LUTHERAN BROTHERHOOD
FAMILY OF FUNDS
Logo Centered Here
Box with picture of a Leaf, Tree and Acorn
Growth Income Stability
Prospectus
December 28, 1995
Lutheran Brotherhood
Family of Funds
25 Years & Growing
Logo Centered Here
Lutheran
Brotherhood
Securities Corp.
<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
<PAGE>
[LB LOGO CENTERED HERE]
LUTHERAN
BROTHERHOOD
SECURITIES
CORP.
625 Fourth Avenue South
SC 92 Minneapolis, Minnesota 55415
[RECYCLE LOGO HERE]
Printed with soy based inks on recycled
paper containing at least 10% fibers
from paper recycled by consumers.
<PAGE>
LUTHERAN BROTHERHOOD
FAMILY OF FUNDS
Logo Centered Here
Box with picture of a Leaf, Tree and Acorn
Growth Income Stability
Statement of
Additional Information
December 28, 1995
Logo Centered Here
Lutheran
Brotherhood
Securities Corp.
<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
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 Funds 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 Lutheran 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 FUNDS' 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>
[LB LOGO CENTERED HERE]
LUTHERAN
BROTHERHOOD
SECURITIES
CORP.
625 Fourth Avenue South
SC 530 Minneapolis, Minnesota 55415
[RECYCLE LOGO HERE]
Printed with soy based inks on recycled
paper containing at least 10% fibers
from paper recycled by consumers.
<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>
