
3,250,000 Adelphia Communications Corp., Sr. Debentures 11.88% 9/15/04 3,136,250
1,250,000 Adelphia Communications Corp., Sr. Notes 12.50% 5/15/02 1,243,750
2,650,000 Allbritton Communications Co., Sr. Subordinated Debentures 11.50% 8/15/04 2,825,562
5,075,424 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 6/15/04 3,311,714
3,900,000 American Telecasting, Inc., Units Zero Coupon 8/15/05 2,213,250
7,300,000 Australis Media, Ltd., Sr. Subordinated Discount Notes Zero Coupon 5/15/03 5,292,500
5,100,000 Cablevision Industries, Debentures 9.25% 4/1/08 5,457,000
1,250,000 Comcast Corp., Convertible Subordinated Debentures 3.38% 9/9/05 1,200,000
5,250,000 Comcast Corp., Sr. Subordinated Debentures 9.13% 10/15/06 5,381,250
3,000,000 Continental Cablevision, Inc., Sr. Debentures 9.50% 8/1/13 3,165,000
5,500,000 Continental Cablevision, Inc., Sr. Subordinated Debentures 11.00% 6/1/07 6,153,125
4,750,000 Diamond Cable Co., Sr. Discount Notes Zero Coupon 9/30/04 3,253,750
5,998,839 Falcon Holdings Group, L.P., Sr. Subordinated Notes 11.00% 9/15/03 5,788,879
2,500,000 Galaxy Telecom, L.P., Sr. Subordinated Notes 12.38% 10/1/05 2,496,875
4,500,000 Granite Broadcasting Corp., Sr. Subordinated Debentures 12.75% 9/1/02 5,017,500
5,000,000 International CabelTel, Inc., Sr. Notes Zero Coupon 4/15/05 3,068,750
4,250,000 International CableTel, Inc., Convertible Subordinated Notes 7.25% 4/15/05 4,940,625
4,500,000 Jones Intercable, Inc., Sr. Notes 9.63% 3/15/02 4,753,125
8,250,000 Marcus Cable Co., Sr. Discount Notes Zero Coupon 12/15/05 4,908,750
5,200,000 NWCG Holdings Corp., Sr. Secured Discount Notes Zero Coupon 6/15/99 3,510,000
7,750,000 People's Choice T.V. Corp., Sr. Discount Notes Zero Coupon 6/1/04 4,369,062
8,250,000 Robin Media Group, Sr. Subordinated Deferred Interest Bonds 11.13% 4/1/97 8,167,500
4,500,000 Rogers Cablesystems, Inc., Sr. Secured Second Priority Notes 9.63% 8/1/02 4,601,250
6,000,000 Rogers Communications, Inc., Convertible Debentures 2.00% 11/26/05 3,067,500
900,000 Rogers Communications, Inc., Convertible Liquid Yield
Option Notes Zero Coupon 5/20/13 318,375
5,700,000 SCI Television, Inc., Sr. Second Priority Secured Notes 11.00% 6/30/05 6,056,250
5,000,000 Scott Cable Communications, Inc., Subordinated Debentures 12.25% 4/15/01 3,550,000 (c)
6,400,000 TeleWest, plc, Sr. Discount Debentures Zero Coupon 10/1/07 3,776,000
9,600,000 United International Holdings, Inc., Sr. Discount Notes Zero Coupon 11/15/99 5,832,000
3,700,000 Videotron, Ltee. (Le Groupe), Sr. Notes 10.63% 2/15/05 3,954,375
3,100,000 Wireless One, Inc., Units 13.00% 10/15/03 3,216,250
-----------
124,026,217
-----------
Building Products & Materials - 1.1%
8,500,000 Dal-Tile International, Inc., Sr. Secured Notes Zero Coupon 7/15/98 6,502,500
-----------
Computers & Office Equipment - 1.6%
4,750,000 Bell & Howell, Inc., Sr. Discount Debentures Zero Coupon 3/1/05 2,992,500
3,600,000 Dictaphone Corp., Sr. Subordinated Notes 11.75% 8/1/05 3,600,000
3,600,000 Unisys Corp., Convertible Subordinated Notes 8.25% 8/1/00 2,970,000
-----------
9,562,500
-----------
Conglomerates - 0.5%
500,000 Jordan Industries, Inc., Sr. Notes 10.38% 8/1/03 460,000
4,250,000 Jordan Industries, Inc., Sr. Subordinated Discount Debentures Zero Coupon 8/1/05 2,571,250
-----------
3,031,250
-----------
Construction & Home Building - 0.4%
2,500,000 Peters (J.M.) Co., Inc., Sr. Notes 12.75% 5/1/02 2,287,500
-----------
Containers & Packaging - 0.9%
3,300,000 Owens-Illinois, Inc., Sr. Subordinated Notes 9.75% 8/15/04 3,456,750
2,050,000 Silgan Holdings, Inc., Sr. Discount Debentures Zero Coupon 12/15/02 1,942,375
-----------
5,399,125
-----------
Drugs & Health Care - 1.7%
5,600,000 Dade International, Inc., Sr. Subordinated Notes 13.00% 2/1/05 6,132,000
3,775,800 General Medical Corp., Payment-In-Kind Debentures 12.13% 8/15/05 3,983,469
-----------
10,115,469
-----------
Electric Utilities - 1.9%
2,000,000 El Paso Electric Co. (Del Norte Funding Corp.),
Secured Lease Obligation Bonds 11.25% 1/2/14 1,267,108 (c)
1,500,000 El Paso Electric Co. (El Paso Funding Corp.),
Lease Obligation Bonds 10.75% 4/1/13 950,385 (c)
4,450,000 El Paso Electric Co. (El Paso Funding Corp.),
Lease Obligation Bonds 10.38% 1/2/11 2,819,497 (c)
1,750,000 Midland Cogen Venture Fund II, Secured Lease
Obligation Bonds, Series A 11.75% 7/23/05 1,855,473
3,600,000 Midland Cogen Venture Fund II, Subordinated
Secured Lease Obligation Bonds 13.25% 7/23/06 3,978,641
-----------
10,871,104
-----------
Electrical Equipment - 1.6%
2,650,000 ADT Operations, Inc., Liquid Yield Option Notes Zero Coupon 7/6/10 1,192,500
6,050,000 Protection One Alarm Monitoring, Inc.,
Sr. Subordinated Discount Notes Zero Coupon 6/30/05 4,310,625
3,750,000 Telex Communications, Inc., Sr. Notes 12.00% 7/15/04 3,881,250
-----------
9,384,375
-----------
Food & Beverage - 2.6%
5,000,000 Curtice-Burns Food, Inc., Sr. Subordinated Notes 12.25% 2/1/05 5,225,000
3,000,000 Dr. Pepper Bottling Holdings, Sr. Notes Zero Coupon 2/15/03 2,377,500
5,300,000 Fresh Del Monte Corp., Sr. Notes 10.00% 5/1/03 4,425,500
6,400,000 Specialty Foods Acquisition Co.,
Sr. Secured Discount Debentures, Series B Zero Coupon 8/15/05 2,880,000
-----------
14,908,000
-----------
Hospital Management - 3.5%
3,250,000 Charter Medical Corp., Sr. Subordinated Notes 11.25% 4/15/04 3,534,375
3,825,000 Integrated Health Services Inc., Sr. Subordinated Notes 9.63% 5/31/02 3,891,937
7,150,000 Regency Health Services, Inc., Sr. Subordinated Notes 9.88% 10/15/02 7,141,062
5,600,000 Tenet Healthcare Corp., Sr. Subordinated Notes 10.13% 3/1/05 6,019,999
-----------
20,587,373
-----------
Household Products - 2.0%
18,000,000 Coleman Worldwide Corp.,
Convertible Liquid Yield Option Notes Zero Coupon 5/27/13 5,445,000
3,250,000 JB Williams Holdings, Inc., Sr. Notes 12.00% 3/1/04 3,266,250
3,000,000 Pace Industries, Inc., Sr. Notes, Series B 10.63% 12/1/02 2,775,000
-----------
11,486,250
-----------
Leisure & Entertainment - 1.8%
2,700,000 Bally's Health & Tennis Corp., Sr. Subordinated Notes 13.00% 1/15/03 2,376,000
5,000,000 Host Marriott Travel Plazas, Secured Notes 9.50% 5/15/05 4,925,000
3,000,000 IMAX Corp., Sr. Notes 7.00% 3/1/01 2,902,500
-----------
10,203,500
-----------
Mining & Metals - 0.4%
2,500,000 EnviroSource, Inc., Sr. Notes 9.75% 6/15/03 2,262,500
-----------
Oil & Gas - 3.6%
4,000,000 Gulf Canada Resources, Ltd., Sr. Subordinated Notes 9.63% 7/1/05 4,158,996
6,500,000 Kelley Oil & Gas Corp., Sr. Notes 13.50% 6/15/99 5,557,500
500,000 Petroleum Heat & Power Co., Inc., Subordinated Debentures 9.38% 2/1/06 475,000
6,400,000 Petroleum Heat & Power Co., Inc., Subordinated Debentures 12.25% 2/1/05 7,072,000
3,400,000 Sherritt, Inc., Debentures 10.50% 3/31/14 3,527,500
-----------
20,790,996
-----------
Paper & Forest Products - 2.2%
2,500,000 Container Corp. of America, Sr. Notes 11.25% 5/1/04 2,643,750
3,900,000 Gaylord Container Corp., Sr. Subordinated Debentures Zero Coupon 5/15/05 3,812,250
3,850,000 Malette, Inc., Sr. Secured Notes 12.25% 7/15/04 4,292,750
2,250,000 Repap New Brunswick, Second Priority Secured Notes 10.63% 4/15/05 2,306,250
-----------
13,055,000
-----------
Publishing & Printing - 2.6%
2,500,000 K-III Communications Corp., Sr. Notes 10.25% 6/1/04 2,668,750
9,250,000 Neodata Services, Inc., Sr. Notes Zero Coupon 5/1/03 8,232,500
3,500,000 News America Holdings, Inc., Convertible Liquid Yield
Option Notes Zero Coupon 3/11/13 1,553,125
750,000 News America Holdings, Inc., Subordinated Notes Zero Coupon 3/31/02 663,750
2,000,000 Sullivan Graphics, Inc., Sr. Subordinated Notes 12.75% 8/1/05 1,970,000
-----------
15,088,125
-----------
Retail - 6.8%
4,850,000 Di Giorgio Corp., Sr. Notes 12.00% 2/15/03 3,746,625
5,400,000 Dominick's Finer Foods, Sr. Subordinated Notes 10.88% 5/1/05 5,710,500
2,250,000 F & M Distributors, Inc., Sr. Subordinated Notes 11.50% 4/15/03 78,750 (c)
4,750,000 Farm Fresh, Inc., Sr. Notes 12.25% 10/1/00 3,942,500
1,500,000 Penn Traffic Co., Sr. Subordinated Debentures 9.63% 4/15/05 1,085,625
2,200,000 Purity Supreme, Notes, Series B 11.75% 8/1/99 2,400,750
8,500,000 Ralph's Supermarkets, Inc., Sr. Subordinated Notes 11.00% 6/15/05 8,287,500
4,500,000 Smitty's SuperValu, Inc., Sr. Subordinated Notes, Series B 12.75% 6/15/04 4,387,500
8,800,000 TLC Beatrice International Holdings, Sr. Secured Notes 11.50% 10/1/05 8,756,000
5,000,000 Wherehouse Entertainment, Inc., Sr. Subordinated Notes 13.00% 8/1/02 1,025,000 (c)
-----------
39,420,750
-----------
Services - 0.5%
750,000 Flagstar Corp., Sr. Subordinated Debentures 11.38% 9/15/03 558,750
2,950,000 Flagstar Corp., Sr. Subordinated Debentures 11.25% 11/1/04 2,153,500
-----------
2,712,250
-----------
Telecommunications - 13.8%
4,600,000 A+ Communications Inc., Sr. Suboridinated Notes 11.88% 11/1/05 4,634,500
7,300,000 Call-Net Enterprises, Inc., Sr. Discount Notes Zero Coupon 12/1/04 5,164,750
3,900,000 CenCall Communications Corp.,
Sr. Redeemable Discount Notes Zero Coupon 1/15/04 2,076,750
2,100,000 Comcast Cellular, Inc., Sr.
Participation Redeemable Notes, Series B Zero Coupon 3/5/00 1,606,500
5,250,000 Comcast Cellular, Inc., Sr. Redeemable Notes Zero Coupon 3/5/00 4,016,250
1,500,000 Dial Call Communications, Inc., Sr. Discount Notes Zero Coupon 4/15/04 802,500
3,850,000 Dial Call Communications, Inc., Sr. Discount Notes Zero Coupon 12/15/05 1,896,125
3,250,000 General Instrument, Convertible Jr. Subordinated Notes 5.00% 6/15/00 3,282,500
6,100,000 Horizon Cellular Telephone Co.,
Sr. Subordinated Discount Notes Zero Coupon 10/1/00 5,215,500
6,900,000 In-Flight Phone Corp., Unit Debentures Zero Coupon 5/15/02 2,932,500
9,000,000 IntelCom Group (U.S.A.), Inc., Unit Notes Zero Coupon 9/15/05 5,085,000
7,000,000 Intermedia Communications of FL, Sr. Notes 13.50% 6/1/05 7,665,000
7,250,000 IXC Communications, Inc., Sr. Notes, Series A 13.00% 10/1/05 7,413,125
5,250,000 MobileMedia Communications, Inc., Sr. Subordinated
Deferred Coupon Notes Zero Coupon 12/1/03 3,937,500
8,500,000 PageMart Nationwide, Inc., Sr. Discount Exchange Notes Zero Coupon 2/1/05 5,312,500
5,000,000 Rogers Cantel Mobile, Inc., Sr. Subordinated Notes 11.13% 7/15/02 5,287,500
2,150,000 USA Mobile Communications, Inc., Sr. Notes 14.00% 11/1/04 2,483,250
2,250,000 USA Mobile Communications, Inc., Sr. Notes 9.50% 2/1/04 2,160,000
8,000,000 Viatel, Inc., Sr. Discount Notes Zero Coupon 1/15/05 4,200,000
3,200 WinStar Communications, Inc., Units, (each unit consists
of $2,000 principal amount of senior discount notes and
$1,000 principal amount of convertible senior subordinated
discount notes) Zero Coupon 10/15/05 5,008,000
-----------
80,179,750
-----------
Transportation - 0.1%
1,950,000 Burlington Motor Holdings, Inc., Sr. Subordinated Notes 11.50% 11/1/03 653,250 (c)
-----------
Total Corporate Bonds (cost $448,738,845) 450,363,784
-----------
FOREIGN GOVERNMENT BONDS - 0.7% (a,f)
2,200,000 Argentina, (Republic of), Par Bond 5.00% 3/31/23 1,045,000
5,730,523 Brazil, (Republic of), Emerging Markets (Brady Bonds) 8.00% 4/15/14 2,917,209
-----------
Total Foreign Government Bonds (cost $3,794,667) 3,962,209
-----------
PREFERRED STOCKS - 11.6% (a)
48,101 Berg Electronics Holding Corp., Preferred Stock 1,382,904
36,000 Cablevision Systems Corp., Redemption Exchange Preferred Stock, Series G 3,699,000
32,000 California Federal Bank, Preferred Stock 3,456,000
117,000 Chevy Chase Savings Bank, Preferred Stock 3,524,625
270 Communications & Power Industries, Inc., Preferred Units 2,889,000
945 Communications & Power Industries, Inc., Preferred Stock 94,500
5,150 Consolidated Hydro, Inc., Preferred Stock 2,627,788 (b)
23,500 EnviroSource, Inc., Jr. Convertible Preferred Stock 3,137,250 (b)
42,500 First Nationwide Bank, Noncummulative Preferred Stock 4,823,750
100,000 Flagstar Cos., Convertible Preferred Stock, Series A 1,325,000
45,500 Grand Union Holdings Corp., Preferred Stock 0 (c,d)
165,000 Granite Broadcasting Corp., Convertible Preferred Stock 8,497,500
196,465 Harvard Industries, Inc., Exchangeable Payment-In-Kind Preferred Stock 5,353,671
20,257 K-III Communications Corp., Payment-In-Kind Preferred Stock, Series B 1,944,665
93,000 K-III Communications Corp., Preferred Stock 2,522,625
110,000 MFS Communication, Inc., 8% Cummulative Convertible Preferred Stock 4,345,000
87,000 Network Imaging Corp., Convertible Preferred Stock 1,402,875
90,000 Newscorp Overseas Limited, Cummulative Guaranteed Preferred Stock 2,272,500
7,172 PanAmSat Corporation, Convertible Preferred Stock 7,799,550
74,942 Riggs National Corp., Preferred Stock 2,126,479
122,500 River Bank America, Preferred Stock 2,894,063
16,750 Storage Technology Corp., Convertible Preferred Stock 963,125
25,000 Unisys Corp., Convertible Preferred Stock, Series A 687,500
-----------
Total Preferred Stocks (cost $66,867,037) 67,769,370
-----------
COMMON STOCKS & STOCK WARRANTS - 4.8% (a)
95,000 ADT Limited, Common Stock 1,330,000 (b)
28,000 American Telecasting, Inc., Stock Warrants 91,000 (b)
32,000 AmeriSource Health Corp., Class A Common Stock 872,000 (b)
10,700 Arcadian Corp., Stock Warrants 1,177,000 (b,d)
144,360 Arch Communications Group, Common Stock 3,915,765 (b)
60,000 Bell & Howell Holdings Co., Common Stock 1,500,000 (b)
88,600 Berg Electronics Holdings Corp., Common Stock 531,600 (b,d)
109,948 Charter Medical Corp., Common Stock 1,979,064 (b)
9,270 Consolidated Hydro, Inc., Stock Warrants 37,080 (b,d)
1,500 Dial Page Communications, Inc., Stock Warrants 1,875 (b)
3,086 Dial Page Communications, Inc., Stock Warrants 3,858 (b)
75,500 Envirotest Systems Corp., Common Stock 273,688 (b)
6,000 Federated Dept. Stores, Inc., Stock Warrants 15,000 (b)
152,013 Gaylord Container Corp., Class A Common Stock 1,159,099 (b)
154,623 Gaylord Container Corp., Stock Warrants 1,111,353 (b)
27,000 General Instrument Corp., Common Stock 513,000 (b)
14,905 Grand Union Co., Stock Warrants 14,160 (c)
29,811 Grand Union Co., Stock Warrants 4,472 (c)
100,000 Harvard Industries, Inc., Class B Common Stock 2,762,500 (b)
160,000 IntelCom Group (U.S.A.), Inc., Common Stock 1,740,000 (b)
7,000 Intermedia Communications of FL, Stock Warrants 70,000 (b)
22,333 International Cabletel, Inc., Common Stock 591,825 (b)
32,180 JPS Textiles Group, Common Stock 321,800 (b)
143,834 Memorex Telex, N.V., Common Stock 125,855 (b)
3,981 Memorex Telex, N.V., Stock Warrants 40 (b)
2,153 MFS Communications Co., Inc., Common Stock 86,927 (b)
15,000 News Corp., Ltd, ADR, Ordinary Shares, Common Stock 273,750
30,000 News Corp., Ltd, ADR, Preference Shares, Common Stock 596,250
26,250 PageMart Nationwide, Inc., Common Stock 242,813 (b)
19,200 Payless Cashways, Inc., Stock Warrants 4,800 (b)
110,000 Plantronics, Inc., Common Stock 3,671,250 (b)
4,500 Terex Corp., Stock Appreciation Rights 225 (b,d,e)
20,000 Triangle Wire & Cable, Inc., Stock Warrants 0 (b,d)
18,200 United International Holdings, Inc., Stock Warrants 546,000 (b)
288,800 Viatel, Inc., Common Stock 1,155,200 (b,d)
80,000 Wireless One, Inc., Common Stock 940,000 (b)
-----------
Total Common Stocks & Stock Warrants (cost $22,883,404) 27,659,249
-----------
Principal Maturity
Amount Rate Date
- -------------- ----------- -----------
SHORT -TERM SECURITIES - 5.4% (a)
Commercial Paper - 5.4%
$14,300,000 Associates Corp. of North America 5.90% 11/1/95 14,300,000
6,809,000 Centerior Fuel Corp. 5.75% 11/6/95 6,803,562
5,000,000 Nestle Capital Corp. 5.69% 11/2/95 4,999,210
5,000,000 Sears Roebuck Acceptance Corp. 5.76% 11/8/95 4,994,400
-----------
Total Short-Term Securities (at amortized cost) 31,097,172
-----------
Total Investments (cost $573,381,125) $580,851,784 (g)
===========
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of the Lutheran Brotherhood
High Yield Fund.
(b) Currently non-income producing.
(c) Currently non-income producing and in default.
(d) Denotes restricted securities. These securities have been valued from the date of acquisition through
October 31, 1995, by obtaining
quotations from brokers who are active with the issues. The following table indicates the acquisition date
and cost of restricted
securities the Fund owned as of October 31, 1995.
Aquisition
Security Date Cost
-------------------------------------------- ------------- -------------
<S> <C> <C>
Arcadian Corp., Stock Warrants 2/6/92 $ 290,000
Berg Electronics Holding Corp., Common Stock 4/21/93 82,196
Consolidated Hydro, Inc., Stock Warrants 2/8/94 202,776
Grand Union Holdings Corp., Preferred Stock 6/14/93 5,218,975
Terex Corp., Stock Appreciation Rights 7/27/92 11,250
Triangle Wire & Cable, Inc., Stock Warrants 1/3/92 1,998
Viatel, Inc., Common Stock 8/15/95 1,084,601
(e) Includes stock rights that automatically traded with the stock and had no separate value at October 31,
1995.
(f) Denominated in U.S. Dollars.
(g) At October 31, 1995, the aggregate cost of securities for federal income tax purposes was $573,479,773
and the net unrealized
appreciation of investments based on that cost was $7,372,011 which is comprised of $41,238,107 gross
unrealized appreciation and $33,866,096 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Income Fund
Portfolio of Investments
October 31, 1995
Principal Maturity
Amount Rate Date Value
- ---------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Corporate Bonds 29.3% (a)
Bank & Finance - 12.9%
$ 3,000,000 Associates Corp. of North America, Notes 10.75% 11/1/95 $ 3,000,000
7,500,000 Associates Corp. of North America, Notes 6.63% 5/15/98 7,612,117
13,000,000 Associates Corp. of North America, Sr. Notes 9.13% 4/1/00 14,263,275
6,000,000 Citicorp, Subordinated Debentures 7.13% 9/1/05 6,174,666
6,000,000 Dresdner Bank- New York, Subordinated Notes 7.25% 9/15/15 6,137,352
20,000,000 General Electric Capital Corp., Debentures 8.85% 4/1/05 23,268,260
9,000,000 Nationwide CSN Trust, Trust Notes 9.88% 2/15/25 10,338,750
8,000,000 New York Life Insurance Co., Surplus Notes 6.40% 12/15/03 7,847,216
4,000,000 Norwest Corp., Medium Term Notes, Series G 6.38% 9/15/02 3,995,692
6,000,000 Reliastar Financial Corp., Sr. Notes 8.63% 2/15/05 6,599,184
9,000,000 Societe-Generale, Subordinated Notes 9.88% 7/15/03 10,758,834
7,500,000 Swiss Bank Corp., Subordinated Debentures, (New York Branc 7.50% 7/15/25 7,827,923
15,000,000 The Prudential Insurance Co. of America, Surplus Notes 7.65% 7/1/07 15,357,900
8,000,000 The Prudential Insurance Co. of America, Surplus Notes 8.30% 7/1/25 8,168,240
--------------
131,349,409
--------------
Broadcasting - 0.6%
6,000,000 Cox Communications, Inc., Notes 6.38% 6/15/00 6,011,856
--------------
Chemicals - 0.8%
3,000,000 Methanex Corp., Notes 7.40% 8/15/02 3,022,500
5,500,000 Methanex Corp., Notes 7.75% 8/15/05 5,665,000
--------------
8,687,500
--------------
Computers & Office Equipment - 1.1%
11,000,000 Electronic Data Systems Corp., Notes 6.85% 5/15/00 11,151,250
--------------
Electric Utilities - 2.5%
5,000,000 Arizona Public Service Co., First Mortgage Bonds 9.50% 4/15/21 5,607,945
7,085,000 DQU Funding Corp., Collateralized Lease Obligation Bonds 7.23% 12/1/99 7,122,132
7,000,000 Texas Utilities Electric Co., First Mortgage Bonds 7.38% 10/1/25 6,821,829
5,000,000 Virginia Electric & Power Co., Debentures 8.63% 10/1/24 5,627,690
--------------
25,179,596
--------------
Food & Beverage - 0.8%
8,000,000 Nabisco, Inc., Notes 6.70% 6/15/02 7,993,880
--------------
Household Products - 1.2%
10,000,000 Procter & Gamble, Guaranteed ESOP Debentures 9.36% 1/1/21 12,642,520
--------------
Natural Gas - 1.4%
6,000,000 Coastal Corp., Sr. Debentures 9.75% 8/1/03 6,967,878
6,000,000 Coastal Corp., Sr. Notes 10.38% 10/1/00 6,911,274
--------------
13,879,152
--------------
Paper & Forest Products - 1.0%
9,000,000 Georgia Pacific Corp., Debentures 8.63% 4/30/25 9,706,581
--------------
Petroleum - 1.8%
7,628,193 Mobil Oil Corp, ESOP Sinking Fund Debentures 9.17% 2/29/00 8,158,222
10,000,000 Texaco Capital, Inc., Debentures 7.50% 3/1/43 10,350,100
--------------
18,508,322
--------------
Pollution Control - 0.5%
5,000,000 Browning-Ferris Industries, Inc., Debentures 7.40% 9/15/35 5,108,000
--------------
Retail - 1.1%
9,000,000 Dayton Hudson Corp., Debentures 8.50% 12/1/22 9,568,665
2,000,000 K-Mart Corp., Pass Through Certificates, Series 1995-K-4 9.35% 1/2/20 1,860,258
--------------
11,428,923
--------------
Telecommunications - 0.6%
6,000,000 TCI Communications, Inc., Sr. Notes 8.00% 8/1/05 6,228,240
--------------
Telephone - 3.0%
10,000,000 AT&T Corp., Debentures 8.35% 1/15/25 11,039,450
4,000,000 New York Telephone Co., Debentures 9.38% 7/15/31 4,641,236
15,000,000 U.S. West Communications, Inc., Debentures 7.13% 11/15/43 14,713,710
--------------
30,394,396
--------------
Total Corporate Bonds (cost $287,549,865) 298,269,625
--------------
FOREIGN GOVERNMENT BONDS - 10.1% (a,c)
8,000,000 African Development Bank, Subordinated Notes 6.88% 10/15/15 7,978,080
5,000,000 African Development Bank, Subordinated Notes 7.75% 12/15/01 5,368,035
20,325,000 British Columbia Hydro & Power, Debentures 15.50% 7/15/11 22,964,180
4,000,000 Inter American Development Bank, Notes 7.00% 6/15/25 4,110,956
14,000,000 International Bank for Reconstruction &
Development, Debentures 12.38% 10/15/02 18,755,842
7,500,000 Malayan Banking Berhad- New York Branch,
Subordinated Notes 7.13% 9/15/05 7,572,262
5,000,000 Ontario Province, Canada, Debentures 11.75% 4/25/13 5,840,645
10,000,000 Ontario Province, Canada, Debentures 15.13% 5/1/11 11,022,290
13,000,000 Ontario Province, Canada, Sr. Secured Notes 7.75% 6/4/02 13,949,637
5,000,000 Tenaga Nasional Berhad, Debentures 7.50% 11/1/25 4,966,660
--------------
Total Foreign Government Bonds (cost $106,622,673) 102,528,587
--------------
ASSET-BACKED SECURITIES - 12.1% (a)
6,000,000 Chemical Master Credit Card Trust 1, 6.23% Asset Backed
Certificates, Series 1995-2-A 6.23% 6/15/03 6,037,734
15,000,000 Household Affinity Master Trust, Series 1993-1-A 6.08% 9/15/00 15,057,885 (b)
10,125,205 IBM Credit Receivables Lease Trust, Series 1993-1 4.55% 11/15/00 10,010,263
25,000,000 ITT Floorplan Receivable Master Trust, Series 1994-1-A 6.08% 2/15/01 25,100,225 (b)
18,000,000 NationsBank Credit Card Master, Series 1995-A 6.45% 4/15/03 18,282,042
19,000,000 Prime Credit Card Master Trust, Series 1995-1-A 6.75% 11/15/05 19,560,671
10,000,000 Sears Credit Account Master Trust II, Master Trust Certificates,
Series 1995-4-A 6.25% 1/15/03 10,091,190
19,000,000 Standard Credit Master Trust 1, Credit Card Participation
Certificates, Series 1995-9-A 6.55% 10/7/07 19,023,161
--------------
Total Asset-Backed Securities (cost $122,157,801) 123,163,171
--------------
MORTGAGE-BACKED SECURITIES - 17.9% (a)
55,107,587 Federal National Mortgage Association,
Participation Certificates 6.50% 3/1/25 53,701,186
83,000,000 Federal National Mortgage Association,
Participation Certificates 6.5 - 7.0% 2025 81,750,313 (d)
46,947,855 Government National Mortgage Association,
Modified Pass Through Certificates 7.00% 2024 - 2025 46,711,132
--------------
Total Mortgage-Backed Securities (cost $177,826,509) 182,162,631
--------------
U.S. GOVERNMENT AGENCIES - 0.6% (a)
6,000,000 Tennessee Valley Authority, Power Bonds, Series 1994-A
(cost $5,924,780) 7.85% 6/15/44 6,135,000
--------------
U.S. GOVERNMENT - 19.5% (a)
82,500,000 U.S. Treasury Bonds 7.625 - 12.0% 2003 - 2025 111,088,726
81,500,000 U.S. Treasury Notes 6.5 - 9.25% 1998 - 2005 87,272,549
--------------
Total U.S. Government (cost $194,356,501) 198,361,275
--------------
Shares
- --------------
COMMON STOCKS - 0.2% (a)
30,000 Texaco, Inc., with stock rights attached (cost $1,900,225) 2,043,750
--------------
OPTIONS ON U.S. TREASURY BOND FUTURES - .001% (a)
U.S. Treasury Bond Futures, 50 call option contracts,
exercise price of $119, expires
November 18, 1995 (cost $27,873) 14,844
--------------
Principal
Amount
- --------------
SHORT-TERM SECURITIES - 10.3% (a)
Commercial Paper - 7.9%
20,000,000 Cargill, Inc 5.68% 11/8/95 19,977,911
3,100,000 Koch Industries 5.88% 11/1/95 3,100,000
13,600,000 Metlife Funding, Inc 5.72% 11/10/95 13,580,552
5,000,000 Metlife Funding, Inc 5.70% 11/10/95 4,992,875
20,000,000 Nestle Capital Corp 5.71% 11/9/95 19,974,622
14,000,000 UBS Finance (Delaware), Inc 5.90% 11/1/95 14,000,000
5,000,000 Wal-Mart Stores, Inc 5.72% 11/2/95 4,999,206
--------------
80,625,166
--------------
U.S. Government Agencies - 2.4%
9,000,000 Federal Home Loan Mortgage Corp., Discount Notes 5.60% 11/13/95 8,983,200
15,703,000 Federal Home Loan Mortgage Corp., Discount Notes 5.61% 11/13/95 15,673,635
--------------
24,656,835
--------------
Total Short-Term Securities (at amortized cost) 105,282,001
--------------
Total Investments (cost $1,001,648,228) $1,017,960,884 (e)
==============
Notes to Protfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of the Lutheran Brotherhood
Income Fund.
(b) Denotes variable rate obligations for which current yield is shown.
(c) Denominated in U.S. dollars.
(d) Denotes investments purchased on a when-issued basis.
(e) At October 31, 1995, the aggregate cost of securities for federal income tax purposes was $1,001,785,669
and the net unrealized appreciation of investments based on that cost was $16,175,215 which is comprised of
$24,909,061 aggregate gross unrealized appreciation and $8,733,846 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Municipal Bond Fund
Portfolio of Investments
October 31, 1995
Principal Maturity
Amount Rate Date Value
- ------------ --------- ---------- ------------
LONG-TERM MUNICIPAL SECURITIES - 99.8% (a)
Alabama - 0.4%
<S> <C> <C> <C> <C>
$2,000,000 Huntsville, Alabama, General Obligation Warrants, Series B 7.875% 8/1/2012 $ 2,164,700
Arizona - 0.6%
1,700,000 Pima County, Arizona (Catalina Foothills Unified School District
#16), Unlimited Tax General Obligation Bonds, Series A 8.9% 7/1/2005 2,219,724(b)
1,500,000 Tucson, Arizona, Unlimited Tax
General Obligation Refunding Bonds 6.1% 7/1/2012 1,564,365(e)
------------
3,784,089
------------
Arkansas - 0.6%
1,340,000 Arkansas Development Finance Authority, Correctional
Facilities Construction Revenue Bonds 7.125% 11/15/2010 1,454,959(b)
1,000,000 Arkansas Housing Development Agency,
Single Family Mortgage Bonds, Series A 8.375% 7/1/2010 1,259,840(c)
875,000 Pope County, Arkansas, Pollution Control Revenue Refunding Bonds,
Series 1994, (Arkansas Power and Light Co. Project) 6.3% 12/1/2016 924,053(g)
------------
3,638,852
------------
California - 9.7%
2,500,000 Alameda, California, Unified School District, Alameda County,
Crossover Refunding Bonds, Series A 6.1% 7/1/2013 2,560,500(d)
2,000,000 Alameda County, California, Certificates of Participation,
Revenue Refunding Bonds, Santa Rita Jail Project 5.375% 6/1/2009 2,016,220(b)
1,000,000 California Educational Facilities Authority (Stanford University),
Revenue Bonds 5.0% 1/1/2015 920,040
4,400,000 California State Department of Water Resources (Central Valley
Project),Water System Revenue Bonds, Series H 6.9% 12/1/2025 4,915,152(c)
3,000,000 California State Public Works Board, Department of Corrections,
Lease Revenue Bonds, State Prison, Series A 7.4% 9/1/2010 3,508,830
2,000,000 California State Public Works Board, Lease Revenue Refunding
Bonds (Department of Corrections, Various State Prisons),
Series 1993-A 5.25% 12/1/2008 2,011,200(d)
2,490,000 California Statewide Communities Development Authority,
Certificates of Participation,
(The Trustees of the J. Paul Getty Trust) 5.0% 10/1/2015 2,278,400
1,000,000 California State, Unlimited Tax General Obligation Bonds,
Veteran's Series AT 9.5% 2/1/2010 1,398,710
2,000,000 California State, Various Purpose General Obligation Bonds 6.3% 9/1/2010 2,184,000(d)
1,000,000 Central Valley Financing Authority, California,
Cogeneration Project Revenue Bonds, (Carson Ice-Gen Project),
Series 1993 6.0% 7/1/2009 1,004,260
1,900,000 El Cajon, California, Redevelopment Agency Tax Allocation
Refunding Bonds (El Cajon Redevelopment Project) 6.6% 10/1/2022 2,007,996(d)
2,000,000 Metropolitan Water District of Southern California,
Unlimited Tax General Obligation Bonds, Series G 6.625% 3/1/2009 2,147,080(c)
2,000,000 Rancho, California, Water District Financing Authority,
Revenue Refunding Bonds 5.9% 11/1/2015 2,036,140(e)
2,145,000 Rancho, California, Water District Financing Authority,
Revenue Refunding Bonds, Series A 4.875% 8/1/2015 1,915,657(e)
1,000,000 Rio Linda, California, Union School District, Series 1992-A 7.4% 8/1/2010 1,147,710(d)
2,815,000 Riverside County Transportation Commission, California,
Sales Tax Revenue Capital Appreciation Bonds Zero Coupon 6/1/2004 1,852,186(b)
1,000,000 Sacramento, California, Cogeneration Authority,
Cogeneration Project Revenue Bonds,
(Procter & Gamble Project), 1995 Series 6.375% 7/1/2010 1,028,490
2,000,000 Sacramento, California, Municipal Utility District,
Electric Revenue Bonds, Series Y 6.75% 9/1/2009 2,184,660(b)
1,500,000 San Francisco Bay Area Rapid Transit District, California,
Sales Tax Revenue Refunding Bonds, Series 1990 6.75% 7/1/2010 1,713,015(b)
15,000,000 San Joaquin Hills Transportation Corridor Agency,
California, Sr. Lien Convertible Toll Revenue Bonds Zero Coupon 1/1/2013 10,935,150
3,000,000 San Mateo County, California, Joint Powers Financing Authority,
Lease Revenue Refunding Bonds,
Capital Projects Program, 1993 Series 5.0% 7/1/2021 2,722,170(b)
1,500,000 State of California, General Obligation Bonds 7.0% 8/1/2006 1,734,705
2,000,000 University of California Revenue Bonds,
Multiple Purpose Projects, Series C 4.75% 9/1/2015 1,756,440(d)
2,490,000 University of California Revenue Bonds,
Multiple Purpose Projects, Series 1989-B 11.0% 9/1/1998 2,944,774(d)
1,000,000 University of California, Housing System Revenue Bonds,
Series A 5.25% 11/1/2012 957,710(b)
------------
59,881,195
------------
Colorado - 6.1%
3,000,000 Arapahoe County, Colorado, E-470 Public Highway Authority,
Capital Improvement Trust Fund, Highway Revenue Bonds,
(E-470 Project) 6.95% 8/31/2020 3,169,470
920,000 Colorado Housing & Finance Authority, Single Family Residential
Housing Revenue Bonds, Series 1987-B 9.0% 9/1/2017 959,505
3,100,000 Colorado Springs, Colorado, Utilities System Refunding Bonds,
Series 1991-B 7.0% 11/15/2021 3,543,982(c)
710,000 Colorado Springs, Colorado, Utilities System Refunding Revenue
Bonds, Series 1985-A 9.5% 11/15/2015 711,328(c)
1,945,000 Colorado State Colleges Board, Western State College, Housing &
Student Fee Revenue Bonds, Series 1992 6.625% 5/1/2015 2,187,055(c,f)
1,195,000 Colorado Water Resources Power Development Authority, Clean
Water Revenue Bonds, Series A 6.25% 9/1/2013 1,248,727(g)
2,350,000 Denver, Colorado, City & County Revenue Bonds, Sisters of
Charity of Leavenworth 5.0% 12/1/2023 2,078,998
2,680,000 Douglas County School District Number RE-1, Colorado,
Douglas & Elbert Counties, Colorado, Project Fixed Rate
Certificates of Participation, (Colorado Association of School
Board Leases Purchase Finance Program), Series 1991-D 7.25% 12/1/1996 2,770,959
2,000,000 Douglas County School District Number RE-1, Colorado,
Douglas & Elbert Counties, Colorado,
General Obligation Bonds 6.5% 12/15/2016 2,139,020(b)
1,000,000 Eagle, Garfield, and Routt Counties, Colorado,
Eagle County School District No.
RE50J, General Obligation Bonds, Series 1994 6.3% 12/1/2012 1,074,240(e)
1,885,000 Goldsmith Metropolitan District, Colorado, Unlimited Tax
General Obligation Bonds Zero Coupon 12/1/2008 949,852(b)
1,890,000 Goldsmith Metropolitan District, Colorado, Unlimited Tax
General Obligation Bonds Zero Coupon 6/1/2008 983,669(b)
1,890,000 Goldsmith Metropolitan District, Colorado, Unlimited Tax
General Obligation Bonds Zero Coupon 6/1/2007 1,041,938(b)
3,000,000 Larimer County, Colorado, School District No. R-2,
Poudre Valley Unlimited Tax General Obligation Bonds 7.0% 12/15/2016 3,557,730(b)
2,300,000 Metropolitan Wastewater Reclamation District, Colorado,
Gross Revenue Refunding Bonds, Series B 4.75% 4/1/2012 2,101,027(b)
4,485,000 Regional Transportation District, Colorado, Sales Tax
Revenue Refunding & Improvement Bonds, Series 1992 6.25% 11/1/2012 4,706,111(e)
5,000,000 St. Vrain Valley School District, Boulder, Larimer & Weld
Counties, Colorado, General Obligation Refunding &
Improvement Bonds, Series 1990-A Zero Coupon 12/15/2004 3,074,150(b)
2,500,000 St. Vrain Valley School District, Boulder, Larimer &
Weld Counties, Colorado, General Obligation Refunding &
Improvement Bonds, Series 1990-A Zero Coupon 12/15/2003 1,651,825(b)
------------
37,949,586
------------
Connecticut - 1.1%
4,000,000 Connecticut Special Tax Obligation, Transportation Infrastructure
Revenue Bonds, Series B 6.5% 10/1/2010 4,429,040
1,000,000 Connecticut State Health & Education Facilities Authority,
Revenue Bonds, Hospital of St. Raphael, Series H 5.25% 7/1/2012 982,500(d)
1,515,000 Connecticut State Health & Education Facilities Authority,
Revenue Bonds, Lawrence & Memorial Hospital, Series D 5.0% 7/1/2022 1,372,317(b)
------------
6,783,857
------------
Florida - 2.7%
19,065,000 Broward County, Florida, Housing Finance Authority,
Home Mortgage Revenue Bonds, 1983 Series A Zero Coupon 4/1/2014 2,922,474
3,000,000 City of Jacksonville, Florida, Sales Tax Revenue Bonds,
Series 1995, (River City Renaissance Project) 5.375% 10/1/2018 2,864,910(e)
1,000,000 Florida State Board of Education, Public Education
Capital Outlay General Obligation Bonds, Series B-1 7.875% 6/1/2019 1,109,420(c)
1,500,000 Florida State Turnpike Authority, Turnpike Revenue
Refunding Bonds, (Department of Transportation), Series A 5.0% 7/1/2019 1,366,200(e)
3,200,000 Hillsborough County, Florida, Industrial Development
Authority (Weyerhaeuser Co., Inc.), Industrial
Revenue Bonds, Series 1983 9.25% 6/1/2008 3,276,416
1,705,000 Hillsborough County, Florida, Industrial Development Authority,
Florida, (Tampa Electric Project), Pollution Control
Revenue Bonds, Series 1991 7.875% 8/1/2021 1,992,003
3,000,000 Lee County, Florida, Transportation Facilities,
Revenue Bonds, Series 1995 5.75% 10/1/2022 3,004,950(b)
------------
16,536,373
------------
Georgia - 2.6%
1,500,000 Brunswick, Georgia, Water & Sewer Revenue Refunding &
Improvement Bonds, Series A 6.1% 10/1/2019 1,610,475(b)
2,000,000 Brunswick, Georgia, Water & Sewer Revenue Refunding &
Improvement Bonds, Series 1992 6.0% 10/1/2011 2,111,540(b)
5,000,000 Cherokee County, Georgia, Water & Sewer Revenue Refunding &
Improvement Bonds 5.5% 8/1/2018 4,904,150(b)
1,000,000 Georgia State, Unlimited Tax General Obligation Bonds,
Series B 6.3% 3/1/2009 1,106,760
1,000,000 Georgia State, Unlimited Tax General Obligation Bonds,
Series B 6.3% 3/1/2010 1,101,530
2,000,000 Georgia State, Unlimited Tax General Obligation Bonds,
Series 1994-B 5.65% 3/1/2012 2,080,120
3,500,000 Georgia State, Unlimited Tax General Obligation Bonds,
Series 1994-D 5.0% 8/1/2012 3,391,640
------------
16,306,215
------------
Hawaii - 0.3%
2,000,000 City & County of Honolulu, Hawaii, General Obligation
Refunding & Improvement Bonds, Series 1993-B 5.5% 10/1/2011 2,023,180
Idaho - 0.5%
3,115,000 Idaho Falls, Idaho, General Obligation Electric Refunding Bonds,
Series 1991 Zero Coupon 4/1/2010 1,503,299(b)
1,000,000 Idaho Falls, Idaho, General Obligation Electric Refunding Bonds,
Series 1991 Zero Coupon 4/1/2007 580,710(b)
2,000,000 Idaho Falls, Idaho, General Obligation Electric Refunding Bonds,
Series 1991 Zero Coupon 4/1/2011 903,920(b)
------------
2,987,929
------------
Illinois - 0.9%
3,940,000 Central Lake County, Illinois, Joint Action Water Agency,
Unlimited Tax General Obligation Refunding Bonds 6.0% 2/1/2019 4,009,423
1,032,000 Illinois Health Facilities Authority (Community Provider
Pooled Loan Program), Revenue Bonds, Series 1988-B 7.9% 8/15/2003 1,062,908(b,c)
165,000 Illinois Health Facilities Authority (Community Provider
Pooled Loan Program), Revenue Bonds, Series 1988-B 7.9% 8/15/2003 196,459(b,c)
------------
5,268,790
------------
Indiana - 1.2%
400,000 Indiana Housing Finance Authority, Single Family
Mortgage Program Bonds, 1985 Series A 10.2% 1/1/2016 410,292
2,450,000 Indiana Municipal Power Agency, Power Supply
System Revenue Bonds, Series A 5.5% 1/1/2023 2,346,635(b)
2,100,000 Indianapolis, Indiana, Resource Recovery Revenue Bonds,
Ogden Martin Systems, Series A 7.8% 12/1/2004 2,208,927
410,000 Indianapolis, Indiana, Resource Recovery Revenue Bonds,
1985 Series A 7.9% 12/1/2008 431,644
2,190,000 Indianapolis, Indiana, Resource Recovery Revenue Bonds,
1985 Series B 7.9% 12/1/2008 2,305,610
------------
7,703,108
------------
Iowa - 1.7%
2,000,000 Iowa Finance Authority Revenue Bonds, Series 1995-A,
(Correctional Facility Program) 5.5% 6/15/2015 2,014,700(d)
4,000,000 Iowa Finance Authority, Iowa State Revolving Fund Revenue Bonds,
Combined Series 1993 5.2% 5/1/2023 3,891,640
2,000,000 Iowa Finance Authority, Iowa State Revolving Fund Revenue Bonds,
Combined Series 1994 6.25% 5/1/2024 2,126,500
2,275,000 Woodbury County, Iowa, Hospital System Revenue Refunding Bonds,
St. Luke's Obligated Group, Series 1995-A 5.55% 9/1/2020 2,154,129(b)
------------
10,186,969
------------
Kansas - 1.6%
8,000,000 Kansas City, Kansas, Utility System Refunding and Improvement
Revenue Bonds, Series 1994 6.375% 9/1/2023 8,484,160(e)
920,000 Kansas City, Kansas, Utility System, Capital Appreciation
Refunding & Improvement Revenue Bonds Zero Coupon 3/1/2007 510,922(d)
1,255,000 Kansas City, Kansas, Utility System, Capital Appreciation
Refunding & Improvement Revenue Bonds Zero Coupon 3/1/2007 691,605(c,d)
------------
9,686,687
------------
Kentucky - 0.7%
75,000 Jefferson County, Kentucky, Home Mortgage Revenue Bonds,
Series 1983 9.625% 5/1/2014 78,629
1,000,000 Kentucky Development Finance Authority, Refunding and
Improvement Revenue Bonds, (Ashland Hospital,
Kings Daughter Project) 9.75% 8/1/2005 1,105,460
750,000 Kentucky Turnpike Authority, Economic Development Road
Revenue and Revenue Refunding Bonds, Series 1993 5.5% 7/1/2009 762,195(d)
5,345,000 Kentucky Turnpike Authority, Economic Development Road
Revenue Bonds Zero Coupon 1/1/2010 2,428,180(e)
------------
4,374,464
------------
Louisiana - 1.3%
1,740,000 Monroe, Louisiana, Special School District, Unlimited Tax General
Obligation Bonds 5.35% 3/1/2011 1,704,243(e)
6,500,000 New Orleans, Louisiana, General Obligation Bonds, Series 1991 Zero Coupon 9/1/2012 2,467,270(d)
3,000,000 Orleans Parish School Board #87, Louisiana, Escrowed to
Maturity Bonds 8.95% 2/1/2008 3,976,740(b,c)
------------
8,148,253
------------
Maine - 0.3%
1,250,000 Maine Health & Higher Education Facilities Authority,
Revenue Bonds, Series 1994 7.0% 7/1/2024 1,374,188(g)
350,000 Regional Waste Systems, Inc., Maine, Solid Waste Resource
Recovery System Revenue Bonds, Series A,B,C 7.95% 7/1/2010 386,505
------------
1,760,693
------------
Maryland - 2.6%
2,000,000 Maryland Health & Higher Education Facilities Authority,
Union Hospital of Cecil County Revenue Bonds, Series 1992 6.7% 7/1/2022 1,997,280
2,500,000 Maryland Health & Higher Education Facilities Authority,
Project & Refunding Revenue Bonds
(University of Maryland Medical System Issue), Series 1993 5.375% 7/1/2013 2,484,300(e)
3,000,000 Maryland Health & Higher Education Facilities Authority,
Revenue Project & Refunding Bonds,
(University of Maryland Medical System Issue), Series 1993 5.0% 7/1/2020 2,749,440(e)
3,250,000 Maryland Health & Higher Education Facilities Authority,
Revenue Refunding Bonds, (Suburban Hospital Issue),
Series 1993 5.125% 7/1/2021 2,946,645
4,500,000 Morgan State University, Maryland, Academic Fee and Auxiliary
Facilities Fees Revenue Refunding Bonds, Series 1993 6.05% 7/1/2015 4,839,885(b)
1,000,000 Prince George's County, Maryland, Dimensions Health Corp.,
Hospital Revenue Bonds, Series 1992 7.0% 7/1/2022 1,151,040(c)
------------
16,168,590
------------
Massachusetts - 5.1%
5,000,000 Commonwealth of Massachusetts, General Obligation Bonds,
Consolidated Loan of 1993, Series A 5.5% 11/1/2008 5,130,850
2,000,000 Commonwealth of Massachusetts, General Obligation Refunding
Bonds, Series B 6.5% 8/1/2008 2,241,860
1,800,000 Commonwealth of Massachusetts, Limited Tax General Obligation
Bonds, Construction Loan, Series C 7.375% 12/1/2008 1,994,976(c)
2,970,000 Massachusetts Health and Education Facilities Authority
(Harvard University), Revenue Bonds, Series J 8.75% 12/1/2007 3,025,895(c)
1,500,000 Massachusetts Health and Education Facilities Authority
Revenue Bonds, Newton- Wellesley Hospital Issue, Series C 8.0% 7/1/2018 1,675,695(c)
1,000,000 Massachusetts Health and Educational Facilities Authority
Revenue Bonds, Newton- Wellesley Hospital Issue, Series E 6.0% 7/1/2018 1,021,790(b)
2,500,000 Massachusetts Health and Education Facilities Authority,
Revenue Bonds, Daughters of Charity National Health System,
The Carney Hospital, Series D 6.1% 7/1/2014 2,568,775
1,500,000 Massachusetts Health and Education Facilities Authority,
Revenue Bonds, Series F 6.5% 7/1/2012 1,607,445
5,000,000 Massachusetts State Port Authority, Revenue Bonds, Series B 6.0% 7/1/2023 5,054,250
4,000,000 Massachusetts State Turnpike Authority,
Turnpike Revenue Bonds, Series A 5.0% 1/1/2020 3,644,560(e)
3,000,000 Plymouth County, Massachusetts, Correctional Facility
Certificates of Participation Bonds 7.0% 4/1/2012 3,267,870
------------
31,233,966
------------
Michigan - 5.5%
10,000,000 Detroit, Michigan, Sewer Disposal Revenue Bonds,
Linked Pars & Inflows 5.7% 7/1/2023 9,821,600(e)
2,000,000 Economic Development Corporation of the County of St. Clair,
Michigan, Pollution Control Revenue Refunding Bonds,
(Detroit Edison Company Project), Series 1993-AA 6.4% 8/1/2024 2,138,140(d)
1,400,000 Kent County, Michigan, Limited Tax Guaranteed Obligation Refuse
Disposal System Refunding Bonds 8.3% 11/1/2007 1,536,948
1,500,000 Livonia Public Schools, County of Wayne, Michigan,
1992 School Building and Site Bonds, Series II
(Unlimited Tax General Obligation) Zero Coupon 5/1/2009 716,565(e)
2,460,000 Michigan Municipal Bond Authority, Government Loan Revenue
Refunding Bonds, Series A Zero Coupon 12/1/2005 1,485,250(e)
390,000 Michigan State Hospital Finance Authority, Hospital Revenue &
Refunding Bonds, (Detroit Medical Center Obligated Group),
Series 1988-A 8.125% 8/15/2012 436,394(c)
110,000 Michigan State Hospital Finance Authority, Hospital Revenue
& Refunding Bonds, (Detroit Medical Center Obligated Group),
Series 1988-A 8.125% 8/15/2012 118,760
2,750,000 Michigan State Hospital Finance Authority, Hospital Revenue Bonds,
(Holland Community Hospital), Series 1993 5.25% 1/1/2008 2,682,268
1,100,000 Michigan State Hospital Finance Authority, Refunding
Hospital Bonds, St. John's Hospital, Series A 5.75% 5/15/2016 1,099,967(d)
3,000,000 Michigan State Hospital Finance Authority Revenue
Refunding Bonds, (Sisters of Mercy Health Corp.) 5.375% 8/15/2014 2,921,880(b)
3,320,000 Sault St. Marie Chippewa Indians Housing Authority,
Health Facilities Revenue Bonds, (Tribal Health &
Human Services Center Project), Series 1992 7.75% 9/1/2012 3,424,148
1,000,000 Vicksburg, Michigan, Community Schools, Qualified School
General Obligation Bonds, Kalamazoo & St. Joseph Counties 7.0% 5/1/2007 1,136,160(b,c)
3,000,000 West Bloomfield School District, Oakland County, Michigan,
1994 School Building and Site Unlimited Tax General
Obligation Refunding Bonds 5.125% 5/1/2014 2,827,260(b)
3,455,000 West Ottawa, Michigan, Public School District, Unlimited
Tax General Obligation Bonds Zero Coupon 5/1/2004 2,288,212(b)
1,860,000 West Ottawa, Michigan, Public School District, Unlimited
Tax General Obligation Bonds Zero Coupon 5/1/2005 1,157,348(b)
------------
33,790,900
------------
Minnesota - 4.3%
1,850,000 City of Minneapolis, (Lifespan Inc., Abbott - Northwestern Hospital),
Hospital Facilities Revenue Bonds, 1988 Series A 7.875% 12/1/2014 2,023,604(c)
2,500,000 City of Minneapolis, (Lifespan Inc., Abbott - Northwestern Hospital),
Hospital Facilities Refunding Revenue Bonds, 1987 Series B 9.125% 12/1/2014 2,794,650(c)
1,000,000 Duluth Economic Development Authority, Minnesota, Health
Care Facility Revenue Bonds, (Duluth Clinic, LTD), Series 1992 6.3% 11/1/2022 1,043,900(d)
7,685,000 Minneapolis, Minnesota, Community Development Agency,
Tax Increment Revenue Appreciation Bonds Zero Coupon 3/1/2009 3,762,960(b)
670,000 Southern Minnesota Municipal Power Agency, Power Revenue
Refunding Bonds, Series A 5.75% 1/1/2018 686,502(b,c)
1,180,000 St. Louis Park, Minnesota, (Methodist Hospital), Hospital Revenue
Bonds, Series A 7.25% 7/1/2015 1,323,535(c,d)
1,000,000 St. Louis Park, Minnesota, (Methodist Hospital), Hospital Revenue
Bonds, Series C 7.25% 7/1/2018 1,135,170(c,d)
1,400,000 St. Louis Park, Minnesota, (Methodist Hospital), Hospital Revenue
Bonds, Series C 7.25% 7/1/2015 1,589,238(c,d)
3,500,000 St. Louis Park, Minnesota, Health Care Facilities
(Park Nicollet Medical Center Project), Revenue Bonds,
Series 1990-A 9.25% 1/1/2020 4,185,230(c)
7,600,000 St. Louis Park, Minnesota, Health Care Facilities, Revenue Bonds,
(HealthSystem Minnesota Obligated Group), Series 1993 5.1% 7/1/2013 7,064,656(d)
1,000,000 St. Louis Park, Minnesota, Health Care Facilities, Revenue Bonds,
(HealthSystem Minnesota Obligated Group), Series 1993 5.2% 7/1/2016 941,970(d)
------------
26,551,415
------------
Missouri - 2.2%
2,000,000 Boone County, Missouri, Hospital Revenue Refunding Bonds,
Series 1993 5.5% 8/1/2009 1,960,160
1,500,000 Missouri State Health and Education Facilities Authority,
SSM Health Care Refunding Revenue Bonds, Series A 6.25% 6/1/2007 1,615,950(b)
2,650,000 Missouri State Health and Education Facilities Authority
(Christian Health Services), Health Facilities Refunding &
Improvement Revenue Bonds, Series 1991-A 6.875% 2/15/2021 2,991,347(c,e)
3,000,000 Missouri State Health and Education Facilities Authority,
Health Facilities Revenue Bonds, (Barnes-Jewish, Inc./
Christian Health Services), Series 1993-A 5.25% 5/15/2012 2,859,690
1,425,000 Missouri State Health and Education Facilities Authority,
Health Facilities Revenue Refunding Bonds,
Lester E. Cox Medical Center Project, Series 1993-I 5.35% 6/1/2009 1,420,839(b)
2,450,000 Missouri State Health and Education Facilities Authority,
Heartland Health System Revenue Bonds, Series 1992 6.35% 11/15/2017 2,577,033(d)
------------
13,425,019
------------
Montana - 1.0%
1,240,000 Montana State Board of Investments,
Payroll Tax Revenue Bonds 6.875% 6/1/2020 1,396,575(b,c)
3,160,000 Montana State Board of Investments,
Payroll Tax Revenue Bonds 6.875% 6/1/2020 3,438,238(b)
1,250,000 Montana Health Facility Authority, Hospital Revenue Bonds
for the Deaconess-Billings Clinic Health System Project,
Series 1994 5.25% 2/15/2020 1,181,113(d)
------------
6,015,926
------------
Nebraska - 0.8%
25,000 Nebraska Mortgage Finance Fund, Single Family Mortgage
Revenue Bonds, 1983 Series A 10.125% 1/15/2014 25,596
3,455,000 Omaha Public Power District, Nebraska, Electric Revenue
Refunding Bonds, Series B 6.15% 2/1/2012 3,713,123
1,000,000 University of Nebraska, University of Nebraska Medical
Center Project, Revenue Refunding Bonds 5.25% 7/1/2011 978,000
------------
4,716,719
------------
New Hampshire - 0.2%
1,100,000 New Hampshire Turnpike System, Residual Interest Bonds,
1991 Refunding, Series C 9.577% 11/16/1995 1,340,713(e,j)
------------
New Jersey - 2.6%
1,700,000 Camden County, New Jersey, Municipal Utility Authority,
Sewer Revenue Bonds 8.25% 12/1/2017 1,861,704(e)
1,250,000 East Orange, New Jersey, Unlimited Tax General Obligation Bonds 8.4% 8/1/2006 1,589,025(g)
1,000,000 Mercer County, New Jersey, Improvement Authority,
County Guaranteed Solid Waste Revenue Bonds, Series 1988 7.9% 4/1/2013 1,071,130(c)
1,000,000 Mercer County, New Jersey, Improvement Authority,
Revenue Bonds, Series 1991 6.6% 11/1/2014 1,111,390(c)
2,585,000 New Jersey Health Care Facilities Financing Authority,
Jersey Shore Medical Center Revenue Bonds 6.1% 7/1/2010 2,729,967(d)
3,000,000 New Jersey Transit Corp., (Raymond Plaza East, Inc.),
Certificates of Participation 6.375% 10/1/2006 3,362,280(g)
1,520,000 New Jersey Turnpike Authority, Turnpike Revenue Bonds,
1984 Series 10.375% 1/1/2003 1,848,837(c)
2,595,000 West New York, New Jersey, Municipal Utility Authority, Sewer
Revenue Refunding Bonds Zero Coupon 12/15/2009 1,218,067(e)
2,195,000 West New York, New Jersey, Municipal Utility Authority, Sewer
Revenue Refunding Bonds Zero Coupon 12/15/2007 1,181,195(e)
------------
15,973,595
------------
New Mexico - 2.3%
2,000,000 City of Rio Rancho, New Mexico, Water and Wastewater
System Bonds, Series 1995-A 6.0% 5/15/2022 2,029,560(g)
4,040,000 Farmington, New Mexico, Utility Systems Revenue Bonds 9.875% 1/1/2008 5,419,175(c,d)
5,000,000 Farmington, New Mexico, Power Revenue Refunding Bonds,
Series 1983 9.875% 1/1/2013 6,760,600(c)
------------
14,209,335
------------
New York - 5.8%
5,200,000 Metropolitan Transportation Authority, New York,
Commuter Facilities Revenue Bonds, Series A 6.375% 7/1/2018 5,489,796(b)
3,000,000 Metropolitan Transportation Authority, New York,
Transit Facilities Revenue Bonds, Series B 6.25% 7/1/2014 3,149,760(b)
3,500,000 Metropolitan Transportation Authority, New York,
Transit Facilities Service Contract Bonds, Series O 5.75% 7/1/2013 3,435,040
2,000,000 New York City Municipal Water Finance Authority,
Water & Sewer System Revenue Bonds, Series A 5.875% 6/15/2012 2,100,940(d)
1,250,000 New York City Municipal Water Finance Authority,
Water & Sewer System Revenue Bonds 8.75% 6/15/2010 1,365,825(c)
2,000,000 New York State Dorm Authority (City University),
Construction Revenue Bonds, Series A 8.125% 7/1/2017 2,169,260(c)
5,000,000 New York State Dorm Authority, Revenue Refunding Bonds,
State University Educational Facilities, Series B 5.0% 5/15/2018 4,347,550
2,250,000 New York State Medical Care Facilities Finance Agency
(Ellis Hospital), Insured Mortgage Hospital Bonds, Series B 8.0% 2/15/2008 2,485,260(h)
4,000,000 New York State Medical Care Facilities Finance Agency,
Revenue Refunding Bonds, Mental Health Services Facilities 5.25% 2/15/2019 3,764,240(e)
2,860,000 New York State Thruway Authority, Highway & Bridge
Trust Fund, Revenue Bonds, Series 1994-B 6.0% 4/1/2014 2,946,858(e)
3,500,000 New York State Urban Development Corp., Revenue
Refunding Bonds, Correctional Facilities 5.375% 1/1/2012 3,431,260(b)
1,000,000 Triborough Bridge & Tunnel Authority, New York, General
Purpose Revenue Bonds, Series Q 6.75% 1/1/2009 1,112,900
------------
35,798,689
------------
North Carolina - 1.1%
2,500,000 County of Pitt, North Carolina, Pitt County Memorial
Hospital Revenue Bonds, Series 1995 5.5% 12/1/2015 2,437,600
4,000,000 North Carolina Municipal Power Agency #1, Catawba
Electric Revenue Refunding Bonds, Series 1992 6.0% 1/1/2011 4,207,720(b)
------------
6,645,320
------------
North Dakota - 0.5%
1,000,000 Mercer County, North Dakota, Pollution Control Revenue
Refunding Bonds, (Ottertail Power Co. Project) 6.9% 2/1/2019 1,077,960
2,000,000 North Dakota Municipal Bond Bank, State Revolving
Fund Program Bonds, Series 1995-A 6.3% 10/1/2015 2,110,560
------------
3,188,520
------------
Ohio - 4.4%
1,050,000 Akron, Bath & Copley Joint Township, Ohio, (Children's Hospital
Medical Center), Hospital District Revenue Bonds 7.45% 11/15/2020 1,210,030(c,d)
3,785,000 City of Cleveland, Ohio, Public Power System, First Mortgage
Revenue Bonds, Series 1994-A 7.0% 11/15/2024 4,202,523(b)
500,000 City of Dayton, Ohio, Airport Revenue Refunding Bonds,
Series 1995, (James M. Cox International Airport) 5.25% 12/1/2015 478,455(d,k)
1,000,000 Cleveland, Ohio, Waterworks Improvement First Mortgage
Refunding Revenue Bonds, Series 1993-G 5.5% 1/1/2009 1,020,600(b)
1,630,000 Cuyahoga County, Ohio, (Deaconess Hospital), Hospital
Revenue Bonds, Series C 7.45% 10/1/2018 1,882,894(c)
1,600,000 Hamilton County, Ohio, Electric System Revenue
Refunding Bonds, Series A 6.0% 10/15/2012 1,657,024(e)
1,000,000 Kings Local School District, Ohio, Unlimited Tax
General Obligation Bonds 5.5% 12/1/2021 972,960(e)
1,470,000 Lorain County, Ohio, (Humility of Mary Health System),
Hospital Revenue Bonds 7.125% 12/15/2006 1,622,512
2,000,000 Ohio Higher Educational Facility Commission (Case Western
Reserve University Project), Series B 6.5% 10/1/2020 2,251,740
1,500,000 Ohio Higher Educational Facility Commission,
Higher Educational Revenue Bonds,
Ohio Dominican College 1994 Project 6.625% 12/1/2014 1,562,640
5,000,000 Ohio State Air Quality Development Authority, Cleveland Electric,
Pollution Control Revenue Bonds 8.0% 12/1/2013 6,002,850(e)
2,250,000 Ohio State Air Quality Development Authority, Columbus &
Southern Pollution Control Revenue Bonds 6.375% 12/1/2020 2,371,005(e)
1,795,000 Trumbull County, Ohio, (Memorial Hospital), Hospital Revenue
Refunding & Improvement Bonds, Series 1991-B 6.9% 11/15/2012 1,956,101(e)
------------
27,191,334
------------
Oklahoma - 1.8%
5,220,000 Bass, Oklahoma, Memorial Baptist Hospital,
Escrowed to Maturity 8.35% 5/1/2009 6,682,226(c)
1,175,000 Grand River Dam Authority, Oklahoma, Revenue
Refunding Bonds, Series 1993 5.75% 6/1/2008 1,246,334(g)
1,500,000 Oklahoma Municipal Power Authority, Electric Revenue
Refunding Bonds, Series B 5.75% 1/1/2024 1,570,935(b)
1,500,000 Oklahoma Municipal Power Authority, Power Supply System
Revenue Bonds, Series 1992-B 5.875% 1/1/2012 1,589,370(b)
------------
11,088,865
------------
Oregon - 0.9%
2,700,000 Clackamas County, Oregon, Health Facilities Authority, Adventist
Health-West Revenue Refunding Bonds, Series 1992-A 6.35% 3/1/2009 2,901,339(b)
850,000 Clackamas County, Oregon, School District No. 12,
(North Clackamas), Unlimited Tax General Obligation
Refunding Bonds, Series 1993 5.0% 6/1/2011 795,727
2,000,000 Hospital Facility Authority of the Western Lane Hospital District,
Oregon, Revenue Refunding Bonds, Series 1994,
(Sisters of St. Joseph of Peace, Health & Hospital Services) 5.875% 8/1/2012 2,050,240(b)
------------
5,747,306
------------
Pennsylvania - 2.0%
2,100,000 Allegheny County, Pennsylvania, Hospital Development Authority,
Hospital Revenue Bonds, Series A-1995,
(Allegheny General Hospital Project) 6.2% 9/1/2015 2,187,402(b)
2,575,000 Allegheny County, Pennsylvania, Sanitary Authority,
Sewer Revenue Bonds, Series A Zero Coupon 6/1/2008 1,309,336(e)
2,000,000 Delaware River Joint Toll Bridge Commission, Pennsylvania,
Toll Bridge Revenue Bonds 7.875% 7/1/2018 2,216,180(c)
3,170,000 Millcreek Township, Pennsylvania, School District, General
Obligation Bonds Zero Coupon 8/15/2009 1,500,615(e)
2,000,000 Monroeville, Pennsylvania, Hospital Authority, Forbes
Health System Revenue Bonds, Series 1992 7.0% 10/1/2003 2,155,660
3,000,000 Pennsylvania State, General Obligation Bonds,
Second Series of 1992 Zero Coupon 7/1/2006 1,740,930(d)
1,105,000 Shamokin Area Industrial Development Authority, Pennsylvania,
(Northumberland County), Commercial Development
First Mortgage Revenue Refunding Bonds, Series 1994-A,
(KMart Corp., Tenant & Guarantor) 6.7% 7/1/2007 1,053,385
------------
12,163,508
------------
Puerto Rico - 1.9%
4,000,000 Puerto Rico Commonwealth, Aqueduct &
Sewer Revenue Bonds, Series A 9.0% 7/1/2009 5,267,920(c)
2,000,000 Puerto Rico Commonwealth, Unlimited Tax
General Obligation Bonds 6.45% 7/1/2017 2,113,500
3,000,000 Puerto Rico Electric Power Authority,
Power Revenue Bonds, Series T 6.0% 7/1/2016 3,058,860
1,500,000 University of Puerto Rico, University System
Revenue Bonds, Series M 5.25% 6/1/2025 1,412,115(b)
------------
11,852,395
------------
South Carolina - 1.4%
2,000,000 Greenville, South Carolina, Hospital System, Hospital Facility
Revenue Bonds, Series A 7.5% 5/1/2016 2,061,540(c,e)
2,000,000 Piedmont Municipal Power Agency, South Carolina, Electric
Revenue Refunding Bonds, Series 1991 6.25% 1/1/2021 2,154,280(e)
5,000,000 Piedmont Municipal Power Agency, South Carolina, Electric
Revenue Refunding Bonds 5.0% 1/1/2022 4,452,150(e)
------------
8,667,970
------------
Tennessee - 0.3%
1,750,000 Bristol, Tennessee, Health and Educational Facilities Authority,
Bristol Memorial Hospital Revenue Bonds 7.0% 9/1/2021 1,982,663(c,e)
------------
Texas - 9.9%
2,165,000 Arlington, Texas, Independent School District, Unlimited
Tax Refunding & Improvement Bonds, Series 1992 Zero Coupon 2/15/2009 1,042,209(i)
1,000,000 Austin, Texas, Utility System Revenue Refunding Bonds 6.0% 11/15/2013 1,061,430(e)
7,000,000 Austin, Texas, Utility System Revenue Refunding Bonds,
Series A Zero Coupon 11/15/2008 3,473,260(b)
8,100,000 Austin, Texas, Utility System Revenue Refunding Bonds,
Series A Zero Coupon 11/15/2009 3,756,942(b)
1,575,000 Bexar County, Texas, Limited Tax General Obligation Bonds 5.0% 6/15/2015 1,457,962
2,500,000 Bexar Metropolitan Water District, Texas, Waterworks
System Revenue Bonds, Series 1994 5.0% 5/1/2019 2,295,600(c,d)
1,000,000 Brazos River Authority, Texas, Collateralized Revenue
Refunding Bonds, (Houston Lighting & Power Co.),
1988 Series B 8.25% 5/1/2015 1,092,020
2,000,000 Brazos River Authority, Texas, Houston Lighting & Power Co.,
Revenue Refunding Bonds 8.25% 5/1/2015 2,190,460(b)
2,000,000 Copperas Cove, Texas, Independent School District, Unlimited
Tax General Obligation Bonds 6.9% 8/15/2014 2,313,460(c,i)
1,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue
Refunding Bonds 7.375% 11/1/2008 1,157,000(e)
1,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue
Refunding Bonds 7.375% 11/1/2009 1,150,300(e)
2,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue
Refunding Bonds 7.375% 11/1/2010 2,300,600(e)
3,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue
Refunding Bonds,
Series 1985 9.125% 11/1/2015 3,075,000
4,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding Bonds,
Series 1994-A 6.0% 11/1/2012 4,134,640(b)
2,285,000 Denton, Texas, Independent School District, Unlimited
Tax General Obligation Refunding Bonds 6.25% 2/15/2009 2,492,181(i)
1,000,000 Georgetown, Texas, Higher Education Finance Corp., Higher
Education Revenue Bonds, Series 1994,
(Southwestern University Project) 6.3% 2/15/2014 1,030,420
2,250,000 Harris County, Texas, Toll Road, Sr. Lien Bonds, Series A 6.375% 8/15/2024 2,374,560(b)
1,750,000 Harris County, Texas, Toll Road, Unlimited Tax & Subordinated Lien,
Revenue Refunding Bonds, Series 1988 8.125% 8/1/2015 1,955,888(c)
1,295,000 Houston, Texas, Housing Finance Corp., Single Family
Mortgage Revenue Bonds, Series 1983 10.0% 9/15/2014 1,294,935
1,280,000 Houston, Texas, Water & Sewer Systems, Exchange Pre-Refunded
Jr. Lien Revenue Bonds 9.375% 12/1/2013 1,311,027(c,e)
220,000 Houston, Texas, Water & Sewer Systems, Exchange Pre-Refunded
Jr. Lien Revenue Bonds 9.375% 12/1/2013 225,333(c,e)
3,000,000 Leander Independent School District, Texas, (Travis and
Williamson Counties), Unlimited Tax School Building and
Refunding Bonds, Series 1994-A 6.0% 8/15/2018 3,048,750(i)
1,000,000 Lower Colorado River Authority, Priority Refunding Revenue
Bonds, Series 1985 9.5% 1/1/2011 1,028,840(c)
1,845,000 San Antonio, Texas, Airport Revenue Refunding Bonds 7.375% 7/1/2010 2,102,986(d)
1,000,000 San Antonio, Texas, Airport Revenue Refunding Bonds 7.375% 7/1/2011 1,139,830(d)
11,615,000 Southeastern Texas Housing Finance Corp., Single Family
Mortgage Revenue Bonds Zero Coupon 9/1/2017 3,095,978(c)
4,315,000 Texas State, Veterans Land Board General Obligation Bonds 0.05% 7/1/2010 1,914,091(c)
2,500,000 Travis County, Texas, Housing Finance Corporation, Single
Family Mortgage Revenue Refunding Bonds, Series 1994-A 6.75% 4/1/2014 2,629,900
3,650,000 Willis, Texas, Independent School District, Refunding Bonds 6.5% 2/15/2016 3,861,153(i)
1,175,000 Wylie, Texas, Independent School District, (Collin County),
Unlimited Tax Building & Refunding Bonds, Series 1994 6.875% 8/15/2014 1,339,829(i)
------------
61,346,584
------------
Utah - 1.4%
1,000,000 Intermountain Power Agency, Utah, Power Supply
Revenue Bonds, Series A 6.0% 7/1/2009 1,007,130(b)
2,445,000 St. George-Washington County, Utah, Water Revenue
Refunding Bonds, Series 1993 5.375% 6/1/2016 2,355,048(d)
3,750,000 Utah Associated Municipal Power Systems, San Juan Project
Revenue Bonds, Series O 6.25% 6/1/2014 3,911,925(b)
1,580,000 West Valley City, Utah, Municipal Building Authority, Lease
Refunding Bonds 6.0% 1/15/2010 1,631,966(b)
------------
8,906,069
------------
Virginia - 2.7%
3,000,000 Fairfax County, Virginia, Economic Development Authority,
Lease Revenue Bonds, (Government Center Properties),
Series 1994 5.5% 5/15/2014 2,969,010
1,200,000 Norfolk, Virginia, Water Revenue Bonds, Series 1995 5.375% 11/1/2023 1,128,228(d)
4,000,000 Upper Occoquan Sewage Authority, Virginia, Regional Sewerage
System Revenue Refunding Bonds, Series 1993 5.0% 7/1/2021 3,619,600(e)
4,300,000 Virginia Housing Development Authority, Commonwealth
Mortgage Bonds, 1994 Series H, Subseries H-2 6.5% 1/1/2014 4,461,981
2,000,000 Virginia State, Unlimited Tax General Obligation Bonds 6.5% 6/1/2015 2,176,300
2,000,000 Winchester Industrial Development Authority, Virginia
(Winchester Medical Center), Hospital Revenue Bonds 8.125% 1/1/2014 2,053,500(c)
------------
16,408,619
------------
Washington - 5.4%
1,655,000 Douglas County, Washington, Public Utility District #1, Wells
Hydroelectric Revenue Bonds, Series A 8.75% 9/1/2018 2,213,563(c)
1,395,000 Douglas County, Washington, Public Utility District #1, Wells
Hydroelectric Revenue Bonds, Series A 8.75% 9/1/2018 1,776,630
2,000,000 Grant County, Washington, Public Utility District No. 2,
Columbia River, Priest Rapids Hydro Electric Development
Project, Second Series Revenue Bonds, Series A 5.0% 1/1/2023 1,767,460(d)
5,000,000 King County, Washington, Unlimited Tax General Obligation
Bonds, Series A 6.75% 12/1/2009 5,505,350(c)
2,015,000 Tacoma, Washington, Utilities Refuse Revenue Bonds 6.625% 12/1/2011 2,140,857(b)
5,000,000 Washington State Public Power Supply System, Nuclear
Project No. 1, Revenue Refunding Bonds 7.5% 7/1/2015 5,428,050
1,000,000 Washington State Public Power Supply System, Nuclear
Project No. 3, Revenue Refunding Bonds 7.25% 7/1/2015 1,121,860(c,e)
2,500,000 Washington State Public Power Supply System, Nuclear
Project No. 3, Revenue Refunding Bonds, Series B Zero Coupon 7/1/2010 1,067,375(b)
1,500,000 Washington State, Unlimited Tax General Obligation Bonds,
Series A 6.25% 2/1/2011 1,636,065
3,000,000 Washington State, Unlimited Tax General Obligation Bonds,
Series 93-A 5.75% 10/1/2012 3,058,470
2,400,000 Washington State, Unlimited Tax General Obligation Bonds 6.7% 6/1/2016 2,651,568(c)
2,000,000 Washington State, Unlimited Tax General Obligation Bonds 6.0% 6/1/2012 2,092,180
2,500,000 Washington State, Various Purpose General Obligation Bonds 6.25% 6/1/2010 2,707,125
------------
33,166,553
------------
Wisconsin - 1.0%
4,315,000 State of Wisconsin, Clean Water Revenue Bonds, 1995 Series 1 5.8% 6/1/2015 4,365,313
2,000,000 Wisconsin Health and Education Facilities Authority,
Revenue Bonds, (Sisters of the Sorrowful Mother-Ministry
Corporation), Series 1993-D 5.4% 8/15/2013 1,926,800(b)
------------
6,292,113
------------
Wyoming - 0.4%
2,500,000 State of Wyoming Farm Loan Board, Capital Facilities Revenue
Bonds, Series 1994 6.1% 4/1/2024 2,580,250
------------
Total Long-Term Municipal Securities (cost $574,789,161) 615,637,876
------------
SHORT-TERM MUNICIPAL SECURITIES - 0.2% (a,j)
$600,000 Berkeley County, South Carolina, (Amoco Chemical Co. Project),
Pollution Control Revenue Refunding Bonds, Series 1994 3.9% 11/1/1995 600,000
500,000 Maricopa County, Arizona Pollution Control Corp., Pollution
Control Revenue Refunding Bonds, (Arizona Public Service Co.
Palo Verde Project), 1994 Series E 3.95% 11/1/1995 500,000
100,000 Maricopa County, Arizona Pollution Control Corp., Pollution
Control Revenue Refunding Bonds, (Arizona Public Service Co.
Palo Verde Project), 1994 Series B 3.9% 11/1/1995 100,000
------------
Total Short-Term Municipal Securities (at amortized cost) 1,200,000
------------
Total Investments (cost $575,989,161) $616,837,876(l)
============
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of the Lutheran Brotherhood Municipal Bond Fund.
(b) Insured by Municipal Bond Investors Assurance Corp.
(c) Denotes securities that have been pre-refunded or escrowed to maturity. Under such an arrangement, money is deposited into an
irrevocable escrow account and is used to purchase U.S. Treasury securities or Government Agency securities with maturing
principal and interest earnings sufficient to pay all debt service requirements of the pre-refunded bonds. Because the original
bonds assume a quality rating equivalent to the escrowed U.S. Government securities, they are considered to be U.S. Government
(d) Insured by AMBAC Indemnity Corp.
(e) Insured by Financial Guaranty Insurance Co.
(f) Insured by Connie Lee Insurance Co.
(g) Insured by Financial Security Assurance, Inc.
(h) Insured by Federal Housing Administration.
(i) Insured by Permanent School Fund Guarantee.
(j) Denotes variable rate obligations for which the current yield and next scheduled interest reset date are shown.
(k) Denotes investments purchased on a when-issued basis.
(l) At October 31, 1995, the aggregate cost of securities for federal income tax purposes was $576,019,044 and the net unrealized
appreciation of investments based on that cost was $40,818,832 which is comprised of $42,747,802 aggregate gross unrealized
appreciation and $1,928,970 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Money Market Fund
Portfolio of Investments
October 31, 1995
Principal Maturity
Amount Rate Date Value
- -------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
BANKER'S ACCEPTANCES - 5.8% (a)
$6,767,062 Banker's Trust Co., New York 5.72% 12/27/95 $ 6,706,850
5,000,000 First Bank, N.A., Minneapolis 5.60% 2/8/96 4,923,000
5,000,000 First Bank, N.A., Minneapolis 5.65% 2/13/96 4,918,389
3,126,226 Republic National Bank of New York 5.65% 12/22/95 3,101,203
------------
Total Banker's Acceptances 19,649,442
------------
COMMERCIAL PAPER - 75.3% (a)
Banking-Domestic - 2.9%
3,000,000 Norwest Corp 5.50% 12/7/95 2,983,500
4,000,000 Norwest Corp 5.67% 2/23/96 3,928,180
3,000,000 Norwest Corp 5.57% 11/8/95 2,996,751
------------
9,908,431
------------
Banking-Foreign - 17.5%
5,000,000 Accor S.A., (Banque National de Paris,
Direct Pay Letter of Credit) 5.68% 12/7/95 4,971,600
5,000,000 Accor S.A., (Banque National de Paris,
Direct Pay Letter of Credit) 5.70% 11/30/95 4,977,042
3,500,000 Accor S.A., (Banque National de Paris,
Direct Pay Letter of Credit) 5.73% 1/25/96 3,452,648
5,000,000 Finance One Funding Corp., (Credit Suisse,
Direct Pay Letter of Credit) 5.95% 11/7/95 4,995,042
5,000,000 Finance One Funding Corp., (Credit Suisse,
Direct Pay Letter of Credit) 5.80% 1/17/96 4,937,972
5,000,000 FPL Fuels, Inc., (Barclay's Bank, plc,
Direct Pay Letter of Credit) 5.73% 11/27/95 4,979,308
5,000,000 PEMEX Capital, Inc., (Swiss Bank Corp., plc,
Direct Pay Letter of Credit) 5.73% 12/4/95 4,973,738
5,000,000 Sheffield Receivables Corp., (Barclay's Bank) 5.69% 11/14/95 4,989,726
5,000,000 Sheffield Receivables Corp., (Barclay's Bank) 5.69% 11/17/95 4,987,355
16,000,000 UBS Finance (Delaware), Inc, (Union Bank of Switzerland) 5.90% 11/1/95 16,000,000
------------
59,264,431
------------
Computer & Office Equipment - 2.9%
5,000,000 Electronic Data Systems Corp 5.71% 1/25/96 4,932,590
5,000,000 Electronic Data Systems Corp 5.62% 12/15/95 4,965,656
------------
9,898,246
------------
Cosmetics & Toiletries - 2.9%
5,000,000 Unilever Capital Corp 5.77% 11/1/95 5,000,000
5,000,000 Unilever Capital Corp 5.70% 12/14/95 4,965,958
------------
9,965,958
------------
Drugs & Healthcare - 2.6%
5,000,000 Schering Corp 5.64% 2/27/96 4,907,567
4,000,000 Schering Corp 5.58% 4/11/96 3,899,560
------------
8,807,127
------------
Education - 2.4%
3,900,000 Harvard University 5.88% 11/1/95 3,900,000
4,000,000 Leland H. Stanford Jr. University 5.67% 12/20/95 3,969,130
------------
7,869,130
------------
Finance-Automotive - 1.5%
5,000,000 Ford Motor Credit Co 5.67% 12/1/95 4,976,375
------------
Finance-Commercial - 3.7%
1,500,000 CIT Group Holdings, Inc 5.70% 11/17/95 1,496,200
5,000,000 CIT Group Holdings, Inc 5.62% 12/21/95 4,960,972
2,500,000 General Electric Capital Corp 5.62% 2/2/96 2,463,704
3,700,000 PACCAR Financial Corp 5.68% 11/29/95 3,683,654
------------
12,604,530
------------
Finance-Consumer - 5.8%
5,000,000 Associates Corp. of North America 5.68% 2/9/96 4,921,111
5,000,000 Associates Corp. of North America 5.68% 11/20/95 4,985,011
5,000,000 AVCO Financial Services, Inc 5.66% 11/2/95 4,999,214
5,000,000 AVCO Financial Services, Inc 5.70% 2/1/96 4,927,167
------------
19,832,503
------------
Finance-Structured - 12.0%
5,000,000 Ciesco, L.P. 5.72% 11/28/95 4,978,550
5,000,000 CXC, Inc 5.61% 12/15/95 4,965,717
5,000,000 Delaware Funding Corp 5.68% 11/2/95 4,999,211
4,000,000 Delaware Funding Corp 5.68% 11/22/95 3,986,747
5,000,000 New Center Asset Trust 5.72% 11/21/95 4,984,111
5,000,000 New Center Asset Trust 5.77% 11/7/95 4,995,192
5,000,000 New Center Asset Trust 5.76% 11/13/95 4,990,400
1,975,000 Preferred Receivables Funding Corp 5.74% 12/13/95 1,961,774
5,000,000 Preferred Receivables Funding Corp 5.77% 11/8/95 4,994,390
------------
40,856,092
------------
Financial Services - 4.4%
5,000,000 American Express Credit Corp 5.66% 12/7/95 4,971,700
5,000,000 American Express Credit Corp 5.75% 11/9/95 4,993,611
5,000,000 American Express Credit Corp 5.70% 12/14/95 4,965,958
------------
14,931,269
------------
Food & Beverage - 3.5%
2,000,000 Coca-Cola Co 5.77% 11/6/95 1,998,397
5,000,000 CPC International, Inc 5.67% 2/13/96 4,918,100
5,000,000 CPC International, Inc 5.71% 12/5/95 4,973,036
------------
11,889,533
------------
Household Products - 1.5%
5,000,000 Colgate-Palmolive Co 5.55% 11/30/95 4,977,646
------------
Industrial - 5.9%
5,000,000 Du Pont (E.I.) de Nemours and Co 5.63% 2/16/96 4,916,332
5,000,000 Great Lakes Chemical Corp 5.73% 11/20/95 4,984,879
5,000,000 Monsanto Co 5.70% 12/12/95 4,967,542
5,000,000 Motorola Credit Corp 5.80% 11/9/95 4,993,555
------------
19,862,308
------------
Insurance - 1.5%
5,000,000 Prudential Funding Corp 5.64% 12/26/95$ 4,956,917
------------
Oil & Gas - 2.9%
5,000,000 Chevron Transport Corp., (Guaranteed by Chevron Corp.) 5.75% 12/1/95 4,976,042
5,000,000 Chevron Transport Corp., (Guaranteed by Chevron Corp.) 5.70% 12/22/95 4,959,625
------------
9,935,667
------------
Telecommunications - 1.4%
5,000,000 AT&T Corp 5.57% 2/21/96 4,913,355
------------
Total Commerical Paper 255,449,518
------------
CERTIFICATES OF DEPOSIT - 7.7% (a)
Euro Dollar - 6.5%
5,000,000 ABN AMRO Bank, N.V 5.73% 3/13/96 4,998,913
5,000,000 ABN AMRO Bank, N.V 5.77% 12/5/95 5,000,046
2,000,000 Banque Nationale de Paris 7.18% 2/7/96 2,005,862
5,000,000 Harris Trust & Savings Bank, Chicago 5.74% 11/14/95 4,999,963
5,000,000 National Westminster Bank, plc 5.63% 12/13/95 4,999,280
------------
22,004,064
------------
Yankee Dollar - 1.2%
4,000,000 National Westminster Bank, plc 5.77% 12/6/95 4,000,077
------------
Total Certificates of Deposit 26,004,141
------------
VARIABLE RATE NOTES - 10.3% (a,b)
8,000,000 Boatsmen's National Bank of St. Louis, Bank Note 5.86% 11/13/95 8,000,000
10,000,000 Illinois Student Assistance Commission, (Student Loan Market
Association, Direct Pay Letter of Credit) 5.81% 11/8/95 10,000,000
7,000,000 Leland H. Stanford Jr. University 5.78% 11/1/95 7,000,000
10,000,000 Wachovia Bank of North Carolina, N.A 5.81% 11/8/95 10,000,000
------------
Total Variable Rate Notes 35,000,000
------------
CORPORATE NOTES - 0.9% (a)
3,000,000 General Electric Capital Corp 5.25% 11/15/95 2,999,160
------------
Total Investments (at amortized cost) $339,102,261 (c)
============
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of the Lutheran Brotherhood
Money Market Fund.
(b) Denotes variable rate obligations for which the current yield and the next scheduled interest reset date
are shown.
(c) Also represents cost for federal income tax purposes.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Opportunity Growth Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1995
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $161,205,555) $169,947,387
Cash 63,443
Receivable for investment securities sold 10,444,667
Dividend and interest receivable 24,371
Unamortized organization costs 21,654
------------
Total assets 180,501,522
------------
LIABILITIES:
Payable for investment securities purchased 14,710,202
Accrued expenses 108,423
------------
Total liabilities 14,818,625
------------
NET ASSETS $165,682,897
============
NET ASSETS CONSIST OF:
Trust capital (11,975,639 shares of beneficial
interest outstanding) $123,874,411
Accumulated net realized gain from sale
of investments 33,066,654
Unrealized net appreciation of investments 8,741,832
------------
NET ASSETS $165,682,897
============
Net asset value and redemption price per share
($165,682,897 (divided by) 11,975,639 shares of beneficial
interest outstanding) $13.83
======
Maximum public offering price per share
($13.83 (divided by) 0.95 for a 5% sales charge) $14.56
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1995
<S> <C>
INVESTMENT INCOME:
Income--
Dividend income $ 91,852
Interest income 622,114
------------
Total income 713,966
------------
Expenses--
Investment advisory fee 938,166
Transfer agent services 582,903
Custodian fee 103,883
Administrative personnel and services 33,788
Printing and postage 120,917
Trust share registration costs 34,289
Auditing fees 9,301
Legal fees 750
Trustees' fees 8,246
Amortization of organization costs 9,855
Miscellaneous 7,908
------------
Total expenses 1,850,006
------------
Net investment loss (1,136,040)
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 38,531,937
Net change in unrealized appreciation
of investments (4,581,612)
------------
Net gain on investments 33,950,325
------------
Net increase in net assets resulting
from operations $ 32,814,285
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1995 and 1994
Year Year
Ended Ended
10/31/95 10/31/94
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment loss $ (1,136,040) $ (578,480)
Net realized gain (loss) on investments 38,531,937 (2,536,890)
Net change in unrealized appreciation or depreciation
of investments (4,581,612) 6,777,510
------------ ------------
Net increase in net assets resulting from operations 32,814,285 3,662,140
------------ ------------
TRUST SHARE TRANSACTIONS:
Net proceeds from sale of shares 50,139,416 60,409,075
Cost of shares redeemed (16,847,223) (5,340,158)
------------ ------------
Net increase in net assets from trust share transactions 33,292,193 55,068,917
------------ ------------
Net increase in net assets 66,106,478 58,731,057
NET ASSETS:
Beginning of period 99,576,419 40,845,362
------------ ------------
End of period $165,682,897 $ 99,576,419
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood World Growth Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1995
<S> <C>
ASSETS:
Investments in securities, at value
(cost $14,407,661) $ 14,273,945
Cash (including foreign currency
holdings of $112,263) 120,924
Dividend and interest receivable 26,580
Unamortized organization costs 53,027
------------
Total assets 14,474,476
------------
LIABILITIES:
Payable for investment securities purchased 420,507
Unrealized depreciation of foreign
currency contracts held 1,353
Accrued expenses 11,055
Due to affiliates 73,530
------------
Total liabilities 506,445
------------
NET ASSETS $ 13,968,031
============
NET ASSETS CONSIST OF:
Trust capital (1,654,196 shares of beneficial
interest outstanding) $ 14,085,799
Undistributed net investment income 18,920
Accumulated net realized loss from sale of
investments and foreign currency transactions (1,661)
Unrealized net depreciation of investments and
on translation of assets and liabilities in
foreign currencies (135,027)
------------
NET ASSETS $ 13,968,031
============
Net asset value and redemption price per share
($13,968,031 (divided by) 1,654,196 shares of beneficial
interest outstanding) $ 8.44
======
Maximum public offering price per share
($8.44 (divided by) 0.95 for a 5% sales charge) $ 8.88
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period from September 5, 1995 to October 31, 1995
<S> <C>
INVESTMENT INCOME:
Income--
Dividend income (net of foreign taxes of $3,271) $ 19,825
Interest income 30,743
---------
Total income 50,568
---------
Expenses--
Investment advisory fee 17,787
Transfer agent services 4,983
Custodian fee 2,846
Administrative personnel and services 356
Printing and postage 1,462
Trust share registration costs 8,534
Auditing fees 2,500
Trustees' fees 818
Amortization of organization costs 1,878
---------
Total expenses before
expense reimbursement 41,164
Expense reimbursement from
investment advisor (13,415)
---------
Net expenses 27,749
---------
Net investment income 22,819
---------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY:
Net realized loss on investment transactions (385)
Net realized loss on foreign currency transactions (5,175)
---------
Net realized loss on investments and
foreign currency transactions (5,560)
Net change in unrealized depreciation of investments (133,716)
Net change in unrealized depreciation on
translation of assets and liabilities in
foreign currencies (1,311)
---------
Net change in unrealized depreciation of investments
and on translation of assets and liabilities in
foreign currencies (135,027)
---------
Net loss on investments and foreign currency (140,587)
---------
Net change in net assets resulting
from operations $(117,768)
=========
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the period from September 5, 1995 to October 31, 1995
<S> <C>
OPERATIONS:
Net investment income $ 22,819
Net realized loss on investments
and foreign currency transactions (5,560)
Net change in unrealized depreciation of investments and
on translation of assets and liabilities in foreign currencies (135,027)
------------
Net change in net assets resulting from operations (117,768)
------------
TRUST SHARE TRANSACTIONS:
Net proceeds from sale of shares 14,107,250
Cost of shares redeemed (21,451)
------------
Net change in net assets from trust share transactions 14,085,799
------------
Net change in net assets 13,968,031
NET ASSETS:
Beginning of period --
------------
End of period (including undistributed net investment
income of $18,920) $ 13,968,031
============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1995
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $553,908,269) $639,534,225
Cash 88,287
Receivable for investment securities sold 9,803,797
Dividend and interest receivable 887,351
------------
Total assets 650,313,660
------------
LIABILITIES:
Payable for investment securities purchased 4,577,605
Accrued expenses 234,472
------------
Total liabilities 4,812,077
------------
NET ASSETS $645,501,583
============
NET ASSETS CONSIST OF:
Trust capital ( 30,463,515 shares of beneficial
interest outstanding) $516,438,302
Undistributed net investment income 487,824
Accumulated net realized gain from sale
of investments 42,949,501
Unrealized net appreciation of investments 85,625,956
------------
NET ASSETS $645,501,583
============
Net asset value and redemption price per share
($645,501,583 (divided by) 30,463,515 shares of beneficial
interest outstanding) $21.19
======
Maximum public offering price per share
($21.19 (divided by) 0.95 for a 5% sales charge) $22.31
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1995
<S> <C>
INVESTMENT INCOME:
Income--
Dividend income $ 10,131,860
Interest income 2,440,562
------------
Total income 12,572,422
------------
Expenses--
Investment advisory fee 3,726,938
Transfer agent services 1,478,056
Custodian fee 148,703
Administrative personnel and services 144,572
Printing and postage 297,086
Trust share registration costs 36,777
Auditing fees 26,299
Legal fees 2,550
Trustees' fees 16,246
Miscellaneous 22,007
------------
Total expenses 5,899,234
------------
Net investment income 6,673,188
------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investment transactions 45,978,881
Net realized gain on closed or expired
option contracts written 228,303
------------
Net realized gain on investments 46,207,184
Net change in unrealized appreciation of investments 61,523,937
------------
Net gain on investments 107,731,121
------------
Net increase in net assets resulting
from operations $114,404,309
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1995 and 1994
Year Year
Ended Ended
10/31/95 10/31/94
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 6,673,188 $ 5,841,017
Net realized gain on investments 46,207,184 618,391
Net change in unrealized appreciation or depreciation
of investments 61,523,937 (6,424,063)
------------ ------------
Net increase in net assets resulting from operations 114,404,309 35,345
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net investment income (6,749,604) (5,815,515)
Net realized gain on investments (88,151) (27,442,253)
------------ ------------
Total distributions (6,837,755) (33,257,768)
------------ ------------
TRUST SHARE TRANSACTIONS:
Net proceeds from sale of shares 51,345,084 69,538,644
Reinvested dividend distributions 6,678,353 32,585,242
Cost of shares redeemed (68,673,955) (47,593,035)
------------ ------------
Net change in net assets from trust share transactions (10,650,518) 54,530,851
------------ ------------
Net increase in net assets 96,916,036 21,308,428
NET ASSETS:
Beginning of period 548,585,547 527,277,119
------------ ------------
End of period (including undistributed net investment
income of $487,824 and $606,949, respectively) $645,501,583 $548,585,547
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood High Yield Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1995
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $573,381,125) $580,851,784
Cash 16,422
Receivable for investment securities sold 5,183,828
Interest and dividend receivable 8,533,376
------------
Total assets 594,585,410
------------
LIABILITIES:
Payable for investment securities purchased 81,556
Accrued expenses 166,944
------------
Total liabilities 248,500
------------
NET ASSETS $594,336,910
============
NET ASSETS CONSIST OF:
Trust capital (65,816,585 shares of beneficial
interest outstanding) $599,543,671
Undistributed net investment income 2,046,167
Accumulated net realized loss from sale
of investments (14,723,587)
Unrealized net appreciation of investments 7,470,659
------------
NET ASSETS $594,336,910
============
Net asset value and redemption price per share
($594,336,910 (divided by) 65,816,585 shares of beneficial
interest outstanding) $ 9.03
======
Maximum public offering price per share
($9.03 (divided by) 0.95 for a 5% sales charge) $ 9.51
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1995
<S> <C>
INVESTMENT INCOME:
Income--
Interest income $ 51,645,758
Dividend income 5,205,917
------------
Total income 56,851,675
------------
Expenses--
Investment advisory fee 3,509,710
Transfer agent services 944,128
Custodian fee 155,718
Administrative personnel and services 136,969
Printing and postage 219,181
Trust share registration costs 40,808
Auditing fees 21,300
Legal fees 2,325
Trustees' fees 11,745
Miscellaneous 20,561
------------
Total expenses 5,062,445
------------
Net investment income 51,789,230
------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized loss on investment transactions (14,450,136)
Net change in unrealized appreciation of investments 30,065,533
------------
Net gain on investments 15,615,397
------------
Net increase in net assets resulting
from operations $ 67,404,627
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1995 and 1994
Year Year
Ended Ended
10/31/95 10/31/94
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 51,789,230 $ 42,426,404
Net realized gain (loss) on investment transactions (14,450,136) 3,337,327
Net change in unrealized appreciation or depreciation
of investments 30,065,533 (48,907,187)
------------ ------------
Net change in net assets resulting from operations 67,404,627 (3,143,456)
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net investment income (52,185,840) (41,113,817)
Net realized gain on investments (3,034,747) (910,565)
------------ ------------
Total distributions (55,220,587) (42,024,382)
------------ ------------
TRUST SHARE TRANSACTIONS:
Net proceeds from sale of shares 117,628,453 134,871,201
Reinvested dividend distributions 37,541,814 29,484,219
Cost of shares redeemed (72,649,892) (59,833,947)
------------ ------------
Net increase in net assets from trust share transactions 82,520,375 104,521,473
------------ ------------
Net increase in net assets 94,704,415 59,353,635
NET ASSETS:
Beginning of period 499,632,495 440,278,860
------------ ------------
End of period (including undistributed net investment
income of $2,046,167 and $2,442,777, respectively) $594,336,910 $499,632,495
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Income Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1995
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $1,001,648,228) $1,017,960,884
Cash 76,939
Receivable for investment securities sold 30,265,927
Interest receivable 15,006,607
--------------
Total assets 1,063,310,357
--------------
LIABILITIES:
Payable for investment securities purchased 120,937,879
Accrued expenses 230,787
--------------
Total liabilities 121,168,666
--------------
NET ASSETS $ 942,141,691
==============
NET ASSETS CONSIST OF:
Trust capital (108,068,307 shares of beneficial
interest outstanding) $ 961,113,681
Undistributed net investment income 4,974,121
Accumulated net realized loss from sale
of investments (40,258,767)
Unrealized net appreciation of investments 16,312,656
--------------
NET ASSETS $ 942,141,691
==============
Net asset value and redemption price per share
($942,141,691 (divided by) 108,068,307 shares of beneficial
interest outstanding) $ 8.72
======
Maximum public offering price per share
($8.72 (divided by) 0.95 for a 5% sales charge) $ 9.18
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1995
<S> <C>
INVESTMENT INCOME:
Income--
Interest income $ 71,877,705
Dividend income 442,165
------------
Total income 72,319,870
------------
Expenses--
Investment advisory fee 5,431,506
Transfer agent services 1,398,946
Custodian fee 184,283
Administrative personnel and services 215,922
Printing and postage 306,529
Trust share registration costs 38,568
Auditing fees 26,301
Legal fees 3,416
Trustees' fees 19,246
Miscellaneous 35,547
------------
Total expenses 7,660,264
------------
Net investment income 64,659,606
------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investment transactions 9,303,656
Net realized loss on closed futures contracts (46,953)
------------
Net realized gain on investments 9,256,703
Net change in unrealized appreciation of investments 66,244,804
------------
Net gain on investments 75,501,507
------------
Net increase in net assets resulting
from operations $140,161,113
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1995 and 1994
Year Year
Ended Ended
10/31/95 10/31/94
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 64,659,606 $ 65,920,666
Net realized gain (loss) on investment transactions 9,256,703 (49,289,869)
Net change in unrealized appreciation or depreciation
of investments 66,244,804 (85,923,538)
------------ ------------
Net change in net assets resulting from operations 140,161,113 (69,292,741)
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net investment income (62,451,862) (63,237,709)
Net realized gain on investments -- (27,958,858)
------------ ------------
Total distributions (62,451,862) (91,196,567)
------------ ------------
TRUST SHARE TRANSACTIONS:
Net proceeds from sale of shares 45,763,710 95,303,536
Reinvested dividend distributions 46,818,208 67,951,565
Cost of shares redeemed (135,320,068) (137,813,949)
------------ ------------
Net change in net assets from trust share transactions (42,738,150) 25,441,152
------------ ------------
Net change in net assets 34,971,101 (135,048,156)
NET ASSETS:
Beginning of period 907,170,590 1,042,218,746
------------ ------------
End of period (including undistributed net investment
income of $4,974,121 and $2,751,910, respectively) $942,141,691 $907,170,590
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Municipal Bond Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1995
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $575,989,161) $616,837,876
Cash 71,313
Receivable for investment securities sold 1,714,780
Interest receivable 10,668,000
------------
Total assets 629,291,969
------------
LIABILITIES:
Payable for investment securities purchased 477,905
Accrued expenses 116,095
------------
Total liabilities 594,000
------------
NET ASSETS $628,697,969
============
NET ASSETS CONSIST OF:
Trust capital (73,260,821 shares of beneficial
interest outstanding) $595,352,488
Undistributed net investment income 553,971
Accumulated net realized loss from sale
of investments (8,057,205)
Unrealized net appreciation of investments 40,848,715
------------
NET ASSETS $628,697,969
============
Net asset value and redemption price per share
($628,697,969 (divided by) 73,260,821 shares of beneficial
interest outstanding) $ 8.58
======
Maximum public offering price per share
($8.58 (divided by) 0.95 for a 5% sales charge) $ 9.03
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1995
<S> <C>
INVESTMENT INCOME:
Income--
Interest income $ 37,743,488
------------
Expenses--
Investment advisory fee 3,504,880
Transfer agent services 517,010
Custodian fee 139,872
Administrative personnel and services 151,391
Printing and postage 122,150
Trust share registration costs 34,373
Auditing fees 26,300
Legal fees 2,414
Trustees' fees 16,246
Miscellaneous 25,679
------------
Total expenses 4,540,315
------------
Net investment income 33,203,173
------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investment transactions 364,962
Net realized loss on closed futures contracts (703,268)
------------
Net realized loss on investments (338,306)
Net change in unrealized appreciation of investments 52,104,109
------------
Net gain on investments 51,765,803
------------
Net increase in net assets resulting
from operations $ 84,968,976
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1995 and 1994
Year Year
Ended Ended
10/31/95 10/31/94
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 33,203,173 $ 33,749,852
Net realized loss on investment transactions (338,306) (5,413,232)
Net change in unrealized appreciation or depreciation
of investments 52,104,109 (65,720,253)
------------ ------------
Net change in net assets resulting from operations 84,968,976 (37,383,633)
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net investment income (33,124,129) (33,607,416)
Net realized gain on investments -- (11,100,939)
------------ ------------
Total distributions (33,124,129) (44,708,355)
------------ ------------
TRUST SHARE TRANSACTIONS:
Net proceeds from sale of shares 39,483,970 76,123,051
Reinvested dividend distributions 25,171,137 33,891,528
Cost of shares redeemed (82,987,994) (62,418,135)
------------ ------------
Net change in net assets from trust share transactions (18,332,887) 47,596,444
------------ ------------
Net change in net assets 33,511,960 (34,495,544)
NET ASSETS:
Beginning of period 595,186,009 629,681,553
------------ ------------
End of period (including undistributed net investment
income of $553,971 and $449,768, respectively) $628,697,969 $595,186,009
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Money Market Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1995
<S> <C>
ASSETS:
Investments in securities, at amortized
cost and value $339,102,261
Cash 387,085
Receivable for trust shares sold 1,304,123
Interest receivable 557,227
------------
Total assets 341,350,696
------------
LIABILITIES:
Dividends payable 37,352
Accrued expenses 229,077
------------
Total liabilities 266,429
------------
NET ASSETS $341,084,267
============
NET ASSETS CONSIST OF:
Trust capital (341,084,267 shares of
beneficial interest outstanding) $341,084,267
============
Net asset value, offering price and redemption
price per share ($341,084,267 (divided by) 341,084,267
shares of beneficial interest outstanding) $ 1.00
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1995
<S> <C>
INVESTMENT INCOME:
Income--
Interest income $ 18,305,953
------------
Expenses--
Investment advisory fee 1,538,307
Transfer agent services 1,211,889
Custodian fee 311,850
Administrative personnel and services 85,688
Printing and postage 384,400
Trust share registration costs 68,433
Auditing fees 12,307
Legal fees 1,310
Trustees' fees 10,239
Miscellaneous 13,701
------------
Total expenses before expense reimbursement 3,638,124
Expense reimbursement from investment advisor (253,844)
------------
Net expenses 3,384,280
------------
Net investment income $ 14,921,673
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1995 and 1994
Year Year
Ended Ended
10/31/95 10/31/94
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 14,921,673 $ 7,835,288
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net investment income (14,921,673) (7,835,288)
------------ ------------
TRUST SHARE TRANSACTIONS:
Proceeds from sale of shares 547,639,011 441,490,068
Reinvested dividend distributions 14,549,671 7,385,807
Cost of shares redeemed (497,972,433) (447,132,825)
------------ ------------
Net increase in net assets from trust share transactions 64,216,249 1,743,050
------------ ------------
Net increase in net assets 64,216,249 1,743,050
NET ASSETS:
Beginning of period 276,868,018 275,124,968
------------ ------------
End of period $341,084,267 $276,868,018
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
The Lutheran Brotherhood Family of Funds
Notes to Financial Statements
October 31, 1995
(1) Organization
The Lutheran Brotherhood Family of Funds (the "Trust") is a Delaware business
trust and a diversified, open-end investment company registered under the
Investment Company Act of 1940. The Trust is divided into seven series (the
"Fund(s)"), each with its own investment objective and policies. The seven
Funds of the Trust are: Lutheran Brotherhood Opportunity Growth Fund, Lutheran
Brotherhood World Growth Fund, Lutheran Brotherhood Fund, Lutheran Brotherhood
High Yield Fund, Lutheran Brotherhood Income Fund, Lutheran Brotherhood
Municipal Bond Fund and Lutheran Brotherhood Money Market Fund. The Lutheran
Brotherhood World Growth Fund's registration was declared effective by the
Securities Exchange Commission and began operations as a series of The
Lutheran Brotherhood Family of Funds on September 5, 1995. On September 5,
1995, Lutheran Brotherhood invested $6,000,000 in the World Growth Fund and
acquired 705,882 shares of beneficial interest.
(2) Significant Accounting Policies
Investment Security Valuations
Securities traded on U.S. or foreign securities exchanges or included in a
national market system are valued at the last quoted sales price at the close
of each business day. Securities traded on the over-the-counter market and
listed securities for which no price is readily available are valued at prices
within the range of the current bid and asked prices considered best to
represent the value in the circumstances, based on quotes that are obtained
from an independent pricing service or by dealers that make markets in the
securities. The pricing service, in determining values of securities, takes
into consideration such factors as current quotations by broker/dealers,
coupon, maturity, quality, type of issue, trading characteristics, and other
yield and risk factors it deems relevant in determining valuations. Exchange
listed options and futures contracts are valued at the last quoted sales
price. For all Funds other than the Money Market Fund, short-term securities
with maturities of 60 days or less are valued at amortized cost; those with
maturities greater than 60 days are valued at the mean between bid and asked
price. Short-term securities held by the Money Market Fund are valued on the
basis of amortized cost (which approximates market value), whereby a portfolio
security is valued at its cost initially, and thereafter valued to reflect a
constant amortization to maturity of any discount or premium. The Money Market
Fund follows procedures necessary to maintain a constant net asset value of
$1.00 per share. All other securities for which market values are not readily
available are appraised at fair value as determined in good faith by or under
the direction of the Board of Trustees.
Repurchase Agreements
The Funds may engage in repurchase agreement transactions in pursuit of their
investment objectives. When a fund engages in such transactions, it is policy
to require the custodian bank to take possession of all securities held as
collateral in support of repurchase agreement investments. In addition, the
Fund monitors the market value of the underlying collateral on a daily basis.
If the seller defaults or if bankruptcy proceedings are initiated with respect
to the seller, the realization or retention of the collateral may be subject
to legal proceedings.
Investment Income
Interest income is determined on the basis of interest or discount earned on
any short-term investments and interest earned on all other debt securities,
including accrual of original issue discount. Interest earned on debt
securities also includes amortization of premium for the Opportunity Growth,
World Growth, LB Fund, High Yield and Municipal Bond Funds and the accrual of
market discount for the Opportunity Growth, World Growth, LB Fund and High
Yield Funds. Market discount, if any, is recognized for tax purposes when
bonds are sold for the Income and Municipal Bond Funds. Dividend income is
recorded on the ex- dividend date. For payment-in-kind securities, income is
recorded on the ex-dividend date in the amount of the value received.
Options, Financial Futures and
Forward Foreign Currency Contracts
All Funds except the Money Market Fund may buy put and call options, write
covered call options and buy and sell futures contracts. The Funds intend to
use such derivative instruments as hedges to facilitate buying or selling
securities or to provide protection against adverse movements in security
prices or interest rates. The LB World Growth Fund may also enter into options
and futures contracts on foreign currencies and forward currency contracts to
protect against adverse foreign exchange rate fluctuation.
Option contracts are valued daily and unrealized appreciation or depreciation
is recorded. The Fund will realize a gain or loss upon expiration or closing
of the option transaction. When an option is exercised, the proceeds on sale
for a written call option or the cost of a security for purchased put and call
options is adjusted by the amount of premium received or paid.
Upon entering into a futures contract, the Fund is required to deposit initial
margin, either cash or securities in an amount equal to a certain percentage
of the contract value. Subsequent variation margin payments are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund realizes a gain or loss when the contract is closed or
expires.
Foreign currency contracts are valued daily and unrealized appreciation or
depreciation is recorded daily as the difference between the contract exchange
rate and the closing forward rate applied to the face amount of the contract.
A realized gain or loss is recorded at the time a forward contract is closed.
Foreign Currency Translations
Securities and other assets and liabilities of the LB World Growth Fund that
are denominated in foreign currencies are translated into U.S. dollars at the
daily closing rate of exchange. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. Currency gains and losses are recorded
from sales of foreign currency, exchange gains or losses between the trade
date and settlement dates on securities transactions, and other translation
gains or losses on dividends, interest income and foreign withholding taxes.
The effect of changes in foreign exchange rates on realized and unrealized
security gains or losses are not segregated from gains and losses that arise
from changes in market prices of investments, and are included with the net
realized and unrealized gain or loss on investments.
Federal Income Taxes
It is the policy of each Fund to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their taxable income on a timely
basis, including any net realized gain on investments each year. It is also
the intention of the Funds to distribute an amount sufficient to avoid
imposition of any federal excise tax. Accordingly, no provision for federal
income tax is necessary. Each Fund is treated as a separate taxable entity for
federal income tax purposes.
When-Issued and Delayed Delivery Transactions
The Funds may engage in when-issued or delayed delivery transactions. To the
extent that a Fund engages in such transactions, it will do so for the purpose
of acquiring securities consistent with its investment objectives and policies
and not for the purpose of investment leverage or to speculate on interest
rate changes. On the trade date, assets of the Fund are segregated on the
Fund's records in a dollar amount sufficient to make payment for the
securities to be purchased. Income is not accrued until settlement date.
Dollar Roll Transactions
The Income Fund enters into dollar roll transactions, with respect to mortgage
securities issued by GNMA, FNMA and FHLMC, in which the Fund sells mortgage
securities and simultaneously agrees to repurchase similar (same type, coupon
and maturity) securities at a later date at an agreed upon price. During the
period between the sale and repurchase, the Fund forgoes principal and
interest paid on the mortgage securities sold. The Fund is compensated by the
interest earned on the cash proceeds of the initial sale and from negotiated
fees paid by brokers offered as an inducement to the Fund to "roll over" its
purchase commitments. The Income Fund earned $446,094 from such fees.
Organization Costs
Organization costs incurred in connection with the start up and initial
registration of the Funds are capitalized and amortized over a period of 60
months from the date of commencement. If any initial shares are redeemed
during the amortization period, the redemption proceeds will be reduced by a
pro-rata portion of the unamortized balance at the time of redemption, in the
same proportion that the number of initial shares being redeemed bears to the
number of initial shares outstanding at the time of redemption.
Distributions to Shareholders
Dividends from net investment income, if available, are declared and paid
annually for the Opportunity Growth and World Growth Funds, declared and paid
quarterly for the LB Fund, declared and paid monthly for the High Yield,
Income and Municipal Bond Funds, and declared daily (including short-term net
realized gains and losses) and paid monthly for the Money Market Fund. Net
realized gains from securities transactions, if any, are distributed at least
annually for all Funds, after the close of the fiscal year. Dividends and
capital gain distributions to shareholders are recorded on the ex-dividend
date.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or net realized gains were recorded by the Fund.
Reclassification of Permanent Tax Differences
It is the policy of each Fund to reclassify the net effect of permanent
differences between book and taxable income to trust capital accounts on the
statements of assets and liabilities. As a result of permanent book-to-tax
differences for the year ended October 31, 1995, accumulated net realized gain
or loss from the sale of investments was increased or decreased by
$(2,880,789), $3,899, ($1,677,618), ($14,467), and ($25,159), respectively,
for the Opportunity Growth, World Growth, LB Fund, Income and Municipal Bond
Funds; undistributed net investment income was increased or decreased by
$1,136,040, ($3,899), ($42,709), $14,467, and $25,159, respectively, for the
Opportunity Growth, World Growth, LB Fund, Income and Municipal Bond Funds;
and net increases of $1,744,749 and $1,720,327, respectively, for the
Opportunity Growth and LB Fund, were reclassified into trust capital. These
reclassifications have no effect on net assets, net asset value per share, the
change in net assets resulting from operations, or on the amount of income
available for distribution to shareholders.
Other
Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are determined on the identified
cost basis. Each Fund is charged for the operating expenses that are directly
attributable to it. Fund operating expenses that cannot be directly
attributable to a Fund are either shared equally or allocated among them based
on the relative net assets of each Fund or via other methodologies.
(3) Fees And Compensation Paid To Affiliates
Investment Advisory Fees
Each Fund pays Lutheran Brotherhood Research Corp. (LBRC), the Trust's
investment advisor, a fee for its advisory services. The fees are accrued
daily and paid monthly. The fees are based on the following annual rates of
average daily net assets: Opportunity Growth Fund, 0.75% for the first $100
million in assets, 0.65% for the next $150 million in assets, 0.60% for the
next $250 million in assets, 0.55% for the next $500 million in assets, and
0.50% for assets over $1 billion; World Growth Fund, 1.25% for the first $20
million in assets, 1.10% for the next $30 million in assets, and 1.0% of net
assets over $50 million; LB Fund and High Yield Fund, 0.65% for the first $500
million in assets, 0.60% for the next $500 million, and 0.55% for assets over
$1 billion; Income Fund, 0.60% for the first $500 million in assets, 0.575%
for the next $500 million in assets, and 0.55% for assets over $1 billion;
Municipal Bond Fund, 0.575% for the first $500 million in assets, 0.5625% for
the next $500 million, and 0.55% for assets over $1 billion; Money Market
Fund, 0.50% for the first $500 million in assets, 0.475% for the next $500
million, 0.45% for the next $500 million, 0.425% for the next $500 million,
and 0.40% for assets over $2 billion.
LBRC has entered into a sub-advisory agreement with Rowe Price Fleming
International, Inc. for the performance of various sub-advisory services for
the World Growth Fund. For these services, LBRC pays an annual sub-advisory
fee that is based on the following annual rates of average daily net assets of
the World Growth Fund: 0.75% for the first $20 million in assets; 0.60% for
the next $30 million, and 0.50% for assets over $50 million. When annual
average assets exceed $200 million, the fee will be equal to 0.50% of all of
the World Growth Fund's annual average daily net assets.
During the year ended October 31, 1995 the Money Market Fund advisory fees
totaled $1,538,307 of which $253,844 were voluntarily waived by LBRC to limit
the Money Market Fund's expense ratio to 1.10% of average daily net assets.
The advisory fees of the World Growth Fund totaled $17,787 of which $13,415
were voluntarily waived by LBRC to limit the World Growth Fund's expense ratio
to 1.95% of average daily net assets. LBRC can terminate its voluntary waiver
of expenses for these Funds at any time at its discretion.
Sales Charges and Other Fees
For the year ended October 31, 1995, Lutheran Brotherhood Securities Corp.
(LBSC), the Trust's distributor, received sales
charges paid by purchasers of Fund shares of: Opportunity Growth Fund,
$1,423,809; World Growth Fund, $153,713; LB Fund, $1,609,270; High Yield Fund,
$2,422,070; Income Fund, $1,325,519; and Municipal Bond Fund, $989,735. Sales
charges are not an expense of the Trust and are not reflected in the financial
statements of any of the Funds. LBSC also received fees pursuant to an
agreement to provide certain administrative personnel and services to the
Funds. Effective January 1, 1995, a new agreement went into effect whereby
LBSC will receive an annual fee equal to .025% of average daily net assets.
LBSC received the following compensation for the year ended October 31, 1995:
Opportunity Growth Fund, $33,788; World Growth Fund, $356; LB Fund, $144,572;
High Yield Fund, $136,969; Income Fund, $215,922; Municipal Bond Fund,
$151,391; and Money Market Fund, $85,688. In addition, LBSC provides the Funds
with transfer agent services pursuant to an agreement and received the
following compensation: Opportunity Growth Fund, $582,903; World Growth Fund,
$4,983; LB Fund, $1,478,056; High Yield Fund, $944,128; Income Fund,
$1,398,946; Municipal Bond Fund, $517,010; and Money Market Fund, $1,211,889.
Certain officers and non-independent trustees of the Fund are officers and
directors of LBRC and LBSC; however, they receive no compensation from the
Funds.
(4) Securities Lending
To generate additional income, the Funds may participate in a securities
lending program administered by the Fund's custodian bank. Securities are
periodically loaned to brokers, banks or other institutional borrowers of
securities, for which collateral in the form of cash, U.S. government
securities, or letter of credit is received by the custodian in an amount at
least equal to the market value of securities loaned. Collateral received in
the form of cash is invested in short-term investments by the custodian from
which earnings are shared between the borrower, the custodian and the Fund at
negotiated rates. The risks to the Fund are that it may experience delays in
recovery or even loss of rights in the collateral should the borrower of
securities fail financially. There were no security loans during the year
ended October 31, 1995.
(5) Distributions From Capital Gains
During the year ended October 31, 1995, distributions from net realized
capital gains of $88,151, and $3,034,747, were paid by the LB Fund and LB High
Yield Fund, respectively. These distributions related to net capital gains
realized during the prior fiscal year ended October 31, 1994.
(6) Capital Loss Carryover
During the year ended October 31, 1995, the Opportunity Growth Fund fully
utilized the remaining $2,547,602 of its capital loss carryover, and the
Income Fund utilized $8,930,297 of its capital loss carryover against net
realized capital gains. At October 31, 1995, the High Yield, Income and
Municipal Bond Funds had accumulated net realized capital loss carryovers of
$14,624,938, $40,056,911 and $6,542,389, respectively, expiring $40,056,911
and $6,407,670 in the year 2002 for the Income and Municipal Bond Funds,
respectively, and $14,624,938 and $134,719 in 2003 for the High Yield Fund and
Municipal Bond Fund, respectively. To the extent these Funds realize future
net capital gains, taxable distributions will be reduced by any unused capital
loss carryovers. Temporary timing differences of $298,419, $1,661, $1,212,921,
$98,648, $201,854, and $1,514,816 existed between net realized capital gains
or losses for financial statement and tax purposes as of October 31, 1995 for
the Opportunity Growth, World Growth, LB Fund, High Yield Fund, Income and
Municipal Bond Funds, respectively. These differences are due primarily to
deferral of wash sale losses and straddle losses for tax purposes.
(7) Shareholder Notification Of Federal
Income Tax Status
The LB Fund designates 100% of the dividends declared from net investment
income as dividends qualifying for the 70% corporate dividends received
deduction and the Municipal Bond Fund designates 100% of the dividends
declared from net investment income as exempt from federal income tax for the
year ended October 31, 1995. The Opportunity Growth Fund and the LB Fund
designate $548,525 and $806,925, respectively, as capital gain distributions
resulting from earnings and profits distributed to shareholders on redemption
of fund shares during the year.
(8) Investment Transactions
Purchases and Sales of Investment Securities
For the year ended October 31, 1995, the cost of purchases and the proceeds
from sales of investment securities other than U.S. Government and short term
securities were as follows:
$(thousands)
------------------------
Fund Purchases Sales
- --------------------------------------------------------
Opportunity Growth $288,153 $255,477
World Growth Fund 11,571 13
LB Fund 707,759 666,482
High Yield 426,479 352,646
Income 655,849 614,292
Municipal Bond 216,407 232,600
Purchases and sales of U.S. Government securities were:
$(thousands)
------------------------
Fund Purchases Sales
- --------------------------------------------------------
LB Fund $ 26,505 $ 26,523
Income 502,936 526,529
Investments in Restricted Securities
The High Yield Fund owns restricted securities that were purchased in private
placement transactions without registration under the Securities Act of 1933.
Unless such securities subsequently become registered, they generally may be
resold only in privately negotiated transactions with a limited number of
purchasers. The aggregate value of restricted securities was $2,901,105 at
October 31, 1995 which represented 0.5% of net assets of the High Yield Fund.
Investments in High Yielding Securities
The High Yield Fund invests primarily in high yielding fixed income securities.
These securities will typically be in the lower rating. categories or will be
non-rated and generally will involve more risk than securities in the higher
rating categories. Lower rated or unrated securities are more likely to react
to developments affecting market risk and credit risk than are more highly
rated securities, which react primarily to movements in the general level
of interest rates.
Investments in Options and Futures Contracts
The movement in the price of the instrument underlying an option or futures
contract may not correlate perfectly with the movement in the prices of the
portfolio securities being hedged. A lack of correlation could render the
Fund's hedging strategy unsuccessful and could result in a loss to the Fund.
In the event that a liquid secondary market would not exist, the Fund could be
prevented from entering into a closing transaction which could result in
additional losses to the Fund.
Open Option Contracts
The number of contracts and premium amounts associated with call option
contracts written during the year were as follows:
<TABLE>
<CAPTION>
Opportunity Growth LB Fund Income Fund
-------------------------- -------------------------- --------------------------
Number of Premium Number of Premium Number of Premium
Contracts Amount Contracts Amount Contracts Amount
------------ ---------- ------------ --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1994 -- -- 53 $ 43,618 -- --
Opened 135 $ 8,760 2,344 499,914 1 $ 96,250
Closed -- -- (1,481) (290,102)
Expired -- -- (536) (50,771)
Exercised (135) (8,760) (866) (202,659) (1) (96,250)
------------ ---------- ------------ --------- ------------ ----------
Balance at October 31, 1995 -- $ -- -- $ -- -- $ --
============ ========== ============ ========== =========== ==========
</TABLE>
Foreign Denominated Investments
The LB World Growth Fund invests primarily in foreign denominated stocks.
Foreign denominated assets and currency contracts may involve more risks than
domestic transactions, including: currency risk, political and economic risk,
regulatory risk, and market risk. The Fund may also invest in securities of
companies located in emerging markets. Future economic or political
developments could adversely affect the liquidity or value, or both, of such
securities.
At October 31, 1995, the World Growth Fund was a party to a forward currency
exchange contract under which it is obligated to exchange currencies at
specified future dates. Risks may arise from the possible inability of
counterparties to meet the terms of their contracts and from movements in
currency values. Outstanding contracts at October 31, 1995, were as follows:
<TABLE>
<CAPTION>
U.S. U.S.
Currency Value Currency Value
Settlement to be as of to be as of Appreciation
Date Delivered 10/31/95 Received 10/31/95 (Depreciation)
---------- ------------ -------- ------------------- -------- --------------
<S> <C> <C> <C> <C> <C>
11/01/95 $174,131 USD $174,131 (yen)17,674,288 JPY $172,778 $(1,353)
</TABLE>
(9) Shares Of Beneficial Interest
The Master Trust Agreement permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest ($0.001 par value) of all
of the Funds. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Opportunity World High Income Municipal Money
Growth Growth LB Fund Yield Fund Bond Market
---------- ---------- ---------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C. <C> <C> <C>
Shares outstanding at
October 31, 1993 3,832,452 N/A 7,965,971 45,249,704 110,473,555 69,984,767 275,124,968
Shares sold 5,950,178 N/A 3,943,939 14,381,578 10,973,573 8,943,485 441,490,067
Shares issued on reinvestment
of dividends and distributions -- N/A 1,839,470 3,161,025 7,825,510 3,994,426 7,385,807
Shares redeemed (531,608) N/A (2,711,349) (6,399,979) (16,082,912) (7,434,277) (447,132,824)
---------- ---------- ---------- ---------- ------------ ---------- ------------
Shares outstanding at
October 31, 1994 9,251,022 -- 31,038,031 56,392,328 113,189,726 75,488,401 276,868,018
Shares sold 4,092,712 1,656,709 2,728,955 13,395,549 5,470,573 4,792,917 547,639,011
Shares issued on reinvestment
of dividends and distributions -- -- 354,095 4,301,940 5,624,521 3,067,030 14,549,671
Shares redeemed (1,368,095) (2,513) (3,657,566) (8,273,232) (16,216,513) (10,087,527) (497,972,433)
---------- ---------- ---------- ---------- ------------ ---------- ------------
Shares outstanding at
October 31, 1995 11,975,639 1,654,196 30,463,515 65,816,585 108,068,307 73,260,821 341,084,267
========== ========= ========== ========== =========== ========== ===========
</TABLE>
(10) Financial Highlights
"Financial highlights" showing per share data and selected information is
presented in the prospectus.
The Lutheran Brotherhood Family of Funds
Lutheran Brotherhood Opportunity Growth Fund
Lutheran Brotherhood World Growth Fund
Lutheran Brotherhood Fund
Lutheran Brotherhood High Yield Fund
Lutheran Brotherhood Income Fund
Lutheran Brotherhood Municipal Bond Fund
Lutheran Brotherhood Money Market Fund
Trustees
Rolf F. Bjelland
Charles W. Arnason
Herbert F. Eggerding, Jr.
Connie M. Levi
Bruce J. Nicholson
Ruth E. Randall
Officers
Rolf F. Bjelland Wade M. Voigt
Chairman and President Treasurer
James R. Olson Rand E. Mattsson
Vice President Assistant Treasurer
James M. Walline James M. Odland
Vice President Assistant Secretary
Otis F. Hilbert Randall L. Wetherille
Secretary and Vice President Assistant Secretary
Richard B. Ruckdashel
Vice President
This report is authorized for distribution to prospective
investors only when preceded or accompanied by the
current prospectuses.
Printed with soy based inks on recycled
paper containing at least 10% fibers
from paper recycled by consumers.
LUTHERAN BROTHERHOOD
FAMILY OF FUNDS
Annual Report
October 31, 1995
Portfolio Management Reviews
Economic and
Market Overview
U.S. stock and bond prices advanced strongly in the past year, as investors
became increasingly optimistic about inflation and the economy. In the 12
months ended October 31, 1995, the S&P 500 Index and the Lehman Aggregate
Bond Index had total returns of 26.39% and 15.65%, respectively. These gains
were remarkable by historical standards and delivered strong returns for
shareholders in the Lutheran Brotherhood Family of Funds.
A Sharp Decline in Interest Rates
Stock and bond prices rallied largely on a sharp decline in long-term
interest rates. When long-term rates fall, existing bonds usually become
more valuable, and corporate profits generally improve.
Worried that a rapidly growing economy would spark inflation that could
stymie further growth, the Federal Reserve Board (the "Fed") raised
short-term interest rates by 125 basis points between November 1994 and
February 1995. This helped investors believe that economic growth would be
more moderate and inflation would stay under control. Soon long-term
interest rates began to drop, causing bond prices to rise.
As bond yields declined, stocks became more attractive to investors. At the
same time, corporate earnings were stronger than most analysts expected,
which also helped push stock prices higher.
Eventually, the higher interest rates of earlier months began to have an
effect on the economy. Economic growth, measured by the gross domestic
product (GDP), slowed from an annualized rate of 5.1% in the fourth quarter
of 1994, to rates of 2.7% and 1.3% in the first and second quarters of 1995.
These surprisingly low rates of growth raised hopes that the Fed would cut
interest rates to prevent a recession, and brought additional gains for
stocks and bonds.
In July the Fed cut short-term rates by 25 basis points. During the weeks
that followed, mixed news about the direction of the economy raised new
fears about inflation and caused a temporary retreat in stock and bond
prices. By September, however, it was clear that inflation was moderate, and
the Fed had achieved a "soft landing" for the economy. By October, further
gains in bond prices dropped the yield for 30-year Treasury bonds to
6.3%--the lowest level since February 1994. Stock prices continued to break
new highs, raising the Dow Jones Industrial Average above 4800 for the first
time.
Foreign stock markets did not fare as well in the past 12 months, due to
delays in economic recoveries for many countries. This began to change in
the final months of the period, however, as falling interest rates improved
economic outlooks in Europe and Japan.
Market Outlook
Without the bottlenecks that can cause a recession, the economy should grow
enough in 1996 to raise the GDP by a moderate 2% to 2.5%. If that happens,
and inflation remains between 2% and 3%, the Fed could cut interest rates
again. Lower interest rates would probably mean additional price gains for
bonds, especially issues with shorter maturities. Such gains would likely be
smaller, however, than those of 1995.
Lower interest rates could also fuel additional gains for stocks. Stocks
could benefit further from continued growth in capital spending by
businesses hoping to enhance productivity. Improved productivity, in turn,
may continue to be an engine for the next economic expansion, potentially
creating another stock market rally in the coming year.
Further expansions in economies overseas should also boost stock prices
there. Given the attractive prices in many foreign securities markets, such
gains could well exceed those for equities in the U.S.
LB Opportunity Growth Fund
Photo goes here
Michael A. Binger is a Chartered Financial Analyst and was named portfolio
manager for the LB Opportunity Growth Fund in October 1994. He has been with
Lutheran Brotherhood since 1987. Prior to his current appointment, he served
as portfolio manager for LB's Convertible Securities Portfolio.
Investment Objective: To seek long-term growth of capital by investing in
small-company stocks.
As the stocks of small companies gathered momentum in the past year,
technology stocks were a major driving force. By investing heavily in the
technology sector and other groups that performed well, the LB Opportunity
Growth Fund delivered outstanding returns for the 12 months ended October
31, 1995.
During that time, the Fund had a total return (based on NAV) of 28.53%. That
was well ahead of the 20.90% average return for small-company growth funds
tracked by Lipper Analytical Services and far exceeded the 18.35% return of
the Russell 2000 Index.
Recognizing Sector Potential
In choosing stocks for the Fund, we look for issues with strong potential
for growth in sales and earnings that have quality management plus unique
products or services. We also look for stocks with positive technical
momentum. In the past year, these criteria led us to stocks in the
technology sector, which benefited from a wide range of new products and
strong demand for computers. With more than triple the technology weighting
of the Russell 2000 Index, the Fund enjoyed especially strong performances
by stocks such as Adaptec, Madge, SCI Systems, Sterling Software and
Softkey.
We also invested heavily in manufacturers of medical devices--such as Mentor
and Spinetech--which performed well during the period. Two other areas that
provided strong returns were specialty retailing stocks like General
Nutrition and Sunglass Hut, and restaurant stocks like Quality Dining and
Apple South.
During the period we reduced the Fund's investments in apparel, auto and
chemical stocks that offered less potential for growth. We also took profits
in issues that had earned substantial price gains. These included Fiserv,
SunGard Data, CUC International and Envoy in the business services group, as
well as Callaway Golf and Cobra Golf in the leisure group.
Going Forward
As the economy grows slowly with moderate inflation, interest rates may edge
lower. If that happens, the earnings of small companies should continue to
be strong. We believe the Fund's current mix of investments could perform
well under these conditions.
We expect, therefore, to remain overweighted in technology stocks compared
to the Russell 2000 Index, and have recently started a position in biotech
companies. We are also adding firms involved in industrial and water
filtration, such as U.S. Filter and Memtech.
The Fund's cash reserves totaled 10.3% on October 31, 1995. In coming months
we will look for new opportunities to put this cash to work that offer
strong potential for growth according to our criteria.
% of
Portfolio
Top 10 Holdings Net Assets
Madge N V 2.5%
Movie Gallery, Inc. 2.4%
Cheyenne Software, Inc. 2.4%
Sterling Software, Inc. 2.3%
PDT, Inc. 2.3%
Metrocall, Inc. 2.3%
Department 56, Inc. 2.2%
Viasoft, Inc. 2.1%
Intersolv, Inc. 2.0%
Avid Technology, Inc. 2.0%
Portfolio Composition Pie Chart
Short Term Securities 10.3%
Common Stocks 89.7%
Worm chart
Growth of $10,000 January 31, 1993 - October 31, 1995
Plot points are:
Date LBOGF Russell 2000 Lipper Average
1993 10,000 10,000 10,000
9,056 9,769 9,608
9,407 10,086 9,934
9,166 9,809 9,619
9,857 10,243 10,127
10,011 10,307 10,206
9,945 10,449 10,263
10,637 10,900 10,737
11,317 11,208 11,076
11,701 11,497 11,232
11,262 11,122 10,886
11,559 11,503 11,348
1994 11,833 11,863 11,650
11,712 11,820 11,643
10,922 11,197 11,014
10,999 11,263 11,016
10,582 11,137 10,778
9,967 10,762 10,388
10,318 10,938 10,451
11,218 11,547 11,048
11,383 11,508 11,285
11,811 11,462 11,275
11,570 10,999 10,848
11,866 11,295 11,265
1995 11,350 11,153 11,229
11,954 11,617 11,539
12,393 11,816 11,892
12,481 12,079 12,050
12,821 12,286 12,232
13,985 12,924 12,880
15,543 13,669 13,823
15,796 13,962 14,062
16,136 14,212 14,375
15,181 13,577 13,864
Legend Reads:
LB Opportunity Growth Fund
Annualized Total Returns* Period Ending 10/31/95
- ----------------------------------------------------
Since Fund
Based on Inception--1/8/93 1 Year
- ----------------------------------------------------
Net Asset Value 19.26% 28.53%
Public Offering Price 17.12% 22.06%
Vertical bar reads:
$19,000
17,000
16,000
15,000
14,000
13,000
12,000
11,000
10,000
9,000
8,000
Horizontal bar reads:
1993 1994 1995
LB Opportunity Growth Fund $15,181
Russell 2000 Index $13,577
Lipper Average Small
Company Stock Funds $13,864
A Note About Performance
As you compare performance, please note that the LB Opportunity Growth
Fund's performance reflects the maximum 5% sales charge. The performance of
the index does not reflect any such charges. If you were to purchase any of
the individual stocks represented in this index, any sales charges you would
pay would reduce your total return as well.
*See accompanying notes to Portfolio Management Reviews.
LB World Growth Fund
Photo goes here
Martin G. Wade is president of Rowe Price-Fleming, tbe investment subadvisor
for the LB World Growth Fund. He leads a team of 12 portfolio managers who
have managed the assets of the LB World Growth Fund since its inception in
September of 1995. Martin G. Wade has 27 years of experience in research and
investment management, including 16 years with Rowe Price-Fleming.
Investment Objective: To seek long-term growth of capital by investing
primarily in common stocks of established companies outside tbe U.S.
As we launched the LB World Growth Fund on September 5, 1995, we found many
attractive investment opportunities. For some time, economic hurdles abroad
had kept foreign stock prices relatively low. With foreign economies set to
improve, many stocks overseas offered outstanding value.
As we built the Fund's portfolio, we focused on the major markets of
developed nations--emphasizing areas with the strongest potential for
growth. At the end of October 1995, about a quarter of the Fund's equity
holdings were invested in stocks from Japan, and about half were invested in
stocks from countries in Europe. Japanese stocks represented a somewhat
smaller portion of the Fund than they did of its market benchmark, the
Morgan Stanley Europe, Australia, Far East (EAFE) Index, while European
stocks represented a slightly greater weighting in the Fund than they did in
the Index.
Focus on Industry Leaders
Economic recoveries abroad have been most solid in Europe--especially in the
United Kingdom, where we invested about 13% of the Fund's stock portfolio.
We placed another 8% in the Netherlands, whose stock market is dominated by
multinational companies that benefited from rising exports. French and
German stocks, which enjoyed improved corporate outlooks, accounted for 6%
and 4%, respectively. Throughout Europe, as in other regions, we focused on
large, well-managed companies with leadership positions in their industries.
After a tentative recovery, the Japanese economy retreated in the second
half of 1995. The major exception was the technology sector, which improved
as a weaker yen raised demand for Japanese computers. In choosing Japanese
stocks, we gave greatest weight to technology issues. In addition, we
targeted stocks in cyclical industries, which also benefited from a weaker
yen.
Other economies in the Far East have performed quite well, as trading within
the region improved. Those with greatest representation in the Fund were
Hong Kong, Malaysia and Singapore, which accounted for about 7.5% of the
Fund's stock investments. Economic growth has also been encouraging in Latin
America, which represented about 3% of the Fund's equity positions at the
end of October.
New Opportunities
As European economies begin to mature, we will probably take profits in
holdings that become more valued. We expect to use the proceeds to increase
investments in Japan and the emerging markets of the Far East and Latin
America. We believe stock prices there are still especially attractive and
may offer the greatest potential for growth in the coming year.
As economies abroad improve further in 1996, corporate earnings could
strengthen significantly. This, combined with low interest rates and
inflation, should make foreign stocks increasingly attractive.
Portfolio Composition Pie Chart
Common Preferred Stocks 80%
Short-Term Securities 20%
% of
Portfolio
Top 10 Holdings Net Assets
Wolters Kluwer 2.0%
Sharp Corp. 1.8%
Mitsui Fudosan Co. 1.6%
Elsevier NV 1.5%
Royal Dutch Petroleum 1.2%
Kyocera Corp. 1.1%
National Westminster 1.1%
SmithKline Beecham 1.1%
Reed International 1.1%
BBC Brown Boveri 0.9%
Geographic Composition of Portfolio
% of
Portfolio
Country Net Assets
Japan 21.4%
United Kingdom 12.9%
Netherlands 8.1%
France 6.1%
Germany 4.2%
Switzerland 4.0%
Hong Kong 2.9%
Malaysia 2.5%
Singapore 2.1%
Spain 2.0%
Sweden 1.9%
Australia 1.6%
Italy 1.5%
Mexico 1.4%
% of
Portfolio
Country Net Assets
Norway 1.3%
Belgium 0.9%
Thailand 0.9%
Brazil 0.7%
Argentina 0.6%
Chile 0.6%
China 0.6%
New Zealand 0.6%
Canada 0.4%
Denmark 0.3%
Finland 0.2%
Portugal 0.2%
Austria 0.1%
Short-Term Securities 20.0%
The LB World Growth Fund was introduced on September 5, 1995. Given its
limited performance history, the growth of a $10,000 investment in the LB
World Growth Fund is not illustrated in this report.
LB Fund
Photo goes here
James M. Walline is a Chartered Financial Analyst and portfolio manager for
the LB Fund. He is a vice president of Lutheran Brotherhood and has been
with Lutheran Brotherhood Research Corp. since its inception in 1970.
Investment Objective: To seek growth of capital and income by investing in
the stocks of leading companies.
In the past year we refocused holdings in the LB Fund to emphasize stocks of
larger companies. We also increased investments in technology and financial
services firms. These groups performed especially well in the recent stock
rally, helping the Fund deliver a strong return for the 12 months ended
October 31, 1995. During this time, the Fund had a total return (based on
NAV) of 21.34%. This outdistanced the average growth and income fund tracked
by Lipper Analytical Services, which returned 20.53%. Over the same period,
the S&P 500 Index had a total return of 26.39%.
Targeting Growth and Yield
In reshaping the Fund's portfolio, we divided 80% of its assets among a core
group of 40 large-company stocks with leadership positions in their
industries. We chose companies with attractive prices and strong potential
for earnings growth--based on the quality of their products, management and
marketing strategies. We invested the remaining 20% of the Fund in other
large companies whose near-term earnings growth should be especially strong.
This led us to invest more heavily in technology and financial services
firms.
For much of the rally, investors preferred the stocks of larger companies.
In addition to attractive prices and proven earnings, these companies
offered increased opportunities for exports due to ongoing weakness in the
U.S. dollar. Investors also favored technology stocks, which benefited from
heightened demand for computers, software and communications equipment--as
well as financial stocks, which benefited from lower interest rates.
As the economic growth slowed, we reduced investments in cyclical industries
like building and mining, whose earnings tend to rise and fall with the
economy, and added investments in defensive industries--such as household
products, drugs and health care--whose earnings are generally more stable.
Many of the Fund's defensive stocks also provided attractive dividends.
A Return to Cyclical Stocks
In the months ahead, we expect to maintain an emphasis on large companies
with strong market leadership and watch for special opportunities in other
sectors that might arise. One of these sectors may be cyclical stocks, whose
prices have become quite attractive. If inflation remains moderate, and
interest rates move even lower, the economy should strengthen--benefiting
companies whose earnings rely on sustained economic growth.
We've also added investments in leading metals and paper companies, such as
Phelps Dodge and Weyerhauser. As the economy improves, there should be
further gains in capital spending by U.S. businesses that should spark
continued demand for equipment that enhances productivity. As a result, we
expect to remain heavily invested in stocks from the technology sector.
Portfolio Composition Pie Chart
U.S. Treasury 0.3%
Short-Term Securities 1.2%
Common Stocks 98.5%
% of
Portfolio
Top 10 Holdings Net Assets
Intel Corp. 3.1%
Weyerhaeuser Co. 2.7%
Phelps Dodge Corp. 2.6%
Caterpillar Inc. 2.2%
United HealthCare Corp. 2.1%
SBC Communications Inc. 2.1%
Mobil Corp. 2.1%
Procter & Gamble Co. 2.1%
Motorola, Inc. 2.1%
Ameritech Corp. 2.0%
Worm chart
Growth of $10,000 October 31, 1985 - October 31, 1995
Plot points are:
Lipper Average
Date LBF S&P 500 Growth & Income
1985 10,000 10,000 10,000
9,988 10,685 10,584
10,276 11,202 10,994
10,355 11,267 11,142
10,956 12,106 11,917
11,314 12,781 12,507
11,093 12,639 12,389
11,392 13,312 12,869
11,418 13,537 13,053
11,103 12,781 12,422
11,825 13,730 13,130
11,274 12,593 12,319
1986 11,652 13,324 12,842
11,924 13,645 13,033
11,602 13,297 12,796
12,573 15,089 14,111
13,076 15,681 14,721
13,221 16,135 14,929
13,027 15,991 14,723
13,083 16,127 14,795
13,612 16,944 15,364
14,149 17,805 15,945
14,532 18,469 16,411
14,175 18,064 16,128
1987 11,171 14,172 13,030
10,498 13,000 12,293
11,224 13,991 13,081
11,479 14,598 13,613
11,852 15,250 14,240
11,468 14,787 14,024
11,508 14,972 14,140
11,524 15,069 14,156
11,982 15,772 14,813
11,845 15,731 14,714
11,514 15,175 14,358
11,959 15,826 14,856
1988 12,228 16,285 15,108
12,041 16,026 14,892
12,262 16,309 15,147
13,116 17,519 16,018
12,820 17,055 15,795
13,162 17,462 16,119
13,789 18,391 16,778
14,268 19,098 17,344
14,143 19,004 17,255
15,463 20,739 18,423
15,986 21,123 18,812
15,937 21,039 18,726
1989 14,987 20,568 18,188
15,487 20,966 18,461
15,525 21,471 18,716
14,397 20,050 17,649
14,524 20,271 17,877
14,936 20,822 18,257
14,679 20,323 17,812
16,258 22,263 19,194
16,357 22,130 19,171
16,274 22,075 19,022
14,944 20,059 17,513
14,155 19,086 16,659
1990 14,145 19,026 16,402
14,888 20,232 17,363
15,223 20,796 17,867
15,970 21,724 18,733
16,997 23,239 19,956
17,306 23,811 20,419
17,400 23,890 20,436
18,198 24,885 21,255
17,185 23,757 20,356
18,070 24,893 21,209
18,616 25,453 21,695
18,305 25,029 21,500
1991 18,693 25,398 21,828
18,012 24,343 20,968
20,211 27,129 23,042
19,910 26,653 23,038
20,118 26,965 23,427
19,607 26,441 23,022
19,747 27,250 23,383
19,930 27,343 23,528
19,453 26,943 23,055
20,046 28,078 23,825
19,679 27,474 23,375
19,955 27,794 23,653
1992 20,345 27,924 23,802
21,212 28,834 24,680
21,383 29,195 25,053
21,794 29,465 25,336
21,865 29,834 25,524
22,497 30,466 26,182
22,117 29,764 25,703
22,669 30,511 26,304
22,743 30,611 26,386
22,546 30,521 26,362
23,211 31,648 27,327
23,173 31,404 27,311
1993 23,409 32,087 27,699
22,801 31,747 27,322
23,240 32,143 27,917
24,068 33,259 28,788
23,411 32,324 28,227
22,273 30,921 27,044
22,326 31,345 27,299
22,576 31,806 27,561
21,957 31,026 26,932
22,617 32,078 27,673
23,435 33,371 28,730
23,040 32,550 28,092
1994 23,384 33,308 28,396
22,431 32,073 27,351
22,448 32,544 27,641
22,992 33,413 28,036
23,642 34,690 29,087
24,066 35,727 29,835
24,772 36,795 30,566
25,584 38,212 31,553
26,424 39,102 32,216
27,599 40,427 33,272
27,292 40,508 33,462
28,321 42,214 34,496
1995 28,375 42,091 34,113
Legend Reads:
LB Fund
Annualized Total Returns* Period Ending 10/31/95
- ----------------------------------------------------
Based on 10 Years 5 Years 1 Year
- ----------------------------------------------------
Net Asset Value 11.55% 14.93% 21.34%
Public Offering Price 10.99% 13.76% 15.28%
Vertical bar reads:
$45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
Horizontal bar reads:
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
S & P 500 Index $42,091
Lipper Average Growth &
Income Funds $34,113
LB Fund $28,375
A Note About Performance
As you compare performance, please note that the LB Fund's performance
reflects the maximum 5% sales charge. The performance of the index does not
reflect any such charges. If you were to purchase any of the individual
stocks represented in this index, any sales charges you would pay would
reduce your total return as well.
*See accompanying notes to Portfolio Management Reviews.
LB High Yield Fund
Photo goes here
Thomas N. Haag is a Chartered Financial Analyst and portfolio manager for
the LB High Yield Fund. He has managed the Fund since January 1992.
Investment Objective: To seek high current income and growth of capital by
investing primarily in high-yielding ("junk") corporate bonds.
Falling interest rates caused the prices of medium- and long-term corporate
bonds to rise sharply in the past year. Because the LB High Yield Fund
invests primarily in lower-quality corporate bonds with medium- to
longer-term maturities, it enjoyed solid performance as interest rates
declined. During the 12 months ended October 31, 1995, the Fund had a total
return (based on NAV) of 12.93%. This compares with an average return of
13.45% for high-yield bond funds tracked by Lipper Analytical Services.
Many of the Fund's investments in longer-term securities were
deferred-interest bonds issued by media and telecommunications firms. These
securities were particularly hard hit late in 1994, due to the rising
interest rate environment of that year. Because of this, the Fund lagged the
Lehman Brothers High Yield Index, which had a return of 15.68% for the
period.
After interest rates began to drop, and investors grew more optimistic about
media and telecommunications companies, the price gains for these bonds were
particularly strong. There was also significant price appreciation in other
deferred-interest bonds that the Fund held. We eventually took profits in
some of these issues, reducing the Fund's position in deferred-interest
bonds from about 20% of the portfolio to about 16%. With the strong returns
from these bonds, the Fund outperformed its Lipper group for much of the
period--ranking in the 18th percentile for the first 10 months of 1995.
Preparing for a Slower Economy
During the period we increased the Fund's holdings in companies that
generally outperform the market when economic growth is slow--such as
supermarket chains and health care firms. Among the investments added were
bonds issued by Dominick's Finer Foods, Ralph's Super Markets and Tenet
Health Care. At the same time, we reduced holdings in cyclical industries,
such as paper, steel and chemicals, which tend to lag in a slowing economy.
By choosing investments carefully, we maintained a solid yield for the Fund
as interest rates fell. At the end of the period the Fund had a current SEC
yield of 8.45%.
Future Strategies
We expect to remain relatively defensive in coming months, as economic
growth continues to slow, and will probably add to investments in
noncyclical industries. As an additional defense, we're giving greater
emphasis to bonds with stronger credit quality.
The Fund should continue to benefit from holdings in deferred-interest bonds
from industries, like media and telecommunications, that can grow even in a
slower economy. These issues should also give the Fund an attractive yield
if bond yields continue to fall.
Portfolio Composition Pie Chart
Short-Term Securities 5.4%
Common Stocks &
Stock Warrants 4.9%
Preferred Stocks 11.6%
Foreign Bonds 0.7%
Corporate Bonds 77.5%
Bar Graph
Moody's Bond Quality
Rating Distribution
Baa 0.3%
Ba 11.3%
B 63.0%
Caa 18.4%
Ca 1.8%
D 0.2%
Not Rated 5.0%
0% 20% 40% 60% 80%
Worm Chart
Growth of $10,000 April 30, 1987 - October 31, 1995
Plot points are:
LB High
Date Yield Lehman Lipper
1987 10,000 10,000 10,000
9,462 10,072 9,942
9,690 10,201 10,072
9,729 10,228 10,100
9,769 10,292 10,165
9,468 9,968 9,920
9,166 9,642 9,499
9,453 9,919 9,721
9,624 10,158 9,804
1988 9,979 10,498 10,107
10,300 10,838 10,385
10,181 10,725 10,344
10,195 10,807 10,407
10,167 10,823 10,434
10,404 10,981 10,646
10,468 11,053 10,752
10,436 11,037 10,764
10,545 11,176 10,861
10,655 11,311 10,993
10,655 11,378 11,008
10,811 11,431 11,065
1989 11,029 11,633 11,256
11,088 11,658 11,304
10,998 11,567 11,265
10,924 11,616 11,258
11,168 11,841 11,421
11,449 11,988 11,611
11,409 11,972 11,627
11,478 12,013 11,634
11,241 11,811 11,452
10,777 11,531 11,113
10,712 11,508 11,058
10,522 11,527 10,979
1990 10,200 11,279 10,697
9,953 11,046 10,436
9,995 11,336 10,558
9,998 11,317 10,551
10,326 11,535 10,782
10,454 11,814 11,000
10,639 12,132 11,228
10,232 11,442 10,770
9,778 10,606 10,227
9,433 10,050 9,787
9,584 10,363 9,826
9,738 10,421 9,857
1991 9,794 10,708 9,995
10,510 11,879 10,713
11,010 12,579 11,246
11,411 13,095 11,678
11,514 13,118 11,750
11,840 13,506 11,998
12,171 13,939 12,356
12,350 14,259 12,588
12,546 14,457 12,800
12,997 14,940 13,208
13,196 15,018 13,331
13,253 15,234 13,447
1992 13,867 15,771 13,980
14,255 16,160 14,315
14,513 16,360 14,536
14,639 16,423 14,641
14,868 16,654 14,855
14,953 16,811 15,005
15,212 17,065 15,274
15,420 17,288 15,467
15,578 17,464 15,627
15,296 17,218 15,366
15,562 17,435 15,593
15,920 17,634 15,801
1993 16,573 18,147 16,230
16,774 18,466 16,544
17,097 18,705 16,871
17,165 18,867 17,005
17,456 19,092 17,273
17,994 19,493 17,674
18,138 19,682 17,849
18,282 19,847 17,981
18,275 19,899 18,037
18,848 20,301 18,441
18,918 20,398 18,559
19,241 20,651 18,833
1994 19,808 21,099 19,282
19,740 21,045 19,245
19,008 20,249 18,625
18,717 20,111 18,355
18,790 20,121 18,397
18,802 20,184 18,372
18,650 20,355 18,339
18,787 20,500 18,350
18,699 20,502 18,350
18,759 20,551 18,331
18,308 20,292 18,086
18,224 20,442 18,107
1995 18,306 20,720 18,254
19,004 21,431 18,751
19,199 21,663 18,921
19,662 22,213 19,383
20,061 22,835 19,813
20,170 22,988 19,875
20,805 23,277 20,224
20,892 23,349 20,279
21,073 23,637 20,520
21,184 23,783 20,684
Legend Reads:
LB High Yield Fund
Annualized Total Returns* Period Ending 10/31/95
- ----------------------------------------------------
Since Fund
Inception
Based on 4/3/87 5 Years 1 Year
- ----------------------------------------------------
Net Asset Value 9.54% 17.55% 12.93%
Public Offering Price 8.88% 16.36% 7.24%
Vertical bar reads:
$24,000
22,000
20,000
18,000
16,000
14,000
12,000
10,000
9,000
Horizontal bar reads
1987 1988 1989 1990 1991 1992 1993 1994 1995
Lehman High Yield Index $23,783
Lipper Average High
Yield Funds $20,684
LB High Yield Fund $21,184
A Note About Performance
As you compare performance, please note that the LB High Yield Fund's
performance reflects the maximum 5% sales charge. The performance of the
index does not reflect any such charges. If you were to purchase any of the
individual bonds represented in this index, any sales charges you would pay
would reduce your total return as well.
*See accompanying notes to Portfolio Management Reviews.
LB Income Fund
Photo goes here
Charles E. Heeren, a vice president of Lutheran Brotherhood, is a Chartered
Financial Analyst and portfolio manager for the LB Income Fund. He has
managed the Fund since January 1986.
Investment Objective: To seek high current income while preserving principal
by investing in investment-grade bonds and other income-producing
securities.
In the past year the LB Income Fund had sizable investments in bonds with
longer maturities. These issues enjoyed especially strong gains as bond
prices rallied and provided the Fund with a superior return for the 12
months ended October 31, 1995.
During that time the Fund earned a total return (based on NAV) of 16.53%.
That outpaced the return of 15.26% for the average high-quality corporate
bond fund tracked by Lipper Analytical Services, as well as the return of
15.65% for the Lehman Aggregate Bond Index.
Adjusting Investment Maturities
Expecting long-term rates to fall, we arranged the maturities of the Fund's
investments in a "barbell" structure with a long average maturity before the
period started. By balancing large investments in asset-backed securities
maturing in one to three years with large investments in corporate and
Treasury bonds with 30-year maturities, we increased the Fund's potential
for capital gains and enhanced its yield, while buffering the value of the
Fund against a correction in bond prices.
Later, when the spread between yields on long-term and short-term issues had
narrowed, and a correction in bond prices seemed possible, we invested more
heavily in securities that matured in two to 10 years.
Corporate bonds performed especially well in the bond rally-- as strong cash
flows improved the credit quality of corporate issues, and the supply of new
corporate issues declined. In the first part of the period, we emphasized
corporate bonds from defensive industries, such as health care and food,
whose earnings do not require a growing economy to improve. Later, as it
looked like the economy would avoid a recession, we added corporate bonds
issued by companies in cyclical industries.
During the year we invested about 35% to 40% of the Fund's portfolio in
corporate bonds, and 15% to 20% in Treasuries. Mortgage-backed securities,
asset-backed securities and shorter-term issues accounted for the rest. This
mix, and a focus on bonds that could not be called by their issuers,
provided attractive returns as interest rates fell. At the end of the period
the Fund had a current SEC yield of 5.62%.
Anticipating Lower Rates
We believe the Fund is well-positioned for the months to come. If a slowing
economy brings lower interest rates, price gains for bonds maturing in two
to 10 years could be particularly strong. Falling interest rates would also
benefit the Fund's increased weighting in bonds of financial firms. Should
the markets acknowledge that they are poised for growth, the Fund's
investments in corporate bonds from cyclical sectors should also perform
quite well.
Portfolio Composition Pie Chart
Corporate Bonds 41.4%
Short-Term Securities 10.3%
Common & Preferred Stocks .2%
U.S. Government 38.0%
Foreign Government Bonds 10.1%
Moody's Bond Quality
Rating Distribution
Bar graph
U.S.
Government
Aaa
Equivalent 42.8%
Aaa 18.7%
Aa 19.5%
A 10.1%
Baa 7.9%
Ba 1.0%
0% 10% 20% 30% 40% 50%
Worm Chart
Growth of $10,000 October 31, 1985 - October 31, 1995
Plot points are:
Date LB Income Lehman Lipper
1985 10,000 10,000 10,000
9,655 10,240 10,249
9,723 10,553 10,550
9,766 10,612 10,590
9,897 11,031 11,057
10,051 11,373 11,307
10,072 11,433 11,346
10,082 11,214 11,203
10,134 11,508 11,419
10,209 11,611 11,430
10,360 11,899 11,719
10,383 11,781 11,603
1986 10,536 11,950 11,779
10,654 12,118 11,966
10,725 12,163 12,062
10,930 12,334 12,283
11,052 12,419 12,377
11,003 12,363 12,325
10,731 12,025 11,909
10,691 11,978 11,834
10,799 12,143 11,979
10,745 12,133 11,918
10,729 12,069 11,826
10,430 11,812 11,527
1987 10,633 12,232 11,869
10,799 12,330 12,011
11,019 12,498 12,164
11,425 12,938 12,585
11,568 13,092 12,750
11,457 12,969 12,610
11,412 12,899 12,542
11,340 12,812 12,465
11,679 13,121 12,741
11,634 13,052 12,699
11,713 13,085 12,723
11,990 13,383 12,990
1988 12,212 13,634 13,199
12,122 13,468 13,072
12,219 13,483 13,148
12,419 13,677 13,318
12,296 13,578 13,238
12,336 13,637 13,288
12,585 13,922 13,517
12,896 14,288 13,835
13,359 14,722 14,240
13,568 15,036 14,481
13,395 14,813 14,291
13,452 14,889 14,341
1989 13,680 15,255 14,639
13,770 15,400 14,742
13,738 15,441 14,764
13,559 15,258 14,557
13,604 15,307 14,570
13,601 15,317 14,579
13,434 15,176 14,411
13,777 15,626 14,818
13,959 15,877 15,052
14,104 16,096 15,235
13,848 15,881 14,973
13,886 16,012 15,027
1990 14,010 16,216 15,190
14,309 16,564 15,528
14,519 16,823 15,770
14,697 17,031 15,933
14,910 17,176 16,105
15,035 17,295 16,215
15,250 17,481 16,414
15,376 17,583 16,494
15,359 17,574 16,465
15,543 17,818 16,672
15,874 18,203 17,071
16,228 18,573 17,443
1991 16,340 18,779 17,598
16,472 18,952 17,753
17,023 19,515 18,388
16,825 19,249 18,102
16,896 19,374 18,192
16,887 19,266 18,101
16,955 19,404 18,195
17,278 19,771 18,563
17,558 20,044 18,834
17,978 20,453 19,329
18,141 20,660 19,484
18,385 20,905 19,725
1992 18,086 20,627 19,390
18,090 20,631 19,386
18,385 20,959 19,710
18,760 21,362 20,134
19,158 21,736 20,589
19,223 21,827 20,663
19,353 21,980 20,799
19,357 22,008 20,805
19,721 22,407 21,267
19,896 22,534 21,427
20,286 22,929 21,920
20,354 22,991 21,985
1993 20,444 23,076 22,086
20,166 22,880 21,806
20,246 23,003 21,900
20,508 23,314 22,230
20,046 22,908 21,741
19,443 22,342 21,172
19,273 22,164 20,935
19,218 22,161 20,870
19,092 22,113 20,799
19,503 22,553 21,169
19,494 22,580 21,173
19,131 22,248 20,843
1994 19,051 22,228 20,785
19,066 22,179 20,743
19,262 22,332 20,890
19,640 22,774 21,247
20,068 23,316 21,730
20,204 23,458 21,878
20,513 23,787 22,175
21,393 24,707 23,104
21,556 24,888 23,261
21,396 24,833 23,157
21,688 25,133 23,448
21,880 25,377 23,685
1995 22,200 25,707 24,019
Legend Reads:
LB Income Fund
Annualized Total Returns* Period Ending 10/31/95
- ----------------------------------------------------
Based on 10 Years 5 Years 1 Year
- ----------------------------------------------------
Net Asset Value 8.85% 9.64% 16.53%
Public Offering Price 8.30% 8.52% 10.72%
Vertical Bar reads:
$26,000
24,000
22,000
20,000
18,000
16,000
14,000
12,000
10,000
8,000
Horizontal bar reads:
1985 1986 1987 1989 1990 1991 1992 1993 1994 1995
Lehman Aggregate Bond Index $25,707
Lipper Average Corporate Bond Funds $24,019
LB Income Fund $22,220
A Note About Performance
As you compare performance, please note that the LB Income Fund's
performance reflects the maximum 5% sales charge. The performance of the
index does not reflect any such charges. If you were to purchase any of the
individual bonds represented in this index, any sales charges you would pay
would reduce your total return as well.
*See accompanying notes to Portfolio Management Reviews.
LB Municipal Bond Fund
Photo goes here
Janet I. Grangaard is a Chartered Financial Analyst and was named portfolio
manager for the LB Municipal Bond Fund in January 1994. She has been with
Lutheran Brotherhood since 1988. Prior to her appointment as portfolio
manager, she served as associate portfolio manager for the Fund.
Investment Objective: To seek high current income that is exempt from
federal income tax by investing in municipal bonds.
In the last year, the LB Municipal Bond Fund maintained sizable investments
in municipal bonds with longer-term maturities that could not be called by
their issuers. These investments performed particularly well during the
recent rally in bond prices. As a result, the Fund had an exceptional return
for the 12 months ended October 31, 1995, outdistancing other funds in its
class.
During the period, the Fund earned a total return (based on NAV) of 14.97%.
That compares to 13.72% for the average municipal bond fund tracked by
Lipper Analytical Services. Over the same time, the return for the Lehman
Municipal Bond Index was 14.84%.
Enhancing Gains
When bond prices rise, longer-maturity issues typically enjoy stronger gains
than bonds with shorter maturities, and bonds that can not be called by
their issuers tend to outperform callable bonds. In fact, as a bond's call
date draws near, its price behaves more like the price of a shorter-term
issue.
By emphasizing noncallable bonds, we made the most of price gains that
longer-term issues earned. The gains were further enhanced by the fact that
we'd bought many of these securities when prices were lower in 1994 and
early 1995. We also improved the Fund's potential for gains by investing in
deep discount zero-coupon municipals and by taking advantage of variations
in municipal bond supply.
When we sold investments, we targeted municipal bonds from high-tax states.
With a general shortage in municipal bond supply, the especially strong
demand for municipal bonds in such states tended to enhance prices there.
When we made purchases, we looked for bonds available in heavy supply--since
this made their prices and yields relatively more attractive.
In addition, we favored bonds that funded high-quality, revenue-producing
projects. At a time when state and local governments have greater
responsibilities and fewer chances to raise taxes, revenue bonds with
predictable income streams offer good value.
With substantial investments in noncallable issues, the Fund maintained a
strong yield as interest rates fell. At the end of the period the Fund had a
current SEC yield of 4.63%. This is the same as a taxable yield of 7.23% for
shareholders in the 36% federal income tax bracket.
The Months to Come
We believe these strategies will also serve the Fund well in the months to
come. If the economy slows and inflation remains moderate, as we expect,
interest rates should fall farther and municipal bond prices should continue
to improve. Such a gain could be enhanced if investors think chances for tax
reform are growing dim.
Otherwise, the tax reform debate may have less effect on the municipal
market than it had in the previous 12 months. Although tax reform may be
discussed in the next presidential election, any concrete legislative
proposals to which the market might respond will likely wait for the new
Congress in 1997.
Since chances are good that municipal prices will rise, we expect to remain
heavily invested in bonds with longer maturities. This, plus continued
emphasis on noncallable bonds, should help the Fund take full advantage of
any further rally in prices.
Portfolio Composition Pie Chart
Escrowed 19.5%
Other 12.4%
Education 3.6%
Transportation 10.2%
Housing 2.1%
Water & Sewer 10.6%
Pollution Control 2.9%
Utility 9.4%
Health Care 13.4%
General Obligation 15.9%
Moody's Bond Quality
Rating Distribution
Bar Graph
Aaa 67.9%
Aa 14.2%
A 10.7%
Baa 7.0%
B 0.2%
0% 20% 40% 60%
Worm Chart
Growth of $10,000 October 31, 1985 - October 31, 1995
Plot points are:
Date LBMBF Lehman Lipper
1985 10,000 10,000 10,000
9,722 10,359 10,281
9,962 10,450 10,528
10,539 11,066 11,008
11,106 11,505 11,443
11,175 11,508 11,544
11,188 11,518 11,495
10,982 11,330 11,321
11,038 11,438 11,450
11,191 11,507 11,504
11,626 12,023 12,056
11,584 12,053 11,994
1986 11,797 12,261 12,267
12,011 12,504 12,492
12,026 12,469 12,493
12,254 12,844 12,789
12,367 12,907 12,890
12,291 12,771 12,813
11,672 12,130 12,012
11,611 12,069 11,907
11,845 12,424 12,170
11,962 12,550 12,289
11,974 12,579 12,327
11,547 12,115 11,797
1987 11,636 12,158 11,834
11,939 12,475 12,141
12,199 12,656 12,363
12,615 13,106 12,854
12,753 13,245 12,988
12,499 13,092 12,735
12,606 13,191 12,802
12,571 13,153 12,824
12,840 13,345 13,043
12,885 13,432 13,123
12,931 13,444 13,170
13,189 13,687 13,419
1988 13,434 13,928 13,698
13,317 13,800 13,572
13,514 13,940 13,777
13,713 14,229 13,986
13,627 14,067 13,870
13,625 14,033 13,862
13,964 14,366 14,197
14,218 14,664 14,462
14,354 14,864 14,650
14,526 15,066 14,800
14,385 14,918 14,642
14,313 14,874 14,594
1989 14,505 15,055 14,770
14,751 15,319 15,002
14,874 15,444 15,104
14,675 15,372 14,943
14,781 15,508 15,091
14,797 15,513 15,084
14,631 15,401 14,891
14,977 15,737 15,279
15,161 15,876 15,424
15,397 16,109 15,678
15,075 15,875 15,338
15,125 15,885 15,359
1990 15,365 16,172 15,582
15,721 16,498 15,945
15,849 16,563 16,014
16,074 16,785 16,211
16,164 16,931 16,305
16,183 16,938 16,337
16,412 17,164 16,576
16,525 17,316 16,725
16,460 17,299 16,673
16,713 17,510 16,913
16,908 17,741 17,130
17,205 17,972 17,351
1991 17,339 18,134 17,505
17,351 18,184 17,530
17,777 18,575 17,943
17,785 18,618 17,931
17,752 18,624 17,956
17,751 18,631 17,963
17,953 18,797 18,128
18,198 19,019 18,382
18,511 19,338 18,717
19,152 19,918 19,379
18,810 19,723 19,069
18,864 19,851 19,146
1992 18,651 19,657 18,801
19,083 20,009 19,280
19,368 20,213 19,518
19,556 20,447 19,738
20,274 21,187 20,512
20,139 20,963 20,272
20,330 21,174 20,491
20,429 21,293 20,608
20,810 21,649 20,962
20,816 21,677 20,962
21,272 22,128 21,427
21,515 22,380 21,680
1993 21,654 22,422 21,724
21,409 22,225 21,496
21,880 22,694 21,923
22,123 22,953 22,175
21,497 22,358 21,586
20,493 21,448 20,642
20,588 21,631 20,717
20,785 21,819 20,903
20,627 21,686 20,767
21,003 22,083 21,135
21,075 22,160 21,188
20,788 21,834 20,844
1994 20,371 21,445 20,448
19,979 21,057 20,025
20,442 21,521 20,514
21,065 22,136 21,123
21,743 22,780 21,750
21,975 23,042 21,946
21,995 23,070 21,944
22,735 23,806 22,628
22,435 23,599 22,382
22,591 23,823 22,525
22,875 24,125 22,773
23,051 24,277 22,912
1995 23,419 24,629 23,262
Legend Reads:
LB Municipal Bond Fund
Annualized Total Returns* Period Ending 10/31/95
- ----------------------------------------------------
Based on 10 Years 5 Years 1 Year
- ----------------------------------------------------
Net Asset Value 9.44% 8.79% 14.97%
Public Offering Price 8.88% 7.67% 9.28%
Vertical bar reads:
$26,000
24,000
22,000
20,000
18,000
16,000
14,000
12,000
10,000
8,000
Horizontal bar reads:
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
Lehman Municipal Bond Index $24,629
Lipper Average
General Municipal Bond Funds $23,262
LB Municipal Bond Fund $23,419
A Note About Performance
As you compare performance, please note that the LB Municipal Bond Fund's
performance reflects the maximum 5% sales charge. The performance of the
index does not reflect any such charges. If you were to purchase any of the
individual bonds represented in this index, any sales charges you would pay
would reduce your total return as well.
*See accompanying notes to Portfolio Management Reviews.
LB Money Market Fund
Photo goes here
Gail R. Onan, assistant vice president of Lutheran Brotherhood Research
Corp., was named portfolio manager for the LB Money Market Fund in January
1994. She has been with Lutheran Brotherhood Research Corp. since 1986.
Prior to her appointment as manager of the Fund, she served as associate
manager for the Fund.
Investment Objective: To seek current income with stability of principal by
investing in high-quality, short-term debt securities.**
The 12 months ended October 31, 1995, represent a transition year for
short-term interest rates and money market securities. Early in the period,
as the Federal Reserve Board's Open Market Committee raised the overnight
Fed Funds rate from 4.75% to 6%, money market yields continued the rise that
began in February 1994. Later, when the economy was slowing and the Fed
lowered the Fed Funds rate to 5.75%, money market yields declined--ending
the period slightly higher than when it began.
During this time we adjusted maturities of investments in the LB Money
Market Fund to make the most of yield changes and emphasized investments
whose yields were especially attractive. This helped the Fund achieve a
total return of 4.95%.
Maximizing Yield
Throughout the year, as the Fund's assets grew from $277 million to $341
million, we used several strategies to maximize yield. Once the Fed raised
interest rates in November 1994, we increased the Fund's commitment to
instruments whose longer maturities offered stronger yields. In January, we
reduced the focus on longer-term issues, seeking to invest rapidly in
higher-yielding securities when the Fed raised short-term rates again.
After short-term rates rose in February, we increased the Fund's emphasis on
longer-maturity issues to lock in the higher yields that were available at
that time. We did not lengthen the maturity of the Fund's investments
further during the end of the period, since the spread between yields for
short- and longer-term instruments had narrowed significantly.
During the period we added investments in commercial paper, acquiring yields
that were then particularly attractive. Many of these holdings were
irrevocable letters of credit from banks in the U.S. and Europe that offered
additional opportunities for enhanced yields.
Looking Ahead
There are some conflicting reports about the strength of the current
economy. However, investors seem reassured that the Fed has controlled
inflation. If the economy continues to slow, short-term interest rates and
money market yields should edge lower. If stronger growth seems likely, and
investors see inflation as a problem, money market yields could rise--at
least temporarily.
We do not expect to invest in longer-maturity issues until a greater yield
advantage appears. By continuing to stagger maturity dates for the Fund's
investments, however, we hope to be positioned to continually make the most
of short-term rises in yields produced by new inflation concerns. In the
meantime, we will keep significant investments in commercial paper,
maintaining a diverse mix of securities of both high credit quality and
strong liquidity.
Portfolio Composition Pie Chart
Banker's Acceptances 5.8%
Corporate Notes .9%
Variable Rate Notes 10.3%
Certificates of Deposit 7.7%
Commerical Paper 75.3%
Annualized Total Returns*
Period Ending 10/31/95
10 Years 5 Years 1 Year
5.36% 3.82% 4.95%
Footnotes
*The annualized total return reflects the change in share price, the
reinvestment of all dividends and capital gains, and the effect of
compounding. Since performance varies, the annualized total return, which
assumes a steady rate of growth, differs from the Fund's actual total return
for the years indicated. POP returns have been adjusted for the maximum 5%
sales charge. NAV returns do not include a sales charge. All returns
represent past performance. The value of an investment fluctuates so that
shares, when redeemed, may be worth more or less than the original investment.
**Investments in the LB Money Market Fund are neither guaranteed nor
insured by the U.S. Government and there is no assurance that the Fund will
maintain a stable net asset value.
This report must be preceded or accompanied by a prospectus of the Lutheran
Brotherhood Family of Funds.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-
Effective Amendment No. 56 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated December 11, 1995, relating to
the financial statements and financial highlights appearing in the October
31, 1995 Annual Report to Shareholders of the Lutheran Brotherhood Family of
Funds, which is also incorporated by reference into the Registration
Statement. We also consent to the references to us under the headings
"Financial Highlights" and "Independent Accountants" in the Prospectus and
under the heading "Independent Accountants" in the Statement of Additional
Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Minneapolis, Minnesota
December 27, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS EXHIBIT 27 - FINANCIAL DATA
SCHEDULE. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE ANNUAL REPORT TO SHAREHOLDERS DATED OCTOBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 161,206
<INVESTMENTS-AT-VALUE> 169,947
<RECEIVABLES> 10,469
<ASSETS-OTHER> 86
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 180,502
<PAYABLE-FOR-SECURITIES> 14,710
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 109
<TOTAL-LIABILITIES> 14,819
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 123,874
<SHARES-COMMON-STOCK> 11,976
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 33,067
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,742
<NET-ASSETS> 165,683
<DIVIDEND-INCOME> 92
<INTEREST-INCOME> 622
<OTHER-INCOME> 0
<EXPENSES-NET> 1,850
<NET-INVESTMENT-INCOME> (1,136)
<REALIZED-GAINS-CURRENT> 38,532
<APPREC-INCREASE-CURRENT> (4,582)
<NET-CHANGE-FROM-OPS> 32,814
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,093
<NUMBER-OF-SHARES-REDEEMED> 1,368
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 66,106
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,584)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 938
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,850
<AVERAGE-NET-ASSETS> 128,949
<PER-SHARE-NAV-BEGIN> 10.76
<PER-SHARE-NII> (0.09)
<PER-SHARE-GAIN-APPREC> 3.16
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.83
<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> LUTHERAN BROTHERHOOD FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 553,908
<INVESTMENTS-AT-VALUE> 639,534
<RECEIVABLES> 10,691
<ASSETS-OTHER> 89
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 650,314
<PAYABLE-FOR-SECURITIES> 4,578
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 234
<TOTAL-LIABILITIES> 4,812
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 516,438
<SHARES-COMMON-STOCK> 30,464
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 488
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 42,950
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 85,626
<NET-ASSETS> 645,502
<DIVIDEND-INCOME> 10,132
<INTEREST-INCOME> 2,441
<OTHER-INCOME> 0
<EXPENSES-NET> 5,899
<NET-INVESTMENT-INCOME> 6,673
<REALIZED-GAINS-CURRENT> 46,207
<APPREC-INCREASE-CURRENT> 61,524
<NET-CHANGE-FROM-OPS> 114,404
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,750
<DISTRIBUTIONS-OF-GAINS> 88
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,729
<NUMBER-OF-SHARES-REDEEMED> 3,658
<SHARES-REINVESTED> 354
<NET-CHANGE-IN-ASSETS> 96,916
<ACCUMULATED-NII-PRIOR> 607
<ACCUMULATED-GAINS-PRIOR> (1,492)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,727
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,899
<AVERAGE-NET-ASSETS> 579,490
<PER-SHARE-NAV-BEGIN> 17.67
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 3.52
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.19
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> LUTHERAN BROTHERHOOD HIGH YIELD FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 573,381
<INVESTMENTS-AT-VALUE> 580,852
<RECEIVABLES> 13,717
<ASSETS-OTHER> 16
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 594,585
<PAYABLE-FOR-SECURITIES> 82
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 167
<TOTAL-LIABILITIES> 249
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 599,544
<SHARES-COMMON-STOCK> 65,817
<SHARES-COMMON-PRIOR> 56,392
<ACCUMULATED-NII-CURRENT> 2,046
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14,724)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,471
<NET-ASSETS> 594,337
<DIVIDEND-INCOME> 5,206
<INTEREST-INCOME> 51,646
<OTHER-INCOME> 0
<EXPENSES-NET> 5,062
<NET-INVESTMENT-INCOME> 51,789
<REALIZED-GAINS-CURRENT> (14,450)
<APPREC-INCREASE-CURRENT> 30,066
<NET-CHANGE-FROM-OPS> 67,405
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 52,186
<DISTRIBUTIONS-OF-GAINS> 3,035
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,396
<NUMBER-OF-SHARES-REDEEMED> 8,273
<SHARES-REINVESTED> 4,302
<NET-CHANGE-IN-ASSETS> 94,704
<ACCUMULATED-NII-PRIOR> 2,443
<ACCUMULATED-GAINS-PRIOR> 2,761
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,510
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,062
<AVERAGE-NET-ASSETS> 543,285
<PER-SHARE-NAV-BEGIN> 8.86
<PER-SHARE-NII> 0.83
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> 0.85
<PER-SHARE-DISTRIBUTIONS> 0.05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.03
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> LUTHERAN BROTHERHOOD INCOME FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 1,001,648
<INVESTMENTS-AT-VALUE> 1,017,961
<RECEIVABLES> 45,273
<ASSETS-OTHER> 76
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,063,310
<PAYABLE-FOR-SECURITIES> 120,938
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 231
<TOTAL-LIABILITIES> 121,169
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 961,114
<SHARES-COMMON-STOCK> 108,068
<SHARES-COMMON-PRIOR> 113,190
<ACCUMULATED-NII-CURRENT> 4,974
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (40,259)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,313
<NET-ASSETS> 942,142
<DIVIDEND-INCOME> 442
<INTEREST-INCOME> 71,878
<OTHER-INCOME> 0
<EXPENSES-NET> 7,660
<NET-INVESTMENT-INCOME> 64,660
<REALIZED-GAINS-CURRENT> 9,257
<APPREC-INCREASE-CURRENT> 66,245
<NET-CHANGE-FROM-OPS> 140,161
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 62,452
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,471
<NUMBER-OF-SHARES-REDEEMED> 16,217
<SHARES-REINVESTED> 5,625
<NET-CHANGE-IN-ASSETS> 34,971
<ACCUMULATED-NII-PRIOR> 2,752
<ACCUMULATED-GAINS-PRIOR> (49,501)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,432
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,660
<AVERAGE-NET-ASSETS> 922,871
<PER-SHARE-NAV-BEGIN> 8.01
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.69
<PER-SHARE-DIVIDEND> 0.57
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.72
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 575,989
<INVESTMENTS-AT-VALUE> 616,838
<RECEIVABLES> 12,383
<ASSETS-OTHER> 71
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 629,292
<PAYABLE-FOR-SECURITIES> 478
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 116
<TOTAL-LIABILITIES> 594
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 595,352
<SHARES-COMMON-STOCK> 73,261
<SHARES-COMMON-PRIOR> 75,488
<ACCUMULATED-NII-CURRENT> 554
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,057)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,849
<NET-ASSETS> 628,698
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 37,743
<OTHER-INCOME> 0
<EXPENSES-NET> 4,540
<NET-INVESTMENT-INCOME> 33,203
<REALIZED-GAINS-CURRENT> (338)
<APPREC-INCREASE-CURRENT> 52,104
<NET-CHANGE-FROM-OPS> 84,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (33,124)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,793
<NUMBER-OF-SHARES-REDEEMED> 10,088
<SHARES-REINVESTED> 3,067
<NET-CHANGE-IN-ASSETS> 33,512
<ACCUMULATED-NII-PRIOR> 450
<ACCUMULATED-GAINS-PRIOR> (7,694)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,505
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,540
<AVERAGE-NET-ASSETS> 611,979
<PER-SHARE-NAV-BEGIN> 7.88
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.70
<PER-SHARE-DIVIDEND> 0.45
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.58
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> LUTHERAN BROTHERHOOD MONEY MARKET FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 339,102
<INVESTMENTS-AT-VALUE> 339,102
<RECEIVABLES> 1,861
<ASSETS-OTHER> 388
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 341,351
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 266
<TOTAL-LIABILITIES> 266
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 341,084
<SHARES-COMMON-STOCK> 341,084
<SHARES-COMMON-PRIOR> 276,868
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 341,084
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18,306
<OTHER-INCOME> 0
<EXPENSES-NET> 3,384
<NET-INVESTMENT-INCOME> 14,922
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 14,922
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,922
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 547,639
<NUMBER-OF-SHARES-REDEEMED> 497,972
<SHARES-REINVESTED> 14,550
<NET-CHANGE-IN-ASSETS> 64,216
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,538
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,638
<AVERAGE-NET-ASSETS> 307,661
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> LUTHERAN BROTHERHOOD WORLD GROWTH FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> SEP-05-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 14,408
<INVESTMENTS-AT-VALUE> 14,274
<RECEIVABLES> 27
<ASSETS-OTHER> 173
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,474
<PAYABLE-FOR-SECURITIES> 421
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 85
<TOTAL-LIABILITIES> 506
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,086
<SHARES-COMMON-STOCK> 1,654
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 19
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (135)
<NET-ASSETS> 13,968
<DIVIDEND-INCOME> 20
<INTEREST-INCOME> 31
<OTHER-INCOME> 0
<EXPENSES-NET> 28
<NET-INVESTMENT-INCOME> 23
<REALIZED-GAINS-CURRENT> (6)
<APPREC-INCREASE-CURRENT> (135)
<NET-CHANGE-FROM-OPS> (118)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,657
<NUMBER-OF-SHARES-REDEEMED> 3
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 13,968
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 41
<AVERAGE-NET-ASSETS> 9,443
<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> (0.07)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.44
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
