<PAGE>
1933 Act File No. 2-25984
1940 Act File No. 811-1467
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____ X
Post-Effective Amendment No. __57__ X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. __36__ X
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
(Exact Name of Registrant as Specified in Charter)
625 Fourth Avenue South, Minneapolis, Minnesota 55415
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (612) 340-7215
Otis F. Hilbert, Secretary
The Lutheran Brotherhood Family of Funds
625 Fourth Avenue South
Minneapolis, Minnesota 55415
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on December 30, 1996 pursuant to paragraph (b) of Rule 485
_____ on (date) pursuant to paragraph (a)(i) of Rule 485
_____ on (date) pursuant to paragraph (a)(i) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
_____ on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
============================================================================
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:
__X__ filed the Notice required by that Rule on December 26, 1996; or
_____ intends to file the Notice required by that Rule on or about
December 23, 1996; or
_____ during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
<PAGE>
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
Part A
------
Caption Or Location In Prospectus
For Lutheran Brotherhood
Opportunity Growth Fund, Lutheran
Brotherhood World Growth Fund,
Lutheran Brotherhood Fund, Lutheran
Brotherhood High Yield Fund,
Lutheran Brotherhood Income Fund,
Lutheran Brotherhood Municipal Bond
Lutheran Brotherhood Money Market
Item Number and Caption Fund
- ----------------------- ---------------------------------
1. Cover Page Same
2. Synopsis Summary of Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objectives
and Policies; Investment
Limitations; Investment Risks;
The Funds and Their Shares
5. Management of the Fund Fund Management; Fund
Administration
6. Capital Stock and Other Securities Dividends and Capital Gains;
Taxes; The Funds and Their
Shares
7. Purchase of Securities Being Offered Buying Shares of the Lutheran
Brotherhood Family of Funds;
Net Asset Value of Your Shares;
Sales Changes; Receiving Your
Order; Certificates and
Statements
8. Redemption or Repurchase Redeeming Shares
9. Legal Proceedings Not Applicable
Part B
------
Caption Or Location In Prospectus
For Lutheran Brotherhood
Opportunity Growth Fund, Lutheran
Brotherhood World Growth Fund,
Lutheran Brotherhood Fund, Lutheran
Brotherhood High Yield Fund,
Lutheran Brotherhood Income Fund,
Lutheran Brotherhood Municipal Bond
Fund and Lutheran Brotherhood
Item Number and Caption Money Market Fund
- ----------------------- ---------------------------------
10. Cover Page Same
11. Table of Contents Same
12. General Information and History General Information
13. Investment Objectives and Policies Investment Policies and
and Restrictions; Additional
Information Concerning Certain
Investment Techniques; Brokerage
Transactions
14. Management of the Registrant Fund Management
15. Control Persons and Principal Holders
of Securities Fund Management
16. Investment Advisory and Other
Services Investment Advisory Services;
Administration Services;
Distributor
17. Brokerage Allocation Brokerage Transactions
18. Capital Stock and Other Securities General Information
19. Purchase, Redemption and Pricing of
Securities Being Offered Purchasing Shares; Sales Change;
Net Asset Value; Redeeming Shares
20. Tax Status Tax Status
21. Underwriters Distributor
22. Calculation of Performance Data Calculation of Performance
Data
23. Financial Statements Financial Statements
<PAGE>
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
LUTHERAN BROTHERHOOD FUND
LUTHERAN BROTHERHOOD HIGH YIELD FUND
LUTHERAN BROTHERHOOD INCOME FUND
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
LUTHERAN BROTHERHOOD MONEY MARKET FUND
PROSPECTUS December 30, 1996
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 26 years, and Lutheran
Brotherhood personnel have extensive skill in managing over $11.7 billion of
Lutheran Brotherhood assets and had over $7.4 billion in mutual fund assets
under management as of September 30, 1996. 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 30, 1996 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 0% 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 0.69% 0.90%* 0.64% 0.64% 0.59% 0.57% 0.44%*
12b-1 Fees None None None None None None None
Other Expenses 0.59% 1.05% 0.33% 0.27% 0.24% 0.17% 0.57%
----- ----- ----- ----- ----- ----- -----
Total Fund Operating Expenses 1.28% 1.95%* 0.97% 0.91% 0.83% 0.74% 1.01%*
==== ===== ==== ==== ==== ==== ====
_____________________
* After fee waivers.
</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:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Opportunity Growth Fund $62 $ 89 $117 $197
LB World Growth Fund $69 $108 $150 $266
LB Fund $59 $ 79 $101 $163
LB High Yield Fund $59 $ 78 $ 98 $156
LB Income Fund $58 $ 75 $ 94 $147
LB Municipal Bond Fund $57 $ 72 $ 89 $137
LB Money Market Fund $10 $ 32 $ 56 $124
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, 1996 would be
1.08% and 2.13%, respectively, of average net assets of the Fund without the
partial waiver of advisory fees, which amounted to amount to 0.18% of
average net assets of the Fund. This waiver of fees is voluntary and may be
discontinued at any time.
LB Research has undertaken to limit the LB Money Market Fund's total
expenses to 0.95%, effective April 1, 1996. Prior to that date, LB Research
had undertaken to limit that Fund's 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, 1996, Net Management Fees and Total Fund Operating
Expenses would have been 0.50% and 1.07%, respectively, of average net
assets of the LB Money Market Fund without the partial waiver of advisory
fees, which amounted to 0.06% 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 included in the Annual Reports to
Shareholders for the fiscal year ended October 31, 1996. 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 Year Ended effective date) to
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)(a) 10/31/96 10/31/95 10/31/94 October 31, 1993
---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.83 $10.76 $10.66 $ 8.43
------ ------ ------ ------
Investment Operations:
Net Investment Income (0.11) (.09) (0.06) (0.07)
Net Realized and Unrealized Gain (Loss)
on Investments 2.63 3.16 0.16 2.30
------ ------ ------ ------
Total from Investment Operations 2.52 3.07 0.10 2.23
------ ------ ------ ------
Less Distributions:
Distributions from Net Realized Gain
on Investments (2.73) -- -- --
------ ------ ------ ------
Net Asset Value, End of Period $13.62 $13.83 $10.76 $10.66
====== ====== ====== ======
Total Investment Return at Net Asset Value(%)(b) 21.27% 28.53% 0.94% 26.45%
Net Assets, End of Period (in millions) $265.8 $165.7 $99.6 $40.8
Ratio of Expenses to Average Net Assets (%) 1.28% 1.43% 1.66% 2.33%(c)
Ratio of Net Investment Income to Average
Net Assets (%) -0.92% -0.88% -0.83% -1.76%(c)
Portfolio Turnover (%) 176% 213% 64% 97%
Average commission rate (d) $0.0488 N/A N/A N/A
</TABLE>
________________________
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) Average commission rate is based on total broker commissions incurred in
connection with execution of portfolio transactions during the period,
divided by the sum of all portfolio shares purchased and sold during the
period that were subject to a commission. Broker commissions are
treated as capital items that increase the cost basis of securities
purchased, or reduce the proceeds of securities sold.
<PAGE>
<TABLE>
LB WORLD GROWTH FUND
<CAPTION
For the Period From
September 5, 1995
Year Ended (effective date) to
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)(a) October 31, 1996 October 31, 1995
---------------- -------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 8.44 $ 8.50
------ ------
Income From Investment Operations:
Net Investment Income 0.04 0.01
Net Realized and Unrealized Gain (Loss)
on Investments 1.02 (0.07)
------
Total from Investment Operations 1.06 (0.06)
------ ------
Less Distributions:
Dividends from Net Investment Income (0.02) --
------ ------
Net Asset Value, End of Period $9.48 $ 8.44
===== ======
Total Investment Return at Net Asset Value(b) 12.53% -0.71%
Net Assets, End of Period (in millions) $52.9 $14.0
Ratio of Expenses to Average Net Assets 1.95%(d) 1.95%(c,d)
Ratio of Net Investment Income to Average
Net Assets 0.67%(d) 1.60%(c,d)
Portfolio Turnover Rate 11% 0%
Average commission rate (e) $0.0216 N/A
</TABLE>
________________________
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) Effective September 5, 1995, Lutheran Brotherhood Research
Corp. (LBRC) has voluntarily undertaken to limit the Fund's expense ratio
at 1.95%. Had LBRC not undertaken such action, the ratio of
expenses to average net assets would have been 2.13% and 2.89%, and the
ratio of net investment income to average net assets would have been
0.49% and 0.66%, respectively, for the year ended October 31, 1996 and
for the period from September 5, 1995 to October 31, 1995.
(e) Average commission rate is based on total broker commissions incurred in
connection with execution of portfolio transactions during the period,
divided by the sum of all portfolio shares purchased and sold during the
period that were subject to a commission. Broker commissions are treated
as capital items that increase the cost basis of securities purchased,
or reduce the proceeds of securities sold.
<PAGE>
<TABLE>
LB FUND
<CAPTION>
Nine
(FOR A SHARE OUTSTANDING months
THROUGHOUT THE PERIOD)(a) Year Year Year ended
Ended Ended Ended October 31, Years ended January 31,
---------------------------------------------------
10/31/96 10/31/95 10/31/94 1993 1993 1992 1991 1990 1989 1988
-------- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $21.19 $17.67 $18.85 $18.53 $19.14 $17.10 $15.83 $15.97 $14.44 $18.38
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Investment Operations:
Net Investment Income 0.20 0.22 0.19 0.29 0.27 0.32 0.37 0.36 0.47 0.49
Net Realized and
Unrealized Gain (Loss)
on Investments 3.33 3.52 (0.20) 1.04 1.42 3.90 1.34 1.32 1.54 (2.19)
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Total from Investment
Operations 3.53 3.74 (0.01) 1.33 1.69 4.22 1.71 1.68 2.01 (1.70)
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Less Distributions from:
Net Investment Income (0.20) (0.22) (0.20) (0.28) (0.27) (0.31) (0.38) (0.32) (0.48) (0.48)
Net Realized Gain on
Investments (1.45) -- (0.97) (0.73) (2.03) (1.87) (0.06) (1.50) - (1.76)
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Total Distributions (1.65) (0.22) (1.17) (1.01) (2.30) (2.18) (0.44) (1.82) (0.48) (2.24)
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Net Asset Value
End of Period $23.07 $21.19 $17.67 $18.85 $18.53 $19.14 $17.10 $15.83 $15.97 $14.44
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Investment
Return at Net Asset
Value(%)(b) 17.61% 21.34% -0.11% 7.41% 9.47% 24.67% 10.92% 9.77% 14.26% -8.70%
Net Assets, End of
Period (in millions) $768.8 $645.5 $548.6 $527.3 $460.9 $380.3 $303.4 $273.3 $275.9 $258.9
Ratio of Expenses to
Average Net Assets (%) 0.97% 1.02% 1.04% 1.01%(c) 0.97% 1.00% 1.05% 1.04% 1.08% 1.07%
Ratio of Net Investment
Income to Average Net
Assets (%) 0.94% 1.15% 1.10% 2.15%(c) 1.44% 1.69% 2.21% 1.99% 3.24% 2.69%
Portfolio Turnover (%) 91% 127% 234% 237% 249% 175% 148% 145% 89% 88%
Average commission rate (d) $0.0664 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
________________________
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) Average commission rate is based on total broker commissions incurred in
connection with execution of portfolio transactions during the period,
divided by the sum of all portfolio shares purchased and sold during the
period that were subject to a commission. Broker commissions are treated
as capital items that increase the cost basis of securities purchased, or
reduce the proceeds of securities sold.
<PAGE>
<TABLE>
LB HIGH YIELD FUND
<CAPTION>
Nine
(FOR A SHARE OUTSTANDING months
THROUGHOUT THE PERIOD)(a) Year Year Year ended
Ended Ended Ended October 31, Years ended January 31,
---------------------------------------------------
10/31/96 10/31/95 10/31/94 1993 1993 1992 1991 1990 1989 1988*
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.03 $8.86 $9.73 $9.12 $8.45 $6.72 $7.93 $9.72 $9.86 $10.44
----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Investment Operations:
Net Investment Income 0.84 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 0.17 0.24 (0.86) 0.60 0.68 1.72 (1.21) (1.76) (0.17) (0.60)
----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Total from Investment
Operations 1.01 1.07 (0.03) 1.21 1.56 2.65 (0.29) (0.64) 0.97 0.27
----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Less Distributions from:
Net Investment Income (0.83) (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 (0.83) (0.90) (0.84) (0.60) (0.89) (0.92) (0.92) (1.15) (1.11) (0.85)
----- ----- ----- ----- ------ ------ ------ ----- ----- ------
Net Asset Value,
End of Period $9.21 $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(%)(b) 11.64% 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) $703.1 $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 (%) 0.91% 0.93% 0.95% 0.94%(c) 0.99% 1.16% 1.23% 1.19% 1.21% 1.50%(c)
Ratio of Net Investment
Income to Average Net
Assets (%) 9.23% 9.53% 8.92% 8.72%(c) 10.04% 11.95% 12.51% 12.23% 11.72% 10.95%(c)
Portfolio Turnover (%) 104% 71% 50% 66% 86% 145% 120% 86% 73% 67%
</TABLE>
________________________
* For the period April 3, 1987 (effective date) to January 31, 1988.
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Computed on an annualized basis.
<PAGE>
<TABLE>
LB INCOME FUND
<CAPTION>
Nine
(FOR A SHARE OUTSTANDING months
THROUGHOUT THE PERIOD)(a) Year Year Year ended
Ended Ended Ended October 31, Years ended January 31,
--------------------------------------------------
10/31/96 10/31/95 10/31/94 1993 1993 1992 1991 1990 1989 1988
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $8.72 $8.01 $9.43 $9.10 $8.79 $8.35 $8.47 $8.52 $8.62 $9.07
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Investment Operations
Net Investment Income 0.57 0.59 0.58 0.47 0.66 0.72 0.78 0.82 0.80 0.80
Net Realized and
Unrealized Gain (Loss)
on Investments (0.19) 0.69 (1.19) 0.33 0.31 0.44 (0.11) (0.06) (0.10) (0.44)
----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Total from Investment
Operations 0.38 1.28 (0.61) 0.80 0.97 1.16 0.67 0.76 0.70 0.36
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions from:
Net Investment Income (0.60) (0.57) (0.56) (0.47) (0.66) (0.72) (0.79) (0.81) (0.80) (0.81)
Net Realized Gain on
Investments -- -- (0.25) - - - - - - -
----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Total Distributions (0.60) (0.57) (0.81) (0.47) (0.66) (0.72) (0.79) (0.81) (0.80) (0.81)
Net Asset Value,
End of Period $8.50 $8.72 $8.01 $9.43 $9.10 $8.79 $8.35 $8.47 $8.52 $8.62
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Investment
Return at Net Asset
Value(%)(b) 4.56% 16.53% -6.81% 8.97% 11.50% 14.48% 8.39% 9.18% 8.69% 4.53%
Net Assets, End of
Period (in millions) $871.0 $942.1 $907.2 $1,042.2 $944.6 $819.5 $736.5 $719.8 $725.5 $711.8
Ratio of Expenses to
Average Net Assets (%) 0.83% 0.83% 0.82% 0.80%(c,d) 0.90% 0.97% 1.02% 1.02% 1.03% 1.03%
Ratio of Net Investment
Income to Average Net
Assets (%) 6.61% 7.01% 6.77% 6.87%(c,d) 7.40% 8.38% 9.35% 9.53% 9.52% 9.47%
Portfolio Turnover (%) 142% 131% 155% 84% 104% 117% 118% 113% 68% 48%
</TABLE>
________________________
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) During the nine month period ended October 31, 1993, Lutheran Brotherhood
Research Corp. (LBRC) undertook a voluntary reduction of the Fund's
investment advisory fee equal to 0.10% of average daily net assets. Had
LBRC 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%.
<PAGE>
<TABLE>
LB MUNICIPAL BOND FUND
<CAPTION>
Nine
(FOR A SHARE OUTSTANDING months
THROUGHOUT THE PERIOD)(a) Year Year Year ended
Ended Ended Ended October 31, Years ended January 31,
--------------------------------------------
10/31/96 10/31/95 10/31/94 1993 1993 1992 1991 1990 1989 1988
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $8.58 $7.88 $9.00 $8.52 $8.45 $8.32 $8.15 $8.18 $8.09 $8.45
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Investment Operations:
Net Investment Income 0.44 0.45 0.46 0.37 0.53 0.56 0.58 0.58 0.60 0.59
Net Realized and Unrealized
Gain (Loss) on Investments 0.01 0.70 (0.96) 0.51 0.28 0.29 0.16 (0.02) 0.07 (0.37)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from Investment
Operations 0.45 1.15 (0.50) 0.88 0.81 0.85 0.74 0.56 0.67 0.22
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions from:
Net Investment Income (0.43) (0.45) (0.46) (0.37) (0.52) (0.56) (0.57) (0.59) (0.58) (0.58)
Net Realized Gain on
Investments -- -- (0.16) (0.03) (0.22) (0.16) - - - -
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions (0.43) (0.45) (0.62) (0.40) (0.74) (0.72) (0.57) (0.59) (0.58) (0.58)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value,
End of Period $8.60 $8.58 $7.88 $9.00 $8.52 $8.45 $8.32 $8.15 $8.18 $8.09
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Investment
Return at Net Asset
Value(%)(b) 5.33% 14.97% -5.93% 10.73% 9.96% 10.64% 9.54% 7.02% 8.70% 2.95%
Net Assets, End of
Period (in millions) $609.5 $628.7 $595.2 $629.7 $532.6 $448.4 $382.5 $348.2 $306.5 $283.6
Ratio of Expenses to
Average Net Assets (%) 0.74% 0.74% 0.75% 0.74%(c,d) 0.80% 0.83% 0.86% 0.86% 0.92% 0.91%
Ratio of Net Investment
Income to Average Net
Assets (%) 5.14% 5.43% 5.44% 5.69%(c,d) 6.22% 6.65% 7.06% 7.04% 7.37% 7.39%
Portfolio Turnover (%) 33% 36% 38% 46% 77% 78% 68% 60% 70% 61%
</TABLE>
________________________
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) During the nine month period ended October 31, 1993, Lutheran Brotherhood
Research Corp. (LBRC) had undertaken a voluntary reduction of the Fund's
investment advisory fee equal to 0.05% of average daily net assets. Had
LBRC 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%.
<PAGE>
<TABLE>
LB MONEY MARKET FUND
<CAPTION>
Nine
(FOR A SHARE OUTSTANDING months
THROUGHOUT THE PERIOD)(a) Year Year Year ended
Ended Ended Ended October 31, Years ended January 31,
----------------------------------------------
10/31/96 10/31/95 10/31/94 1993 1993 1992 1991 1990 1989 1988
------------------------------------------------------------------------------------------
<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 0.05 0.03 0.02 0.03 0.05 0.07 0.08 0.07 0.06
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions from:
Net Investment Income (0.05) (0.05) (0.03) (0.02) (0.03) (0.05) (0.07) (0.08) (0.07) (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(%)(b) 4.63% 4.95% 2.89% 1.63% 2.77% 5.10% 7.40% 8.44% 7.01% 5.98%
Net Assets, End of
Period (in thousands) $417.6 $341.1 $276.9 $275.1 $317.0 $412.3 $473.4 $423.5 $309.3 $263.6
Ratio of Expenses to
Average Net Assets (%) 1.01%(d) 1.10%(d) 1.10%(d) 1.10%(c,d) 1.10%(d) 1.08% 1.07% 1.09% 1.07% 1.07%
Ratio of Net Investment
Income to Average Net
Assets (%) 4.53%(d) 4.85%(d) 2.85%(d) 2.16%(c,d) 2.76%(d) 5.01% 7.16% 8.10% 6.83% 5.80%
</TABLE>
______________________
(a) All per share amounts have been rounded to the nearest cent.
(b) Total return is based on the change in net asset value during the
period and assumes reinvestment of all distributions.
(c) Computed on an annualized basis.
(d) Effective February 1, 1992 through March 31, 1996, Lutheran Brotherhood
Research Corp. (LBRC) had voluntarily undertaken to limit the Fund's
expense ratio to 1.10% of annual average daily net assets. Effective
April 1, 1996, LBRC voluntarily lowered the expense limit prospectively
to 0.95% of average daily net assets. Had LBRC not undertaken such
action to limit expenses, the ratio of expenses to average net assets
would have been 1.07%, 1.18%, 1.36%, 1.44% and 1.23% and the ratio of
net investment income to average net assets would have been 4.47%,
4.77%, 2.59%, 1,82% and 2.63%, respectively, for the years ended
October 31, 1996 1995 and 1994, the nine month period ended October 31,
1993 and the year ended January 31, 1993.
<PAGE>
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, 1996 and
October 31, 1995 were 176% and 213%, 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 for the fiscal year ended October 31, 1996 and for the period ended
October 31, 1995 were 11% and 5%, respectively.
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 fiscal years ended October 31, 1996 and
October 31, 1995 were 91% and 127%, 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
fiscal years ended October 31, 1996 and October 31, 1995 were 104% and 71%,
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
fiscal years ended October 31, 1996 and October 31, 1995 were 142% and 131%,
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 fiscal years ended
October 31, 1996 and October 31, 1995 were 33% and 36%, 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 on the same underlying security, each with the same
exercise price and expiration date. A spread is a combination of two or more
call options or put options on the 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, 1996, the LB High
Yield Fund held securities of 126 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 5.7%
Government obligations --
Corporate obligations
AAA/Aaa --
AA/Aa --
A/A --
BBB/Baa 0.2%
BB/Ba 5.7%
B/B 46.9%
CCC/Caa 8.6%
CC/Ca .01%
D/D .03%
Not rated 16.1%
Other Net Assets 16.8%
------
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
Corp., 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
Features Request 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 LB Securities 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) $100
______________________
</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 into new or
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, or any other day as required under the rules
of the Securities and Exchange Commission. 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 0% 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% 0%
$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. 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 in good order 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, or any other day as
required 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 Features Request, 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 $1.50 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 all or a portion of 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 all or a portion of your
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 $22.2 billion under management as of December 31, 1995 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 27 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 nine 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 21 years
experience in managing multicurrency fixed income portfolios. Richard J.
Bruce joined Price-Fleming in 1991 and has seven years of experience in
investment management with the Fleming Group in Tokyo. Mark J.T. Edwards
joined Price-Fleming in 1986 and has 15 years of experience in financial
analysis, including three years in Fleming European research. John R. Ford
joined Price-Fleming in 1982 and has 16 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 16 years of experience in economic research in Japan. James B.M. Seddon
joined Price-Fleming in 1987 and has nine years of experience in investment
management. Benedict R.F. Thomas joined Price-Fleming in 1988 and has seven
years of portfolio management experience, including assignments in London
and Baltimore. David J.L. Warren joined Price-Fleming in 1984 and has 16
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 below the 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 0.69%
LB World Growth Fund* 0.90%
LB Fund 0.64%
LB High Yield Fund 0.64%
LB Income Fund 0.59%
LB Municipal Bond Fund 0.57%
LB Money Market Fund** 0.44%
* After giving effect to a fee waiver of 0.18%.
** After giving effect to a fee waiver of 0.06%.
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 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 LB Series Fund, Inc.
World Growth Portfolio, 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 LB World Growth Fund's pro rata share of the
combined assets of the Fund and the LB Series Fund, Inc. World Growth
Portfolio 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 LB
Series Fund, Inc. World Growth Portfolio 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.
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 0.95%, respectively,
of those Funds' average daily net assets. These voluntary partial waivers of
advisory fees may be discontinued at any time.
Effective January 1, 1997, LB Research has also voluntarily agreed to waive
5 basis points (0.05%) from the advisory fees payable by the LB Fund, LB
High Yield Fund, LB Income Fund, and LB Municipal Bond Fund. 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 0.0225 percent of the Fund's average daily net assets. Effective January
1, 1997, the fee will be 0.02 percent of the Fund's daily net assets.
During the fiscal year ended October 31, 1996, the Funds paid the following
amounts to LB Securities for administrative services:
LB Opportunity Growth Fund $ 51,379
LB World Growth Fund $ 8,217
LB Fund $163,270
LB High Yield Fund $148,767
LB Income Fund $207,659
LB Municipal Bond Fund $142,190
LB Money Market Fund $ 87,973
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>
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 30, 1996
__________________________
TABLE OF CONTENTS
PAGE
Investment Policies and Restrictions
Additional Information Concerning Certain Investment Techniques
Fund Management
Investment Advisory Services
Administrative Services
Distributor
Brokerage Transactions
Code of Ethics
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 30, 1996 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 58 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 68 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 59 Charities Association of St. Louis, MO.; Director of
LB Series Fund, Inc.
Connie M. Levi Trustee Retired President of the Greater Minneapolis
12290 Avenida Consentido Chamber of Commerce; Director or member of
San Diego, CA numerous governmental, public service and non-profit
Age 57 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 49 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 Retired Interim Dean, Division of Continuing Studies,
25 Stanley, #A2 University of Nebraska-Lincoln; formerly
West Hartford, CT Associate Dean, Teachers College, and Professor,
Age 67 Department of Educational Administration, Teachers
College, University of Nebraska-Lincoln;
Commissioner of Education for the State of Minnesota;
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 54 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 41
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 51 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 40
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 59 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.
</TABLE>
_____________________
(*) "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.
Lutheran Brotherhood, directly and through its wholly-owned subsidiary
companies, owned 12.34% of the outstanding shares of LB World Growth Fund
and 10.80% of the outstanding shares of LB Money Market Fund as of November
30, 1996.
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 $21,500 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, 1996, the Trustees of the Trust
received the following amounts of compensation either directly or in the
form of payments made into a deferred compensation plan:
Total
Aggregate Compensation
Name and Position Compensation Paid by Fund and
of Person From Trust Fund Complex(1)
- ----------------- ------------ -----------------
Rolf F. Bjelland(2) $0 $0
Chairman
and Trustee
Charles W. Arnason $19,783 $29,000
Trustee
Herbert F. Eggerding, Jr. $19,783 $29,000
Trustee
Connie M. Levi $19,783 $29,000
Trustee
Bruce J. Nicholson(2) $0 $0
Trustee
Ruth E. Randall $19,783 $29,000
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.
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 second year of operations) are as follows:
10/31/96 10/31/95 10/31/94
LB Opportunity Growth Fund $1,563,341 $ 938,166 $ 522,579
LB World Growth Fund 392,419 17,787 --
LB Fund 4,529,474 3,726,938 3,430,253
LB High Yield Fund 4,150,072 3,509,710 3,091,898
LB Income Fund 5,330,930 5,431,506 5,721,652
LB Municipal Bond Fund 3,551,045 3,504,880 3,554,569
LB Money Market Fund 1,922,505 1,538,307 1,373,199
The total dollar amount paid by LB Research to the Sub-advisor of the LB
World Growth Fund under the investment sub-advisory contract for the fiscal
period ended October 31, 1996 is $211,461.
Effective February 1, 1992 through March 31, 1996, 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.
Effective April 1, 1996, LB Research voluntarily lowered the expense limit
prospectively to 0.95% of the LB Money Market Fund's average net assets. As
a result of such waiver, LB Research waived fees totaling $246,901 for the
fiscal year ended October 31, 1996, $253,844 for the fiscal year ended
October 31, 1995,and $709,407 for the fiscal year ended October 31.
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 $66,807 for the fiscal year ended
October 31, 1996, and $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.
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. Effective January 1, 1996, a new agreement went into effect whereby
LB Securities will receive an annual fee equal to 0.0225 percent of the
Fund's average daily net assets. Beginning January 1, 1997, the annual fee
will be equal to 0.02 percent of the Fund's average daily net assets. The
total dollar amounts paid to LB Securities for administrative services for
the last three fiscal years are as follows:
10/31/96 10/31/95 10/31/94
LB Opportunity Growth Fund $ 51,379 $ 33,788 $ 22,108
LB World Growth Fund 8,217 56 --
LB Fund 163,270 144,572 115,321
LB High Yield Fund 148,767 136,969 109,494
LB Income Fund 207,659 215,922 123,528
LB Municipal Bond Fund 142,190 151,391 119,601
LB Money Market Fund 87,973 85,688 97,563
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:
10/31/96 10/31/95 10/31/94
LB Opportunity Growth Fund $ 865,339 $ 582,903 $ 368,236
LB World Growth Fund 169,451 4,983 --
LB Fund 1,610,381 1,478,056 1,386,545
LB High Yield Fund 1,061,296 944,128 811,121
LB Income Fund 1,382,275 1,398,946 1,409,791
LB Municipal Bond Fund 516,423 517,010 501,350
LB Money Market Fund 1,239,592 1,211,889 1,383,080
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>
10/31/96 10/31/95 10/31/94
Gross Amount Gross Amount Gross Amount
Commissions Retained Commissions Retained Commissions Retained
<S> <C> <C> <C> <C> <C> <C>
LB Opportunity Growth Fund $2,272,864 $ 499,118 $1,423,809 $315,636 $2,365,893 $521,089
LB World Growth Fund 857,697 187,621 153,713 33,490 -- --
LB Fund 2,306,035 504,687 1,609,270 352,617 2,173,982 491,875
LB High Yield Fund 3,372,402 742,668 2,422,070 530,028 2,932,618 646,449
LB Income Fund 1,486,518 324,229 1,325,519 288,981 2,862,681 618,854
LB Municipal Bond Fund 988,150 215,239 989,735 212,445 2,015,891 440,929
</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 the LB World Growth 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 Fund's
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:
10/31/96 10/31/95 10/31/94
LB Opportunity Growth Fund $ 472,846 $ 197,461 $ 68,483
LB World Growth Fund* 108,394 24,302 --
LB Fund 1,349,473 1,787,109 3,106,422
LB High Yield Fund 36,567 47,583 21,925
LB Income 92,838 61,164 83,788
LB Municipal Bond Fund 7,399 9,518 17,558
LB Money Market Fund -- -- --
*Amount paid to affiliated broker-dealer is $4,028 for the fiscal year ended
October 31, 1996 and $250 for the period ended October 31, 1995.
Of the brokerage fee amounts stated above and underwriting concessions of
dealers from whom the Funds purchased newly issued debt securities, 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:
10/31/96 10/31/95 10/31/94
LB Opportunity Growth Fund 0.60% 0.22% 9.06%
LB World Growth Fund 0.48 0.08 --
LB Fund 7.17 8.10 9.21
LB High Yield Fund 0.24 0.70 0.67
LB Income Fund 6.41 0.62 0.47
LB Municipal Bond Fund -- -- --
LB Money Market Fund -- -- --
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:
10/31/96 10/31/95 10/31/94
LB Opportunity Growth Fund 176% 213% 64%
LB World Growth Fund 11% 0% --
LB Fund 91% 127% 234%
LB High Yield Fund 104% 71% 50%
LB Income Fund 142% 131% 155%
LB Municipal Bond Fund 33% 36% 38%
CODE OF ETHICS
The Trust has adopted a code of ethics that imposes certain limitations and
restrictions on personal securities transactions by persons having access to
Fund investment information, including portfolio managers. Such access
persons may not purchase any security being offered under an initial public
offering, any security for which one of the Funds has a purchase or sale
order pending, or any security currently under active consideration for
purchase or sale by a Fund. Additionally, portfolio managers of the Funds
may not purchase or sell any security within seven days before or after any
transaction in such security by the Fund that he or she manages. In order
for the Trust to monitor the personal investment transactions, all access
persons must obtain the approval of an officer of the Trust designated by
the Trustees before they may purchase or sell any security and they must
have all such transactions reported to such officer by the broker-dealer
through which the transaction was accomplished.
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 and its subsidiaries;
* 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, 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, 1996
LB Opportunity Growth Fund LB Fund LB High Yield Fund
1 year 15.18% 1 year 11.70% 1 year 6.01%
Since Fund 5 years 11.13% 5 years 11.56%
Inception 18.18% 10 years 10.52% Since Fund
1/8/93 Inception 9.16%
4/3/87
LB Income Fund LB Municipal Bond Fund LB Money Market Fund
1 year -0.68% 1 year 0.08% 1 year 4.63%
5 years 6.17% 5 years 6.20% 5 years 3.58%
10 years 7.66% 10 years 7.09% 10 years 5.19%
LB World Growth Fund
1 year 6.95%
Since Fund
Inception (9/5/95) 5.24%
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, 1996 for the LB High
Yield Fund, LB Income Fund and LB Municipal Bond Fund were 9.12%, 5.83%, and
4.55%, 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, 1996, assuming a tax rate of 15%, 28%, 31% and
39.6%, were 5.35%, 6.32%, 6.59% and 7.53%, 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 10/31/96 4.54%
Effective Yield For 7-day Period Ended 10/31/96 4.64%
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, 1996
of the Funds are a separate report furnished with this Statement of
Additional Information and are incorporated herein by reference.
<PAGE>
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- -------------------------------------------
(a) Financial Statements
(1) Financial Statements included in PART A (Prospectus) of this
Registration Statement:
(A) Financial Highlights for Lutheran Brotherhood Opportunity
Growth Fund for the fiscal year ended October 31, 1996
(B) Financial Highlights for Lutheran Brotherhood World
Growth Fund for the fiscal year ended October 31, 1996
(C) Financial Highlights for Lutheran Brotherhood Fund for
the fiscal year ended October 31, 1996
(D) Financial Highlights for Lutheran Brotherhood High Yield
Fund for the fiscal year ended October 31, 1996
(E) Financial Highlights for Lutheran Brotherhood Income Fund
for the fiscal year ended October 31, 1996
(F) Financial Highlights for Lutheran Brotherhood Municipal
Bond Fund for the fiscal year ended October 31, 1996
(G) Financial Highlights for Lutheran Brotherhood Money
Market Fund for the fiscal year ended October 31, 1996
(2) Financial Statements included in the Annual Report to
Shareholders for the period ended October 31, 1996 as
incorporated by reference into PART B (Statement of Additional
Information) of this Registration Statement for Lutheran
Brotherhood Opportunity Growth Fund, Lutheran Brotherhood
World Growth Fund, Lutheran Brotherhood Fund, Lutheran
Brotherhood High Yield Fund, Lutheran Brotherhood Income Fund,
Lutheran Brotherhood Municipal Bond Fund, Lutheran Brotherhood
Money Market Fund:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements (including Financial
Highlights referenced to the Prospectus)
Report of Independent Accountants
(b) Exhibits
(1) First Amended and Restated Master Trust Agreement of the
Registrant (3)
(1)(b) Form of Amendment to First Amended and Restated Master
Trust Agreement (4)
(2) By-Laws of the Registrant (2)
(3) Not applicable
(4) Not applicable
(5)(a) Form of Master Advisory Contract between the Registrant
and Lutheran Brotherhood Research Corp. (2)
(5)(b) Form of Amendment to Master Advisory Contract (4)
(5)(c) Form of Sub-Advisory Agreement between Lutheran Brotherhood
Research Corp. and Rowe Price-Fleming International, Inc. (4)
(6)(a) Form of Distribution Agreement between the Registrant and
Lutheran Brotherhood Securities Corp. (2)
(6)(b) Form of Amendment to Distribtuion Agreement (4)
(7) Not applicable
(8)(a) Form of Custodian Contract between the Registrant and State
Street Bank and Trust Company (2)
(8)(b) Form of Transfer Agency Agreement between the Registrant and
Lutheran Brotherhood Securities Corp. (2)
(8)(c) Form of Administrative Services Agreement between the Registrant
and Lutheran Brotherhood Securities Corp. (2)
(8)(d) Form of Amendment to Custodian Contract (4)
(8)(e) Form of Amendment to Transfer Agency Agreement (4)
(8)(f) Administration Contract Between The Lutheran Brotherhood Family of
Funds and Lutheran Brotherhood Securities Corp. (4)
(8)(f) Form of Amendment to Administrative Services Agreement (4)
(9) Not applicable
(10) Opinion and consent of counsel (4)
(11) Consent of Independent Accountants (1)
(12) Not applicable
(13)(a) Subscription and Investment Letter with respect to each of
Lutheran Brotherhood Opportunity Growth Fund, Lutheran
Brotherhood Fund, Lutheran Brotherhood High Yield Fund, Lutheran
Brotherhood Income Fund, Lutheran Brotherhood Municipal Bond Fund
and Lutheran Brotherhood Money Market Fund (3)
(13)(b) Form of Subscription and Investment Letter with respect to
Lutheran Brotherhood World Growth Fund (4)
(14)(a)(i) Lutheran Brotherhood Defined Contribution Plan and
Trust, Standardized Target Benefit Plan and Trust Adoption
Agreement, Target Benefit Plan and Trust Adoption Agreement,
Standardized Nonintegrated Profit Sharing Plan and Trust
Adoption Agreement, Standardized Nonintegrated Money
Purchase Plan and Trust Adoption Agreement, Standardized
Integrated Profit Sharing Plan and Trust Adoption Agreement,
Standardized Integrated Money Purchase Plan and Trust
Adoption Agreement, Integrated Money Purchase Plan and Trust
Adoption Agreement, Nonintegrated Money Purchase Plan and
Trust Adoption Agreement, Nonintegrated Profit Sharing Plan
and Trust Adoption Agreement and Integrated Profit Sharing
Plan and Trust Adoption Agreement (2)
(14)(a)(ii) Lutheran Brotherhood Defined Benefit Plan and Trust,
Standardized Nonintegrated Defined Benefit Plan Adoption
Agreement and Standardized Integrated Defined Benefit Plan
and Trust Adoption Agreement (2)
(14)(b) Lutheran Brotherhood Individual Retirement Account, Disclosure
Statement and Custodial Agreement (2)
(14)(c) Lutheran Brotherhood Self-Directed Individual Retirement
Account, Supplemental Disclosure Statement, Disclosure Statement
and Custodial Agreement (2)
(14)(d) Lutheran Brotherhood Tax Sheltered Custodial Account (2)
(14)(e) Lutheran Brotherhood Prototype Simplified Employee Pension
Plan (2)
(15) Not applicable
(16) Schedule of computation of performance data provided in response
to Item 22 of this Registration Statement (3)
(17)(a) Powers of Attorney for Rolf F. Bjelland, Wade M. Voigt, Charles
W. Arnason, Herbert F. Eggerding, Jr., Luther O. Forde and Ruth
E. Randall (3)
(17)(b) Power of Attorney for Connie M. Levi (3)
(17)(c) Power of Attorney for Bruce J. Nicholson (4)
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote
Reference Securities Act of 1933 Amendment Date Filed
--------- -------------------------------- ----------
(1) Filed herein
(2) Post-Effective Amendment No. 51 August 27, 1993
(3) Post-Effective Amendment No. 52 October 25, 1993
(4) Post-Effective Amendment No. 55 June 16, 1995
Item 25. Persons Controlled by or under Common Control with Registrant
- ----------------------------------------------------------------------
None.
Item 26. Number of Holders of Securities
- ----------------------------------------
As of December 1, 1996 the numbers of record holders of shares of the
Registrant was as follows:
(1) (2)
Number of
Title of Class Record Holders
Shares of Beneficial Interest
Lutheran Brotherhood Opportunity Growth Fund 51,004
Lutheran Brotherhood World Growth Fund 12,321
Lutheran Brotherhood Fund 81,950
Lutheran Brotherhood High Yield Fund 52,829
Lutheran Brotherhood Income Fund 61,824
Lutheran Brotherhood Municipal Bond Fund 23,403
Lutheran Brotherhood Money Market Fund 48,952
Item 27. Indemnification
- ------------------------
Under Article VI of the Registrant's Master Trust Agreement each of its
Trustees and officers or persons serving in such capacity with another entity
at the request of the Registrant ("Covered Person") shall be indemnified
against all liabilities, including, but not limited to, amounts paid in
satisfaction of judgments, in compromises or as fines or penalties, and
expenses, including reasonable legal and accounting fees, in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, before any court or administrative or legislative body, in
which such Covered Person may be or may have been involved as a party or
otherwise or with which such Covered Person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer, director or trustee, except with respect to any
matter as to which it has been determined that such Covered Person had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office (such
conduct referred to hereafter as "Disabling Conduct"). A determination that
the Covered Person is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before which the proceeding
was brought that the person to be indemnified was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of evidence of Disabling
Conduct, or (iii) a reasonable determination, based upon a review of the
facts, that the indemnitee was not liable by reason of Disabling Conduct by
(a) a vote of a majority of a quorum of Trustees who are neither "interested
persons" of the Registrant as defined in section 2(a)(19) of the 1940 Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion.
Under the Distribution Agreement between the Registrant and Lutheran
Brotherhood Securities Corp., the Registrant's distributor, the Registrant has
agreed to indemnify, defend and hold Lutheran Brotherhood Securities Corp.,
its officers, directors, employees and agents and any person who controls
Lutheran Brotherhood Securities Corp. free and harmless from and against any
loss, claim, damage, liability and expense incurred by any of them arising out
of or based upon any untrue or alleged untrue statement of material fact, or
the omission or alleged omission to state a material fact necessary to make
the statements made not misleading, in a Registration Statement, the
Prospectus or Statement of Additional Information of the Registrant, or any
amendment or supplement thereto, unless such statement or omission was made in
reliance upon written information furnished by Lutheran Brotherhood Securities
Corp.
Under the Transfer Agent and Service Agreement between the Registrant and
Lutheran Brotherhood Securities Corp., the Registrant has agreed, provided
that Lutheran Brotherhood Securities Corp. has at all relevant times acted in
good faith and without negligence or willful misconduct, to indemnify and hold
Lutheran Brotherhood Securities Corp. harmless from and against any and all
losses, damages, costs, charges, attorneys fees, payments, expenses and
liability arising out of or attributable to (a) all actions of Lutheran
Brotherhood Securities Corp. or its agents or subcontractors required to be
taken under the Transfer Agency and Service Agreement or which arise out of
the Registrant's lack of good faith, negligence, or willful misconduct or the
breach of any representation or warranty of the Registrant under the Transfer
Agency and Service Agreement, (c) the reliance on or use by Lutheran
Brotherhood Securities Corp. or its agents or subcontractors of information,
records or documents which are furnished by or on behalf of Registrant, (d)
the reliance on or the carrying out by Lutheran Brotherhood Securities Corp.
or its agents or subcontractors of any instructions or requests by Registrant,
or (e) the offer or sale of shares of the Registrant unknown by Lutheran
Brotherhood Securities Corp. to be in violation of law.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act of 1933 may be permitted to trustees, officers,
underwriters and controlling persons of the Registrant, pursuant to Article VI
of the Registrant's Master Trust Agreement, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted
against the Registrant by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
- -------------------------------------------------------------
Lutheran Brotherhood Research Corp. has been engaged in the investment
advisory business since 1970. Lutheran Brotherhood, the indirect parent
company of LB Research, also acts as investment adviser to LB Series Fund,
Inc.
The directors and officers of Lutheran Brotherhood Research Corp. are
listed below, together with their principal occupations during the past two
years. (Their titles may have varied during that period.)
Directors:
Robert P. Gandrud, Chairman (President and Chief Executive Officer of
Lutheran Brotherhood)
Rolf F. Bjelland (Executive Vice President of Lutheran Brotherhood)
Bruce J. Nicholson (Executive Vice President of Lutheran Brotherhood)
Paul R. Ramseth (Executive Vice President of Lutheran Brotherhood)
William H. Reichwald (Executive Vice President of Lutheran Brotherhood)
Officers:
Rolf F. Bjelland, President
Anita J. T. Young, Treasurer (Vice President and Treasurer of Lutheran
Brotherhood)
Otis F. Hilbert, Secretary (Vice President of Lutheran Brotherhood)
Jerald E. Sourdiff, Controller (Senior Vice President and Controller of
Lutheran Brotherhood)
Charles E. Heeren, Vice President (Vice President of Lutheran
Brotherhood)
James R. Olson, Vice President (Vice President of Lutheran Brotherhood)
James M. Walline, Vice President (Vice President of Lutheran Brotherhood)
Michael A. Binger, Assistant Vice President (Associate Portfolio Manager
of Lutheran Brotherhood)
Randall L. Boushek, Assistant Vice President (Vice President of Lutheran
Brotherhood)
Janet I. Grangaard, Assistant Vice President (Associate Portfolio Manager
of Lutheran Brotherhood)
Thomas N. Haag, Assistant Vice President (Assistant Vice President of
Lutheran Brotherhood)
Michael G. Landreville, Assistant Vice President (Associate Portfolio
Manager of Lutheran Brotherhood)
Gail R. Onan, Assistant Vice President (Associate Portfolio Manager of
Lutheran Brotherhood)
Scott A. Vergin, Assistant Vice President (Associate Portfolio Manager of
Lutheran Brotherhood)
Marie A. Sorensen, Assistant Vice President (Assistant Vice President of
Lutheran Brotherhood)
James M. Odland, Assistant Secretary (Assistant Vice President of
Lutheran Brotherhood)
Randall L. Wetherille, Assistant Secretary (Assistant Vice President of
Lutheran Brotherhood)
The business address of each of the above directors and officers employed
by Lutheran Brotherhood is 625 Fourth Avenue South, Minneapolis, Minnesota
55415.
The business and other connections of the officers and directors of Rowe
Price-Fleming International, Inc. ("Sub-advisor") are set forth in the Form
ADV of Sub-advisor currently on file with the Securities and Exchange
Commission (File No. 801-14713)
Item 29. Principal Underwriters
- -------------------------------
(a) Lutheran Brotherhood Securities Corp. also serves as principal
underwriter for LB Series Fund, Inc.
(b) Directors and officers of Lutheran Brotherhood Securities Corp. are
as follows:
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
------------------ ---------------- --------------------
William H. Reichwald President --
625 Fourth Avenue South
Minneapolis, MN 55415
Robert P. Gandrud Chairman and Director --
625 Fourth Avenue South
Minneapolis, MN 55415
Otis F. Hilbert Vice President, Counsel and Vice President and
625 Fourth Avenue South Secretary Secretary
Minneapolis, MN 55415
Anita J. T. Young Treasurer --
625 Fourth Avenue South
Minneapolis, MN 55415
(c) Not Applicable.
Item 30. Location of Accounts and Records
- -----------------------------------------
The Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment Company Act
of 1940 at its principal executive offices at 625 Fourth Avenue South,
Minneapolis, Minnesota 55415. Certain records, including records relating to
Registrant's shareholders and the physical possession of its securities, may
be maintained pursuant to Rule 31a-3 under the Investment Company Act of 1940
by the Registrant's transfer agent or custodian at the following locations:
Name Address
---- -------
Lutheran Brotherhood Securities Corp. 625 Fourth Avenue South
Minneapolis, Minnesota 55415
Norwest Bank Minnesota, N.A. Sixth and Marquette Avenue
Minneapolis, Minnesota 55402
State Street Bank and Trust Company 225 Franklin Street
Boston, Massachusetts 02110
Item 31. Management Services
- ----------------------------
Not Applicable.
Item 32. Undertakings
- ---------------------
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report
to shareholders upon request and without charge.
The Registrant hereby undertakes, if requested to do so by the holders of
at least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
trustee or trustees and to assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of 1940.
The Registrant hereby undertakes to file a post-effective amendment to
its registration for the purposes of filing updated financial statements
(which need not be audited) within the time limit specified by Item 32(b) of
Form N-1A.
Notice
A copy of the Master Trust Agreement of the Registrant is on file with
the Secretary of State of the State of Delaware and notice is hereby given
that the obligations of the Registrant hereunder, and the authorization,
execution and delivery of this amendment to the Registrant's Registration
Statement, shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Registrant as individuals or
personally, but shall bind only the property of the Funds of the Registrant,
as provided in the Master Trust Agreement. Each Fund of the Registrant shall
be solely and exclusively responsible for the payment of any of its direct or
indirect debts, liabilities and obligations, and no other Fund shall be
responsible for the same.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this registration statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has has duly
caused this amendment to this Registration Statement on Form N-1A to be
signed on its behalf by the undersigned thereunto duly authorized, in the
City of Minneapolis and State of Minnesota, on the 30th day of December,
1996.
THE LUTHERAN BROTHERHOOD
FAMILY OF FUNDS
By: /s/ Randall L. Wetherille
-------------------------
Randall L. Wetherille,
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to this registration statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title Date
* Trustee and President December 30, 1996
- ------------------------ (Principal Executive Officer)
Rolf F. Bjelland
* Treasurer December 30, 1996
- ------------------------ (Principal Financial and
Wade M. Voigt Accounting Officer)
* Trustee December 30, 1996
- ------------------------
Charles W. Arnason
* Trustee December 30, 1996
- -------------------------
Herbert F. Eggerding, Jr.
* Trustee December 30, 1996
- ------------------------
Connie M. Levi
* Trustee December 30, 1996
- ------------------------
Bruce J. Nicholson
* Trustee December 30, 1996
- ------------------------
Ruth E. Randall
By: /s/ Randall L. Wetherille
-------------------------
Randall L. Wetherille,
Attorney-in-Fact under Powers
of Attorney incorporated by
reference from Post-Effective
Amendment Nos. 51, 52 and 55.
<PAGE>
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
INDEX TO EXHIBITS
Exhibit Sequential Page
Number Exhibit Number
24(a) Financial Statements: Annual Report to Shareholders
24(b)(11) Consent of Independent Accountants
129
<PAGE>
[7 SOLID SQUARE BULLETS]
- -------------------------------------------
LUTHERAN BROTHERHOOD
- -------------------------------------------
FAMILY OF FUNDS
- -------------------------------------------
[ART OF 3D SQUARE WITH TREE, ACORN AND LEAF
ON EACH OF ITS THREE VISIBLE FACETS.]
Cross bar reads:
GROWTH [DIAMOND] INCOME [DIAMOND] STABILITY
Annual Report
October 31, 1996
[LUTHERAN BROTHERHOOD LOGO HERE]
LUTHERAN BROTHERHOOD
SECURITIES CORP.
<PAGE>
[PHOTO OF MR. BJELLAND OMITTED]
Our Message To You
Dear Shareholder,
We are pleased to provide you with the Annual Report for the Lutheran
Brotherhood Family of Funds for the fiscal year ended October 31, 1996.
Inside, you'll find an overview of economic and market conditions that
affected the performance of stock, bond and money market securities during
that time. The Report also includes portfolio reviews that explain how
individual fund managers made the most of this climate, as well as
audited financial statements for the LB Family of Funds.
In the last year, worries about inflation and interest rates made financial
markets somewhat more volatile than their historical averages. Volatility
aside, returns for investors still remained solid. In the fixed-income market,
returns were near their historical averages. On the equity side, one-year
returns were slightly lower than in the previous 12 months, but were still
exceptional by historical standards.
During the year, the LB Family of Funds tried to make the most of the near-
term investment opportunities that occurred in individual markets. As always,
however, we maintained well-diversified portfolios of quality securities that
tend to do well over time. By following this general strategy we hope to give
investors competitive returns in a variety of different market environments.
After substantial market changes like those of the past year, it often makes
sense to review your own portfolio. This is especially important if you're
investing for long-term objectives, including retirement. By checking to see
that your portfolio is still properly diversified and that your allocations
still match your particular investment goals, you'll make it easier to
accumulate the assets you'll need for retirement. With Americans living longer
than ever before, and government programs feeling the burden of overextended
assets, your personal retirement investments are more important than ever in
assuring that you do not outlive your retirement assets.
We hope you will find this Annual Report helpful in understanding how your
investments have performed in the last 12 months. If you have questions about
the information inside, or wish to discuss any of the LB Family of Funds,
please contact your LB representative. You can also call us toll-free at 1-
800-328-4552, or locally at 612-339-8091.
Sincerely,
/s/ Rolf F. Bjelland
Rolf F. Bjelland
President and Chairman
Lutheran Brotherhood Family of Funds
[GRAPHIC OMITTED: DIAMOND WITH CROSSBAR, DIAMOND CONTAINS IMAGE OF ACORN,
CROSSBAR CONTAINS THE WORD "GROWTH".]
[GRAPHIC OMITTED: DIAMOND WITH CROSSBAR, DIAMOND CONTAINS IMAGE OF
LEAF, CROSSBAR CONTAINS THE WORD "INCOME".]
[GRAPHIC OMITTED: DIAMOND WITH CROSSBAR, DIAMOND CONTAINS IMAGE OF
TREE, CROSSBAR CONTAINS THE WORD "STABILITY".]
<PAGE>
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, MN 55402-3795
Price Waterhouse LLP
[GRAPHIC OMITTED: PRINTER STRIP IN LOGO]
Report of Independent Accountants
To the Trustees and Shareholders of the
Lutheran Brotherhood Family of Funds
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Lutheran
Brotherhood Opportunity Growth Fund, Lutheran Brotherhood World Growth Fund,
Lutheran Brotherhood Fund, Lutheran Brotherhood High Yield Fund, Lutheran
Brotherhood Income Fund, Lutheran Brotherhood Municipal Bond Fund and Lutheran
Brotherhood Money Market Fund (constituting the Lutheran Brotherhood Family of
Funds) at October 31, 1996, the results of each of their operations for the
year then ended, the changes in each of their net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
December 9, 1996
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
Portfolio of Investments
October 31, 1996
Shares Value
- -------------- --------------
[S] [C]
COMMON STOCKS - 94.7% (a)
Automotive - 1.5%
136,900 Tower Automotive, Inc. $ 3,987,212(b)
------------
Bank & Finance - 3.3%
344,700 ACC Consumer Finance Corp. 3,102,300(b)
67,800 Cole Taylor Financial Group, Inc. 2,038,237
268,100 NAL Financial Group, Inc. 3,552,325
------------
8,692,862
------------
Building Products &
Materials - 3.2%
365,000 Cameron Ashley Building Products 4,973,125(b)
258,800 Dayton Superior Corp., Class A 2,717,400(b)
212,200 Mark Solutions, Inc. 649,862(b)
------------
8,340,387
------------
Computer Software - 13.4%
194,300 ANSYS, Inc. 2,380,175(b)
147,700 Avant! Corp. 4,467,925(b)
302,100 AXENT Technologies, Inc. 5,400,037(b)
233,100 DataWorks Corp. 6,293,700(b)
158,000 Inference Corp., Class A 1,935,500(b)
198,500 Pure Atria Corp. 5,409,125(b)
256,700 Restrac, Inc. 1,989,425(b)
230,900 Softquad International, Inc. 1,096,775(b)
64,000 Summit Design, Inc. 680,000(b)
78,600 Sunquest Information
Systems, Inc. 1,100,400(b)
183,800 Unison Software, Inc. 4,732,850(b)
------------
35,485,912
------------
Computers & Office
Equipment - 1.3%
139,400 Multiple Zones International, Inc. 2,596,325(b)
134,300 Premis Corp. 856,163(b)
------------
3,452,488
------------
Drugs & Health Care - 13.9%
395,900 Alpha-Beta Technology, Inc. 4,107,463(b)
161,000 Amrion, Inc. 3,682,875(b)
216,000 Amylin Pharmaceuticals, Inc. 2,430,000(b)
273,500 Atrix Laboratories, Inc. 2,564,063(b)
23,000 Autoimmune, Inc. 310,500(b)
232,500 DepoTech Corp. 3,632,813(b)
232,600 Eclipse Surgical
Technologies, Inc. 2,238,775(b)
258,100 GalaGen, Inc. 1,451,813(b)
108,800 Isis Pharmaceuticals, Inc. 1,768,000(b)
186,100 Lipsome Co., Inc. 3,186,963(b)
257,600 Matritech, Inc. 2,543,800(b)
155,100 Orphan Medical, Inc. 1,337,737(b)
129,050 PDT, Inc. 3,226,250(b)
98,500 Sepracor, Inc. 1,600,625(b)
170,000 US Bioscience, Inc. 1,955,000(b)
40,100 Viragen Europe Ltd. 711,775(b)
------------
36,748,452
------------
Electronics - 3.7%
290,400 ElectroStar, Inc. 3,666,300(b)
136,000 Intevac, Inc. 1,972,000(b)
215,400 S3, Inc. 4,065,675(b)
------------
9,703,975
------------
Healthcare Management - 9.6%
388,100 American Oncology
Resources, Inc. 3,104,800(b)
114,700 CN Biosciences, Inc. 1,734,838(b)
335,600 Complete Management, Inc. 4,950,100(b)
439,500 Home Health Corp. of
America, Inc. 5,548,687(b)
153,900 Horizon Mental Health
Management, Inc. 4,116,825(b)
74,400 UroCor, Inc. 874,200(b)
425,200 U.S. Diagnostic Labs, Inc. 5,102,400(b)
------------
25,431,850
------------
Household Products - 0.3%
55,900 First Years, Inc. (The) 866,450
------------
Leisure & Entertainment - 5.7%
269,600 Cannondale Corp. 5,189,800(b)
208,800 Fairfield Communities, Inc. 4,463,100(b)
117,400 Signature Resorts, Inc. 4,138,350(b)
112,000 Travis Boats & Motors, Inc. 1,204,000(b)
------------
14,995,250
------------
Machinery & Equipment - 3.4%
268,700 Northwest Pipe Co. 4,635,075(b)
213,600 Stratasys, Inc. 3,123,900(b)
50,000 Triumph Group, Inc. 1,125,000(b)
------------
8,883,975
------------
Manufacturing - 3.1%
222,800 BMC Industries, Inc. 6,600,450
217,700 Zomax Optical Media, Inc. 1,578,325(b)
------------
8,178,775
------------
Pollution Control - 3.8%
470,900 IDM Environmental Corp. 2,001,325(b)
203,300 Memtec Ltd., ADR 6,937,612(b)
405,000 Recycling Industries, Inc. 1,240,313(b)
------------
10,179,250
------------
Publishing & Printing - 0.5%
255,300 Printware, Inc. 1,436,062(b)
------------
Restaurants - 1.8%
289,100 BAB Holdings, Inc. 2,457,350(b)
304,100 New World Coffee 836,275(b)
224,800 Sagebrush, Inc. 1,405,000(b)
------------
4,698,625
------------
Retail - 4.7%
65,900 Best Buy Co., Inc. 1,079,113(b)
202,700 Movie Gallery, Inc. 2,736,450(b)
118,950 Sports Authority, Inc. (The) 2,884,537(b)
253,300 Strouds, Inc. 1,139,850(b)
50,400 United Auto Group, Inc. 1,732,500(b)
247,900 West Coast Entertainment
Corp. 2,757,888(b)
------------
12,330,338
------------
Services - 5.1%
111,500 BT Office Products
International, Inc. 919,875(b)
209,100 Cotelligent Group, Inc. 3,711,525(b)
291,200 Glasgal Communications, Inc. 1,747,200(b)
54,000 ONTRACK Data
International, Inc. 762,750(b)
157,200 Personal Group of
America, Inc. 4,342,650(b)
149,400 StaffMark, Inc. 1,942,200(b)
------------
13,426,200
------------
Telecommunications Equipment - 6.4%
219,600 ACE*COMM Corp. 2,360,700(b)
248,400 ACT Networks, Inc. 8,507,700(b)
131,800 ANTEC Corp. 1,408,612(b)
137,100 Teltrend, Inc. 4,524,300(b)
------------
16,801,312
------------
Telephone & Telecommunications - 7.0%
179,800 ICG Communications, Inc. 3,371,250(b)
191,600 Intermedia Communications
of Florida, Inc. 6,131,200(b)
138,600 LCC International, Inc.,
Class A 2,027,025(b)
172,300 Orckit Communications Ltd. 2,067,600(b)
243,200 Xpedite Systems, Inc. 4,985,600(b)
------------
18,582,675
------------
Textiles & Apparel - 3.0%
953,500 Chaus (Bernard), Inc. 2,383,750(b)
165,600 Cutter & Buck, Inc. 1,759,500(b)
307,000 Guess ?, Inc. 3,914,250(b)
------------
8,057,500
------------
Total Common Stocks
(cost $235,144,716) 250,279,550
------------
Principal
Amount
- ------------
CORPORATE BONDS - 0.3% (a)
$1,500,000 Kushner-Locke Co.,
Convertible Subordinated
Debentures, 8.0%,
due 12/15/2000
(cost $1,134,916) 907,500
------------
SHORT-TERM
SECURITIES - 5.0% (a)
Commercial Paper
10,000,000 Harvard University
5.53%, due 11/1/1996 10,000,000
3,300,000 Preferred Receivables
Funding Corp. 5.25%,
due 11/1/1996 3,300,000
------------
Total Short-Term Securities
(at amortized cost) 13,300,000
------------
Total Investments
(cost $249,579,632) $264,487,050(c)
============
NOTES TO PORTFOLIO OF INVESTMENTS:
- ----------------------------------
(a) The categories of investments are shown as a percentage
of total investments of the Lutheran Brotherhood
Opportunity Growth Fund.
(b) Currently non-income producing.
(c) At October 31, 1996, the aggregate cost of securities
for federal income tax purposes was $250,018,404 and the
net unrealized appreciation of investments based on that
cost was $14,468,646 which is comprised of $37,074,513
aggregate gross unrealized appreciation and $22,605,867
aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
Portfolio of Investments
October 31, 1996
Shares Value
- -------------- --------------
ARGENTINA - 0.7% (a)
COMMON STOCKS
2,003 Banco de Galicia Buenos
Aires 'B' ADR (USD) $ 36,304
1,609 Banco Frances del Rio de la
Plata ADR (USD) 42,236
150 Enron Global Power &
Pipeline (USD) 4,219
14,584 Naviera Perez 'B' 92,618
1,590 Sociedad Comercial del Plata 3,753(b)
430 Sociedad Comercial del
Plata ADR (USD) 10,213(b)
910 Telecom Argentina Stet 'B' 3,436
230 Telecom Argentina Stet 'B'
ADR (USD) 8,682
3,770 Telefonica de Argentina
ADR (USD) 87,653
340 Transportadora de Gas del
Sur ADR (USD) 3,953
3,020 YPF Sociedad Anonima
ADR (USD 68,705
------------
Total Argentina 361,772=
------------
AUSTRALIA - 1.5% (a)
COMMON STOCKS
3,000 Amcor Ltd. 18,643
9,000 Australia & New Zealand
Banking Group Ltd. 52,576
19,343 Australia Gas & Light 106,098
9,536 Broken Hill Proprietary 126,607
1,200 Coca Cola Amatil 16,503
3,200 Lend Lease Corp. 54,255
4,151 National Australia Bank Ltd. 45,570
11,024 News Corp. 62,740
11,000 Publishing & Broadcasting 49,524
4,090 Smith (Howard) Ltd. 32,095
13,000 TNT 25,040(b)
8,000 Western Mining 50,285
11,000 Westpac Banking 62,777
10,500 Woodside Petroleum 74,072
------------
Total Australia 776,785
------------
AUSTRIA - 0.05% (a)
COMMON STOCKS
60 EVN Energie-Versorgung
Niederoesterreich AG 8,137
330 Flughafen Wien 16,267
------------
Total Austria 24,404
------------
BELGIUM - 1.0% (a)
COMMON STOCKS
390 Generale de Banque S.A. 136,293
35 Generale de Banque S.A.,
VVPR (reduced tax) Strips 22
980 Kredietbank 316,560
30 UCB 66,127
------------
Total Belgium 519,002
------------
BRAZIL - 2.2% (a)
COMMON STOCKS
470 Brazil Fund (USD) 9,870
5,270 Centrais Eletricas Brasileiras
S.A. ADR (USD) 80,367
1,950 Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar GDR (USD) 38,025(b)
500 Companhia Energetica
Brasilia (USD) 16,000
450 Companhia Energetica de
Sao Paulo ADR (USD) 4,472
4,828 Companhia Energetica Minas
Gerais ADR (USD) 154,496
9,022 Telecomunicacoes Brasilias
ADR (USD) 672,139
20,910 Usinas Siderurgicas de Minas
Gerais ADR (USD) 214,328
------------
Total Brazil 1,189,697
------------
CANADA - 0.3% (a)
COMMON STOCKS
3,620 Alcan Aluminum 119,658
1,330 Royal Bank of Canada 43,864
------------
Total Canada 163,522
------------
CHILE - 0.4% (a)
COMMON STOCKS
100 AFP Providia ADR (USD) 2,325
750 Chile Fund (USD) 16,312
780 Chilectra ADR (USD) 42,510
1,140 Chilgener ADR (USD) 25,793
450 Companhia Telecomunicaciones
ADR (USD) 44,381
2,375 Empresa Nacional de Electric
ADR (USD) 43,641
1,333 Enersis S.A. ADR (USD) 39,157
------------
Total Chile 214,119
------------
CHINA - 0.4% (a)
COMMON STOCKS
7,400 Huaneng Power International
'N' ADR (USD) 112,850(b)
275,000 Shanghai Petrochemical
'H' (HKD) 73,798
198,000 Yizheng Chemical Fibre
'H' (HKD) 45,837
------------
Total China 232,485
------------
DENMARK - 0.2% (a)
COMMON STOCKS
730 Den Danske Bank 52,373
190 Tele Danmark 'B' 9,578
930 Unidanmark 'A' 42,881
------------
Total Denmark 104,832
------------
FINLAND - 0.2% (a)
COMMON STOCKS
1,890 Oy Nokia 'A' 87,269
------------
FRANCE - 7.9% (a)
COMMON STOCKS
655 Accor 82,251
1,140 Alcatel Alsthom 97,221
1,520 Assurances Generales
de France 44,834
300 AXA 18,637
630 Canal Plus 155,883
805 Carrefour 446,706
240 Castorama Dubois 41,076
353 Chargeurs International S.A. 15,328(b)
1,610 Cie de St. Gobain 217,291
880 Credit Local De France 75,702
5,730 Eaux Cie Generale 684,798
60 Ecco 14,400
630 GTM Entrepose 29,883
593 Guilbert S.A. 94,300
510 Havas S.A. 33,498
1,340 Lapeyre 65,578
459 Legrand 79,635
231 L'Oreal 78,212
353 Pathe S.A. 95,215(b)
1,240 Pinault Printemps Redoute 467,622
760 Primagaz 78,490
285 Rexel 84,455
660 Sanofi 59,784
2,000 Schneider S.A. 97,800(b)
340 Societe Generale 36,643
2,070 Societe Nationale
Elf Aquitaine 165,519
500 Sodexho 241,076
2,080 Television Francaise 221,324
4,353 Total 'B' 340,492
------------
Total France 4,163,653
------------
GERMANY - 4.4% (a)
COMMON STOCKS
107 Allianz Holdings 192,040
46 Altana 36,754
11,732 Bayer 443,281
1,600 Bifinger & Berger Bau AG 64,765
100 Buderas 45,232
2,150 Deutsche Bank 99,578
7,550 Gehe AG 508,518
1,560 Hoechst AG 58,665
200 Hornbach Baumarkt 6,471
255 Mannesmann 99,010
800 Praktiker Bau und Heimwerker
Markte 16,376
990 Rhoen Klinikum 118,978
380 SAP AG 51,439
550 Schering 44,253
849 Siemens AG 43,868
258 Siemens AG, Stock Warrants 21,807(b)
4,990 Veba 266,140
110 Veba International, Finance
Warrants Expiring 4/6/98 31,161(b)
123 Volkswagen 48,428
------------
2,196,764
------------
PREFERRED STOCKS
610 Fielmann 25,376
710 Hornbach Holdings AG 44,539
40 Krones 14,131
354 SAP AG 47,639
------------
131,685
------------
Total Germany 2,328,449
------------
HONG KONG - 4.8% (a)
COMMON STOCKS
65,000 Cathay Pacific Airways 101,717
32,000 Doa Heng Bank Ltd. 140,710
117,217 First Pacific 161,450
132,000 Guangdong Investments 94,747
309,000 Guangzhou Investment
Co. Ltd. 99,907
38,000 Guoco Group 201,004
189,625 Hong Kong Land
Holdings (USD) 422,864
259,000 Hopewell Holdings 174,181
47,000 Hutchison Whampoa 328,238
55,000 New World Development
Co. Ltd. 320,090
25,000 Swire Pacific 'A' 220,668
65,000 Wharf Holdings 268,164
------------
Total Hong Kong 2,533,740
------------
ITALY - 1.7% (a)
COMMON STOCKS
2,455 Assicurazioni Generali 47,417
47,480 Banca Fideuram 100,625
11,000 Ente Nazionale Idrocarburi 52,680
4,000 Finanziaria Autogrill SpA 4,082(b)
7,010 IMI SpA 55,475
360 Industrie Natuzzi SpA
ADR (USD) 16,335
9,000 Istituto Nazionale delle
Assicurazioni 12,429
14,000 Italgas 51,681
150 La Rinascente SpA.,
Stock Warrants 64(b)
5,100 Mediolanum SpA 50,546(b)
5,000 Rinascente 29,565
5,175 Sasib Di Risp 8,955
38,000 Societa' Finazaria
Telfonica SpA 131,259
18,000 Societa' Finazaria Telfonica
SpA, RNC 47,937
37,771 Telecom Italia 84,157
75,896 Telecom Italia Mobile 156,845(b)
13,784 Telecom Italia Mobile RNC 15,719
2,000 Unicem 13,316(b)
------------
Total Italy 879,087
------------
JAPAN - 22.6% (a)
COMMON STOCKS
1,100 Advantest Corp. 41,544
8,000 Alps Electric 99,073
17,000 Amada 146,326
23,000 Canon 440,385
10,000 Citizen Watch Co. 75,974
15,000 Dai Nippon Screen
Manufacturing Co. Ltd. 118,440(b)
3,000 Daifuku 36,889
17,000 Daiichi Pharmaceutical 244,873
19,000 Daiwa House 263,669
22 DDI Corp. 165,210
47 East Japan Railway 215,897
4,000 Fanuc 128,233
27,000 Hitachi 239,515
22,000 Hitachi Zosen 107,435
2,000 Honda Motor Co. 47,780
7,000 Inax 59,514
8,000 Ishihara Sangyo Kaisha 23,960(b)
6,000 Ito-Yokado 299,328
8,000 Kao Corp. 94,155
2,000 Kawada Industries 14,404
8,000 Kokuyo 198,147
21,000 Komatsu 171,903
6,000 Komori 134,908
15,000 Kumagai Gumi 47,429
16,000 Kuraray 154,583
7,000 Kyocera 461,728
11,000 Makita 150,718
13,000 Marui 240,920
20,000 Matsushita Electric Industrial 319,705
11,000 Mitsubishi 122,700
64,000 Mitsubishi Heavy Industries 491,854
11,000 Mitsubishi Paper Mills 52,945
33,000 Mitsui Fudosan 408,678
6,000 Mitsui Petrochemical
Industries 36,415
8,000 Murata Manufacturing 257,169
4,000 National House Industrial 57,617
41,000 NEC 446,533
21,000 Nippon Denso 435,291
4,000 Nippon Hodo 55,860
100,000 Nippon Steel 291,599
22 Nippon Telegraph & Telecom 153,616
21,000 Nomura Securities 346,757
9,000 Pioneer Electronic 177,858
2,000 Sangetsu Co. Ltd. 42,686
15,000 Sankyo 371,525
2,700 Sega Enterprises 109,086
23,000 Sekisui Chemical 256,554
14,000 Sekisui House 147,556
2,100 Seven-Eleven Japan 122,103
18,000 Sharp 273,506
13,350 Shin-Etsu Chemical 228,646
5,600 Sony 335,936
31,000 Sumitomo 250,222
32,000 Sumitomo Electric 421,589
10,000 Sumitomo Forestry 141,408
6,000 TDK 352,027
37,000 Teijin 171,262
8,000 Tokio Marine & Fire Insurance 87,831
3,000 Tokyo Electronics 77,203
8,000 Tokyo Steel Manufacturing 123,666
13,000 Toppan Printing 158,711
6,000 Uny Co. 103,816
3,150 Yurtec 45,927
------------
Total Japan 11,898,797
------------
MALAYSIA - 2.5% (a)
COMMON STOCKS
97,000 Affin Holdings BHD 249,555
13,000 Affin Holdings BHD,
Stock Warrants 13,893(b)
30,000 Commerce Asset
Holding BHD 195,923
63,000 MBF Capital 86,776
103,000 Multi-Purpose Holdings 176,117
89,000 Renong BHD 140,202
10,000 Renong BHD - 4% ICULS
Rights 3,661(b)
6,250 Renong BHD, Stock Warrants 2,548(b)
51,000 Technology Resources
Industries BHD 122,125(b)
40,000 United Engineers 316,643
------------
Total Malaysia 1,307,443
------------
MEXICO - 1.4% (a)
COMMON STOCKS
15,620 Cementos de Mexico
ADR (USD) 105,435
13,267 Cemex 'B' 47,868
10,744 Cemex S.A. de C.V. 36,359
69,062 Cifra 'B' ADR (USD) 83,910(b)
12,994 Gruma 'B' 59,817(b)
423 Grupo Financiero Banamex
Accival 'L' 863(b)
18,000 Grupo Financiero
Banamex 'B' 37,847(b)
36,760 Grupo Industrial Maseca 'B' 44,638
740 Grupo Televisa GDR (USD) 19,425(b)
3,110 Kimberly-Clark Mexico 'A' 59,433
1,990 Panamerican Beverages
'A' ADR (USD) 86,814
5,920 Telefonos de Mexico
'L' ADR (USD) 180,560
------------
Total Mexico 762,969
------------
NETHERLANDS - 10.5% (a)
COMMON STOCKS
4,110 ABN Amro Holdings 232,303
3,533 Ahold 206,145
137 Akzo Nobel 17,263
5,410 CSM 285,375
63,992 Elsevier 1,063,579
5,320 Fortis Amev N.V. 158,970
1,090 Hagemeyer 81,909
12,525 Internationale Nederlanden
Groep 390,507
12,258 Internationale Nederlanden
Groep, Stock Warrants 66,828(b)
1,942 Koninklijke PTT Nederland 70,277
840 Nutricia 117,829
940 Otra N.V. 17,618
6,680 Polygram 313,783
6,560 Royal Dutch Petroleum 1,083,345
2,040 Unilever 310,202
8,919 Wolters Kluwer 1,146,481
------------
Total Netherlands 5,562,414
------------
NEW ZEALAND - 0.6% (a)
COMMON STOCKS
16,000 Carter Holt Harvey 35,996
7,000 Fernz 24,514
8,250 Fletcher Challenge Building 22,354(b)
2,250 Fletcher Challenge Energy 6,415(b)
42,000 Fletcher Challenge Forests
Division 70,124
4,500 Fletcher Challenge Paper 8,150(b)
28,000 Telecom Corp. of
New Zealand 145,596
------------
Total New Zealand 313,149
------------
NORWAY - 1.5% (a)
COMMON STOCKS
1,200 Bergesen 'A' 26,235
8,870 Norsk Hydro 408,692
4,970 Orkla 'A' 317,791
1,460 Saga Petroleum 'B' 22,881
------------
Total Norway 775,599
------------
PHILIPPINES - 0.1% (a)
COMMON STOCKS
4,000 Philippine National Bank 46,043
------------
PORTUGAL - 0.5% (a)
COMMON STOCKS
2,740 Jeronimo Martins 249,921
------------
RUSSIA - 0.05% (a)
COMMON STOCKS
860 Gazprom ADR (USD) 16,125(b)
------------
SINGAPORE - 1.9% (a)
COMMON STOCKS
23,000 DBS Land 72,503
7,000 Development Bank of
Singapore 83,990
7,000 Far East Levingston
Shipbuilding 32,677
3,400 Fraser & Neave Ltd. 33,795
4,000 Keppel 29,819
33,000 Overseas Union Bank 224,920
2,000 Singapore Airlines 17,607
27,000 Singapore Land 149,521
5,000 Singapore Press 83,067
43,000 United Industrial 35,719
24,000 United Overseas Bank 233,440
3,000 United Overseas Bank,
Stock Warrants 10,650(b)
------------
Total Singapore 1,007,708
------------
SOUTH KOREA - 0.8% (a)
COMMON STOCKS
5,700 Korea Electric Power Corp.
ADR (USD) 102,600
8,378 Korea Equity Fund (USD) 141,379
500 Pohang Iron & Steel
ADR (USD) 10,375
390 Samsung Electronics GDR,
Bonus (USD) 13,644(b)
2,300 Samsung Electronics
GDR (USD) 106,375(b)
2,000 Samsung Electronics GDR,
non voting (USD) 43,000(b)
------------
Total South Korea 417,373
------------
SPAIN - 2.4% (a)
COMMON STOCKS
790 Banco Popular Espanol 151,010
2,800 Banco Santander 143,736
870 Centros Comerciales
Continente S.A. 17,660(b)
2,131 Centros Comerciales Pryca 48,935
1,682 Corporacion Bancaria de
Espana S.A. 65,912
4,496 Empresa Nacional de
Electridad 275,197
190 Fomento de Construcciones y
Contra 15,427
835 Gas Natural 146,065
582 General de Aguas de
Barcelona S.A. 23,810
10,910 Iberdrola 115,859
5,983 Repsol S.A. 195,299
2,730 Telefonica de Espana 54,773
------------
Total Spain 1,253,683
------------
SWEDEN - 2.7% (a)
COMMON STOCKS
840 Asea 'A' 95,169
12,340 Astra AB 'B' 562,982
4,850 Atlas Copco 'B' 99,940
3,480 Electrolux 'B' 193,695
1,100 Esselte 'B' 24,591
1,680 Hennes & Mauritz 'B' 222,528
660 Sandvik 'A' 15,557
5,970 Sandvik 'B' 140,723
1,370 Scribona 'B' 15,105
3,190 Stora Kopparberg 'B' 40,993(b)
------------
Total Sweden 1,411,283
------------
SWITZERLAND - 4.7% (a)
COMMON STOCKS
704 Adecco S.A. 197,722
326 BBC Brown Boveri & Cie 402,857
185 Ciba Geigy 227,884
860 CS Holding 85,898
405 Nestle 439,925
76 Roche Holdings 574,810
345 Sandoz 398,770
830 Schwizerischer Bankverein 159,893
------------
Total Switzerland 2,487,759
------------
THAILAND - 0.5% (a)
COMMON STOCKS
4,100 Advanced Information
Service plc
(Foreign Registered) 55,642
7,020 Bangkok Bank 74,895
7,250 Bank of Ayudhya 20,759
400 Siam Cement 13,681
5,640 Siam Commercial Bank 51,323
5,800 Thai Farmers Bank Public
Co. Ltd. 44,362
725 Thai Farmers Bank Public
Co. Ltd., Stock Warrants 1,102(b)
2,600 Total Access Communication
Public Co. Ltd. ADR (USD) 17,940(b)
------------
Total Thailand 279,704
------------
UNITED KINGDOM - 16.0% (a)
COMMON STOCKS
44,000 Abbey National 456,901
22,706 Argos plc 285,118
33,000 Argyll Group 195,776
97,000 Asda Group 184,717
21,000 British Gas 65,283
14,000 British Petroleum 150,448
35,100 Cable & Wireless 278,789
26,400 Cadbury Schweppes 220,000
48,000 Caradon 188,672
13,000 Coats Viyella 32,373
14,000 Compass Group 139,225
26,000 David S. Smith 132,031
11,600 East Midlands Electricity 102,897
15,000 Electrocomponents 100,952
3,000 GKN 56,396
27,500 Glaxo Wellcome 431,925
42,000 Grand Metropolitan 316,846
5,000 Heywood Williams Group 20,101
16,000 Hillsdown Holdings 45,313
11,000 John Laing 'A' 48,250
40,000 Kingfisher 426,432
13,000 London Electricity 128,011
9,960 National Grid Group 29,180
74,000 National Westminster Bank 844,906
29,000 Rank Group plc 192,814
37,000 Reed International 688,932
11,000 Rolls Royce 45,565
19,800 RTZ 316,787
10,000 Sears 14,160
34,000 Shell Transport & Trading 557,259
64,000 SmithKline Beecham 790,625
30,000 T & N 62,988
32,000 Tesco 173,437
83,000 Tomkins 348,535
34,500 United News & Media 378,468
------------
Total United Kingdom 8,450,112
------------
SHORT-TERM
SECURITIES - 5.5% (a)
U.S. Government Agency
$2,910,000 Federal Home Loan Mortgage
Discount Notes, 5.5%,
due 11/1/1996 $ 2,910,000
------------
Total Investments $ 52,728,898(c,d)
============
NOTES TO PORTFOLIO OF INVESTMENTS:
- ----------------------------------
(a) The categories of investments are shown as a percentage
of total investments of the Lutheran Brotherhood World
Growth Fund.
(b) Currently non-income producing.
(c) Security Classification:
Cost Value % of Portfolio
------------ ---------- ---------------
Common Stocks
& Warrants $46,888,600 $49,687,213 94.2%
Preferred Stocks 160,193 131,685 0.3%
Short-Term 2,910,000 2,910,000 5.5%
----------- ----------- -----
Total Investments $49,958,793 $52,728,898 100.0%
=========== =========== =====
(d) At October 31, 1996, the aggregate cost of securities for
federal income tax purposes was $50,033,791 and the net
unrealized appreciation of investments based on that cost
was $2,695,107 which is comprised of $4,518,429 aggregate
gross unrealized appreciation and $1,823,322 aggregate gross
unrealized depreciation.
(e) Miscellaneous Footnotes:
(ADR) - American Depository Receipts
(GDR) - Global Depository Receipts
(HKD) - Denominated in Hong Kong Dollars
(USD) - Denominated in U.S. Dollars
The accompanying notes are an integral part of the financial statements.
LUTHERAN BROTHERHOOD FUND
Portfolio of Investments
October 31, 1996
Shares Value
- ----------- ------------
[S] [C]
COMMON STOCKS - 96.5% (a)
Aerospace - 1.9%
158,500 Boeing Co. $ 15,116,937
------------
Airlines - 0.7%
245,000 Southwest Airlines Co. 5,512,500
------------
Automotive - 2.1%
303,000 General Motors Corp. 16,324,125
------------
Bank & Finance - 14.2%
151,300 American International
Group, Inc. 16,434,962
259,000 Bank of New York Co., Inc. 8,579,375
163,000 Citicorp 16,137,000
431,000 Federal National Mortgage
Association 16,862,875
230,000 First Bank System, Inc. 15,180,000
187,000 Green Tree Financial Corp. 7,409,875
210,000 MBNA Corp. 7,927,500
109,000 MGIC Investment Corp. 7,480,125
88,000 NationsBank Corp. 8,294,000
30,900 Wells Fargo & Co. 8,254,163
------------
112,559,875
------------
Chemicals - 2.8%
259,000 Air Products &
Chemicals, Inc. 15,540,000
139,000 Hercules, Inc. 6,619,875
------------
22,159,875
------------
Computer Software - 2.8%
125,000 Computer Associates
International, Inc. 7,390,625
56,000 Microsoft Corp. 7,686,000(b)
174,000 Oracle Corp. 7,362,375(b)
------------
22,439,000
------------
Computers & Office
Equipment - 3.9%
250,000 Cisco Systems, Inc. 15,468,750(b)
162,000 Hewlett Packard Co. 7,148,250
30,000 Ingram Micro, Inc., Class A 540,000(b)
61,000 International Business
Machines 7,869,000
------------
31,026,000
------------
Conglomerates - 4.0%
231,000 AlliedSignal, Inc. 15,130,500
322,000 Dover Corp. 16,542,750
------------
31,673,250
------------
Drugs & Health Care - 9.7%
151,100 Abbott Laboratories 7,649,437
118,200 Amgen, Inc. 7,247,138(b)
343,000 Becton, Dickinson & Co. 14,920,500
116,000 Eli Lilly & Co. 8,178,000
145,000 Johnson & Johnson 7,141,250
215,600 Merck & Co., Inc. 15,981,350
95,000 Pfizer, Inc. 7,861,250
122,000 Warner-Lambert Co. 7,762,250
------------
76,741,175
------------
Electric Utilities - 2.9%
280,000 Entergy Corp. 7,840,000
173,900 FPL Group, Inc. 7,999,400
326,000 Southern Co. 7,212,750
------------
23,052,150
------------
Electrical Equipment - 2.0%
167,400 General Electric Co. 16,195,950
------------
Electronics - 2.6%
120,000 Atmel Corp. 3,045,000
105,200 Intel Corp. 11,558,850
126,200 Motorola, Inc. 5,805,200
------------
20,409,050
------------
Food & Beverage - 4.9%
303,000 Coca-Cola Co. 15,301,500
245,400 PepsiCo, Inc. 7,269,975
44,500 Salomon, Inc., (Snapple, Inc.,
Equity-Linked Security) 636,906
424,300 Sara Lee Corp. 15,062,650
------------
38,271,031
------------
Healthcare
Management - 1.1%
187,000 Oxford Health Plans, Inc. 8,508,500(b)
------------
Household Products - 4.0%
86,000 Colgate Palmolive Co. 7,912,000
105,000 Gillette Co. 7,848,750
155,100 Procter & Gamble Co. 15,354,900
------------
31,115,650
------------
Leisure &
Entertainment - 3.1%
239,800 Disney (Walt) Co. 15,796,825
303,000 Mattel, Inc. 8,749,125
------------
24,545,950
------------
Machinery &
Equipment - 2.0%
182,000 Deere & Co. 7,598,500
124,000 Fluor Corp. 8,122,000
------------
15,720,500
------------
Mining & Metals - 1.8%
128,000 Aluminum Co. of America 7,504,000
143,000 Nucor Corp. 6,774,625
------------
14,278,625
------------
Oil & Oil Service - 9.9%
210,300 Amoco Corp. 15,930,225
238,300 Chevron Corp. 15,668,225
176,000 Exxon Corp. 15,598,000
287,300 Halliburton Co. 16,268,362
128,400 Mobil Corp. 14,990,700
------------
78,455,512
------------
Paper & Forest
Products - 0.9%
166,000 Champion International Corp. 7,221,000
------------
Photography - 1.0%
96,600 Eastman Kodak Co. 7,703,850
------------
Railroads - 0.8%
146,000 CSX Corp. 6,296,250
------------
Restaurants - 1.8%
321,400 McDonald's Corp. 14,262,125
------------
Retail - 7.3%
176,500 Albertson's, Inc. 6,067,188
232,000 Federated Department Stores 7,656,000(b)
71,900 Gap, Inc. 2,085,100
339,000 Kroger Co. 15,127,875(b)
170,000 Melville Corp. 6,332,500
333,400 OfficeMax, Inc. 4,500,900(b)
166,500 Sears, Roebuck & Co. 8,054,438
299,100 Wal-Mart Stores, Inc. 7,963,538
------------
57,787,539
------------
Services - 2.0%
183,500 First Data Corp. 14,634,125
30,500 SABRE Group Holdings,
Inc., Class A 930,250(b)
------------
15,564,375
------------
Telecommunications Equipment - 0.5%
88,474 Lucent Technologies, Inc. 4,158,278
------------
Telephone &
Telecommunications - 5.8%
280,700 Ameritech Corp. 15,368,325
273,000 AT&T Corp. 9,520,875
340,000 Paging Network, Inc. 5,822,500(b)
309,600 SBC Communications, Inc. 15,054,300
------------
45,766,000
------------
Total Common Stock
(cost $632,153,195) 762,865,072
------------
U.S. GOVERNMENT - 0.3% (a)
$2,000,000 U.S. Treasury Notes, 8.75%,
due 10/15/1997
(cost $2,014,502) $ 2,060,000
------------
SHORT-TERM
SECURITIES - 3.2% (a)
Commercial Paper
10,500,000 Associates Corp. of
North America, 5.6%,
due 11/1/1996 10,500,000
4,100,000 General Electric Capital Corp.,
5.6%, due 11/1/1996 4,100,000
10,700,000 Gillette Co., 5.62%,
due 11/1/1996 10,700,000
------------
Total Short-Term Securities
(at amortized cost) 25,300,000
------------
Total Investments
(cost $659,467,697) $790,225,072(c)
============
NOTES TO PORTFOLIO OF INVESTMENTS:
- ----------------------------------
(a) The categories of investments are shown as a percentage of
total investments of the Lutheran Brotherhood Fund.
(b) Currently non-income producing.
(c) At October 31, 1996, the aggregate cost of securities for
federal income tax purposes was $659,692,696 and the net
unrealized appreciation of investments based on that cost
was $130,532,376 which is comprised of $145,703,847 aggregate
gross unrealized appreciation and $15,171,471 aggregate gross
unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD HIGH YIELD FUND
Portfolio of Investments
October 31, 1996
Principal Maturity
Amount Rate Date Value
- -------------- ------ ------------- -----------
<S> <C> <C> <C>
CORPORATE BONDS - 78.7 % (a)
Airlines - 0.7%
$ 4,500,000 U.S. Air, Inc., Sr. Secured Equipment Trust, Series 1993-A-3 10.375% 3/1/2013 $ 4,522,500
------------
Automotive - 0.4%
4,950,000 Exide Corp., Convertible Sr. Subordinated Notes 2.9% 12/15/2005 3,031,875
------------
Bank & Finance - 3.9%
3,250,000 Chevy Chase Savings Bank, Subordinated Debentures 9.25% 12/1/2005 3,380,000
7,600,000 First Nationwide Holdings, Inc., Sr. Notes 12.5% 4/15/2003 8,265,000
4,000,000 HomeSide, Inc., Sr. Secured Second Priority Notes 11.25% 5/15/2003 4,390,000
2,400,000 Outsourcing Solutions, Inc., Sr. Subordinated Notes 11.0% 11/1/2006 2,400,000
6,353,210 Scotsman Holdings, Sr. Notes, Payment-In-Kind, Series B 11.0% 3/1/2004 6,519,981
2,000,000 Trizec Finance Ltd., Sr. Notes 10.875% 10/15/2005 2,210,000
------------
27,164,981
------------
Broadcasting - 18.0%
3,450,000 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 8/15/2005 2,018,250
6,025,424 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 6/15/2004 4,127,415
4,100,000 Australis Holdings Pty Ltd., Units Zero Coupon 11/1/2002 2,298,870
10,650,000 Australis Media Ltd., Sr. Subordinated Discount Notes Zero Coupon 5/15/2003 6,283,500
6,900,000 Benedek Communications Corp., Sr. Discount Notes Zero Coupon 5/15/2006 3,829,500
5,100,000 Cablevision Industries, Debentures, Series B 9.25% 4/1/2008 5,447,004
2,150,000 Charter Communications Southeast Holdings, L.P.,
Sr. Discount Notes, Series B Zero Coupon 3/15/2007 1,236,250
10,920,000 CS Wireless Systems, Inc., Sr. Discount Notes Zero Coupon 3/1/2006 5,132,400
1,450,000 Diamond Cable Communications plc, Sr. Discount Notes Zero Coupon 12/15/2005 957,000
4,000,000 EchoStar Satellite Broadcasting Corp.,
Sr. Secured Discount Notes Zero Coupon 3/15/2004 2,825,000
12,217,719 Falcon Holdings Group L.P., Sr. Subordinated Notes, Series B 11.0% 9/15/2003 11,179,212
9,000,000 Groupo Televisa S.A., Sr. Discount Debentures Zero Coupon 5/15/2008 5,535,000
6,900,000 Groupo Televisa S.A., Sr. Notes 11.875% 5/15/2006 7,331,250
9,200,000 InterMedia Capital Partners IV, L.P., Sr. Notes 11.25% 8/1/2006 9,200,000
4,100,000 International CableTel, Inc., Convertible Subordinated Notes 7.0% 6/15/2008 3,889,875
3,350,000 International CableTel, Inc., Convertible Subordinated Notes 7.25% 4/15/2005 3,525,875
5,400,000 International CableTel, Inc., Sr. Deferred Notes, Series A Zero Coupon 2/1/2006 3,294,000
4,600,000 International CableTel, Inc., Sr. Notes, Series A Zero Coupon 4/15/2005 3,151,000
5,350,000 Jacor Communications, Inc., Convertible
Liquid Yield Option Notes Zero Coupon 6/12/2011 2,420,875
2,800,000 Le Groupe Videotron Ltee., Sr. Notes 10.625% 2/15/2005 3,097,500
5,200,000 NWCG Holdings Corp., Sr. Secured Discount Notes, Series B Zero Coupon 6/15/1999 4,264,000
9,500,000 People's Choice TV Corp., Sr. Discount Notes Zero Coupon 6/1/2004 5,272,500
5,200,000 Rogers Cablesystems Ltd., Sr. Secured Second Priority Notes 9.625% 8/1/2002 5,317,000
6,000,000 Rogers Communications, Inc., Convertible Debentures 2.0% 11/26/2005 3,172,500
900,000 Rogers Communications, Inc., Convertible
Liquid Yield Option Notes Zero Coupon 5/20/2013 344,250
2,750,000 Rogers Communications, Inc., Sr. Notes 9.125% 1/15/2006 2,598,750
5,000,000 Scott Cable Communications, Inc., Subordinated Debentures 12.25% 4/15/2001 3,500,000(c)
1,100,000 Tele-Communications International, Inc.,
Convertible Subordinated Debentures 4.5% 2/15/2006 880,000
5,600,000 UIH Australia/Pacific, Inc., Sr. Discount Notes, Series B Zero Coupon 5/15/2006 2,954,000
7,350,000 United International Holdings, Inc., Sr. Discount Notes Zero Coupon 11/15/1999 5,145,000
4,600,000 Wireless One, Inc., Sr. Notes 13.0% 10/15/2003 4,726,500
------------
124,954,276
------------
Building Products & Materials - 0.9%
5,750,000 CEMEX S.A. de C.V., Notes 12.75% 7/15/2006 6,202,812
------------
Computers & Office Equipment - 2.8%
8,275,000 Dictaphone Corp., Sr. Subordinated Notes 11.75% 8/1/2005 7,633,687
2,000,000 National Data Corp., Convertible Subordinated Notes 5.0% 11/1/2003 2,000,000
6,150,000 Unisys Corp., Sr. Notes 11.75% 10/15/2004 6,273,000
3,400,000 Unisys Corp., Sr. Notes 12.0% 4/15/2003 3,502,000
------------
19,408,687
------------
Construction & Home Building - 2.0%
8,250,000 Peters (J.M.) Co., Inc., Sr. Notes 12.75% 5/1/2002 7,837,500
5,250,000 The Fortress Group, Inc., Sr. Notes 13.75% 5/15/2003 5,591,250
------------
13,428,750
------------
Consumer Products - 1.1%
7,450,000 National Fiberstok Corp., Sr. Notes 11.625% 6/15/2002 7,785,250
------------
Containers & Packaging - 0.7%
5,200,000 Riverwood International Corp., Sr. Subordinated Notes 10.875% 4/1/2008 4,790,500
------------
Drugs & Health Care - 1.5%
4,245,800 General Medical Corp., Payment-In-Kind Debentures 12.125% 8/15/2005 4,394,403
2,450,000 Owens & Minor, Inc., Sr. Subordinated Notes 10.875% 6/1/2006 2,560,250
4,800,000 Unilab Corp., Sr. Notes 11.0% 4/1/2006 3,648,000
------------
10,602,653
------------
Electric Utilities - 0.8%
1,750,000 Midland Cogen Venture Fund II, Secured Lease Obligation
Bonds, Series A 11.75% 7/23/2005 1,916,250
3,000,000 Midland Cogen Venture Fund II, Subordinated Secured
Lease Obligation Bonds 13.25% 7/23/2006 3,435,000
------------
5,351,250
------------
Electrical Equipment - 2.7%
5,000,000 Advanced Micro Devices, Inc., Sr. Secured Notes 11.0% 8/1/2003 5,250,000
4,650,000 Protection One Alarm Monitoring, Convertible Sr.
Subordinated Notes 6.75% 9/15/2003 4,469,812
5,550,000 Protection One Alarm Monitoring, Sr. Subordinated
Discount Notes Zero Coupon 6/30/2005 5,133,750
3,750,000 Telex Communications, Inc., Sr. Notes 12.0% 7/15/2004 4,068,750
------------
18,922,312
------------
Food & Beverage - 1.7%
3,450,000 Curtice-Burns Food, Inc., Sr. Subordinated Notes 12.25% 2/1/2005 3,432,750
5,500,000 Fresh Del Monte Corp., Sr. Notes, Series B 10.0% 5/1/2003 5,087,500
3,250,000 International Home Foods, Inc., Sr. Subordinated Notes 10.375% 11/1/2006 3,282,500
------------
11,802,750
------------
Hospital Management - 3.9%
5,250,000 Merit Behavioral Care Corp., Sr. Subordinated Notes 11.5% 11/15/2005 5,565,000
4,000,000 Paracelsus Healthcare Corp., Sr. Subordinated Notes 10.0% 8/15/2006 3,755,000
3,350,000 PhyMatrix Corp., Convertible Subordinated Debentures 6.75% 6/15/2003 2,809,812
4,150,000 Regency Health Services, Inc., Sr. Subordinated Notes 9.875% 10/15/2002 4,191,500
3,100,000 Regency Health Services, Inc., Subordinated Notes 12.25% 7/15/2003 3,301,500
3,850,000 Rotech Medical Corp., Convertible Subordinated Debentures 5.25% 6/1/2003 3,296,563
4,100,000 Unison HealthCare Corp., Sr. Notes 12.25% 11/1/2006 4,120,500
------------
27,039,875
------------
Household Products - 2.8%
5,150,000 BPC Holding Corp., Sr. Secured Notes, Series B 12.5% 6/15/2006 5,381,750
24,000,000 Coleman Worldwide Corp., Convertible Liquid Yield
Option Notes Zero Coupon 5/27/2013 6,870,000
2,250,000 Rayovac Corp., Sr. Subordinated Notes 10.25% 11/1/2006 2,283,750
4,750,000 Simmons Co., Sr. Subordinated Notes 10.75% 4/15/2006 4,904,375
------------
19,439,875
------------
Leisure & Entertainment - 1.9%
8,500,000 AMF Group, Inc., Sr. Subordinated Discount Notes, Series B Zero Coupon 3/15/2006 5,227,500
5,000,000 Host Marriott Travel Plazas, Sr. Secured Notes, Series B 9.5% 5/15/2005 5,081,250
3,000,000 IMAX Corp., Sr. Notes 7.0% 3/1/2001 3,000,000
------------
13,308,750
------------
Mining & Metals - 0.8%
5,700,000 Commonwealth Aluminum Corp., Sr. Subordinated Notes 10.75% 10/1/2006 5,771,250
------------
Oil & Gas - 1.9%
4,800,000 Kelley Oil & Gas Corp., Sr. Subordinated Notes 10.375% 10/15/2006 4,824,000
4,258,000 Petroleum Heat & Power Co., Inc., Subordinated Debentures 12.25% 2/1/2005 4,705,090
3,300,000 Veritas DGC, Inc., Sr. Notes 9.75% 10/15/2003 3,337,125
------------
12,866,215
------------
Paper & Forest Products - 0.6%
4,100,000 FSW International Finance Co. B.V., Guaranteed Secured Notes 12.5% 11/1/2006 4,146,125
------------
Pollution Control - 0.5%
3,000,000 Norcal Waste Systems, Inc., Sr. Notes, Series B 12.75% 11/15/2005 3,255,000
------------
Publishing & Printing - 3.8%
800,000 Goss Graphic Systems, Inc., Sr. Subordinated Notes 12.0% 10/15/2006 808,000
2,500,000 K-III Communications Corp., Sr. Notes 10.25% 6/1/2004 2,618,750
10,300,000 Neodata Services, Inc., Sr. Notes, Series B 12.0% 5/1/2003 10,557,500
3,500,000 News America Holdings, Inc., Convertible Liquid
Yield Option Notes Zero Coupon 3/11/2013 1,684,375
750,000 News America Holdings, Inc., Subordinated Notes Zero Coupon 3/31/2002 712,500
5,250,000 Park Newspapers, Inc., Sr. Notes, Series B 11.875% 5/15/2004 6,063,750
4,150,000 Sullivan Graphics, Inc., Sr. Subordinated Notes 12.75% 8/1/2005 4,015,125
------------
26,460,000
------------
Retail - 0.8%
2,250,000 F & M Distributors, Inc., Sr. Subordinated Notes 11.5% 4/15/2003 70,312(c)
5,100,000 Lifestyle Furnishings International Ltd. 10.875% 8/1/2006 5,355,000
5,000,000 Wherehouse Entertainment, Inc., Sr. Subordinated Notes 13.0% 8/1/2002 237,500(c)
------------
5,662,812
------------
Retail: Food - 3.3%
3,000,000 Dominick's Finer Foods, Sr. Subordinated Notes 10.875% 5/1/2005 3,322,500
5,550,000 Jitnay-Jungle Stores of America, Sr. Notes 12.0% 3/1/2006 5,938,500
4,850,000 Pueblo Xtra International, Inc., Sr. Notes 9.5% 8/1/2003 4,365,000
4,800,000 Ralphs Grocery Co., Sr. Notes 10.45% 6/15/2004 4,884,000
2,500,000 Smith's Food & Drug Centers, Pass Through Certificates 8.64% 7/2/2012 2,146,875
2,000,000 TLC Beatrice International Holdings, Sr. Secured Notes 11.5% 10/1/2005 2,110,000
------------
22,766,875
------------
Services - 0.4%
2,800,000 Intertek Finance plc, Sr. Subordinated Notes 10.25% 11/1/2006 2,800,000
------------
Telecommunications - 19.8%
10,100,000 American Communications Services, Sr. Discount Notes Zero Coupon 11/1/2005 5,757,000
3,550,000 A+ Network, Inc., Sr. Subordinated Notes 11.875% 11/1/2005 3,550,000
6,000,000 Call-Net Enterprises, Inc., Sr. Discount Notes Zero Coupon 12/1/2004 4,740,000
7,350,000 Clearnet Communications, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 4,501,875
2,200,000 Comcast Cellular, Inc., Sr. Participation Redeemable
Notes, Series B Zero Coupon 3/5/2000 1,567,500
5,400,000 Comcast Cellular, Inc., Sr. Redeemable Notes Zero Coupon 3/5/2000 3,847,500
1,060,000 GST Telecommunications, Inc., Sr. Subordinated Notes Zero Coupon 12/15/2005 890,400
9,980,000 GST USA, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 5,688,600
10,050,000 Hyperion Telecommunications, Sr. Discount Notes, Series B Zero Coupon 4/15/2003 5,728,500
3,350,000 In-Flight Phone Corp., Sr. Discount Notes, Series B Zero Coupon 5/15/2002 1,088,750
3,650,000 IntelCom Group Holdings (U.S.A.), Inc., Sr. Discount Notes Zero Coupon 9/15/2005 2,413,563
3,300,000 Intermedia Communications of Florida, Sr. Notes, Series B 13.5% 6/1/2005 3,770,250
9,800,000 Ionica plc, Units 13.5% 8/15/2006 9,898,000
9,150,000 IXC Communications, Inc., Sr. Notes, Series B 12.5% 10/1/2005 9,538,875
7,200,000 Microcell Telecommunications, Inc., Units Zero Coupon 6/1/2006 4,095,000
11,550,000 Millicom International Cellular S.A., Sr. Discount Notes Zero Coupon 6/1/2006 6,670,125
8,250,000 NEXTEL Communications, Inc., Sr. Discount Notes Zero Coupon 8/15/2004 5,269,688
7,750,000 NEXTLINK Communications LLC, Sr. Discount Notes 12.5% 4/15/2006 7,963,125
6,150,000 ORBCOMM Global, L.P., Sr. Notes 14.0% 8/15/2004 6,242,250
11,500,000 PageMart Nationwide, Inc., Sr. Discount Exchange Notes Zero Coupon 2/1/2005 7,762,500
7,000,000 Paging Network, Inc., Sr. Subordinated Notes 10.0% 10/15/2008 6,938,750
2,000,000 PriCellular Wireless Corp., Sr. Notes 10.75% 11/1/2004 2,015,000
7,400,000 RSL Communications Ltd., Units 12.25% 11/15/2006 7,437,000
2,250,000 USA Mobile Communications, Inc., Sr. Notes 9.5% 2/1/2004 2,098,125
2,150,000 USA Mobile Communications, Inc., Sr. Notes 14.0% 11/1/2004 2,402,625
8,000,000 Viatel, Inc., Sr. Discount Notes Zero Coupon 1/15/2005 4,960,000
4,400,000 WinStar Communications, Inc., Convertible Sr.
Subordinated Discount Notes Zero Coupon 10/15/2005 3,080,000
12,400,000 WinStar Communications, Inc., Sr. Discount Notes Zero Coupon 10/15/2005 6,882,000
------------
136,797,001
------------
Transportation - 1.0%
6,000,000 Alamo Rent-A-Car, Inc., Sr. Notes 11.75% 1/31/2006 6,630,000
------------
Total Corporate Bonds (cost $542,405,823) 544,912,374
------------
FOREIGN GOVERNMENT BONDS - 0.3% (a, e)
2,050,000 Republic of Argentina (The), Sr. Unsubordinated Global Bonds
(cost $2,041,482) 11.0% 10/9/2006 2,003,875
------------
PREFERRED STOCKS - 11.7% (a)
35,141 Cablevision Systems Corp., Preferred Stock 3,224,187
36,135 Cablevision Systems Corp., Red. Exch., Preferred Stock, Series H 3,477,994
19,000 California Federal Bank, Preferred Stock, Series B 2,052,000
31,947 Communications & Power Industries, Inc., Convertible Preferred Stock, Series B 3,194,700
5,150 Consolidated Hydro, Inc., Preferred Stock 619,288(b)
40,000 First Nationwide Bank, Noncumulative Preferred Stock 4,590,000
45,500 Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 0(b,d)
146,000 Granite Broadcasting Corp., Convertible Preferred Stock 8,915,125
258,736 Harvard Industries, Inc., Exchangeable Payment-In-Kind Preferred Stock 5,627,508
93,000 K-III Communications Corp., Exchangeable Preferred Stock 2,487,750
25,050 K-III Communications Corp., Exchangeable Preferred Stock, Series B 2,486,208
40,500 K-III Communications Corp., Preferred Stock, Series D 3,817,125
49,000 K-Mart Financing I, Convertible Preferred Stock 2,327,500
125,000 MFS Communication, Inc., 8% Cumulative Convertible Preferred Stock 10,843,750
57,000 Mobile Telecommunications Technologies Corp., Convertible Preferred Stock 1,239,750
72,500 Network Imaging Corp., Convertible Preferred Stock, Series A 1,087,500
8,031 PanAmSat Corp., Convertible Preferred Stock 9,797,820
6,100 Paxson Communications Corp., Payment-In-Kind Preferred Stock 5,856,000
74,942 Riggs National Corp., Preferred Stock 2,135,847
122,500 River Bank America, Preferred Stock 2,909,375
43,500 SFX Broadcasting, Inc., 6.5% Convertible Preferred Stock, Series D 2,468,625
2,011 Silgan Holdings, Inc., Preferred Stock 2,121,605
------------
Total Preferred Stocks (cost $76,479,747 81,279,657
------------
COMMON STOCKS & STOCK WARRANTS - 3.5% (a,b)
11,700 American Communications Services, Stock Warrants 994,500
31,900 American Telecasting, Inc., Stock Warrants 199,400
147,860 Arch Communications Group, Common Stock 1,718,873
45,000 Bell & Howell Co., Common Stock 1,203,750
25,740 Clearnet Communications, Inc., Stock Warrants 218,790
1,890 Communications & Power Industries, Inc., Common Stock 189,000
9,270 Consolidated Hydro, Inc., Stock Warrants 0(d)
75,500 Envirotest Systems Corp., Class A Common Stock 245,375
112,013 Gaylord Container Corp., Class A Common Stock 840,098
154,623 Gaylord Container Corp., Stock Warrants 1,169,336
44,716 Grand Union Co., Stock Warrants 5,664
70,000 Harvard Industries, Inc., Class B Common Stock 656,250
9,650 Hyperion Telecommunications, Stock Warrants 434,250
7,400 In-Flight Phone Corp., Stock Warrants 0
160,000 IntelCom Group Communications, Inc., Common Stock 3,000,000
50,335 IntelCom Group (U.S.A.), Inc., Stock Warrants 780,193
141,000 InterCel, Inc., Common Stock 2,361,750
4,100 Intermedia Communications of Florida, Stock Warrants 205,000
32,180 JPS Textiles Group, Common Stock, Class A 322
99,948 Magellan Health Services, Common Stock 1,836,545
143,834 Memorex Telex N.V. ADR, Common Stock 44,948
3,981 Memorex Telex N.V. ADR, Stock Warrants 0
268,000 MobileMedia Corp., Class A Common Stock 544,375
4,586 NEXTEL Communications, Stock Warrants 46
26,250 PageMart Nationwide, Inc., Common Stock 210,000
140,000 Pagemart Wireless, Inc., Class A Common Stock 1,050,000
19,200 Payless Cashways, Inc., Stock Warrants 0
9,500 People's Choice TV Corp., Stock Warrants 9,500
31,400 Plantronics, Inc., Common Stock 1,181,425
19,360 Protection One Alarm Monitoring, Stock Warrants 193,600
20,000 Triangle Wire & Cable, Inc., Stock Warrants 0(d)
87,000 United International Holdings, Inc., Class A Common Stock 1,065,750
20,100 United International Holdings, Inc., Stock Warrants 402,000
288,800 Viatel, Inc., Common Stock 2,166,000
92,000 Wireless One, Inc., Common Stock 1,196,000
13,800 Wireless One, Inc., Stock Warrants 41,400
------------
Total Common Stocks & Stock Warrants (cost $29,276,975) 24,164,140
------------
SHORT-TERM SECURITIES - 5.8% (a)
Commercial Paper
Maturity
Rate Date
------ ---------
5,000,000 Canadian Wheat Board (Guaranteed Government of Canada) 5.35% 11/4/1996 4,997,771
2,396,000 Centerior Fuel Corp. 5.35% 11/6/1996 2,394,220
7,000,000 Delaware Funding Corp. 5.25% 11/14/1996 6,986,729
20,900,000 New Center Asset Trust 5.56% 11/1/1996 20,900,000
5,000,000 Sheffield Receivables Corp. 5.25% 11/1/1996 5,000,000
------------
Total Short-Term Securities (at amortized cost) 40,278,720
------------
Total Investments (cost $690,482,747) $692,638,766(f)
============
NOTES TO PORTFOLIO OF INVESTMENTS:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of the Lutheran Brotherhood
High Yield Fund.
(b) Currently non-income producing.
(c) Currently non-income producing and in default.
(d) Denotes restricted securities. These securities have been valued from the date of acquisition through
October 31, 1996, by obtaining quotations from brokers who are active with the issues. The following
table indicates the acquisition date and cost of restricted securities the Fund owned as of October 31, 1996:
Acquisition
Security Date Cost
--------------------------------------------- ------------ ----------
Consolidated Hydro, Inc., Stock Warrants 2/8/1994 $ 22,776
Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 6/14/1993 5,218,975
Triangle Wire & Cable, Inc., Stock Warrants 1/3/1992 1,998
(e) Denominated in U.S. dollars.
(f) At October 31, 1996, the aggregate cost of securities for federal tax purposes was $691,416,742
and the net unrealized appreciation of investments based on that cost was $1,222,024 which is
comprised of $39,979,075 aggregate gross unrealized appreciation and $38,757,051 aggregate gross
unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD INCOME FUND
Portfolio of Investments
October 31, 1996
Principal Maturity
Amount Rate Date Value
- ---------- ------ ------- ---------
<S> <C> <C> <C>
CORPORATE BONDS - 36.9% (a)
Aerospace - 1.5%
$ 5,000,000 Lockheed Martin Corp., Notes 7.7% 6/15/2008 $ 5,269,935
7,500,000 Lockheed Martin Corp., Notes 7.45% 6/15/2004 7,792,597
------------
13,062,532
------------
Automotive - 0.6%
5,000,000 Ford Motor Credit Co., Notes 6.375% 10/6/2000 4,987,710
------------
Bank & Finance - 16.2%
7,500,000 Associates Corp. of North America, Notes 6.625% 5/15/1998 7,574,520
14,000,000 Associates Corp. of North America, Sr. Notes 9.125% 4/1/2000 15,192,674
2,000,000 Chase Manhattan Corp., Subordinated Notes 9.375% 7/1/2001 2,227,008
3,000,000 Chase Manhattan Corp., Subordinated Notes 10.375% 3/15/1999 3,273,606
7,000,000 Chemical New York Corp., Debentures 9.75% 6/15/1999 7,590,702
5,000,000 Citicorp, Subordinated Notes 7.125% 5/15/2006 5,046,315
12,000,000 Equitable Life Assurance Society of the United States,
Surplus Notes 6.95% 12/1/2005 11,853,684
15,500,000 General Electric Capital Corp., Debentures 8.85% 4/1/2005 17,575,404
5,000,000 Metropolitan Life Insurance Co., Surplus Notes 7.7% 11/1/2015 5,074,935
6,000,000 Midland Bank plc, Subordinated Notes 7.625% 6/15/2006 6,251,076
5,000,000 National Westminster Bank plc, Subordinated Notes 9.45% 5/1/2001 5,572,275
15,000,000 Nationwide CSN Trust, Trust Notes 9.875% 2/15/2025 16,874,370
8,000,000 New York Life Insurance Co., Surplus Notes 6.4% 12/15/2003 7,844,776
6,000,000 Prudential Insurance Co., Surplus Notes 8.3% 7/1/2025 6,262,752
2,500,000 Reliastar Financial Corp., Sr. Notes 8.625% 2/15/2005 2,733,370
7,000,000 Societe-Generale- New York, Subordinated Notes 9.875% 7/15/2003 8,119,209
4,000,000 Societe-Generale- New York, Subordinated Notes 7.4% 6/1/2006 4,093,256
4,500,000 Swiss Bank Corp.- New York, Subordinated Debentures 7.5% 7/15/2025 4,548,735
------------
137,708,667
------------
Broadcasting - 2.8%
9,000,000 Continental Cablevision, Inc., Sr. Debentures 8.875% 9/15/2005 10,006,281
5,000,000 TCI Communications, Inc., Sr. Notes 10.125% 8/1/2001 5,378,455
7,500,000 Time Warner, Inc., Notes 9.625% 5/1/2002 8,422,950
------------
23,807,686
------------
Chemicals - 0.5%
4,500,000 Sociedad Quimica y Minera de Chile S.A., Loan
Participation Certificates 7.7% 9/15/2006 4,627,543
------------
Conglomerates - 0.4%
3,000,000 FMC Corp., Sr. Debentures 7.75% 7/1/2011 3,119,931
------------
Electric Utilities - 1.5%
5,712,000 DQU Funding Corp., Collateralized Lease Obligation Bonds 7.23% 12/1/1999 5,797,543
7,000,000 Empresa Electrica Pehuienche S.A., Notes 7.3% 5/1/2003 7,148,057
------------
12,945,600
------------
Electronics - 0.1%
1,000,000 Thermo Electron Corp., Convertible Subordinated Debentures 4.25% 1/1/2003 1,126,250
------------
Hospital Management - 1.2%
3,500,000 Allegiance Corp., Debentures 7.8% 10/15/2016 3,558,569
7,000,000 MedPartners, Inc., Sr. Notes 7.375% 10/1/2006 7,042,056
------------
10,600,625
------------
Household Products - 1.4%
10,000,000 Procter & Gamble, Guaranteed ESOP Debentures 9.36% 1/1/2021 12,236,310
------------
Natural Gas - 3.1%
6,000,000 Coastal Corp., Sr. Debentures 9.75% 8/1/2003 6,910,554
7,500,000 Coastal Corp., Sr. Notes 10.375% 10/1/2000 8,482,822
11,000,000 Columbia Gas Systems, Inc., Series A Notes 6.39% 11/28/2000 10,950,808
------------
26,344,184
------------
Petroleum - 2.0%
3,000,000 CITGO Petroleum Corp., Sr. Notes 7.875% 5/15/2006 3,091,395
6,653,237 Mobil Oil Corp., ESOP Sinking Fund Debentures 9.17% 2/29/2000 7,007,142
6,500,000 Petroliam Nasional BHD, Notes 7.75% 8/15/2015 6,764,745
------------
16,863,282
------------
Retail - 2.3%
10,000,000 Dayton Hudson Corp., Notes 6.4% 2/15/2003 9,800,090
10,000,000 Sears, Roebuck Acceptance Corp., Medium Term Notes, Series II 6.86% 7/3/2001 10,142,290
------------
19,942,380
------------
Services - 1.3%
11,000,000 Electronic Data Systems Corp., Notes 6.85% 5/15/2000 11,203,786
------------
Telecommunications - 0.6%
5,000,000 AirTouch Communications, Inc., Notes 7.5% 7/15/2006 5,168,795
------------
Telephone - 0.7%
5,500,000 New York Telephone Co., Debentures 9.375% 7/15/2031 6,217,327
------------
Textiles & Apparel - 0.7%
6,000,000 Levi Strauss & Co., Notes 6.8% 11/1/2003 5,978,220
------------
Total Corporate Bonds (cost $310,773,659) 315,940,828
------------
FOREIGN GOVERNMENT BONDS - 4.3% (a, c)
3,000,000 African Development Bank, Subordinated Notes 6.875% 10/15/2015 2,905,872
7,000,000 British Columbia Hydro & Power, Debentures 12.5% 9/1/2013 8,028,293
5,000,000 Inter American Development Bank, Notes 7.0% 6/15/2025 4,925,930
2,500,000 Korea Electric Power Corp., Debentures 7.75% 4/1/2013 2,570,078
7,500,000 Ontario Province, Canada, Debentures 11.75% 4/25/2013 8,445,075
9,000,000 Ontario Province, Canada, Sr. Bonds 7.375% 1/27/2003 9,362,961
------------
Total Foreign Government Bonds (cost $37,628,970) 36,238,209
------------
ASSET-BACKED SECURITIES - 15.5% (a)
13,000,000 AT&T Universal Card Master Trust, Class A, Series 1995-2 5.95% 10/17/2002 12,893,647
7,500,000 Chase Manhattan Credit Card, Series 1996-3, Class A 7.04% 2/15/2004 7,726,043
24,000,000 Chase Manhattan Credit Card, Series 1996-4, Class A 6.73% 2/15/2002 24,428,136
5,427,696 Chase Manhattan Grantor Trust, Series 1996-B-A 6.61% 9/15/2002 5,492,552
20,000,000 Deutsche Floorplan Receivables Master Trust, Series 1994-1-A 5.58% 2/15/2001 20,064,580(b)
10,000,000 Discover Card Master Trust I, Series 1996-3-A 6.05% 8/18/2008 9,494,190
11,000,000 NationsBank Credit Card Master, Series 1995-A 6.45% 4/15/2003 11,106,579
13,000,000 Standard Credit Master Trust 1, Credit Card Participation
Certificates, Series 1995-9-A 6.55% 10/7/2007 12,817,467
15,000,000 World Financial Network Credit Card Master Trust,
Series 1996-B 6.95% 4/15/2006 15,376,485
12,000,000 World Omni 6.25% Automobile Lease Trust Certificates,
Series 1996-B, Class A3 6.25% 11/15/2002 12,022,500
------------
Total Asset-Backed Securities (cost $130,785,023) 131,422,179
------------
MORTGAGE-BACKED SECURITIES - 18.8% (a)
26,575,807 Federal Home Loan Mortgage Corp., Participation Certificates 6.0% 2011 25,678,874
30,000,000 Government National Mortgage Association, Modified
Pass Through Certificates 6.5% 2026 28,603,125(d)
108,525,424 Government National Mortgage Association, Modified
Pass Through Certificates 6.5 - 7.0% 2023 - 2026 105,511,011
------------
Total Mortgage-Backed Securities (cost $158,600,650) 159,793,010
------------
U.S. GOVERNMENT - 20.2% (a)
118,000,000 U.S. Treasury Bonds 7.25 - 13.125% 2001 - 2025 143,284,699(e)
25,500,000 U.S. Treasury Notes 7.875% 2004 27,990,203
------------
Total U.S. Government (cost $172,133,402) 171,274,902
------------
<CAPTION>
Shares
- ----------
<S> <C>
COMMON & PREFERRED STOCKS - 1.0% (a)
25,000 AirTouch Communications, Inc., Convertible Preferred Stock 1,159,375
20,000 American General Delaware, L.L.C., Convertible Preferred Stock 1,045,000
10,000 Chubb Corp., Common Stock 500,000
200,000 SI Financing Trust I, Preferred Stock 5,150,000
5,000 Wendy's International, Inc., Preferred Stock 255,975
------------
Total Common & Preferred Stocks (cost $8,120,975) 8,110,350
------------
OPTIONS ON U.S. TREASURY BOND FUTURES - 0.1% (a)
U.S. Treasury Bond Futures, 200 call option contracts,
exercise price of $112, expires November 15, 1996
(cost $167,740) 328,125
------------
<CAPTION>
Principal Maturity
Amount Rate Date
- ------------- ------ --------
<S> <C> <C> <C>
SHORT-TERM SECURITIES - 3.2% (a)
Commercial Paper
$6,900,000 American Express Credit Corp. 5.23% 11/13/1996 6,887,971
10,000,000 Electronic Data Systems Corp. 5.24% 11/25/1996 9,965,067
10,300,000 Harvard University 5.53% 11/1/1996 10,300,000
------------
Total Short-Term Securities (at amortized cost) 27,153,038
------------
Total Investments (cost $845,363,457) $850,260,641(f)
============
NOTES TO PORTFOLIO OF INVESTMENTS:
- -----------------------------------
(a) The categories of investments are shown as a percentage of total investments of the Lutheran Brotherhood
Income Fund.
(b) Denotes variable rate obligations for which current yield is shown.
(c) Denominated in U.S. dollars.
(d) Denotes investments purchased on a when-issued basis.
(e) At October 31, 1996, U.S. Treasury Bonds valued at $580,656 were held in escrow is cover open call options
written as follows:
<CAPTION>
Number of Exercise Expiration
Contracts Price Date Value
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
U.S. Treasury Bond Futures 200 $114 11/15/1996 $125,000
U.S. Treasury Bond Futures 200 $113 11/15/1996 212,500
--------
$337,500
========
(f) At October 31, 1996, the aggregate cost of securities for federal income tax purposes was
$845,862,215 and the net unrealized appreciation of investments based on that cost was
$4,398,426 which is comprised of $12,682,896 aggregate gross unrealized appreciation and
$8,284,470 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
Portfolio of Investments
October 31, 1996
Principal Maturity
Amount Rate Date Value
- ---------- ------ ---------- -----------
<S> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES - 99.9% (a)
Alabama - 1.0%
$ 4,000,000 City of Mobile, Alabama, General Obligation Refunding
Warrants, Series 1996, Insured by AMBAC 5.0% 2/15/2016 $ 3,718,840
2,000,000 Huntsville, Alabama, General Obligation Warrants, Series B 7.875% 8/1/2012 2,101,320(b)
------------
5,820,160
------------
Arizona - 0.8%
1,700,000 Pima County, Arizona (Catalina Foothills Unified School District
#16), Unlimited Tax General Obligation Bonds, Series A,
Insured by MBIA 8.9% 7/1/2005 2,170,679
1,000,000 Pinal County, Arizona, Unified School District No. 43,
(Apache Junction), School Improvement Bonds, Series 1996-A,
Insured by FGIC 5.8% 7/1/2011 1,027,210
1,500,000 Tucson, Arizona, Unlimited Tax General Obligation
Refunding Bonds, Insured by FGIC 6.1% 7/1/2012 1,562,130
------------
4,760,019
------------
Arkansas - 1.1%
1,340,000 Arkansas Development Finance Authority, Correctional
Facilities Construction Revenue Bonds, Insured by MBIA 7.125% 11/15/2010 1,472,392
1,000,000 Arkansas Housing Development Agency, Single Family
Mortgage Bonds, Series A 8.375% 7/1/2010 1,205,520(b)
3,000,000 City of Jonesboro, Arkansas, Residential Housing and
Health Care Facilities Board, Hospital Revenue Refunding &
Construction Bonds, (St. Bernards Regional Medical Center),
Series 1996-B, Insured by AMBAC 5.8% 7/1/2011 3,086,850
875,000 Pope County, Arkansas, Pollution Control Revenue Refunding
Bonds, Series 1994 (Arkansas Power and Light Company Project),
Insured by FSA 6.3% 12/1/2016 931,193
------------
6,695,955
------------
California - 12.3%
2,500,000 Alameda, California, Unified School District, Alameda County,
Crossover Refunding Bonds, Series A, Insured by AMBAC 6.1% 7/1/2013 2,595,625
7,500,000 Beverly Hills, California, Public Finance Authority, Lease
Revenue Bonds, Series 1993-A, Insured by MBIA 5.65% 6/1/2015 7,423,125
1,000,000 California Educational Facilities Authority (Stanford University),
Revenue Bonds 5.0% 1/1/2015 942,960
4,400,000 California State Department of Water Resources (Central
Valley Project), Water System Revenue Bonds, Series H 6.9% 12/1/2025 4,831,596(b)
3,000,000 California State Public Works Board, Department of Corrections,
Lease Revenue Bonds, State Prison, Series A 7.4% 9/1/2010 3,524,040
2,490,000 California Statewide Communities Development Authority,
Certificates of Participation (The Trustees of the
J. Paul Getty Trust) 5.0% 10/1/2015 2,303,300
6,285,000 California State, Unlimited Tax General Obligation Bonds,
Insured by MBIA 6.0% 8/1/2016 6,456,832
1,000,000 California State, Unlimited Tax General Obligation Bonds,
Veteran's Series AT 9.5% 2/1/2010 1,392,290
2,000,000 California State, Various Purpose General Obligation Bonds,
Insured by AMBAC 6.3% 9/1/2010 2,208,540
1,400,000 Central Valley Financing Authority, California, Cogeneration
Project Revenue Bonds, (Carson Ice-Gen Project), Series 1993 6.0% 7/1/2009 1,415,862
3,135,000 County of Orange, California, 1996 Recovery Certificates of
Participation, Series A, Insured by MBIA 5.8% 7/1/2016 3,153,183
1,900,000 El Cajon, California, Redevelopment Agency Tax Allocation
Refunding Bonds (El Cajon Redevelopment Project),
Insured by AMBAC 6.6% 10/1/2022 2,053,596
2,000,000 Los Angeles County, California, Transportation Commission
Sales Tax Revenue Bonds, Proposition C, Series A,
Insured by MBIA 6.25% 7/1/2013 2,095,060
2,000,000 Metropolitan Water District of Southern California, Unlimited
Tax General Obligation Bonds, Series G 6.625% 3/1/2009 2,106,060(b)
1,000,000 Rio Linda, California, Union School District, Series 1992-A,
Insured by AMBAC 7.4% 8/1/2010 1,142,580
2,815,000 Riverside County Transportation Commission, California,
Sales Tax Revenue Capital Appreciation Bonds,
Insured by MBIA Zero Coupon 6/1/2004 1,939,591
1,000,000 Sacramento Cogeneration Authority, Cogeneration Project
Revenue Bonds, (Procter & Gamble Project), 1995 Series 6.375% 7/1/2010 1,025,940
4,000,000 Sacramento, California, Municipal Utility District Electric
Revenue Refunding Series D, Insured by MBIA 5.25% 11/15/2020 3,751,040
2,000,000 Sacramento, California, Municipal Utility District, Electric
Revenue Bonds, Series Y, Insured by MBIA 6.75% 9/1/2009 2,185,980
1,500,000 San Francisco Bay Area Rapid Transit District, California, Sales
Tax Revenue Refunding Bonds, Series 1990, Insured by MBIA 6.75% 7/1/2010 1,712,490
15,000,000 San Joaquin Hills Transportation Corridor Agency,
California, Sr. Lien Convertible Toll Revenue Bonds Zero Coupon 1/1/2013 11,964,900
3,000,000 San Mateo County, California, Joint Powers Financing Authority,
Lease Revenue Refunding Bonds, Capital Projects Program, 1993
Series, Insured by MBIA 5.0% 7/1/2021 2,787,150
1,500,000 State of California, General Obligation Bonds 7.0% 8/1/2006 1,732,680
2,490,000 University of California Revenue Bonds, Multiple Purpose
Projects, Series 1989-B, Insured by AMBAC 11.0% 9/1/1998 2,784,667
------------
73,529,087
------------
Colorado - 5.8%
3,000,000 Arapahoe County, Colorado, E-470 Public Highway Authority,
Capital Improvement Trust Fund, Highway Revenue Bonds,
(E-470 Project) 6.95% 8/31/2020 3,243,780
710,000 Colorado Housing & Finance Authority, Single Family Residential
Housing Revenue Bonds, Series 1987-B 9.0% 9/1/2017 737,008
3,100,000 Colorado Springs, Colorado, Utilities System Refunding
Bonds, Series 1991-B 7.0% 11/15/2021 3,487,283(b)
1,945,000 Colorado State Colleges Board, Western State College,
Housing & Student Fee Revenue Bonds, Series 1992,
Insured by Connie Lee 6.625% 5/1/2015 2,159,417(b)
1,195,000 Colorado Water Resources Power Development Authority,
Clean Water Revenue Bonds, Series A, Insured by FSA 6.25% 9/1/2013 1,253,208
1,000,000 Denver, Colorado, City & County Revenue Bonds, Sisters of
Charity of Leavenworth, Insured by MBIA 5.0% 12/1/2023 907,800
3,500,000 Douglas County School District, Number RE 1, Douglas &
Elbert Counties, Colorado, General Obligation Bonds,
Insured by MBIA 6.5% 12/15/2016 3,813,530
1,000,000 Eagle, Garfield, and Routt Counties, Colorado, Eagle County
School District No. RE50J, General Obligation Bonds,
Series 1994, Insured by FGIC 6.3% 12/1/2012 1,078,030
1,890,000 Goldsmith Metropolitan District, Colorado, Unlimited Tax
General Obligation Bonds, Insured by MBIA Zero Coupon 6/1/2008 1,031,713
1,885,000 Goldsmith Metropolitan District, Colorado, Unlimited Tax
General Obligation Bonds, Insured by MBIA Zero Coupon 12/1/2008 996,543
1,890,000 Goldsmith Metropolitan District, Colorado, Unlimited Tax
General Obligation Bonds, Insured by MBIA Zero Coupon 6/1/2007 1,092,741
1,100,000 Highlands Ranch, Metropolitan District No. 2, Douglas County,
Colorado, General Obligation Refunding Bonds, Series 1996,
Insured by FSA 6.5% 6/15/2012 1,215,390
3,000,000 Larimer County, Colorado, School District No. R-2, Poudre
Valley Unlimited Tax General Obligation Bonds,
Insured by MBIA 7.0% 12/15/2016 3,625,950
4,485,000 Regional Transportation District, Colorado, Sales Tax
Revenue Refunding & Improvement Bonds, Series 1992,
Insured by FGIC 6.25% 11/1/2012 4,722,167
2,500,000 St. Vrain Valley School District, Boulder, Larimer & Weld
Counties, Colorado, General Obligation Refunding &
Improvement Bonds, Series 1990-A, Insured by MBIA Zero Coupon 12/15/2003 1,758,400
5,000,000 St. Vrain Valley School District, Boulder, Larimer & Weld
Counties, Colorado, General Obligation Refunding &
Improvement Bonds, Series 1990-A, Insured by MBIA Zero Coupon 12/15/2004 3,347,000
------------
34,469,960
------------
Connecticut - 0.9%
4,000,000 Connecticut Special Tax Obligation, Transportation Infrastructure
Revenue Bonds, Series B 6.5% 10/1/2010 4,493,040
1,000,000 Connecticut State Health & Education Facilities Authority
Revenue Bonds, Hospital of St. Raphael, Series H,
Insured by AMBAC 5.25% 7/1/2012 996,750
------------
5,489,790
------------
Florida - 3.0%
15,330,000 Broward County, Florida, Housing Finance Authority,
Home Mortgage Revenue Bonds, 1983 Series A Zero Coupon 4/1/2014 2,571,301
1,000,000 Florida State Board of Education, Public Education Capital Outlay
General Obligation Bonds, Series B-1 7.875% 6/1/2019 1,077,220(b)
3,500,000 Florida State Board of Education, Public Education Capital Outlay,
General Obligation Bonds, Series B 5.875% 6/1/2020 3,570,385
5,750,000 Florida State Turnpike Authority, Turnpike Revenue Refunding
Bonds, (Department of Transportation), Series A,
Insured by FGIC 5.0% 7/1/2019 5,295,923
3,200,000 Hillsborough County, Florida, Industrial Development Authority
(Weyerhaeuser Company, Inc.), Industrial Development
Revenue Bonds, Series 1983 9.25% 6/1/2008 3,259,936
1,705,000 Hillsborough County, Florida, Industrial Development Authority,
Florida (Tampa Electric Project), Pollution Control
Revenue Bonds, Series 1991 7.875% 8/1/2021 1,963,955
------------
17,738,720
------------
Georgia - 2.8%
1,500,000 Brunswick, Georgia, Water & Sewer Revenue Refunding &
Improvement Bonds, Series A, Insured by MBIA 6.1% 10/1/2019 1,604,100
2,000,000 Brunswick, Georgia, Water & Sewer Revenue Refunding &
Improvement Bonds, Series 1992, Insured by MBIA 6.0% 10/1/2011 2,132,240
5,000,000 Cherokee County, Georgia, Water & Sewer Revenue Refunding &
Improvement Bonds, Insured by MBIA 5.5% 8/1/2018 5,031,150
2,000,000 Georgia State, Unlimited Tax General Obligation Bonds,
Series 1994-B 5.65% 3/1/2012 2,076,900
3,500,000 Georgia State, Unlimited Tax General Obligation Bonds,
Series 1994-D 5.0% 8/1/2012 3,395,805
1,000,000 Georgia State, Unlimited Tax General Obligation Bonds, Series B 6.3% 3/1/2009 1,102,900
1,000,000 Georgia State, Unlimited Tax General Obligation Bonds, Series B 6.3% 3/1/2010 1,106,720
------------
16,449,815
------------
Idaho - 0.7%
1,000,000 Boise City, Idaho, Independent School District, Ada and Boise
Counties, General Obligation School Bonds, Series 1996 5.5% 7/30/2016 1,004,730
1,000,000 Idaho Falls, Idaho, General Obligation Electric Refunding Bonds,
Series 1991, Insured by MBIA Zero Coupon 4/1/2007 586,150
3,115,000 Idaho Falls, Idaho, General Obligation Electric Refunding Bonds,
Series 1991, Insured by MBIA Zero Coupon 4/1/2010 1,534,885
2,000,000 Idaho Falls, Idaho, General Obligation Electric Refunding Bonds,
Series 1991, Insured by MBIA Zero Coupon 4/1/2011 915,320
------------
4,041,085
------------
Illinois - 1.4%
1,000,000 City of Alton, Madison County, Illinois, Hospital Facility
Revenue Refunding Bonds, Series 1996,
(Saint Anthony's Health Center) 6.0% 9/1/2014 940,540
2,000,000 Illinois Health Facilities Authority Revenue Refunding Bonds,
Lutheran General Health, Insured by FSA 6.0% 4/1/2018 2,038,680
981,000 Illinois Health Facilities Authority (Community Provider Pooled Loan
Program), Revenue Bonds, Series 1988-B, Insured by MBIA 7.9% 8/15/2003 1,010,096(b)
170,000 Illinois Health Facilities Authority (Community Provider Pooled Loan
Program), Revenue Bonds, Series 1988-B, Insured by MBIA 7.9% 8/15/2003 195,184(b)
6,660,000 Metropolitan Pier & Exposition Authority, Illinois, McCormick
Place Expansion Project, Refunding Bonds, Series 1996-A,
Insured by MBIA Zero Coupon 12/15/2018 1,825,439
2,550,000 Metropolitan Pier & Exposition Authority, Illinois, McCormick
Place Expansion Project, Refunding Bonds, Series 1996-A,
Insured by AMBAC 5.25% 6/15/2027 2,356,863
------------
8,366,802
------------
Indiana - 1.4%
2,450,000 Indiana Municipal Power Agency, Power Supply System
Revenue Bonds, Series A, Insured by MBIA 5.5% 1/1/2023 2,357,831
1,100,000 Indianapolis Airport Authority Refunding Revenue Bonds,
Series 1996-A, Insured by FGIC 5.6% 7/1/2015 1,086,129
410,000 Indianapolis, Indiana, Resource Recovery Revenue Bonds,
1985 Series A 7.9% 12/1/2008 423,563
2,190,000 Indianapolis, Indiana, Resource Recovery Revenue Bonds,
1985 Series B 7.9% 12/1/2008 2,262,445
2,100,000 Indianapolis, Indiana, Resource Recovery Revenue Bonds,
Ogden Martin Systems, Series A 7.8% 12/1/2004 2,169,321
------------
8,299,289
------------
Iowa - 1.5%
1,450,000 Iowa Finance Authority Revenue Bonds, Series 1995A,
(Correctional Facility Program), Insured by AMBAC 5.5% 6/15/2015 1,454,829
3,500,000 Iowa Finance Authority, Iowa State Revolving Fund
Revenue Bonds, Combined Series 1993 5.2% 5/1/2023 3,307,850
2,000,000 Iowa Finance Authority, Iowa State Revolving Fund Revenue
Bonds, Combined Series 1994 6.25% 5/1/2024 2,084,120
2,275,000 Woodbury County, Iowa, Hospital System Revenue
Refunding Bonds, St. Luke's Obligated Group,
Series 1995-A, Insured by MBIA 5.55% 9/1/2020 2,190,484
------------
9,037,283
------------
Kansas - 1.8%
8,000,000 Kansas City, Kansas, Utility System Refunding and
Improvement Revenue Bonds, Series 1994, Insured by FGIC 6.375% 9/1/2023 8,575,120
920,000 Kansas City, Kansas, Utility System, Capital Appreciation
Refunding & Improvement Revenue Bonds, Insured by
AMBAC Zero Coupon 3/1/2007 538,310
1,255,000 Kansas City, Kansas, Utility System, Capital Appreciation
Refunding & Improvement Revenue Bonds,
Insured by AMBAC Zero Coupon 3/1/2007 729,168(b)
600,000 Kansas Development Finance Authority, Health Facilities
Revenue Bonds, (Stormont-Vail Healthcare, Inc.),
Series F, Insured by MBIA 5.8% 11/15/2016 605,886
------------
10,448,484
------------
Kentucky - 0.7%
1,000,000 Kentucky Development Finance Authority, Refunding and
Improvement Revenue Bonds (Ashland Hospital,
Kings Daughter Project) 9.75% 8/1/2005 1,068,260
750,000 Kentucky Turnpike Authority, Economic Development
Road Revenue and Revenue Refunding Bonds, Series 1993,
Insured by AMBAC 5.5% 7/1/2009 767,115
5,345,000 Kentucky Turnpike Authority, Economic Development Road
Revenue Bonds, Insured by FGIC Zero Coupon 1/1/2010 2,601,198
------------
4,436,573
------------
Louisiana - 1.1%
6,500,000 New Orleans, Louisiana, General Obligation Bonds, Series 1991,
Insured by AMBAC Zero Coupon 9/1/2012 2,638,545
3,000,000 Orleans Parish School Board #87, Louisiana, Insured by MBIA 8.95% 2/1/2008 3,917,910(b)
------------
6,556,455
------------
Maine - 0.3%
1,250,000 Maine Health & Higher Education Facilities Authority,
Revenue Bonds, Series 1994, Insured by FSA 7.0% 7/1/2024 1,383,075
350,000 Regional Waste Systems, Inc., Maine, Solid Waste Resource
Recovery System Revenue Bonds, Series A-C 7.95% 7/1/2010 379,501
------------
1,762,576
------------
Maryland - 1.3%
2,000,000 Maryland Health & Higher Education Authority, Union Hospital
of Cecil County Revenue Bonds, Series 1992 6.7% 7/1/2022 2,060,000
4,500,000 Morgan State University, Maryland, Academic Fee and
Auxiliary Facilities Fees Revenue Refunding Bonds,
Series 1993, Insured by MBIA 6.05% 7/1/2015 4,818,780
1,000,000 Prince George's County, Maryland, Dimensions Health Corp.,
Hospital Revenue Bonds, Series 1992 7.0% 7/1/2022 1,133,700(b)
------------
8,012,480
------------
Massachusetts - 2.6%
2,000,000 Commonwealth of Massachusetts, General Obligation
Refunding Bonds, Series B 6.5% 8/1/2008 2,222,380
1,800,000 Commonwealth of Massachusetts, Limited Tax General
Obligation Bonds, Construction Loan, Series C 7.375% 12/1/2008 1,950,858(b)
1,500,000 Massachusetts Health and Education Facilities Authority
(Newton - Wellesley Hospital) Revenue Bonds, Series C 8.0% 7/1/2018 1,621,890(b)
2,500,000 Massachusetts Health and Education Facilities Authority,
Revenue Bonds, Daughters of Charity National Health
System, The Carney Hospital, Series D 6.10% 7/1/2014 2,567,625
1,500,000 Massachusetts Health & Education Facilities Authority,
Revenue Bonds, Series F 6.5% 7/1/2012 1,603,830
2,500,000 Massachusetts State Water Resources Authority, General
Refunding Revenue Bonds, Series B, Insured by MBIA 5.0% 3/1/2022 2,285,475
3,000,000 Plymouth County, Massachusetts, Correctional Facility
Certificates of Participation Bonds 7.0% 4/1/2012 3,301,170
------------
15,553,228
------------
Michigan - 4.6%
10,000,000 Detroit, Michigan, Sewer Disposal Revenue Bonds, Linked Pars &
Inflos, Insured by FGIC 5.7% 7/1/2023 9,891,000
2,000,000 Economic Development Corporation of the County of St. Clair,
Michigan, Pollution Control Revenue Refunding Bonds
(Detroit Edison Company Project), Series 1993-AA,
Insured by AMBAC 6.40% 8/1/2024 2,153,700
1,400,000 Kent County, Michigan, Limited Tax General Obligation Refuse
Disposal System Refunding Bonds 8.3% 11/1/2007 1,485,918
1,500,000 Livonia Public Schools, County of Wayne, Michigan, 1992 School
Building and Site Bonds, Series II (Unlimited Tax General
Obligation), Insured by FGIC Zero Coupon 5/1/2009 762,660
2,460,000 Michigan Municipal Bond Authority, Government Loan
Revenue Refunding Bonds, Series A, Insured by FGIC Zero Coupon 12/1/2005 1,531,842
110,000 Michigan State Hospital Finance Authority, Hospital Revenue
and Refunding Bonds, (Detroit Medical Center Obligated
Group), Series 1988-A 8.125% 8/15/2012 116,559(b)
390,000 Michigan State Hospital Finance Authority, Hospital Revenue and
Refunding Bonds, (Detroit Medical Center Obligated
Group), Series 1988-A 8.125% 8/15/2012 423,868
3,000,000 Michigan State Hospital Finance Authority, Revenue Refunding
Bonds, (Sisters of Mercy Health Corp.), Insured by MBIA 5.375% 8/15/2014 2,950,830
3,320,000 Sault St. Marie Chippewa Indians Housing Authority,
Health Facilities Revenue Bonds, (Tribal Health &
Human Services Center Project), Series 1992 7.75% 9/1/2012 3,393,438
1,000,000 Vicksburg, Michigan, Community Schools, Qualified School
General Obligation Bonds, Kalamazoo & St. Joseph Counties,
Insured by MBIA 7.0% 5/1/2007 1,116,960(b)
3,455,000 West Ottawa, Michigan, Public School District, Unlimited
Tax General Obligation Bonds, Insured by MBIA Zero Coupon 5/1/2004 2,395,593
1,860,000 West Ottawa, Michigan, Public School District, Unlimited
Tax General Obligation Bonds, Insured by MBIA Zero Coupon 5/1/2005 1,212,962
------------
27,435,330
------------
Minnesota - 3.7%
2,500,000 City of Minneapolis, (Lifespan Inc., Abbott - Northwestern Hospital),
Hospital Facilities Refunding Revenue Bonds, 1987 Series B 9.125% 12/1/2014 2,690,600(b)
1,850,000 City of Minneapolis, (Lifespan Inc., Abbott - Northwestern Hospital),
Hospital Facilities Revenue Bonds, 1988 Series A 7.875% 12/1/2014 1,967,974(b)
285,000 Duluth Economic Development Authority, Minnesota,
Health Care Facilities Revenue Bonds, (The Duluth Clinic, Ltd),
Series 1992, Insured by AMBAC 6.3% 11/1/2022 313,087(b)
715,000 Duluth Economic Development Authority, Minnesota,
Health Care Facilities Revenue Bonds, (The Duluth Clinic, Ltd),
Series 1992, Insured by AMBAC 6.3% 11/1/2022 747,811
7,685,000 Minneapolis, Minnesota, Community Development Agency, Tax
Increment Revenue Appreciation Bonds, Insured by MBIA Zero Coupon 3/1/2009 3,933,337
2,500,000 Minnesota Higher Education Facilities Authority,
(Augsburg College), Mortgage Revenue Bonds,
Series Four-F1 Bonds 6.25% 5/1/2023 2,526,500
1,740,000 Stewartville, MN, Independent School District,
Unlimited Tax General Obligation Bonds, Series A 5.75% 2/1/2014 1,768,327
3,500,000 St. Louis Park, Minnesota, Health Care Facilities
(Park Nicollet Medical Center Project), Revenue Bonds,
Series 1990-A 9.25% 1/1/2020 4,044,425(b)
1,000,000 St. Louis Park, Minnesota, (Methodist Hospital), Hospital Revenue
Bonds, Series C, Insured by AMBAC 7.25% 7/1/2018 1,112,240(b)
1,180,000 St. Louis Park, Minnesota, (Methodist Hospital), Hospital Revenue
Bonds, Series A, Insured by AMBAC 7.25% 7/1/2015 1,295,605(b)
1,400,000 St. Louis Park, Minnesota, (Methodist Hospital), Hospital Revenue
Bonds, Series C, Insured by AMBAC 7.25% 7/1/2015 1,557,136(b)
------------
21,957,042
------------
Missouri - 2.5%
1,750,000 Boone County, Missouri, Hospital Revenue Refunding Bonds,
Series 1993 5.5% 8/1/2009 1,715,332
2,000,000 Health & Educational Facilities Authority of Missouri,
Health Facilities Revenue Bonds, Series 1996,
(Lake of the Ozarks General Hospital, Inc.) 6.5% 2/15/2021 2,026,860
2,000,000 Missouri State Health and Education Facilities Authority
(Barnes - Jewish, Inc./Christian Health Services),
Health Facilities Refunding & Improvement Revenue Bonds,
Series 1993-A 5.25% 5/15/2014 1,931,080
2,650,000 Missouri State Health and Education Facilities Authority
(Christian Health Services), Health Facilities Refunding &
Improvement Revenue Bonds, Series 1991 A, Insured by FGIC 6.875% 2/15/2021 2,941,474(b)
750,000 Missouri State Health and Education Facilities Authority,
Health Facilities Revenue Refunding Bonds, Lester E. Cox
Medical Center Project, Series 1993-I, Insured by MBIA 5.35% 6/1/2009 755,430
2,925,000 Missouri State Health and Education Facilities Authority,
Heartland Health System Revenue Bonds, Series 1992,
Insured by AMBAC 6.35% 11/15/2017 3,090,350
1,500,000 Missouri State Health and Education Facilities Authority,
SSM Health Care Refunding Revenue Bonds, Series A,
Insured by MBIA 6.25% 6/1/2007 1,603,830
1,000,000 State Environmental Improvement and Energy Resources Authority,
(State of Missouri), Water Pollution Control Revenue Bonds,
(State Revolving Fund Program - Multiple Participant Series),
Series 1995-E 5.625% 7/1/2016 1,008,850
------------
15,073,206
------------
Montana - 1.2%
775,000 Montana State Board of Investments, Payroll Tax Revenue Bonds,
Series 1996, Insured by MBIA 6.875% 6/1/2020 841,875(b)
2,385,000 Montana State Board of Investments, Payroll Tax Revenue Bonds,
Series 1996, Insured by MBIA 6.875% 6/1/2020 2,603,705(b)
1,240,000 Montana State Board of Investments, Payroll Tax Revenue Bonds,
Insured by MBIA 6.875% 6/1/2020 1,375,210
2,600,000 State of Montana, The Board of Regents of Higher Education,
Montana State University, Facilities Improvement &
Refunding Revenue Bonds, Series D-1996, Insured by MBIA 5.375% 11/15/2021 2,525,094(b)
------------
7,345,884
------------
Nebraska - 1.3%
4,000,000 Nebraska Public Power District, Power Supply System Revenue Bonds,
Insured by MBIA 6.125% 1/1/2015 4,143,560
3,455,000 Omaha Public Power District, Nebraska, Electric Revenue
Refunding Bonds, Series B 6.15% 2/1/2012 3,778,043
------------
7,921,603
------------
New Hampshire - 0.2%
1,100,000 New Hampshire Turnpike System, Residual Interest Bonds,
1991 Refunding, Series C, Insured by FGIC 9.83% 12/5/96 1,354,133(c)
------------
New Jersey - 3.5%
665,000 Camden County, New Jersey, Municipal Utility Authority Sewer
Revenue Bonds, Insured by FGIC 8.25% 12/1/2017 707,161(b)
1,035,000 Camden County, New Jersey, Municipal Utility Authority Sewer
Revenue Bonds, Insured by FGIC 8.25% 12/1/2017 1,104,480
1,250,000 East Orange, New Jersey, Unlimited Tax General Obligation Bonds,
Insured by FSA 8.4% 8/1/2006 1,560,088
1,000,000 Mercer County, New Jersey, Improvement Authority, County
Guaranteed Solid Waste Revenue Bonds, Series 1988 7.9% 4/1/2013 1,037,000(b)
1,000,000 Mercer County, New Jersey, Improvement Authority,
Revenue Bonds, Series 1991 6.6% 11/1/2014 1,094,560(b)
2,585,000 New Jersey Health Care Facilities Financing Authority, Jersey Shore
Medical Center Revenue Bonds, Insured by AMBAC 6.1% 7/1/2010 2,715,568
3,000,000 New Jersey Transit Corp., (Raymond Plaza East, Inc.), Certificates
of Participation, Insured by FSA 6.375% 10/1/2006 3,326,400
1,390,000 New Jersey Turnpike Authority, Turnpike Revenue Bonds,
1984 Series 10.375% 1/1/2003 1,642,438(b)
4,700,000 New Jersey Turnpike Authority, Turnpike Revenue Bonds, Series C,
Insured by AMBAC 6.5% 1/1/2016 5,281,766
2,595,000 West New York, New Jersey, Municipal Utility Authority, Sewer
Revenue Refunding Bonds, Insured by FGIC Zero Coupon 12/15/2009 1,278,946
2,195,000 West New York, New Jersey, Municipal Utility Authority, Sewer
Revenue Refunding Bonds, Insured by FGIC Zero Coupon 12/15/2007 1,226,149
------------
20,974,556
------------
New Mexico - 2.0%
5,000,000 Farmington, New Mexico, Power Revenue Refunding Bonds,
Series 1983 9.875% 1/1/2013 6,546,450(b)
4,040,000 Farmington, New Mexico, Utility Systems Revenue Bonds,
Insured by AMBAC 9.875% 1/1/2008 5,338,375(b)
------------
11,884,825
------------
New York - 5.7%
5,200,000 Metropolitan Transportation Authority, New York,
Commuter Facilities Revenue Bonds, Series A,
Insured by MBIA 6.375% 7/1/2018 5,488,964
4,250,000 Metropolitan Transportation Authority, New York,
Transit Facilities Revenue Bonds, Series O, Insured by MBIA 6.25% 7/1/2014 4,479,415
4,225,000 Metropolitan Transportation Authority, New York,
Transit Facilities Service Contract Bonds, Series O 5.75% 7/1/2013 4,202,227
2,000,000 New York City, Municipal Water Finance Authority, Water & Sewer
System Revenue Bonds, Series A, Insured by AMBAC 5.875% 6/15/2012 2,092,740
1,250,000 New York City, Municipal Water Finance Authority, Water &
Sewer System Revenue Bonds 8.75% 6/15/2010 1,313,338(b)
2,000,000 New York State Dorm Authority (City University), Construction
Revenue Bonds, Series A 8.125% 7/1/2017 2,097,700(b)
5,000,000 New York State Dorm Authority, Revenue Refunding Bonds,
State University Educational Facilities, Series B 5.0% 5/15/2018 4,427,500
2,125,000 New York State Medical Care Facilities Finance Agency
(Ellis Hospital), Insured Mortgage Hospital Bonds, Series B,
Insured by FHA 8.0% 2/15/2008 2,284,418
2,860,000 New York State Thruway Authority, Highway & Bridge
Trust Fund, Revenue Bonds, Series 1994-B, Insured by FGIC 6.0% 4/1/2014 2,980,778
1,720,000 New York State Urban Development Corp., Project Revenue Bonds,
(Syracuse University Center for Science and Technology Loan),
1995 Refunding Series 6.0% 1/1/2010 1,752,783
1,620,000 New York State Urban Development Corp., Project Revenue Bonds,
(Syracuse University Center for Science and Technology Loan),
1995 Refunding Series 6.0% 1/1/2009 1,663,481
1,000,000 Triborough Bridge & Tunnel Authority, New York, General
Purpose Revenue Bonds, Series Q 6.75% 1/1/2009 1,134,400
------------
33,917,744
------------
North Carolina - 1.8%
1,750,000 County of Pasquotank, North Carolina, 1995, (Elizabeth City
Pasquotank Public Schools Project) Insured by MBIA 5.0% 6/1/2015 1,623,913
1,500,000 County of Pitt, North Carolina, Pitt County Memorial Hospital
Revenue Bonds, Series 1995 5.5% 12/1/2015 1,477,305
2,250,000 North Carolina Municipal Power Agency #1 (Catawba Electric),
Electric Revenue Bonds, Insured by MBIA 5.0% 1/1/2018 2,057,647
4,000,000 North Carolina Municipal Power Agency #1, Catawba Electric
Revenue Refunding Bonds, Series 1992, Insured by MBIA 6.0% 1/1/2011 4,255,440
1,000,000 Union County, North Carolina, Enterprise System Revenue Bonds,
Series 1996, Insured by MBIA 5.5% 6/1/2021 993,290
------------
10,407,595
------------
North Dakota - 0.5%
1,000,000 Mercer County, North Dakota, Pollution Control Revenue
Refunding Bonds, (Ottertail Power Co. Project) 6.9% 2/1/2019 1,072,780
2,000,000 North Dakota Municipal Bond Bank, State Revolving Fund
Program Bonds, Series 1995-A 6.3% 10/1/2015 2,106,340
------------
3,179,120
------------
Ohio - 4.1%
1,050,000 Akron, Bath & Copley Joint Township, Ohio, (Children's Hospital
Medical Center), Hospital District Revenue Bonds,
Insured by AMBAC 7.45% 11/15/2020 1,186,710(b)
2,500,000 Akron, Ohio, Certificates of Participation, Series 1996,
Akron Municipal Baseball Stadium Project Zero Coupon 12/1/2016 1,807,500(d)
3,785,000 City of Cleveland, Ohio, Public Power System,
First Mortgage Revenue Bonds, Series 1994-A,
Insured by MBIA 7.0% 11/15/2024 4,272,205
1,630,000 Cuyahoga County, Ohio, (Deaconess Hospital), Hospital
Revenue Bonds, Series C 7.45% 10/1/2018 1,847,768(b)
1,470,000 Lorain County, Ohio, (Humility of Mary Health System), Hospital
Revenue Bonds 7.125% 12/15/2006 1,604,211
2,000,000 Ohio Higher Educational Facility Commission (Case Western
Reserve University Project), Series B 6.5% 10/1/2020 2,258,320
1,500,000 Ohio Higher Educational Facility Commission, Higher Educational
Revenue Bonds, (Ohio Dominican College 1994 Project) 6.625% 12/1/2014 1,579,275
5,000,000 Ohio State Air Quality Development Authority, Cleveland Electric,
Pollution Control Revenue Bonds, Insured by FGIC 8.0% 12/1/2013 5,843,300
2,250,000 Ohio State Air Quality Development Authority, Columbus &
Southern Pollution Control Revenue Bonds, Insured by FGIC 6.375% 12/1/2020 2,376,810
1,795,000 Trumbull County, Ohio (Memorial Hospital), Hospital Revenue
Refunding & Improvement Bonds, Series 1991-B,
Insured by FGIC 6.9% 11/15/2012 1,951,183
------------
24,727,282
------------
Oklahoma - 1.8%
5,220,000 Bass, Oklahoma, Memorial Baptist Hospital 8.35% 5/1/2009 6,481,204(b)
1,175,000 Grand River Dam Authority, Oklahoma, Revenue
Refunding Bonds, Series 1993, Insured by FSA 5.75% 6/1/2008 1,242,139
1,500,000 Oklahoma Municipal Power Authority, Electric Revenue
Refunding Bonds, Series B, Insured by MBIA 5.75% 1/1/2024 1,585,275
1,500,000 Oklahoma Municipal Power Authority, Power Supply System
Revenue Bonds, Series 1992-B, Insured by MBIA 5.875% 1/1/2012 1,588,950
------------
10,897,568
------------
Oregon - 0.8%
2,700,000 Clackamas County, Oregon, Health Facilities Authority, Adventist
Health-West Revenue Refunding Bonds, Series 1992-A,
Insured by MBIA 6.35% 3/1/2009 2,879,685
2,000,000 Hospital Facility Authority of the Western Lane Hospital District,
Oregon, Revenue Refunding Bonds, Series 1994,
(Sisters of St. Joseph of Peace, Health & Hospital Services),
Insured by MBIA 5.875% 8/1/2012 2,060,320
------------
4,940,005
------------
Pennsylvania - 1.8%
1,600,000 Allegheny County, Pennsylvania, Hospital Development Authority,
Hospital Revenue Bonds, Series A-1995, (Allegheny General
Hospital Project), Insured by MBIA 6.2% 9/1/2015 1,674,320
2,575,000 Allegheny County, Pennsylvania, Sanitary Authority,
Sewer Revenue Bonds, Series A, Insured by FGIC Zero Coupon 6/1/2008 1,402,473
2,000,000 Delaware River Joint Toll Bridge Commission, Pennsylvania, Toll
Bridge Revenue Bonds 7.875% 7/1/2018 2,156,880(b)
3,170,000 Millcreek Township, Pennsylvania, School District, General
Obligation Bonds, Insured by FGIC Zero Coupon 8/15/2009 1,576,885
2,000,000 Monroeville, Pennsylvania, Hospital Authority, Forbes Health
System Revenue Bonds, Series 1992 7.0% 10/1/2003 2,152,460
3,000,000 Pennsylvania State, General Obligation Bonds, Second
Series of 1992, Insured by AMBAC Zero Coupon 7/1/2006 1,839,540
------------
10,802,558
------------
Puerto Rico - 1.7%
4,000,000 Puerto Rico Commonwealth, Aqueduct & Sewer
Revenue Bonds, Series A 9.0% 7/1/2009 5,048,160(b)
2,000,000 Puerto Rico Commonwealth, Unlimited Tax General
Obligation Bonds 6.45% 7/1/2017 2,135,740
3,000,000 Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series T 6.0% 7/1/2016 3,052,470
------------
10,236,370
------------
South Carolina - 1.1%
2,000,000 Piedmont Municipal Power Agency, South Carolina,
Electric Revenue Refunding Bonds, Series 1991,
Insured by FGIC 6.25% 1/1/2021 2,182,020
5,000,000 Piedmont Municipal Power Agency, South Carolina, Electric
Revenue Refunding Bonds, Insured by FGIC 5.0% 1/1/2022 4,528,700
------------
6,710,720
------------
South Dakota - 0.3%
1,895,000 South Dakota State Health and Education Facilities Authority
Revenue Refunding Bonds, Series 1996, (St. Lukes Midland
Regional Medical Center Issue), Insured by MBIA 5.5% 7/1/2021 1,830,380
------------
Tennessee - 0.3%
1,750,000 Bristol, Tennessee, Health and Educational Facilities Authority,
Bristol Memorial Hospital Revenue Bonds, Insured by FGIC 7.0% 9/1/2021 1,948,835(b)
------------
Texas - 9.4%
2,165,000 Arlington, Texas, Independent School District, Unlimited Tax
Refunding & Improvement Bonds, Series 1992, Permanent
School Fund Guarantee Zero Coupon 2/15/2009 1,108,112
8,100,000 Austin, Texas, Utility System Refunding Revenue Bonds,
Series A, Insured by MBIA Zero Coupon 11/15/2009 3,939,516
7,000,000 Austin, Texas, Utility System Refunding Revenue Bonds,
Series A, Insured by MBIA Zero Coupon 11/15/2008 3,640,560
1,000,000 Austin, Texas, Utility System Revenue Refunding Bonds,
Insured by FGIC 6.0% 11/15/2013 1,058,210
1,575,000 Bexar County, Texas, Limited Tax General Obligation Bonds 5.0% 6/15/2015 1,469,963
1,000,000 Brazos River Authority, Texas, Collateralized Revenue
Refunding Bonds (Houston Lighting & Power Co.),
1988 Series B 8.25% 5/1/2015 1,068,380
2,000,000 Brazos River Authority, Texas, Houston Lighting
& Power Co., Revenue Refunding Bonds, Insured by MBIA 8.25% 5/1/2015 2,146,360
1,390,000 City of Garland, Dallas County, Texas, Combination Tax and
Revenue Certificates of Obligation, Series 1996 5.25% 2/15/2016 1,318,818
1,310,000 City of Garland, Dallas County, Texas, Combination Tax and
Revenue Certificates of Obligation, Series 1996 5.25% 2/15/2015 1,244,906
1,500,000 Conroe, Texas, Independent School District Unlimited Tax
General Obligation Refunding Bonds, Permanent School
Fund Guarantee 5.5% 8/15/2021 1,464,180
2,000,000 Copperas Cove, Texas, Independent School District,
Unlimited Tax General Obligation Bonds, Permanent School
Fund Guarantee 6.9% 8/15/2014 2,269,740(b)
1,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding Bonds,
Insured by FGIC 7.375% 11/1/2008 1,151,820
2,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding Bonds,
Insured by FGIC 7.375% 11/1/2010 2,303,640
1,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding Bonds,
Insured by FGIC 7.375% 11/1/2009 1,157,930
4,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding Bonds
Series 1994-A, Insured by MBIA 6.0% 11/1/2012 4,140,920
2,285,000 Denton, Texas, Independent School District, Unlimited Tax
General Obligation Refunding Bonds, Permanent School
Fund Guarantee 6.25% 2/15/2009 2,472,416
1,000,000 Georgetown, Texas, Higher Education Finance Corp., Higher
Education Revenue Bonds, Series 1994 (Southwestern
University Project) 6.3% 2/15/2014 1,037,630
2,250,000 Harris County, Texas, Toll Road Sr. Lien Bonds, Series A,
Insured by MBIA 6.375% 8/15/2024 2,409,413
1,750,000 Harris County, Texas, Tollroad Unlimited Tax & Subordinated Lien,
Revenue Refunding Bonds, Series 1988 8.125% 8/1/2015 1,899,485(b)
1,160,000 Houston, Texas, Housing Finance Corp., Single Family Mortgage
Revenue Bonds, Series 1983 10.0% 9/15/2014 1,159,594
5,315,000 Lewisville, Texas, Independent School District,
Capital Appreciation Refunding Bonds, Permanent
School Fund Guarantee Zero Coupon 8/15/2019 1,419,743
1,000,000 San Antonio, Texas, Airport Revenue Refunding Bonds,
Insured by AMBAC 7.375% 7/1/2011 1,141,240
1,845,000 San Antonio, Texas, Airport Revenue Refunding Bonds,
Insured by AMBAC 7.375% 7/1/2010 2,116,879
11,615,000 Southeastern Texas Housing Finance Corp., Single Family
Mortgage Revenue Bonds Zero Coupon 9/1/2017 3,419,224(b)
4,315,000 Texas State, Veterans Land Board General Obligation Bonds 0.05% 7/1/2010 2,009,884(b)
2,500,000 Travis County, Texas, Housing Finance Corporation, Single
Family Mortgage Revenue Refunding Bonds, Series 1994-A 6.75% 4/1/2014 2,635,450
440,000 Willis, Texas, Independent School District, Government Obligation
Bonds, Permanent School Fund Guarantee 6.5% 2/15/2016 463,364
3,210,000 Willis, Texas, Independent School District, Government Obligation
Bonds, Permanent School Fund Guarantee 6.5% 2/15/2016 3,484,808(b)
1,175,000 Wylie, Texas, Independent School District, (Collin County),
Unlimited Tax School Building & Refunding Bonds, Series 1994,
Permanent School Fund Guarantee 6.875% 8/15/2014 1,339,429
------------
56,491,614
------------
Utah - 1.7%
1,000,000 Intermountain Power Agency, Utah, Power Supply Revenue
Bonds, Series A, Insured by MBIA 6.0% 7/1/2009 1,003,750
3,405,000 Timpanogos Special Service District, Utah County, Utah,
Sewer Revenue Bonds, Series 1996-A, Insured by AMBAC 6.1% 6/1/2019 3,504,494
3,750,000 Utah Associated Municipal Power Systems, San Juan Project
Revenue Bonds, Series O, Insured by MBIA 6.25% 6/1/2014 3,951,225
1,580,000 West Valley City, Utah, Municipal Building Authority, Lease
Refunding Bonds, Insured by MBIA 6.0% 1/15/2010 1,631,713
------------
10,091,182
------------
Virginia - 1.6%
3,000,000 Industrial Development Authority of Fairfax County, Virginia,
Health Care Revenue Bonds, (Inova Health System Project),
Series 1996 5.875% 8/15/2016 3,031,440
4,300,000 Virginia Housing Development Authority, Commonwealth
Mortgage Bonds, 1994 Series H, Subseries H-2 6.5% 1/1/2014 4,477,891
2,000,000 Virginia State, Unlimited Tax General Obligation Bonds 6.5% 6/1/2015 2,236,940
------------
9,746,271
------------
Washington - 6.7%
1,655,000 Douglas County, Washington, Public Utility District #1,
Wells Hydroelectric Revenue Bonds, Series A 8.75% 9/1/2018 2,177,533(b)
1,395,000 Douglas County, Washington, Public Utility District #1,
Wells Hydroelectric Revenue Bonds, Series A 8.75% 9/1/2018 1,757,198
2,000,000 Grant County, Washington, Public Utility District No. 2,
Columbia River, Priest Rapids Hydro Electric Development Project,
Second Series Revenue Bonds, Series A, Insured by AMBAC 5.0% 1/1/2023 1,793,220
5,000,000 King County, Washington, Unlimited Tax General Obligation Bonds,
Series A 6.75% 12/1/2009 5,414,100(b)
1,500,000 Tacoma, Washington, Conservation System Project Revenue Bonds,
Tacoma Public Utilities Light Division 6.6% 1/1/2015 1,596,990
2,015,000 Tacoma, Washington, Utilities Refuse Revenue Bonds,
Insured by MBIA 6.625% 12/1/2011 2,148,655
5,000,000 Washington State Public Power Supply System, Nuclear
Project No. 1, Revenue Refunding Bonds 7.5% 7/1/2015 5,479,750(b)
3,000,000 Washington State Public Power Supply System, Nuclear
Project No. 1, Revenue Refunding Bonds, Series 1996-A,
Insured by MBIA 5.75% 7/1/2012 3,019,980
2,000,000 Washington State Public Power Supply System, Nuclear
Project No. 1, Revenue Refunding Bonds,
Series 1996-A, Insured by MBIA 5.75% 7/1/2011 2,013,320
2,500,000 Washington State Public Power Supply System, Nuclear
Project No. 3, Revenue Refunding Bonds,
Series B, Insured by MBIA Zero Coupon 7/1/2010 1,137,575
1,000,000 Washington State Public Power Supply System, Nuclear
Project No. 3, Revenue Refunding Bonds, Insured by FGIC 7.25% 7/1/2015 1,098,910(b)
3,000,000 Washington State, Unlimited Tax General Obligation Bonds,
Series 93A 5.75% 10/1/2012 3,085,050
1,500,000 Washington State, Unlimited Tax General Obligation Bonds,
Series A 6.25% 2/1/2011 1,620,720
2,400,000 Washington State, Unlimited Tax General Obligation Bonds 6.7% 6/1/2016 2,610,720(b)
2,000,000 Washington State, Unlimited Tax General Obligation Bonds 6.0% 6/1/2012 2,107,900
2,500,000 Washington State, Various Purpose General Obligation Bonds 6.25% 6/1/2010 2,707,450
------------
39,769,071
------------
Wisconsin - 0.7%
4,315,000 State of Wisconsin, Clean Water Revenue Bonds, 1995 Series 1 5.8% 6/1/2015 4,334,978
------------
Wyoming - 0.4%
2,500,000 State of Wyoming, Farm Loan Board, Capital Facilities
Revenue Bonds, Series 1994 6.1% 4/1/2024 2,570,900
------------
Total Long-Term Municipal Securities (cost $557,525,947) 598,016,533
------------
SHORT-TERM MUNICIPAL SECURITIES - 0.001% (a)
100,000 Illinois Development Finance Authority, (Amoco Oil Company
Project), Pollution Control Revenue Refunding Bonds,
Series 1994 3.55% 11/1/1996 100,000
100,000 Sublette County, Wyoming, Pollution Control Revenue Bonds,
(Exxon Project), Series 1984 3.55% 11/1/1996 100,000
------------
Total Short-Term Municipal Securities (at amortized cost) 200,000
------------
Total Investments (cost $557,725,947) $598,216,533
============
NOTES TO PORTFOLIO OF INVESTMENTS:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of the Lutheran Brotherhood
Municipal Bond Fund.
(b) Denotes securities that have been pre-refunded or escrowed to maturity. Under such an arrangement,
money is deposited into an irrevocable escrow account and is used to purchase U.S. Treasury securities
or Government Agency securities with maturing principal and interest earnings sufficient to pay all debt
service requirements of the pre-refunded bonds. Because the original bonds assume a quality rating
equivalent to the escrowed U.S. Government securities, they are considered to be U.S. Government securities
for purposes of portfolio diversification requirements.
(c) Denotes variable rate obligations for which the current yield and next scheduled interest reset date are shown.
(d) Denotes investments purchased on a when-issued basis.
(e) At October 31, 1996, the aggregate cost of securities for federal income tax purposes was $557,755,830
and the net unrealized appreciation of investments based on that cost was $40,460,703 which is comprised
of $41,226,459 aggregate gross unrealized appreciation and $765,756 aggregate gross unrealized depreciation.
(f) Miscellaneous abbreviations:
AMBAC- AMBAC Indemnity Corp.
Connie Lee- Connie Lee Insurance Co.
FGIC- Financial Guaranty Insurance Co.
FHA- Federal Housing Administration
FSA- Federal Security Assurance, Inc.
MBIA- Municipal Bond Investors Assurance Corp.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD MONEY MARKET FUND
Portfolio of Investments
October 31, 1996
Principal Maturity
Amount Rate Date Value
- ----------- ------ ---------- ------------
<S> <C> <C> <C>
BANK NOTES - 1.7% (a)
$ 5,000,000 First National Bank of Chicago 5.43% 11/25/1996 $ 4,999,765
2,000,000 NBD Bank, N.A., Detroit 6.40% 6/13/1997 2,009,098
------------
Total Bank Notes 7,008,863
------------
BANKER'S ACCEPTANCES - 5.5% (a)
3,000,000 Bankers Trust Co., N.A.- New York 5.60% 3/24/1997 2,933,267
5,000,000 Bankers Trust Co., N.A.- New York 5.41% 11/4/1996 4,997,746
3,000,000 Bankers Trust Co., N.A.- New York 5.48% 3/4/1997 2,943,830
2,000,000 First Bank, N.A., Minneapolis 5.55% 3/14/1997 1,958,992
5,000,000 First Bank, N.A., Minneapolis 5.30% 11/12/1996 4,991,903
5,000,000 Nationsbank, N.A. (South) 5.38% 11/1/1996 5,000,000
------------
Total Bankers Acceptances 22,825,738
------------
COMMERCIAL PAPER - 72.7% (a)
Agriculture - 0.5%
2,000,000 Canadian Wheat Board (Guaranteed Government of Canada) 5.62% 3/13/1997 1,958,787
------------
Banking-Domestic - 2.4%
5,000,000 Allegheny University Hospitals, (PNC Bank, N.A., Direct Pay
Letter of Credit) 5.28% 12/17/1996 4,966,267
5,000,000 Hyundai Motor Finance Co., (Bank of America NT&SA,
Direct Pay Letter of Credit) 5.34% 1/21/1997 4,939,925
------------
9,906,192
------------
Banking-Foreign - 9.3%
5,000,000 Comision Federal de Electricidad, Series A,
(Westdeutsche Landesbank Girozentrale,
Direct Pay Letter of Credit) 5.28% 12/3/1996 4,976,533
5,000,000 Comision Federal de Electricidad, Series A,
(Westdeutsche Landesbank Girozentrale, Direct Pay
Letter of Credit) 5.33% 12/6/1996 4,974,090
4,000,000 Finance One Funding Corp., (Credit Suisse, Direct Pay
Letter of Credit) 5.37% 4/17/1997 3,900,357
5,000,000 Finance One Funding Corp., (Credit Suisse, Direct Pay
Letter of Credit) 5.38% 11/8/1996 4,994,769
5,000,000 Finance One Funding Corp., (Credit Suisse, Direct Pay
Letter of Credit) 5.31% 11/21/1996 4,985,250
5,000,000 Fletcher Challenge Finance USA, Inc., (Credit Suisse,
Direct Pay Letter of Credit) 5.33% 11/20/1996 4,985,935
5,000,000 Fletcher Challenge Finance USA, Inc., (National Westminster
Bank plc, Direct Pay Letter of Credit) 5.25% 12/27/1996 4,959,167
5,000,000 U.S. Prime Property, Inc., (ABN AMRO Bank N.V., Direct
Pay Letter of Credit) 5.52% 12/12/1996 4,968,567
------------
38,744,668
------------
Computer & Office Equipment - 1.2%
5,000,000 Electronic Data Systems Corp. 5.35% 11/19/1996 4,986,625
------------
Cosmetics & Toiletries - 3.4%
14,300,000 Gillette Co. 5.62% 11/1/1996 14,300,000
------------
Education - 4.1%
1,470,000 Leland H. Stanford Junior University 5.32% 11/4/1996 1,469,348
5,000,000 Leland H. Stanford Junior University 5.55% 1/14/1997 4,942,958
5,000,000 Yale University 5.30% 11/26/1996 4,981,597
5,895,000 Yale University 5.32% 1/13/1997 5,831,406
------------
17,225,309
------------
Finance-Automotive - 7.9%
4,500,000 Ford Motor Credit Co. 5.47% 11/14/1996 4,491,111
5,000,000 Ford Motor Credit Co. 5.25% 12/30/1996 4,956,979
5,000,000 Ford Motor Credit Co. 5.44% 11/5/1996 4,996,978
5,000,000 General Motors Acceptance Corp. 5.59% 3/11/1997 4,899,069
4,000,000 General Motors Acceptance Corp. 5.42% 11/8/1996 3,995,784
5,000,000 General Motors Acceptance Corp. 5.46% 2/20/1997 4,915,825
5,000,000 General Motors Acceptance Corp. 5.46% 12/23/1996 4,960,567
------------
33,216,313
------------
Finance-Commercial - 6.9%
5,000,000 C.I.T. Group Holdings, Inc. 5.38% 12/2/1996 4,976,836
5,000,000 C.I.T. Group Holdings, Inc. 5.40% 11/15/1996 4,989,500
5,000,000 General Electric Capital Corp. 5.35% 6/30/1997 4,820,924
5,000,000 General Electric Capital Corp. 5.32% 11/12/1996 4,991,872
5,000,000 General Electric Capital Corp. 5.47% 12/30/1996 4,955,176
4,000,000 General Electric Capital Corp. 5.60% 11/1/1996 4,000,000
------------
28,734,308
------------
Finance-Consumer - 9.3%
5,000,000 Associates Corp. of North America 5.32% 11/6/1996 4,996,305
5,000,000 Associates Corp. of North America 5.32% 12/9/1996 4,971,922
4,000,000 Associates Corp. of North America 5.31% 12/27/1996 3,966,960
5,000,000 AVCO Financial Services, Inc. 5.30% 2/24/1997 4,915,347
5,000,000 AVCO Financial Services, Inc. 5.31% 11/18/1996 4,987,463
5,000,000 Beneficial Corp. 5.40% 12/16/1996 4,966,250
5,000,000 Beneficial Corp. 5.31% 11/27/1996 4,980,825
5,000,000 Beneficial Corp. 5.30% 11/13/1996 4,991,167
------------
38,776,239
------------
Finance-Retail - 3.6%
5,000,000 Sears Roebuck Acceptance Corp. 5.31% 12/3/1996 4,976,400
5,000,000 Sears Roebuck Acceptance Corp. 5.40% 1/27/1997 4,934,750
5,000,000 Sears Roebuck Acceptance Corp. 5.47% 11/21/1996 4,984,806
------------
14,895,956
------------
Finance-Structured - 3.5%
5,000,000 Enterprise Funding Corp. 5.28% 12/10/1996 4,971,400
5,000,000 Enterprise Funding Corp. 5.32% 12/6/1996 4,974,139
5,000,000 Preferred Receivables Funding Corp. 5.34% 4/22/1997 4,872,433
------------
14,817,972
------------
Financial Services - 4.9%
5,000,000 American Express Credit Corp. 5.26% 12/26/1996 4,959,819
5,000,000 American Express Credit Corp. 5.26% 12/11/1996 4,970,778
4,000,000 USAA Capital Corp. 5.31% 12/16/1996 3,973,450
4,703,000 USAA Capital Corp. 5.60% 11/1/1996 4,703,000
1,800,000 USAA Capital Corp. 5.52% 1/9/1997 1,780,956
------------
20,388,003
------------
Food & Beverage - 4.5%
5,000,000 Cargill, Inc. 5.40% 11/12/1996 4,991,750
5,000,000 CPC International, Inc. 5.50% 12/20/1996 4,962,569
2,992,000 CPC International, Inc. 5.33% 2/14/1997 2,945,487
6,000,000 CPC International, Inc. 5.31% 11/21/1996 5,982,300
------------
18,882,106
------------
Household Products - 1.2%
5,000,000 Colgate-Palmolive Co. 5.30% 11/8/1996 4,994,847
------------
Industrial - 3.7%
5,000,000 Chevron Transport Corp., (Guaranteed Chevron Corp.) 5.45% 2/10/1997 4,923,549
5,000,000 Chevron Transport Corp., (Guaranteed Chevron Corp.) 5.27% 12/9/1996 4,972,186
1,003,000 Du Pont (E.I.) de Nemours and Co. 5.30% 11/18/1996 1,000,490
3,365,000 Great Lakes Chemical Corp. 5.24% 11/15/1996 3,358,143
1,100,000 Monsanto Co. 5.38% 12/16/1996 1,092,603
------------
15,346,971
------------
Insurance - 2.3%
5,000,000 A.I.G. Funding, Inc. 5.35% 7/21/1997 4,805,319
5,000,000 Prudential Funding Corp. 5.33% 11/7/1996 4,995,558
------------
9,800,877
------------
Soverign/Foreign Government - 4.0%
5,000,000 Kingdom Of Sweden 5.33% 2/3/1997 4,930,414
2,000,000 Kingdom Of Sweden 5.52% 2/3/1997 1,971,173
5,000,000 Kingdom Of Sweden 5.37% 6/27/1997 4,822,492
5,000,000 Kingdom Of Sweden 5.35% 3/27/1997 4,891,514
------------
16,615,593
------------
Total Commercial Paper 303,590,766
------------
CERTIFICATES OF DEPOSIT - 4.8% (a)
Euro Dollar - 3.6%
5,000,000 ABN AMRO Bank, N.V. 5.81% 3/5/1997 5,000,167
5,000,000 Morgan Guaranty Trust Co., New York 5.73% 8/12/1997 5,001,841
5,000,000 National Westminster Bank plc 5.34% 12/31/1996 5,000,082
------------
15,002,090
------------
Yankee Dollar - 1.2%
5,000,000 Canadian Imperial Bank of Commerce 5.30% 12/6/1996 5,000,048
------------
Total Certificates of Deposit 20,002,138
------------
MEDIUM TERM NOTE - 0.5% (a)
2,000,000 Du Pont (E.I.) de Nemours and Co., Medium Term Note 7.00% 4/16/1997 2,010,317
------------
ADJUSTABLE RATE NOTES - 14.8% (a,b)
11,000,000 Federal Home Loan Bank, Consolidated Bonds 5.21% 11/25/1996 10,995,228
10,000,000 Federal National Mortgage Association, Medium Term Note 5.31% 11/1/1996 9,997,550
8,000,000 First Bank, N.A., Minneapolis, Bank Note 5.28% 11/20/1996 7,995,462
5,000,000 Illinois Student Assistance Commission,
(Bank of America, Illinois, Direct Pay Letter of Credit) 5.42% 11/7/1996 5,000,000
10,000,000 Illinois Student Assistance Commission,
(Student Loan Market Association, Direct Pay Letter of Credit) 5.36% 11/7/1996 10,000,000
10,000,000 International Business Machines Corp. 5.50% 12/20/1996 9,994,715
8,000,000 PNC Bank, N.A., Pittsburgh, Medium Term Bank Note 5.33% 11/2/1996 7,994,765
------------
Total Adjustable Rate Notes 61,977,720
------------
Total Investments (at amortized cost) $417,415,542(c)
============
NOTES TO PORTFOLIO OF INVESTMENTS:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of the Lutheran Brotherhood
Money Market Fund.
(b) Denotes variable rate obligations for which the current yield and the next scheduled interest reset
date are shown.
(c) Also represents cost for federal income tax purposes.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Opportunity Growth Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1996
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $249,579,632) $264,487,050
Receivable for investment securities sold 4,590,145
Interest receivable 30,000
Unamortized organization costs 11,772
------------
Total assets 269,118,967
------------
LIABILITIES:
Payable for investment securities purchased 3,119,496
Accrued expenses 162,131
------------
Total liabilities 3,281,627
------------
NET ASSETS $265,837,340
============
NET ASSETS CONSIST OF:
Trust capital (19,514,660 shares of beneficial
interest outstanding) $221,531,118
Accumulated net investment loss (710)
Accumulated net realized gain from sale
of investments 29,399,514
Unrealized net appreciation of investments 14,907,418
------------
NET ASSETS $265,837,340
============
Net asset value and redemption price per share
($265,837,340 (divided by) 19,514,660 shares of beneficial
interest outstanding) $13.62
======
Maximum public offering price per share
($13.62 (divided by) 0.95 for a 5% sales charge) $14.34
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $40,287
Interest income 769,842
------------
Total income 810,129
------------
Expenses --
Investment advisory fee 1,563,341
Transfer agent services 865,339
Custodian fee 116,415
Administrative personnel and services 51,379
Printing and postage 180,757
Trust share registration costs 71,948
Auditing fees 10,749
Legal fees 2,295
Trustees' fees 6,954
Amortization of organization costs 9,882
Miscellaneous 7,219
------------
Total expenses 2,886,278
------------
Net investment loss (2,076,149)
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 33,100,151
Net realized loss on closed or expired option
contracts written (52,746)
------------
Net realized gain on investments 33,047,405
Net change in unrealized appreciation
of investments 6,165,586
------------
Net gain on investments 39,212,991
------------
Net increase in net assets resulting
from operations $37,136,842
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1996 and 1995
Year Year
Ended Ended
10/31/96 10/31/95
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment loss ($2,076,149) ($1,136,040)
Net realized gain on investments 33,047,405 38,531,937
Net change in unrealized appreciation or depreciation
of investments 6,165,586 (4,581,612)
------------ ------------
Net increase in net assets resulting from operations 37,136,842 32,814,285
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net realized gain on investments (33,356,556) --
------------ ------------
TRUST SHARE TRANSACTIONS:
Net proceeds from sale of shares 89,874,940 50,139,416
Reinvested dividend distributions 33,057,094 --
Cost of shares redeemed (26,557,877) (16,847,223)
------------ ------------
Net increase in net assets from trust share transactions 96,374,157 33,292,193
------------ ------------
Net increase in net assets 100,154,443 66,106,478
NET ASSETS:
Beginning of period 165,682,897 99,576,419
------------ ------------
End of period (including accumulated net investment loss of
$710 and undistributed net investment income of
$0, respectively) $265,837,340 $165,682,897
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood World Growth Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1996
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $49,958,793) $52,728,898
Cash (including foreign currency
holdings of $98,725) 103,989
Receivable for investment securities sold 15,702
Dividend receivable 134,033
Unamortized organization costs 39,136
------------
Total assets 53,021,758
------------
LIABILITIES:
Payable for investment securities purchased 28,688
Accrued expenses 56,446
------------
Total liabilities 85,134
------------
NET ASSETS $52,936,624
============
NET ASSETS CONSIST OF:
Trust capital (5,585,092 shares of beneficial
interest outstanding) $49,737,481
Undistributed net investment income 255,036
Accumulated net realized gain from sale
of investments and foreign
currency transactions 172,815
Unrealized net appreciation of investments and
on translation of assets and liabilities in
foreign currencies 2,771,292
------------
NET ASSETS $52,936,624
============
Net asset value and redemption price per share
($52,936,624 (divided by) 5,585,092 shares of beneficial
interest outstanding) $9.48
======
Maximum public offering price per share
($9.48 (divided by) 0.95 for a 5% sales charge) $9.98
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income (net of foreign taxes of $110,565) $758,473
Interest income 190,667
------------
Total income 949,140
------------
Expenses --
Investment advisory fee 392,419
Transfer agent services 169,451
Custodian fee 71,731
Administrative personnel and services 8,217
Printing and postage 39,062
Trust share registration costs 62,275
Auditing fees 7,999
Legal fees 314
Trustees' fees 6,954
Amortization of organization costs 9,800
Miscellaneous 4,320
------------
Total expenses before expense reimbursement 772,542
Expense reimbursement from
investment advisor (66,807)
------------
Net expenses 705,735
------------
Net investment income 243,405
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investment transactions 234,914
Net realized loss on foreign currency transactions (30,478)
------------
Net realized gain on investments and
foreign currency transactions 204,436
------------
Net change in unrealized appreciation of investments 2,903,821
Net change in unrealized depreciation on translation
of assets and liabilities in foreign currencies 2,498
------------
Net change in unrealized appreciation of investments
and on translation of assets and liabilities in
foreign currencies 2,906,319
------------
Net gain on investments and foreign currency 3,110,755
------------
Net increase in net assets resulting
from operations $3,354,160
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Year Ended October 31, 1996 and Period Ended October 31, 1995
For the period from
Year September 5, 1996
Ended (effective date) to
10/31/96 October 31, 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $243,405 $22,819
Net realized gain (loss) on investments
and foreign currency transactions 204,436 (5,560)
Net change in unrealized appreciation or depreciation of
investments and on translation of assets and liabilities
in foreign currencies 2,906,319 (135,027)
------------ ------------
Net change in net assets resulting from operations 3,354,160 (117,768)
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net investment income (37,674) --
------------ ------------
TRUST SHARE TRANSACTIONS:
Net proceeds from sale of shares 39,161,715 14,107,250
Reinvested dividend distributions 26,205 --
Cost of shares redeemed (3,535,813) (21,451)
------------ ------------
Net increase in net assets from trust share transactions 35,652,107 14,085,799
------------ ------------
Net increase in net assets 38,968,593 13,968,031
NET ASSETS:
Beginning of period 13,968,031 --
------------ ------------
End of period (including undistributed net investment
income of $255,036 and $18,920, respectively) $52,936,624 $13,968,031
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1996
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $659,467,697) $790,225,072
Cash 28,462
Receivable for investment securities sold 983,048
Dividend and interest receivable 1,213,685
------------
Total assets 792,450,267
------------
LIABILITIES:
Payable for investment securities purchased 23,364,048
Accrued expenses 244,101
------------
Total liabilities 23,608,149
------------
NET ASSETS $768,842,118
============
NET ASSETS CONSIST OF:
Trust capital (33,321,831 shares of
beneficial interest outstanding) $579,044,548
Undistributed net investment income 665,723
Accumulated net realized gain from sale
of investments 58,374,472
Unrealized net appreciation of investments 130,757,375
------------
NET ASSETS $768,842,118
============
Net asset value and redemption price per share
($768,842,118 (divided by) 33,321,831 shares of
beneficial interest outstanding) $23.07
======
Maximum public offering price per share
($23.07 (divided by) 0.95 for a 5% sales charge) $24.28
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $11,994,640
Interest income 1,588,444
------------
Total income 13,583,084
------------
Expenses --
Investment advisory fee 4,529,474
Transfer agent services 1,610,381
Custodian fee 158,702
Administrative personnel and services 163,270
Printing and postage 326,528
Trust share registration costs 55,581
Auditing fees 24,750
Legal fees 8,077
Trustees' fees 14,954
Miscellaneous 19,278
------------
Total expenses 6,910,995
------------
Net investment income 6,672,089
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investment transactions 62,729,282
Net change in unrealized appreciation
of investments 45,131,419
------------
Net gain on investments 107,860,701
------------
Net increase in net assets resulting
from operations $114,532,790
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1996 and 1995
Year Year
Ended Ended
10/31/96 10/31/95
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $6,672,089 $6,673,188
Net realized gain on investments 62,729,282 46,207,184
Net change in unrealized appreciation or depreciation
of investments 45,131,419 61,523,937
------------ ------------
Net increase in net assets resulting from operations 114,532,790 114,404,309
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net investment income (6,494,190) (6,749,604)
Net realized gain on investments (44,162,422) (88,151)
------------ ------------
Total distributions (50,656,612) (6,837,755)
------------ ------------
TRUST SHARE TRANSACTIONS:
Net proceeds from sale of shares 84,069,262 51,345,084
Reinvested dividend distributions 49,537,622 6,678,353
Cost of shares redeemed (74,142,527) (68,673,955)
------------ ------------
Net change in net assets from trust share transactions 59,464,357 (10,650,518)
------------ ------------
Net increase in net assets 123,340,535 96,916,036
NET ASSETS:
Beginning of period 645,501,583 548,585,547
------------ ------------
End of period (including undistributed net investment
income of $665,723 and $487,824, respectively) $768,842,118 $645,501,583
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood High Yield Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1996
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $690,482,747) $692,638,766
Cash 8,129,093
Receivable for investment securities sold 11,969,810
Interest and dividend receivable 10,275,511
------------
Total assets 723,013,180
------------
LIABILITIES:
Payable for investment securities purchased 19,666,864
Accrued expenses 199,380
------------
Total liabilities 19,866,244
------------
NET ASSETS $703,146,936
============
NET ASSETS CONSIST OF:
Trust capital (76,324,492 shares of
beneficial interest outstanding) $696,160,822
Undistributed net investment income 3,312,734
Accumulated net realized gain from sale
of investments 1,517,361
Unrealized net appreciation of investments 2,156,019
------------
NET ASSETS $703,146,936
============
Net asset value and redemption price per share
($703,146,936 (divided by) 76,324,492 shares of
beneficial interest outstanding) $9.21
======
Maximum public offering price per share
($9.21 (divided by) 0.95 for a 5% sales charge) $9.69
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $59,532,426
Dividend income 6,377,038
------------
Total income 65,909,464
------------
Expenses --
Investment advisory fee 4,150,072
Transfer agent services 1,061,296
Custodian fee 177,678
Administrative personnel and services 148,767
Printing and postage 232,406
Trust share registration costs 88,270
Auditing fees 22,751
Legal fees 18,790
Trustees' fees 14,954
Miscellaneous 18,332
------------
Total expenses 5,933,316
------------
Net investment income 59,976,148
------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investment transactions 16,240,947
Net change in unrealized appreciation of investments ($5,314,640)
------------
Net gain on investments 10,926,307
------------
Net increase in net assets resulting
from operations $70,902,455
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1996 and 1995
Year Year
Ended Ended
10/31/96 10/31/95
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $59,976,148 $51,789,230
Net realized gain (loss) on investment transactions 16,240,947 (14,450,136)
Net change in unrealized appreciation or depreciation
of investments (5,314,640) 30,065,533
------------ ------------
Net increase in net assets resulting from operations 70,902,455 67,404,627
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net investment income (58,709,581) (52,185,840)
Net realized gain on investments -- (3,034,747)
------------ ------------
Total distributions (58,709,581) (55,220,587)
------------ ------------
TRUST SHARE TRANSACTIONS:
Net proceeds from sale of shares 145,880,542 117,628,453
Reinvested dividend distributions 40,091,272 37,541,814
Cost of shares redeemed (89,354,662) (72,649,892)
------------ ------------
Net increase in net assets from trust share transactions 96,617,152 82,520,375
------------ ------------
Net increase in net assets 108,810,026 94,704,415
NET ASSETS:
Beginning of period 594,336,910 499,632,495
------------ ------------
End of period (including undistributed net investment
income of $3,312,734 and $2,046,167, respectively) $703,146,936 $594,336,910
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Income Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1996
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $845,363,457) $850,260,641
Cash 56,739
Receivable for investment securities sold 106,190,523
Interest receivable 13,625,927
-------------
Total assets 970,133,830
-------------
LIABILITIES:
Open options written, at value
(premium received $142,648) 337,500
Payable for investment securities purchased 98,623,328
Accrued expenses 196,964
-------------
Total liabilities 99,157,792
-------------
NET ASSETS $870,976,038
=============
NET ASSETS CONSIST OF:
Trust capital (102,485,380 shares of
beneficial interest outstanding) $913,896,451
Undistributed net investment income 1,510,653
Accumulated net realized loss from sale
of investments (49,133,398)
Unrealized net appreciation of investments 4,702,332
-------------
NET ASSETS $870,976,038
=============
Net asset value and redemption price per share
($870,976,038 (divided by) 102,485,380 shares of
beneficial interest outstanding) $8.50
======
Maximum public offering price per share
($8.50 (divided by) 0.95 for a 5% sales charge) $8.95
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $67,398,115
-------------
Expenses ---
Investment advisory fee 5,330,930
Transfer agent services 1,382,275
Custodian fee 187,692
Administrative personnel and services 207,659
Printing and postage 302,951
Trust share registration costs 37,216
Auditing fees 24,750
Legal fees 10,805
Trustees' fees 14,954
Miscellaneous 27,457
-------------
Total expenses 7,526,689
-------------
Net investment income 59,871,426
-------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized loss on investment transactions (9,128,265)
Net realized gain on closed or expired
option contracts written 202,012
Net realized gain on closed futures contracts 71,517
-------------
Net realized loss on investments (8,854,736)
Net change in unrealized appreciation
of investments (11,610,324)
-------------
Net loss on investments (20,465,060)
-------------
Net increase in net assets resulting
from operations $39,406,366
=============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1996 and 1995
Year Year
Ended Ended
10/31/96 10/31/95
------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $59,871,426 $64,659,606
Net realized gain (loss) on investment transactions (8,854,736) 9,256,703
Net change in unrealized appreciation or depreciation
of investments (11,610,324) 66,244,804
------------- -------------
Net increase in net assets resulting from operations 39,406,366 140,161,113
------------- -------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net investment income (63,354,789) (62,451,862)
------------- -------------
TRUST SHARE TRANSACTIONS:
Net proceeds from sale of shares 55,392,852 45,763,710
Reinvested dividend distributions 47,792,081 46,818,208
Cost of shares redeemed (150,402,163) (135,320,068)
------------- -------------
Net change in net assets from trust share transactions (47,217,230) (42,738,150)
------------- -------------
Net change in net assets (71,165,653) 34,971,101
NET ASSETS:
Beginning of period 942,141,691 907,170,590
------------- -------------
End of period (including undistributed net investment
income of $1,510,653 and $4,974,121, respectively) $870,976,038 $942,141,691
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Municipal Bond Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1996
<S> <C>
ASSETS:
Investments in securities, at value
( cost, $557,725,947) $598,216,533
Cash 69,481
Receivable for investment securities sold 5,966,976
Interest receivable 10,136,048
-------------
Total assets 614,389,038
-------------
LIABILITIES:
Payable for investment securities purchased 4,823,686
Accrued expenses 93,342
-------------
Total liabilities 4,917,028
-------------
NET ASSETS $609,472,010
=============
NET ASSETS CONSIST OF:
Trust capital (70,895,680 shares of
beneficial interest outstanding) $575,166,096
Undistributed net investment income 1,804,431
Accumulated net realized loss from sale
of investments (7,989,103)
Unrealized net appreciation of investments 40,490,586
-------------
NET ASSETS $609,472,010
=============
Net asset value and redemption price per share
($609,472,010 (divided by) 70,895,680 shares of
beneficial interest outstanding) $8.60
======
Maximum public offering price per share
($8.60 (divided by) 0.95 for a 5% sales charge) $9.05
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $36,467,722
-------------
Expenses --
Investment advisory fee 3,551,045
Transfer agent services 516,423
Custodian fee 154,182
Administrative personnel and services 142,190
Printing and postage 123,796
Trust share registration costs 36,886
Auditing fees 24,750
Legal fees 7,337
Trustees' fees 14,954
Miscellaneous 19,997
-------------
Total expenses 4,591,560
-------------
Net investment income 31,876,162
-------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investment transactions 525,779
Net realized loss on closed futures contracts (423,337)
-------------
Net realized gain on investments 102,442
Net change in unrealized appreciation
of investments (358,129)
-------------
Net loss on investments (255,687)
-------------
Net increase in net assets resulting
from operations $31,620,475
=============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1996 and 1995
Year Year
Ended Ended
10/31/96 10/31/95
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income $31,876,162 $33,203,173
Net realized gain (loss) on investment transactions 102,442 (338,306)
Net change in unrealized appreciation or depreciation
of investments (358,129) 52,104,109
------------- -------------
Net increase in net assets resulting from operations 31,620,475 84,968,976
------------- -------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net investment income (30,660,042) (33,124,129)
------------- -------------
TRUST SHARE TRANSACTIONS:
Net proceeds from sale of shares 41,275,499 39,483,970
Reinvested dividend distributions 23,551,470 25,171,137
Cost of shares redeemed (85,013,361) (82,987,994)
------------- -------------
Net change in net assets from trust share transactions (20,186,392) (18,332,887)
------------- -------------
Net change in net assets (19,225,959) 33,511,960
NET ASSETS:
Beginning of period 628,697,969 595,186,009
------------- -------------
End of period (including undistributed net investment
income of $1,804,431 and $553,971, respectively) $609,472,010 $628,697,969
============ ============
The acccompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Lutheran Brotherhood Money Market Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1996
<S> <C>
ASSETS:
Investments in securities, at amortized
cost and value $417,415,542
Cash 1,910,929
Interest receivable 595,029
-------------
Total assets 419,921,500
-------------
LIABILITIES:
Payable for investment securities purchased 2,046,786
Dividends payable 42,954
Accrued expenses 223,171
-------------
Total liabilities 2,312,911
-------------
NET ASSETS $417,608,589
=============
NET ASSETS CONSIST OF:
Trust capital (417,608,589 shares of
beneficial interest outstanding) $417,608,589
=============
Net asset value, offering price and redemption
price per share ($417,608,589 (divided by) 417,608,589
shares of beneficial interest outstanding) $1.00
======
Statement of Operations
Year Ended October 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $21,295,851
-------------
Expenses --
Investment advisory fee 1,922,505
Transfer agent services 1,239,592
Custodian fee 348,761
Administrative personnel and services 87,973
Printing and postage 388,764
Trust share registration costs 95,460
Auditing fees 12,749
Legal fees 4,330
Trustees' fees 8,961
Miscellaneous 11,817
-------------
Total expenses before expense reimbursement 4,120,912
Expense reimbursement from
investment advisor (246,901)
-------------
Net expenses 3,874,011
-------------
Net investment income $17,421,840
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1996 and 1995
Year Year
Ended Ended
10/31/96 10/31/95
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income $17,421,840 $14,921,673
------------- -------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net investment income (17,421,840) (14,921,673)
------------- -------------
TRUST SHARE TRANSACTIONS:
Proceeds from sale of shares 692,236,105 547,639,011
Reinvested dividend distributions 17,063,037 14,549,671
Cost of shares redeemed (632,774,820) (497,972,433)
------------- -------------
Net increase in net assets from trust share transactions 76,524,322 64,216,249
------------- -------------
Net increase in net assets 76,524,322 64,216,249
NET ASSETS:
Beginning of period 341,084,267 276,868,018
------------- -------------
End of period $417,608,589 $341,084,267
============= =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
The Lutheran Brotherhood Family of Funds
Notes to Financial Statements
October 31, 1996
(1) Organization
The Lutheran Brotherhood Family of Funds (the "Trust") is a Delaware business
trust and a diversified, open-end investment company registered under the
Investment Company Act of 1940. The Trust is divided into seven series (the
"Fund(s)"), each with its own investment objective and policies. The seven
Funds of the Trust are: Lutheran Brotherhood Opportunity Growth Fund, Lutheran
Brotherhood World Growth Fund, Lutheran Brotherhood Fund, Lutheran Brotherhood
High Yield Fund, Lutheran Brotherhood Income Fund, Lutheran Brotherhood
Municipal Bond Fund and Lutheran Brotherhood Money Market Fund. The Lutheran
Brotherhood World Growth Fund's registration was declared effective by the
Securities Exchange Commission and began operations as a series of The
Lutheran Brotherhood Family of Funds on September 5, 1995.
(2) Significant Accounting Policies
Investment Security Valuations
Securities traded on U.S. or foreign securities exchanges or included in a
national market system are valued at the last quoted sales price at the close
of each business day. Securities traded on the over-the-counter market and
listed securities for which no price is readily available are valued at prices
within the range of the current bid and asked prices considered to best
represent the value in the circumstances, based on quotes that are obtained
from an independent pricing service or by dealers that make markets in the
securities. The pricing service, in determining values of securities, takes
into consideration such factors as current quotations by broker/dealers,
coupon, maturity, quality, type of issue, trading characteristics, and other
yield and risk factors it deems relevant in determining valuations. Exchange
listed options and futures contracts are valued at the last quoted sales
price. For all Funds other than the Money Market Fund, short-term securities
with maturities of 60 days or less are valued at amortized cost; those with
maturities greater than 60 days are valued at the mean between bid and asked
price. Short-term securities held by the Money Market Fund are valued on the
basis of amortized cost (which approximates market value), whereby a portfolio
security is valued at its cost initially, and thereafter valued to reflect a
constant amortization to maturity of any discount or premium. The Money Market
Fund follows procedures necessary to maintain a constant net asset value of
$1.00 per share. All other securities for which market values are not readily
available are appraised at fair value as determined in good faith by or under
the direction of the Board of Trustees.
Repurchase Agreements
The Funds may engage in repurchase agreement transactions in pursuit of their
investment objectives. When a fund engages in such transactions, it is policy
to require the custodian bank to take possession of all securities held as
collateral in support of repurchase agreement investments. In addition, the
Fund monitors the market value of the underlying collateral on a daily basis.
If the seller defaults or if bankruptcy proceedings are initiated with respect
to the seller, the realization or retention of the collateral may be subject
to legal proceedings.
Investment Income
Interest income is determined on the basis of interest or discount earned on
any short-term investments and interest earned on all other debt securities,
including accrual of original issue discount. Interest earned on debt
securities also includes amortization of premium for the Opportunity Growth,
World Growth Fund, LB Fund, High Yield and Municipal Bond Funds and the
accrual of market discount for the Opportunity Growth, World Growth, LB Fund
and High Yield Funds. Market discount, if any, is recognized for tax purposes
when bonds are sold for the Income and Municipal Bond Funds. Dividend income
is recorded on the ex- dividend date. For payment-in-kind securities, income
is recorded on the ex-dividend date in the amount of the value received.
Options, Financial Futures and
Forward Foreign Currency Contracts
All Funds except the Money Market Fund may buy put and call options, write
covered call options and buy and sell futures contracts. The Funds intend to
use such derivative instruments as hedges to facilitate buying or selling
securities or to provide protection against adverse movements in security
prices or interest rates. The LB World Growth Fund may also enter into options
and futures contracts on foreign currencies and forward foreign currency
contracts to protect against adverse foreign exchange rate fluctuation.
Option contracts are valued daily and unrealized appreciation or depreciation
is recorded. The Fund will realize a gain or loss upon expiration or closing
of the option transaction. When an option is exercised, the proceeds on sale
for a written call option or the cost of a security for purchased put and call
options is adjusted by the amount of premium received or paid.
Upon entering into a futures contract, the Fund is required to deposit initial
margin, either cash or securities in an amount equal to a certain percentage
of the contract value. Subsequent variation margin payments are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund realizes a gain or loss when the contract is closed or
expires.
Foreign currency contracts are valued daily and unrealized appreciation or
depreciation is recorded daily as the difference between the contract exchange
rate and the closing forward rate applied to the face amount of the contract.
A realized gain or loss is recorded at the time a forward contract is closed.
Foreign Currency Translations
Securities and other assets and liabilities of the LB World Growth Fund that
are denominated in foreign currencies are translated into U.S. dollars at the
daily closing rate of exchange. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. Currency gains and losses are recorded
from sales of foreign currency, exchange gains or losses between the trade
date and settlement dates on securities transactions, and other translation
gains or losses on dividends, interest income and foreign withholding taxes.
The effect of changes in foreign exchange rates on realized and unrealized
security gains or losses are not segregated from gains and losses that arise
from changes in market prices of investments, and are included with the net
realized and unrealized gain or loss on investments.
Federal Income Taxes
It is the policy of each Fund to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their taxable income on a timely
basis, including any net realized gain on investments each year. It is also
the intention of the Funds to distribute an amount sufficient to avoid
imposition of any federal excise tax. Accordingly, no provision for federal
income tax is necessary. Each Fund is treated as a separate taxable entity for
federal income tax purposes.
The Lutheran Brotherhood Family of Funds
Notes to Financial Statements (Continued)
October 31, 1996
When-Issued and Delayed Delivery Transactions
The Funds may engage in when-issued or delayed delivery transactions. To the
extent that a Fund engages in such transactions, it will do so for the purpose
of acquiring securities consistent with its investment objectives and policies
and not for the purpose of investment leverage or to speculate on interest
rate changes. On the trade date, assets of the Fund are segregated on the
Fund's records in a dollar amount sufficient to make payment for the
securities to be purchased. Income is not accrued until settlement date.
Dollar Roll Transactions
The Income Fund enters into dollar roll transactions, with respect to mortgage
securities issued by GNMA, FNMA and FHLMC, in which the Fund sells mortgage
securities and simultaneously agrees to repurchase similar (same type, coupon
and maturity) securities at a later date at an agreed upon price. During the
period between the sale and repurchase, the Fund forgoes principal and
interest paid on the mortgage securities sold. The Fund is compensated by the
interest earned on the cash proceeds of the initial sale and from negotiated
fees paid by brokers offered as an inducement to the Fund to "roll over" its
purchase commitments. The Income Fund earned $705,157 from such fees.
Organization Costs
Organization costs incurred in connection with the start up and initial
registration of the Funds are capitalized and amortized over a period of 60
months from the date of commencement. If any initial shares are redeemed
during the amortization period, the redemption proceeds will be reduced by a
pro-rata portion of the unamortized balance at the time of redemption, in the
same proportion that the number of initial shares being redeemed bears to the
number of initial shares outstanding at the time of redemption.
Distributions to Shareholders
Dividends from net investment income, if available, are declared and paid
annually for the Opportunity Growth and World Growth Funds, declared and paid
quarterly for the LB Fund, declared and paid monthly for the High Yield,
Income and Municipal Bond Funds, and declared daily (including short-term net
realized gains and losses) and paid monthly for the Money Market Fund. Net
realized gains from securities transactions, if any, are distributed at least
annually for all Funds, after the close of the fiscal year. Dividends and
capital gain distributions to shareholders are recorded on the ex-dividend
date.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or net realized gains were recorded by the Fund.
It is the policy of the Fund to reclassify the net effect of permanent
differences between book and taxable income to trust capital accounts on the
statements of assets and liabilities. As a result of permanent book-to-tax
differences for the year ended October 31, 1996, accumulated net realized gain
or loss from the sale of investments was decreased by $3,357,988, $29,959,
$3,141,889, $19,895, and $34,339, respectively, for the Opportunity Growth,
World Growth, LB Fund, Income and Municipal Bond Funds; undistributed net
investment income was increased by $2,075,439, $30,383, $19,895, and $34,339,
respectively, for the Opportunity Growth, World Growth, Income and Municipal
Bond Funds; and net increases (decreases) of $1,282,549, ($424) and
$3,141,889, respectively, for the Opportunity Growth, World Growth and LB
Fund, were reclassified into trust capital. These reclassifications have no
effect on net assets, net asset value per share, the change in net assets
resulting from operations, or on the amount of income available for
distribution to shareholders.
Other
Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are determined on the identified
cost basis. Each Fund is charged for the operating expenses that are directly
attributable to it. Fund operating expenses that cannot be directly
attributable to a Fund are either shared equally or allocated among them based
on the relative net assets of each Fund or via other methodologies.
(3) Fees And Compensation Paid To Affiliates
Investment Advisory Fees
Each Fund pays Lutheran Brotherhood Research Corp. (LBRC), the Trust's
investment advisor, a fee for its advisory services. The fees are accrued
daily and paid monthly. The fees are based on the following annual rates of
average daily net assets: Opportunity Growth Fund, 0.75% for the first $100
million in assets, 0.65% for the next $150 million in assets, 0.60% for the
next $250 million in assets, 0.55% for the next $500 million in assets, and
0.50% for assets over $1 billion; World Growth Fund, 1.25% for the first $20
million in assets, 1.10% for the next $30 million in assets, and 1.0% of net
assets over $50 million; LB Fund and High Yield Fund, 0.65% for the first $500
million in assets, 0.60% for the next $500 million, and 0.55% for assets over
$1 billion; Income Fund, 0.60% for the first $500 million in assets, 0.575%
for the next $500 million in assets, and 0.55% for assets over $1 billion;
Municipal Bond Fund, 0.575% for the first $500 million in assets, 0.5625% for
the next $500 million, and 0.55% for assets over $1 billion; Money Market
Fund, 0.50% for the first $500 million in assets, 0.475% for the next $500
million, 0.45% for the next $500 million, 0.425% for the next $500 million,
and 0.40% for assets over $2 billion.
LBRC has entered into a sub-advisory agreement with Rowe Price - Fleming
International, Inc. for the performance of various sub-advisory services for
the World Growth Fund. For these services, LBRC pays a portion of an annual
sub-advisory fee that is based on the following annual rates of combined
average daily net assets of the Lutheran Brotherhood World Growth Fund and the
LB Series Fund, Inc. - World Growth Portfolio: 0.75% for the first $20 million
in assets; 0.60% for the next $30 million, and 0.50% for assets over $50
million. When combined annual average assets exceed $200 million, the fee will
be equal to 0.50% of all of the World Growth Fund's annual average daily net
assets.
For the year ended October 31, 1996, the advisory fees of the World Growth
Fund totaled $392,419 of which $66,807 were voluntarily waived by LBRC to
limit the World Growth Fund's expense ratio to 1.95% of average daily net
assets. The Money Market Fund advisory fees totaled $1,922,505 of which
$246,901 were voluntarily waived by LBRC to limit the Money Market Fund's
expense ratio. LBRC had voluntarily assumed expenses in excess of 1.10% of
average daily net assets of the Money Market Fund through March 31, 1996.
Effective April 1, 1996, LBRC voluntarily lowered the expense limit
prospectively to 0.95% of the Money Market Fund's average daily net assets.
LBRC can terminate its voluntary waiver of expenses for these Funds at any
time at its discretion.
Sales Charges and Other Fees
For the year ended October 31, 1996, Lutheran Brotherhood Securities Corp.
(LBSC), the Trust's distributor, received sales charges paid by purchasers of
Fund shares of: Opportunity Growth Fund, $2,272,864; World Growth Fund,
$857,697; LB Fund, $2,306,035; High Yield Fund, $3,372,402; Income Fund,
$1,486,518; and Municipal Bond Fund, $988,150. Sales charges are not an
expense of the Trust and are not reflected in the financial statements of any
of the Funds. LBSC also received fees pursuant to an agreement to provide
certain administrative personnel and services to the Funds. Effective January
1, 1996, a new agreement went into effect whereby LBSC will receive an annual
fee equal to 0.0225% of average daily net assets. LBSC received the following
compensation for the year ended October 31, 1996: Opportunity Growth Fund,
$51,379; World Growth Fund, $8,217; LB Fund, $163,270; High Yield Fund,
$148,767; Income Fund, $207,659; Municipal Bond Fund, $142,190; and Money
Market Fund, $87,973. In addition, LBSC provides the Funds with transfer agent
services pursuant to an agreement and received the following compensation:
Opportunity Growth Fund, $865,339; World Growth Fund, $169,451; LB Fund,
$1,610,381; High Yield Fund, $1,061,296; Income Fund, $1,382,275; Municipal
Bond Fund, $516,423; and Money Market Fund, $1,239,592.
The Funds have adopted a trustee fee deferral plan which allows the Trustees
to defer the receipt of all or a portion of Trustee fees that are payable on
or after January 1, 1996. The deferred fees remain in the fund and are
invested within the Lutheran Brotherhood Family of Funds until distribution in
accordance with the plan.
Certain officers and non-independent trustees of the Fund are officers and
directors of LBRC and LBSC; however, they receive no compensation from the
Funds.
(4) Securities Lending
To generate additional income, the Funds may participate in a securities
lending program administered by the Fund's custodian bank. Securities are
periodically loaned to brokers, banks or other institutional borrowers of
securities, for which collateral in the form of cash, U.S. government
securities, or letter of credit is received by the custodian in an amount at
least equal to the market value of securities loaned. Collateral received in
the form of cash is invested in short-term investments by the custodian from
which earnings are shared between the borrower, the custodian and the Fund at
negotiated rates. The risks to the Fund are that it may experience delays in
recovery or even loss of rights in the collateral should the borrower of
securities fail financially. There were no security loans during the year
ended October 31, 1996.
(5) Distributions From Capital Gains
During the year ended October 31, 1996, distributions from net realized
capital gains of $33,356,556, and $44,162,422, were paid by the LB Opportunity
Growth Fund and the LB Fund, respectively. These distributions related to net
capital gains realized during the prior fiscal year ended October 31, 1995.
(6) Capital Loss Carryover
During the year ended October 31, 1996, the High Yield Fund fully utilized the
remaining $14,624,938 of its capital loss carryover, and the Municipal Bond
Fund utilized $191,020 of its capital loss carryover against net realized
capital gains. At October 31,1996, the Income and Municipal Bond Funds had
accumulated net realized capital loss carryovers expiring as follows:
Income Municipal Bond
Year Fund Fund
- ----- ---------------- --------------
2002 $40,056,911 $6,216,650
2003 -- 134,719
2004 8,472,280 --
---------------- --------------
Total $48,529,191 $6,351,369
============= ==============
To the extent these Funds realize future net capital gains, taxable
distributions will be reduced by any unused capital loss carryovers. Temporary
timing differences of $438,772, $74,997, $224,998, $933,996, $604,205, and
$1,637,733 existed between net realized capital gains or losses for financial
statement and tax purposes as of October 31, 1996 for the Opportunity Growth,
World Growth, LB Fund, LB High Yield Fund, LB Income and Municipal Bond Funds,
respectively. These differences are due primarily to deferral of capital
losses for tax purposes.
(7) Shareholder Notification Of
Federal Income Tax Status
The LB Fund designates 100% of the dividends declared from net investment
income as dividends qualifying for the 70% corporate dividends received
deduction and the Municipal Bond Fund designates 100% of the dividends
declared from net investment income as exempt from federal income tax for the
year ended October 31, 1996. The Opportunity Growth Fund and the LB Fund
designate $287,685 and $2,292,861, respectively, as capital gain distributions
resulting from earnings and profits distributed to shareholders on redemption
of fund shares during the year.
(8) Investment Transactions
Purchases and Sales of Investment Securities
For the year ended October 31, 1996, the cost of purchases and the proceeds
from sales of investment securities other than U.S. Government and short term
securities were as follows:
$(thousands)
------------------------------------
Fund Purchases Sales
- -------------------------------------------------------
Opportunity Growth $434,371 $372,997
World Growth Fund 38,946 3,690
LB Fund 661,222 633,819
High Yield 698,280 628,358
Income 546,148 570,345
Municipal Bond 202,986 223,531
Purchases and sales of U.S. Government securities were:
$(thousands)
------------------------------------
Fund Purchases Sales
- -------------------------------------------------------
LB Fund $ 2,722 $ 4,681
Income 714,473 677,416
Investments in Restricted Securities
The High Yield Fund owns restricted securities that were purchased in private
placement transactions without registration under the Securities Act of 1933.
Unless such securities subsequently become registered, they generally may be
resold only in privately negotiated transactions with a limited number of
purchasers. At October 31, 1996, the restricted securities held by the High
Yield Fund had no market value.
Investments in High Yielding Securities
The High Yield Fund invests primarily in high yielding fixed income
securities. These securities will typically be in the lower rating categories
or will be non-rated and generally will involve more risk than securities in
the higher rating categories. Lower rated or unrated securities are more
likely to react to developments affecting market risk and credit risk than are
more highly rated securities, which react primarily to movements in the
general level of interest rates.
Investments in Options and Futures Contracts
The movement in the price of the instrument underlying an option or futures
contract may not correlate perfectly with the movement in the prices of the
portfolio securities being hedged. A lack of correlation could render the
Fund's hedging strategy unsuccessful and could result in a loss to the Fund.
In the event that a liquid secondary market would not exist, the Fund could be
prevented from entering into a closing transaction which could result in
additional losses to the Fund.
Open Option Contracts
The number of contracts and premium amounts associated with call option
contracts written during the year were as follows:
Opportunity Growth Income Fund
------------------- --------------------
Number of Premium Number of Premium
Contracts Amount Contracts Amount
---------- ------- --------- --------
Balance at October 31, 1995 -- -- -- --
Opened 1,414 $ 266,398 11,675 $ 631,417
Closed (1,414) (266,398) (11,075) (465,983)
Expired -- -- (200) (22,786)
Exercised -- -- -- --
---------- -------- -------- ----------
Balance at October 31, 1996 -- $ -- 400 $ 142,648
========== ======== ======== =========
Foreign Denominated Investments
The LB World Growth Fund invests primarily in foreign denominated stocks.
Foreign denominated assets and currency contracts may involve more risks than
domestic transactions, including: currency risk, political and economic risk,
regulatory risk, and market risk. The Fund may also invest in securities of
companies located in emerging markets. Future economic or political
developments could adversely affect the liquidity or value, or both, of such
securities.
<TABLE>
<CAPTION>
(9) Shares Of Beneficial Interest
The Master Trust Agreement permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest ($0.001 par value) of all
of the Funds. Transactions in Fund shares were as follows:
Opportunity World High
Growth Growth LB Fund Yield
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares outstanding at
October 31, 1996 9,251,022 -- 31,038,031 56,392,328
Shares sold 4,092,712 1,656,709 2,728,955 13,395,549
Shares issued on reinvestment
of dividends and distributions -- -- 354,095 4,301,940
Shares redeemed (1,368,095) (2,513) (3,657,566) (8,273,232)
------------ ------------ ------------ ------------
Shares outstanding at
October 31, 1996 11,975,639 1,654,196 30,463,515 65,816,585
Shares sold 6,711,097 4,309,447 3,864,306 15,831,978
Shares issued on reinvestment
of dividends and distributions 2,801,319 2,995 2,392,606 4,373,177
Shares redeemed (1,973,395) (381,546) (3,398,596) (9,697,248)
------------ ------------ ------------ ------------
Shares outstanding at
October 31, 1996 19,514,660 5,585,092 33,321,831 76,324,492
============ ============ ============ ============
(9) Shares of Beneficial Interest (Continued)
Income Municipal Money
Fund Bond Market
------------ ------------ ------------
<S> <C> <C> <C>
Shares outstanding at
October 31, 1996 113,189,726 75,488,401 276,868,018
Shares sold 5,470,573 4,792,917 547,639,011
Shares issued on reinvestment
of dividends and distributions 5,624,521 3,067,030 14,549,671
Shares redeemed (16,216,513) (10,087,527) (497,972,433)
------------ ------------ ------------
Shares outstanding at
October 31, 1996 108,068,307 73,260,821 341,084,267
Shares sold 6,482,945 4,807,171 692,236,105
Shares issued on reinvestment
of dividends and distributions 5,621,887 2,755,029 17,063,037
Shares redeemed (17,687,759) (9,927,341) (632,774,820)
------------ ------------ ------------
Shares outstanding at
October 31, 1996 102,485,380 70,895,680 417,608,589
============ ============ ============
</TABLE>
(10) Financial Highlights
"Financial highlights" showing per share data and selected information is
presented in the prospectus.
<PAGE>
The Lutheran Brotherhood Family of Funds
Lutheran Brotherhood Opportunity Growth Fund
Lutheran Brotherhood World Growth Fund
Lutheran Brotherhood Fund
Lutheran Brotherhood High Yield Fund
Lutheran Brotherhood Income Fund
Lutheran Brotherhood Municipal Bond Fund
Lutheran Brotherhood Money Market Fund
Trustees
Rolf F. Bjelland
Charles W. Arnason
Herbert F. Eggerding, Jr.
Connie M. Levi
Bruce J. Nicholson
Ruth E. Randall
Officers
Rolf F. Bjelland Wade M. Voigt
Chairman and President Treasurer
James R. Olson Rand E. Mattsson
Vice President Assistant Treasurer
James M. Walline James M. Odland
Vice President Assistant Secretary
Otis F. Hilbert Randall L. Wetherille
Secretary and Vice President Assistant Secretary
Richard B. Ruckdashel
Vice President
This report is authorized for distribution to prospective
investors only when preceded or accompanied by the
current prospectuses.
95
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-
Effective Amendment No. 57 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated December 9, 1996, relating to
the financial statements and financial highlights appearing in the October
31, 1996 Annual Report to Shareholders of the Lutheran Brotherhood Family of
Funds, which is also incorporated by reference into the Registration
Statement. We also consent to the references to us under the headings
"Financial Highlights" and "Independent Accountants" in the Prospectus and
under the heading "Independent Accountants" in the Statement of Additional
Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
December 30, 1996
<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, 1996 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-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 249,580
<INVESTMENTS-AT-VALUE> 264,487
<RECEIVABLES> 4,620
<ASSETS-OTHER> 12
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 269,119
<PAYABLE-FOR-SECURITIES> 3,119
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 163
<TOTAL-LIABILITIES> 3,282
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 221,531
<SHARES-COMMON-STOCK> 19,515
<SHARES-COMMON-PRIOR> 11,976
<ACCUMULATED-NII-CURRENT> (1)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 29,400
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,907
<NET-ASSETS> 265,837
<DIVIDEND-INCOME> 40
<INTEREST-INCOME> 770
<OTHER-INCOME> 0
<EXPENSES-NET> 2,886
<NET-INVESTMENT-INCOME> (2,076)
<REALIZED-GAINS-CURRENT> 33,047
<APPREC-INCREASE-CURRENT> 6,166
<NET-CHANGE-FROM-OPS> 37,137
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 33,357
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,711
<NUMBER-OF-SHARES-REDEEMED> 1,973
<SHARES-REINVESTED> 2,801
<NET-CHANGE-IN-ASSETS> 100,154
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 33,067
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,563
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,886
<AVERAGE-NET-ASSETS> 225,129
<PER-SHARE-NAV-BEGIN> 13.83
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> 2.63
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 2.73
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.62
<EXPENSE-RATIO> 1.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> LUTHERAN BROTHERHOOD FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 659,468
<INVESTMENTS-AT-VALUE> 790,225
<RECEIVABLES> 2,197
<ASSETS-OTHER> 28
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 792,450
<PAYABLE-FOR-SECURITIES> 23,364
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 244
<TOTAL-LIABILITIES> 23,608
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 579,045
<SHARES-COMMON-STOCK> 33,322
<SHARES-COMMON-PRIOR> 30,464
<ACCUMULATED-NII-CURRENT> 666
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 58,374
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 130,757
<NET-ASSETS> 768,842
<DIVIDEND-INCOME> 11,995
<INTEREST-INCOME> 1,588
<OTHER-INCOME> 0
<EXPENSES-NET> 6,911
<NET-INVESTMENT-INCOME> 6,672
<REALIZED-GAINS-CURRENT> 62,729
<APPREC-INCREASE-CURRENT> 45,131
<NET-CHANGE-FROM-OPS> 114,533
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,494
<DISTRIBUTIONS-OF-GAINS> 44,162
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,864
<NUMBER-OF-SHARES-REDEEMED> 3,399
<SHARES-REINVESTED> 2,393
<NET-CHANGE-IN-ASSETS> 123,341
<ACCUMULATED-NII-PRIOR> 488
<ACCUMULATED-GAINS-PRIOR> 42,950
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,529
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,911
<AVERAGE-NET-ASSETS> 713,246
<PER-SHARE-NAV-BEGIN> 21.19
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 3.33
<PER-SHARE-DIVIDEND> 0.20
<PER-SHARE-DISTRIBUTIONS> 1.45
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.07
<EXPENSE-RATIO> 0.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> LUTHERAN BROTHERHOOD HIGH YIELD FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 690,483
<INVESTMENTS-AT-VALUE> 692,639
<RECEIVABLES> 22,245
<ASSETS-OTHER> 8,129
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 723,013
<PAYABLE-FOR-SECURITIES> 19,667
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 199
<TOTAL-LIABILITIES> 19,866
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 696,161
<SHARES-COMMON-STOCK> 76,324
<SHARES-COMMON-PRIOR> 65,817
<ACCUMULATED-NII-CURRENT> 3,313
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,517
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,156
<NET-ASSETS> 703,147
<DIVIDEND-INCOME> 6,377
<INTEREST-INCOME> 59,532
<OTHER-INCOME> 0
<EXPENSES-NET> 5,933
<NET-INVESTMENT-INCOME> 59,976
<REALIZED-GAINS-CURRENT> 16,241
<APPREC-INCREASE-CURRENT> (5,315)
<NET-CHANGE-FROM-OPS> 70,902
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 58,710
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,832
<NUMBER-OF-SHARES-REDEEMED> 9,697
<SHARES-REINVESTED> 4,373
<NET-CHANGE-IN-ASSETS> 108,810
<ACCUMULATED-NII-PRIOR> 2,046
<ACCUMULATED-GAINS-PRIOR> (14,724)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,150
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,933
<AVERAGE-NET-ASSETS> 650,012
<PER-SHARE-NAV-BEGIN> 9.03
<PER-SHARE-NII> 0.84
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> 0.83
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.21
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> LUTHERAN BROTHERHOOD INCOME FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 845,363
<INVESTMENTS-AT-VALUE> 850,261
<RECEIVABLES> 119,816
<ASSETS-OTHER> 57
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 970,134
<PAYABLE-FOR-SECURITIES> 98,623
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 535
<TOTAL-LIABILITIES> 99,158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 913,896
<SHARES-COMMON-STOCK> 102,485
<SHARES-COMMON-PRIOR> 108,068
<ACCUMULATED-NII-CURRENT> 1,511
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (49,133)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,702
<NET-ASSETS> 870,976
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 67,398
<OTHER-INCOME> 0
<EXPENSES-NET> 7,527
<NET-INVESTMENT-INCOME> 59,871
<REALIZED-GAINS-CURRENT> (8,855)
<APPREC-INCREASE-CURRENT> (11,610)
<NET-CHANGE-FROM-OPS> 39,406
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 63,355
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,483
<NUMBER-OF-SHARES-REDEEMED> 17,688
<SHARES-REINVESTED> 5,622
<NET-CHANGE-IN-ASSETS> (71,166)
<ACCUMULATED-NII-PRIOR> 4,974
<ACCUMULATED-GAINS-PRIOR> (40,259)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,331
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,527
<AVERAGE-NET-ASSETS> 905,379
<PER-SHARE-NAV-BEGIN> 8.72
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> (0.19)
<PER-SHARE-DIVIDEND> 0.60
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.50
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 557,726
<INVESTMENTS-AT-VALUE> 598,217
<RECEIVABLES> 16,103
<ASSETS-OTHER> 69
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 614,389
<PAYABLE-FOR-SECURITIES> 4,824
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 93
<TOTAL-LIABILITIES> 4,917
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 575,166
<SHARES-COMMON-STOCK> 70,896
<SHARES-COMMON-PRIOR> 73,261
<ACCUMULATED-NII-CURRENT> 1,804
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,989)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,491
<NET-ASSETS> 609,472
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36,468
<OTHER-INCOME> 0
<EXPENSES-NET> 4,592
<NET-INVESTMENT-INCOME> 31,876
<REALIZED-GAINS-CURRENT> 102
<APPREC-INCREASE-CURRENT> (358)
<NET-CHANGE-FROM-OPS> 31,620
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (30,660)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,807
<NUMBER-OF-SHARES-REDEEMED> 9,927
<SHARES-REINVESTED> 2,755
<NET-CHANGE-IN-ASSETS> (19,226)
<ACCUMULATED-NII-PRIOR> 554
<ACCUMULATED-GAINS-PRIOR> (8,057)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,551
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,592
<AVERAGE-NET-ASSETS> 620,186
<PER-SHARE-NAV-BEGIN> 8.58
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> 0.43
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.60
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> LUTHERAN BROTHERHOOD MONEY MARKET FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 417,416
<INVESTMENTS-AT-VALUE> 417,416
<RECEIVABLES> 595
<ASSETS-OTHER> 1,911
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 419,922
<PAYABLE-FOR-SECURITIES> 2,047
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 266
<TOTAL-LIABILITIES> 2,313
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 417,609
<SHARES-COMMON-STOCK> 417,609
<SHARES-COMMON-PRIOR> 341,084
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 417,609
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,296
<OTHER-INCOME> 0
<EXPENSES-NET> 3,874
<NET-INVESTMENT-INCOME> 17,422
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 17,422
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,422
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 692,236
<NUMBER-OF-SHARES-REDEEMED> 632,775
<SHARES-REINVESTED> 17,063
<NET-CHANGE-IN-ASSETS> 76,524
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,923
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,121
<AVERAGE-NET-ASSETS> 384,501
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> LUTHERAN BROTHERHOOD WORLD GROWTH FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 49,959
<INVESTMENTS-AT-VALUE> 52,729
<RECEIVABLES> 150
<ASSETS-OTHER> 143
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53,022
<PAYABLE-FOR-SECURITIES> 29
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56
<TOTAL-LIABILITIES> 85
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,737
<SHARES-COMMON-STOCK> 5,585
<SHARES-COMMON-PRIOR> 1,654
<ACCUMULATED-NII-CURRENT> 255
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 173
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,772
<NET-ASSETS> 52,937
<DIVIDEND-INCOME> 758
<INTEREST-INCOME> 191
<OTHER-INCOME> 0
<EXPENSES-NET> 706
<NET-INVESTMENT-INCOME> 243
<REALIZED-GAINS-CURRENT> 204
<APPREC-INCREASE-CURRENT> 2,907
<NET-CHANGE-FROM-OPS> 3,354
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 38
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,309
<NUMBER-OF-SHARES-REDEEMED> 382
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 38,969
<ACCUMULATED-NII-PRIOR> 19
<ACCUMULATED-GAINS-PRIOR> (2)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 392
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 773
<AVERAGE-NET-ASSETS> 36,192
<PER-SHARE-NAV-BEGIN> 8.44
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 1.02
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.48
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
