[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 BROTHERHOOOD
SECURITIES CORP.
[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".]
LUTHERAN BROTHERHOOD
FAMILY OF FUNDS
Annual Report
October 31, 1996
Portfolio Management Reviews
Economic and Market Overview
The fiscal year ended October 31, 1996, was a favorable one for the financial
markets. Unexpectedly strong, sustainable growth in the Gross Domestic Product
(GDP), along with modest inflation, low interest rates, low unemployment and
good corporate earnings helped the U.S. economy remain the largest, most
stable and productive economy in the world. For international investors,
European financial markets produced solid returns as Japan continued its
steady economic recovery. Emerging markets such as Brazil, Mexico and Hong
Kong posted strong performances, as well.
For this fiscal year, domestic stocks turned in an outstanding performance --
with the S&P 500 Index earning a total return of 24.07%. Foreign stocks lagged
their U.S. counterparts, but produced a respectable 10.80% total return, based
on Morgan Stanley's Europe, Australia, Far East (EAFE) Index. In the United
States, bond market returns were closer to their historical averages -- with
the Lehman Brothers Aggregate Bond Index returning 5.85%.
Positive Market Dynamics
In addition to a boost from solid economic growth, low inflation, low interest
rates and good corporate earnings, the markets were influenced by other
positive market conditions. Stocks benefited from strong investor demand,
primarily in the form of mutual fund and other institutional investments, such
as pension plans.
Both stocks and bonds benefited from stability in the Federal Reserve Board's
monetary policies, which produced no major shifts during the year. In
addition, there were no major spending or taxation initiatives from Congress,
which watched economic growth shrink the 1996 federal budget deficit to 1.7%
of GDP, down from 4.7% in 1992.
Some Bumps Along the Way
At the end of 1995 the economy was growing slowly, interest rates were
falling, and Congress was discussing ways to balance the budget. In December,
the Federal Reserve cut short-term rates from 5.75% to 5.5%
to help support the economy. Expectations for further rate cuts, and for a
balanced federal budget, pushed bond prices higher, decreasing the yield for
30-year Treasury bonds from 6.33% at the end of October to 5.94% by the end of
1995. With falling yields and further growth in corporate earnings, stock
prices rose sharply, too.
Early in 1996, deficit reduction and balanced budget talks reached a stalemate
in Washington. This shift in political winds, combined with stronger economic
growth, low unemployment and concern that the Fed would raise rates,
precipitated a gradual decline in bond prices that would last several months
before beginning to rebound in the final two months leading to October 31.
Stocks experienced a brief correction that began in late June and early July
as disappointing earnings reports from several large companies, especially in
the technology sector, caused some caution among stock investors in the weeks
that followed. However, by mid-September most stocks had recovered to their
pre-July levels, and the major indexes were again setting new records.
Greater Stability Ahead
It now appears the annual growth rate for the economy will be a moderate,
sustainable 2% to 3% in months to come. And, since there appears to be ample
capacity for such growth, the rate of inflation should remain near 3%.
Occasional nervousness about inflation may cause temporary upticks in interest
rates. However, we believe long-term interest rates will stabilize or perhaps
edge a bit lower. If Congress balances the federal budget, the yield for 30-
year Treasuries could push even lower than their 1995 levels. This decline in
bond yields would mean further gains in bond prices.
As in the past, stocks will experience the periods of price volatility that
accompany the ups and downs of corporate earnings estimates. However, the
long-term outlook for stocks remains positive as long as low interest rates,
low inflation and high productivity continue to feed the U.S. economy.
LB Opportunity Growth Fund
[GRAPHIC OMITTED: PHOTO OF Michael A. Binger]
Michael A. Binger is a Chartered Financial Analyst and was named portfolio
manager for the LB Opportunity Growth Fund in October 1994. He has been with
Lutheran Brotherhood since 1987. Prior to his current appointment, he served
as portfolio manager for LB's Convertible Securities Portfolio.
Fund Objective: To seek long-term growth of capital by investing in small-
company stocks.
With greater investor confidence in the economy, stocks of small companies
performed quite well in the fiscal year ended October 31, 1996. After lagging
the market at the end of 1995, small-company stocks offered attractive prices
in the first half of 1996 as stock mutual fund managers looked for places to
invest increasing flows of new cash.
Later in 1996, as market volatility drove investors to large-cap issues, the
small-cap portion of the stock market tended to underperform, though many
individual stocks of small companies continued to do well. Throughout the
period we continued to emphasize issues with exceptional potential for growth,
which helped the LB Opportunity Growth Fund earn strong returns that outpaced
those for its market benchmark, as well as other funds in its class.
For the last 12 months, the Fund had a total return (based on NAV) of 21.27%.
That compares to an average return of 20.43% for small-company growth mutual
funds tracked by Lipper Analytical Services and a return of 16.60% for the
Russell 2000 Index.
[GRAPHIC WORM CHART OMITTED:
Growth of $10,000 January 31, 1993 - October 31, 1996]
INSET BOX ON CHART READS:
LB Opportunity Growth Fund
Annualized Total Returns* Period Ending 10/31/96
- -----------------------------------------------------
Since
Based on Inception -- 1/8/93 1 Year
- -----------------------------------------------------
Net Asset Value 19.77% 21.27%
Public Offering Price 18.18% 15.18%
- -----------------------------------------------------
Lipper Average
Small Co. Growth
LBOGF Russell 2000 Index Stock Funds
Month End Total Total Total
Date Value Value Value
- ----------- ------- ----------- -----------
1/31/93 10,000 10,000 10,000
2/28/93 9,056 9,769 9,608
3/31/93 9,407 10,086 9,934
4/30/93 9,166 9,809 9,619
5/31/93 9,857 10,243 10,127
6/30/93 10,011 10,307 10,206
7/31/93 9,945 10,449 10,263
8/31/93 10,637 10,900 10,737
9/30/93 11,317 11,208 11,076
10/31/93 11,701 11,497 11,232
11/30/93 11,262 11,122 10,886
12/31/93 11,559 11,503 11,348
1/31/93 11,833 11,863 11,650
2/28/93 11,712 11,820 11,643
3/31/93 10,922 11,197 11,014
4/30/93 10,999 11,263 11,016
5/31/93 10,582 11,137 10,778
6/30/93 9,967 10,762 10,388
7/31/93 10,318 10,938 10,451
8/31/93 11,218 11,547 11,048
9/30/93 11,383 11,508 11,285
10/31/93 11,811 11,462 11,275
11/30/93 11,570 10,999 10,848
12/31/93 11,866 11,295 11,265
1/31/93 11,350 11,153 11,229
2/28/93 11,954 11,617 11,539
3/31/93 12,393 11,816 11,892
4/30/93 12,481 12,079 12,050
5/31/93 12,821 12,286 12,232
6/30/93 13,985 12,924 12,880
7/31/93 15,543 13,669 13,823
8/31/93 15,796 13,962 14,062
9/30/93 16,136 14,212 14,375
10/31/93 15,181 13,577 13,864
11/30/93 15,873 14,147 14,366
12/31/93 16,341 14,521 14,592
1/31/93 16,071 14,505 14,520
2/28/93 17,125 14,957 15,088
3/31/93 17,504 15,267 15,450
4/30/93 19,180 16,084 16,600
5/31/93 20,531 16,717 17,262
6/30/93 19,126 16,030 16,594
7/31/93 17,436 14,631 15,222
8/31/93 18,477 15,481 16,109
9/30/93 19,937 16,086 16,919
10/31/93 18,409 15,839 16,601
Footnote reads:
As you compare performance, please note that the LB Opportunity Growth
Fund's performance reflects the maximum 5% sales charge. The performance
of the index does not reflect any such charges. If you were to purchase
any of the individual stocks represented in this index, any sales charges you
would pay would reduce your total return as well.
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Niches of Growth
During the period, we enjoyed strong performances in technology stocks such as
Intermedia Communications, ACT Networks, Ace Communications, and S3 Inc. There
were also good performances from stocks in the biotechnology, industrial
manufacturing and health care areas -- as well as stocks of vacation timeshare
firms like Fairfield Communities and Signature Resorts. Returns from these
stocks far outweighed disappointing performances by stocks like Inference
Corp. in the technology sector and MDL Information Systems in the health care
sector.
As we looked for companies with strong growth potential, we kept sizable
positions in technology stocks -- trading some electronics stocks during the
period for issues of telecommunications and business services firms. We also
built substantial holdings in biotechnology firms, which enhanced the Fund's
performance. We maintained a large weighting in health care stocks and added
to our holdings in financial stocks with shares of automobile financing firms.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Corporate Bonds 0.3%
Short-Term Securities 5.0%
Common Stocks 94.7%
Looking Ahead
If investors grow nervous about the economy again, and stock prices become
more volatile, there may be some further weakening of small-cap stock prices
in the near term. By historical measures, however, the longer-term prospects
of small-company issues are bright.
In the months ahead, we will continue to look for well-managed companies whose
sales and earnings have good growth potential regardless of the economic
climate. We expect to give continued emphasis to technology, health care and
biotech firms. If prices do weaken, we should have many opportunities to add
shares in these areas at prices that are especially attractive.
[GRAPHIC OMITTED: Top 10 Holdings]
% of
Top 10 Holdings Portfolio
ACT Networks Inc. 3.2%
Memtec Limited 2.6%
BMC Industries Inc. 2.5%
DataWorks Corporation 2.4%
Intermedia
Communications Inc. 2.3%
Home Health Corp.
of America 2.1%
Pure Atria Corp. 2.1%
AXENT Technologies Inc. 2.0%
Cannondale Corporation 2.0%
US Diagnostic Labs Inc. 1.9%
Footnote reads:
These holdings represent 23.1% of the Fund's total investment portfolio.
LB World Growth Fund
[GRAPHIC OMITTED: PHOTO OF MARTIN G. WADE]
Martin G. Wade is president of Rowe Price-Fleming, the investment subadvisor
for the LB World Growth Fund. He leads a team of 12 portfolio managers who
have managed the assets of the LB World Growth Fund since its inception in
September of 1995. Mr. Wade has 28 years of experience in research and
investment management, including 17 years with Rowe Price-Fleming.
Fund Objective: To seek long-term growth of capital by investing primarily in
common stocks of established companies outside tbe U.S.
After underperforming for several years, foreign stock prices improved in the
fiscal year ended October 31, 1996. Although returns for U.S. investors were
pared somewhat by further strength in the dollar, stocks in Europe and Latin
America advanced for most of the period. Stocks in Japan and other Pacific
markets earned strong gains early in the period, then subsided in the months
that followed.
During the period the LB World Growth Fund had a total return (based on NAV)
of 12.53%. That compares to an average return of 10.73% for international
stock mutual funds tracked by Lipper Analytical Services and a return of
10.80% for the Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index.
Greater Focus on Smaller Markets
At the end of October 1995, Japanese stocks accounted for 21% of the Fund's
assets -- a somewhat smaller position than Japanese stocks represented in the
EAFE Index. European stocks, on the other hand, had a slightly greater
position in the Fund than they did in the Index.
[GRAPHIC WORM CHART OMITTED: Growth of $10,000 ]
(September 30, 1995 - October 31, 1996)
INSET BOX ON CHART READS:
LB World Growth Fund
Annualized Total Returns* Period Ending 10/31/96
- -----------------------------------------------------
Since
Based on Inception -- 9/5/95 1 Year
- -----------------------------------------------------
Net Asset Value 10.02% 12.53%
Public Offering Price 5.24% 6.95%
- -----------------------------------------------------
Morgan Stanley Lipper Average
LBWGF Captial International International Fund
Month End Total EAFE Index Stocks Total
Date Value Total Value Value
- ----------- ------- ----------- -----------
9/30/95 $ 10,000 $ 10,000 $ 10,000
10/31/95 9,336 9,734 9,790
11/30/95 9,414 10,008 9,893
12/31/95 9,719 10,413 10,203
1/31/96 9,941 10,458 10,413
2/29/96 10,007 10,495 10,443
3/31/96 10,162 10,721 10,625
4/30/96 10,462 11,035 10,957
5/31/96 10,417 10,834 10,899
6/30/96 10,528 10,898 10,975
7/31/96 10,196 10,582 10,581
8/31/96 10,340 10,607 10,691
9/30/96 10,572 10,892 10,919
10/31/96 10,506 10,783 10,829
Footnote reads:
As you compare performance, please note that the LB World Growth
Fund's performance reflects the maximum 5% sales charge. The performance
of the index does not reflect any such charges. If you were to purchase
any of the individual stocks represented in this index, any sales charges you
would pay would reduce your total return as well.
*See accompanying notes to Portfolio Management Reviews.
In the first half of the period we increased holdings in Japanese stocks to
about 26% of the Fund's portfolio, though the portfolio remained underweighted
in Japan versus the Index. This helped the Fund's performance later in the
year, when Japanese stocks underperformed European stocks. In addition, by
underweighting Japan we were able to invest in some established companies of
the emerging markets. Consequently, the Fund enjoyed strong performances by
stocks from Mexico, Brazil, and Hong Kong.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Short-Term Securities 5.5%
Common and Preferred Stocks 94.5
Although we trimmed positions in Europe to add issues from emerging markets,
the Fund was slightly overweighted in Europe for most of the period. This
increased the Fund's exposure to the positive returns of European stocks. The
Fund also benefited from its specific selections of growth stocks in Europe.
A Positive Outlook
The outlook for economies abroad remains good, including a steady continuation
of the Japanese recovery. The growth in corporate profits seems on track and
could produce positive surprises in coming months that would help foreign
stocks make further gains.
With the exception of Japan, stock valuations appear reasonable -- especially
with recent declines in foreign interest rates. And after two disappointing
years the developing markets look especially attractive. We expect to find
selective investment opportunities in both Europe and Japan, and we look for
the Pacific markets and Latin America to continue to grow going forward.
[GRAPHIC OMITTED: TOP 10 GEOGRAPHICAL HOLDINGS]
Top 10 Geographical % of
Holdings Portfolio
Japan 22.6%
United Kingdom 16.0%
Netherlands 10.5%
France 7.9%
Hong Kong 4.8%
Switzerland 4.7%
Germany 4.4%
Sweden 2.7%
Malaysia 2.5%
Spain 2.4%
Footnote reads:
These holdings represent 78.5%
of the Fund's total investment portfolio.
LB Fund
[GRAPHIC OMITTED: PHOTO OF JAMES M. WALLINE]
James M. Walline is a Chartered Financial Analyst and portfolio manager for
the LB Fund. He is a vice president of Lutheran Brotherhood and has managed
the Fund since 1994. He has been with Lutheran Brotherhood Research Corp.
since its inception in 1970.
Fund Objective: To seek growth of capital and income by investing in the
stocks of leading companies.
In the fiscal year ended October 31, 1996, stock investors moved quickly from
one market sector to another as opinions on the outlook for various market
sectors shifted. When the economy appeared to be weakening, investors
abandoned technology stocks for economically defensive issues. And when the
economy showed signs of strengthening, investors reversed themselves and began
favoring cyclical issues.
After such "rotation" dampened the performance of the LB Fund in the first
part of the period, we moved to reduce the impact of sector rotation on the
Fund's portfolio by giving greater attention to stocks that can thrive in a
variety of economic climates.
For the 12-month period, the Fund had a total return (based on NAV) of 17.61%.
This compares with returns of 21.21% for the average growth and income mutual
fund tracked by Lipper Analytical Services and 24.07% for the S&P 500 Index.
Focus on Core Holdings
When the period began about 80% of the LB Fund was invested in a "core group"
of large companies that represented the leaders of their industries. Because
of the quality of their products, management, and marketing strategies, these
companies offer strong potential for long-term earnings growth. The remaining
20% of the Fund was invested in other large companies whose potential seemed
especially strong in the near term.
[GRAPHIC WORM CHART OMITTED: Growth of $10,000]
(October 31, 1986 - October 31, 1996)
INSET BOX ON CHART READS:
LB Fund
Annualized Total Returns* Period Ending 10/31/96
- --------------------------------------------------------
Based on 10 Years 5 Year 1 Year
- --------------------------------------------------------
Net Asset Value 11.09% 12.27% 17.61%
Public Offering Price 10.52% 11.13% 11.70%
- --------------------------------------------------------
Lipper Average
LBF S & P 500 Growth & Income
Month End Total Total Total
Date Value Value Value
- ----------- ------- ----------- -----------
10/31/86 10,000 10,000 10,000
11/30/86 9,724 10,241 10,149
12/31/86 9,461 9,979 9,964
1/31/87 10,253 11,324 10,989
2/28/87 10,663 11,769 11,463
3/31/87 10,782 12,109 11,625
4/30/87 10,624 12,002 11,465
5/31/87 10,669 12,104 11,521
6/30/87 11,101 12,716 11,964
7/31/87 11,539 13,363 12,417
8/31/87 11,851 13,861 12,779
9/30/87 11,560 13,557 12,559
10/31/87 9,110 10,636 10,147
11/30/87 8,562 9,756 9,572
12/31/87 9,154 10,500 10,186
1/31/88 9,361 10,956 10,600
2/28/88 9,666 11,445 11,089
3/31/88 9,353 11,098 10,921
4/30/88 9,385 11,236 11,011
5/31/88 9,398 11,309 11,023
6/30/88 9,771 11,837 11,535
7/31/88 9,659 11,807 11,458
8/31/88 9,390 11,389 11,180
9/30/88 9,753 11,878 11,568
10/31/88 9,972 12,222 11,765
11/30/88 9,819 12,027 11,597
12/31/88 10,000 12,240 11,795
1/31/89 10,696 13,148 12,473
2/28/89 10,455 12,800 12,300
3/31/89 10,733 13,105 12,552
4/30/89 11,245 13,803 13,065
5/31/89 11,636 14,333 13,506
6/30/89 11,534 14,263 13,437
7/31/89 12,610 15,565 14,346
8/31/89 13,036 15,853 14,649
9/30/89 12,997 15,790 14,582
10/31/89 12,222 15,436 14,163
11/30/89 12,630 15,735 14,376
12/31/89 12,661 16,114 14,574
1/31/90 11,741 15,047 13,743
2/28/90 11,845 15,214 13,921
3/31/90 12,180 15,627 14,217
4/30/90 11,971 15,252 13,870
5/31/90 13,259 16,708 14,947
6/30/90 13,339 16,608 14,929
7/31/90 13,271 16,567 14,812
8/31/90 12,187 15,054 13,638
9/30/90 11,543 14,324 12,972
10/31/90 11,536 14,279 12,772
11/30/90 12,142 15,184 13,521
12/31/90 12,414 15,608 13,913
1/31/91 13,023 16,304 14,588
2/28/91 13,861 17,441 15,540
3/31/91 14,113 17,870 15,901
4/30/91 14,190 17,929 15,913
5/31/91 14,840 18,676 16,552
6/30/91 14,014 17,829 15,851
7/31/91 14,736 18,682 16,516
8/31/91 15,181 19,102 16,894
9/30/91 14,928 18,784 16,742
10/31/91 15,244 19,061 16,998
11/30/91 14,689 18,269 16,328
12/31/91 16,482 20,360 17,943
1/31/92 16,236 20,003 17,940
2/28/92 16,406 20,237 18,243
3/31/92 15,990 19,844 17,927
4/30/92 16,104 20,451 18,209
5/31/92 16,253 20,521 18,321
6/30/92 15,864 20,221 17,953
7/31/92 16,348 21,073 18,553
8/31/92 16,049 20,619 18,202
9/30/92 16,274 20,860 18,419
10/31/92 16,592 20,957 18,535
11/30/92 17,299 21,640 19,219
12/31/92 17,438 21,911 19,509
1/31/93 17,773 22,114 19,729
2/28/93 17,831 22,391 19,875
3/31/93 18,346 22,865 20,388
4/30/93 18,036 22,338 20,015
5/31/93 18,486 22,899 20,483
6/30/93 18,547 22,974 20,547
7/31/93 18,387 22,906 20,528
8/31/93 18,929 23,752 21,280
9/30/93 18,898 23,569 21,267
10/31/93 19,090 24,081 21,569
11/30/93 18,594 23,826 21,276
12/31/93 18,953 24,124 21,739
1/31/94 19,628 24,961 22,418
2/28/94 19,092 24,259 21,981
3/31/94 18,164 23,207 21,060
4/30/94 18,207 23,525 21,258
5/31/94 18,411 23,870 21,462
6/30/94 17,906 23,285 20,972
7/31/94 18,444 24,075 21,549
8/31/94 19,111 25,045 22,372
9/30/94 18,789 24,429 21,876
10/31/94 19,070 24,998 22,112
11/30/94 18,293 24,071 21,298
12/31/94 18,306 24,425 21,524
1/31/95 18,750 25,077 21,832
2/28/95 19,280 26,035 22,650
3/31/95 19,626 26,813 23,232
4/30/95 20,201 27,615 23,802
5/31/95 20,864 28,678 24,570
6/30/95 21,549 29,346 25,086
7/31/95 22,507 30,341 25,909
8/31/95 22,257 30,402 26,057
9/30/95 23,096 31,682 26,862
10/31/95 23,140 31,590 26,564
11/30/95 24,210 32,951 27,733
12/31/95 24,171 33,587 28,218
1/31/96 24,851 34,753 28,986
2/28/96 25,156 35,052 29,371
3/31/96 25,284 35,395 29,747
4/30/96 25,777 35,933 30,181
5/31/96 26,223 36,821 30,749
6/30/96 26,071 36,964 30,706
7/31/96 24,812 35,345 29,392
8/31/96 25,482 36,080 30,194
9/30/96 26,813 38,104 31,583
10/31/96 27,214 39,179 32,221
Footnote reads:
As you compare performance, please note that the LB World Growth
Fund's performance reflects the maximum 5% sales charge. The performance
of the index does not reflect any such charges. If you were to purchase
any of the individual stocks represented in this index, any sales charges you
would pay would reduce your total return as well.
*See accompanying notes to Portfolio Management Reviews.
While the Fund earned good returns from core technology stocks like Intel,
Microsoft, IBM, and Oracle, and core financial stocks like Citicorp and Bank
of New York, the returns from issues outside the core group were somewhat
disappointing. Therefore, between July and September we systematically raised
the core holdings to 100% of the Fund's portfolio. In doing so we added
investments in industry leaders like Disney Co., Mattel, Eastman Kodak,
Warner-Lambert and Elli Lily. At the same time, we matched the Fund's
weightings in individual industries with those of the S&P 500 Index.
Therefore, when the period ended, the Fund had 17.5% of its portfolio in
consumer growth stocks, 14.5% in technology stocks and 14% in financial
stocks.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
U.S. Treasury 0.3%
Short-Term Securities 3.2%
Common Stocks 96.5%
A Long-Term Strategy
With these changes, the LB Fund is focused on leading companies with
attractive product development, distribution, and markets, as well as strong
earnings prospects. We view these holdings as long-term investments with the
potential for solid returns over time.
We think the portfolio is also well-positioned for near-term market
conditions. If economic growth slows, investors should increasingly favor
experienced companies with good earnings visibility. By emphasizing firms with
a strong global, as well as domestic presence, the LB Fund is positioned to
make the most of this environment.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
% of
Top 10 Holdings Portfolio
Federal National Mortgage
Association 2.1%
Dover Corp. 2.1%
American International
Group Inc. 2.1%
General Motors Corp. 2.1%
Halliburton Co. 2.1%
General Electric Co 2.1%
Citicorp 2.0%
Merck & Co. Inc. 2.0%
Amoco Corp. 2.0%
Disney (Walt) Co. 2.0%
Footnote reads:
These holdings represent 20.6%
of the Fund's total investment portfolio.
LB High Yield Fund
[GRAPHIC OMITTED: PHOTO OF THOMAS N. HAAG]
Thomas N. Haag, an assistant vice president of Lutheran Brotherhood, is a
Chartered Financial Analyst and portfolio manager for the LB High Yield Fund.
He has managed the Fund since January 1992, and has been with LB since 1986.
Fund Objective: To seek high current income and growth of capital by investing
primarily in high-yielding ("junk") corporate bonds.
High-yield bonds tend to outperform investment grade bonds when interest rates
rise because they can offer better income even in the face of falling bond
prices. This was a distinct advantage during the last fiscal year. As interest
rates rose in the last year, high-yield bonds also benefited from continued
growth in the economy. These factors helped the LB High Yield Fund earn a
solid return for the fiscal year ended October 31, 1996.
During the period, the Fund had a total return (based on NAV) of 11.64%. This
is comparable to the average return of 12.65% for high-yield bond mutual funds
tracked by Lipper Analytical Services and 11.10% for the Lehman Brothers High-
Yield Index.
Investment Strategy
At the start of the period, the Fund had significant holdings in zero-coupon
securities issued by media and telecommunications firms. During the first half
of the period, these investments benefited from falling interest rates and
deregulation of the telecommunications industry. In the second half of the
period, zero coupons underperformed as interest rates rose, supplies became
excessive, and the media and telecommunications sector became less popular.
[GRAPHIC WORM CHART OMITTED: Growth of $10,000]
(April 30, 1987 - October 31, 1996)
INSET BOX ON CHART READS:
LB High Yield Fund
Annualized Total Returns* Period Ending 10/31/96
- --------------------------------------------------------
Since
Inception
Based on 4/3/87 5 Year 1 Year
- --------------------------------------------------------
Net Asset Value 9.75% 12.71% 11.64%
Public Offering Price 9.16% 11.56% 6.01%
- --------------------------------------------------------
Lehman High Lipper Average
LBHYLD Yield Index High Current
Month End Total Total Total
Date Value Value Value
- ----------- ------- ----------- -----------
4/30/87 10,000 10,000 10,000
5/31/87 9,462 10,072 9,942
6/30/87 9,690 10,201 10,072
7/31/87 9,729 10,228 10,100
8/31/87 9,769 10,292 10,165
9/30/87 9,468 9,968 9,920
10/31/87 9,166 9,642 9,499
11/30/87 9,453 9,919 9,721
12/31/87 9,624 10,158 9,804
1/31/88 9,979 10,498 10,107
2/28/88 10,300 10,838 10,385
3/31/88 10,181 10,725 10,344
4/30/88 10,195 10,807 10,407
5/31/88 10,167 10,823 10,434
6/30/88 10,404 10,981 10,646
7/31/88 10,468 11,053 10,752
8/31/88 10,436 11,037 10,764
9/30/88 10,545 11,176 10,861
10/31/88 10,655 11,311 10,993
11/30/88 10,655 11,378 11,008
12/31/88 10,811 11,431 11,065
1/31/89 11,029 11,633 11,256
2/28/89 11,088 11,658 11,304
3/31/89 10,998 11,567 11,265
4/30/89 10,924 11,616 11,258
5/31/89 11,168 11,841 11,421
6/30/89 11,449 11,988 11,611
7/31/89 11,409 11,972 11,627
8/31/89 11,478 12,013 11,634
9/30/89 11,241 11,811 11,452
10/31/89 10,777 11,531 11,113
11/30/89 10,712 11,508 11,058
12/31/89 10,522 11,527 10,979
1/31/90 10,200 11,279 10,697
2/28/90 9,953 11,046 10,436
3/31/90 9,995 11,336 10,558
4/30/90 9,998 11,317 10,551
5/31/90 10,326 11,535 10,782
6/30/90 10,454 11,814 11,000
7/31/90 10,639 12,132 11,228
8/31/90 10,232 11,442 10,770
9/30/90 9,778 10,606 10,227
10/31/90 9,433 10,050 9,787
11/30/90 9,584 10,363 9,826
12/31/90 9,738 10,421 9,857
1/31/91 9,794 10,708 9,995
2/28/91 10,510 11,879 10,713
3/31/91 11,010 12,579 11,246
4/30/91 11,411 13,095 11,678
5/31/91 11,514 13,118 11,750
6/30/91 11,840 13,506 11,998
7/31/91 12,171 13,939 12,356
8/31/91 12,350 14,259 12,588
9/30/91 12,546 14,457 12,800
10/31/91 12,997 14,940 13,208
11/30/91 13,196 15,018 13,331
12/31/91 13,253 15,234 13,447
1/31/92 13,867 15,771 13,980
2/28/92 14,255 16,160 14,315
3/31/92 14,513 16,360 14,536
4/30/92 14,639 16,423 14,641
5/31/92 14,868 16,654 14,855
6/30/92 14,953 16,811 15,005
7/31/92 15,212 17,065 15,274
8/31/92 15,420 17,288 15,467
9/30/92 15,578 17,464 15,627
10/31/92 15,296 17,218 15,366
11/30/92 15,562 17,435 15,593
12/31/92 15,920 17,634 15,801
1/31/93 16,573 18,147 16,230
2/28/93 16,774 18,466 16,544
3/31/93 17,097 18,705 16,871
4/30/93 17,165 18,867 17,005
5/31/93 17,456 19,092 17,273
6/30/93 17,994 19,493 17,674
7/31/93 18,138 19,682 17,849
8/31/93 18,282 19,847 17,981
9/30/93 18,275 19,899 18,037
10/31/93 18,848 20,301 18,441
11/30/93 18,918 20,398 18,559
12/31/93 19,241 20,651 18,833
1/31/94 19,808 21,099 19,282
2/28/94 19,740 21,045 19,245
3/31/94 19,008 20,249 18,625
4/30/94 18,717 20,111 18,355
5/31/94 18,790 20,121 18,397
6/30/94 18,802 20,184 18,372
7/31/94 18,650 20,355 18,339
8/31/94 18,787 20,500 18,350
9/30/94 18,699 20,502 18,350
10/31/94 18,759 20,551 18,331
11/30/94 18,308 20,292 18,086
12/31/94 18,224 20,442 18,107
1/31/95 18,306 20,720 18,254
2/28/95 19,004 21,431 18,751
3/31/95 19,199 21,663 18,921
4/30/95 19,662 22,213 19,383
5/31/95 20,061 22,835 19,813
6/30/95 20,170 22,988 19,875
7/31/95 20,805 23,277 20,224
8/31/95 20,892 23,349 20,279
9/30/95 21,073 23,637 20,520
10/31/95 21,184 23,783 20,684
11/30/95 21,438 23,993 20,823
12/31/95 21,756 24,369 21,140
1/31/96 22,278 24,798 21,579
2/28/96 22,849 24,818 21,763
3/31/96 22,627 24,801 21,682
4/30/96 22,744 24,855 21,853
5/31/96 22,961 25,004 22,024
6/30/96 22,783 25,212 22,053
7/31/96 22,603 25,328 22,172
8/31/96 22,976 25,601 22,524
9/30/96 23,732 26,218 23,114
10/31/96 23,651 26,420 23,239
Footnote reads:
As you compare performance, please note that the LB High Yield Fund's
performance reflects the maximum 5% sales charge. The performance
of the index does not reflect any such charges. If you were to
purchase any of the individual stocks represented in this index,
any sales charges you would pay would reduce your total return
as well.
*See accompanying notes to Portfolio Management Reviews.
As the outlook for the economy improved, the Fund also enjoyed strong
performance from holdings in non-zero bonds with B credit ratings and
competitive coupons. These bonds were issued primarily by industrial firms. We
increased positions in these issues as we found attractive opportunities to do
so. We also added to holdings in the technology sector, which has gained
acceptance with investors over the last few years. To make these changes we
reduced investments in bonds from basic industries and other cyclical sectors
- -- whose prices tend to be more sensitive to changing outlooks for the
economy.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Common Stocks and Stock Warrants 3.5%
Short-Term Securities 5.8%
Preferred Stocks 11.7%
Bonds 79.%
At the end of the period, basic industry issues represented about 2.5% of the
portfolio, down from about 6% when the period started, and technology issues
represented about 29%, up from 21%. Meanwhile, issues from consumer growth
firms fell from about 42% of the Fund's holdings to about 35%.
A Favorable Outlook
High-yield bonds should continue to perform well in the months to come. If the
economy slows, interest rates could edge lower and bond prices could continue
to rise. We think economic growth should be good enough, however, to keep
higher-yielding bonds attractive to investors.
Because the prospects of media and telecommunications firms remain strong, we
expect to maintain the Fund's sizable investments in those sectors, though we
may swap some current holdings for others in those groups with greater
potential. We continue to like the outlook for issues of industrial firms that
are less sensitive to economic cycles, so we will maintain the Fund's
weighting in those types of issues. We have recently added credits from the
energy sector, where we found attractive values, as well as a few issues of
foreign governments and corporations denominated in U.S. dollars. If economies
abroad continue to improve, as we expect, we may increase investments in this
segment.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: MOODY'S BOND QUALITY
RATING DISTRIBUTION]
Baa 0.3%
Ba 7.7%
B 60.1%
Caa 11.0%
D 0.1%
Not Rated 20.8%
LB Income Fund
[GRAPHIC OMITTED: PHOTO OF CHARLES E. HEEREN]
Charles E. Heeren, a vice president of Lutheran Brotherhood, is a Chartered
Financial Analyst and portfolio manager for the LB Income Fund. He has managed
the Fund since January 1986, and has been with LB since 1976.
Fund Objective: To seek high current income while preserving principal by
investing in investment-grade bonds and other income-producing securities.
When interest rates fall, prices for bonds with longer maturities tend to
climb more than prices for those with shorter maturities. When rates rise, the
reverse is generally true -- prices on longer maturities tend to decrease more
than those on shorter maturities. As a long-term, high-quality bond fund, the
LB Income Fund experienced both the push and pull of interest rate movements
over the last year. Holding longer maturities reduced returns somewhat when
interest rates rose, and enhanced returns when rates fell.
For the fiscal year ended October 31, 1996, the LB Income Fund earned a total
return (based on NAV) of 4.56%. That compares with an average return of 4.82%
for high-quality corporate bond funds tracked by Lipper Analytical Services.
Over the same time, the Lehman Aggregate Bond Index had a return of 5.85%.
Portfolio Mix
As interest rates fell at the end of 1995, the Fund enjoyed strong gains and
good yields from its investments in longer-term issues. Once the sudden rise
in interest rates caused bond prices to decline, we took a more defensive
position, giving greater attention to shorter-term issues to help protect the
value of Fund shares. During this time the Fund earned good returns from
mortgage-backed securities, which benefited as higher rates discouraged
homeowners from prepaying their loans, and from shorter-term, asset-backed
securities, which won favor among investors looking for greater income to
offset falling bond prices. With the economy improving, we added corporate
bonds from a variety of cyclical industries. We also made sizable investments
in bonds issued by insurance companies, as well as investments in the dollar-
denominated "Yankee" bonds of foreign issuers.
[GRAPHIC WORM CHART OMITTED: Growth of $10,000]
(October 31, 1986 - October 31, 1996)
INSET BOX ON CHART READS:
LB Income Fund
Annualized Total Returns* Period Ending 10/31/96
- --------------------------------------------------------
Based on 10 Years 5 Year 1 Year
- --------------------------------------------------------
Net Asset Value 8.21% 7.27% 4.56%
Public Offering Price 7.66% 6.17% -0.68%
- --------------------------------------------------------
Lehman Agg. Lipper Average
LBINC Bond Index Corp. Debt A
Month End Total Total Total
Date Value Value Value
- ----------- ------- ----------- -----------
10/31/86 10,000 10,000 10,000
11/30/86 9,608 10,140 10,159
12/31/86 9,672 10,178 10,240
1/31/87 9,857 10,321 10,428
2/28/87 9,967 10,392 10,508
3/31/87 9,922 10,345 10,464
4/30/87 9,678 10,062 10,110
5/31/87 9,641 10,023 10,046
6/30/87 9,739 10,161 10,170
7/31/87 9,690 10,153 10,118
8/31/87 9,676 10,099 10,040
9/30/87 9,406 9,884 9,786
10/31/87 9,589 10,236 10,077
11/30/87 9,739 10,318 10,197
12/31/87 9,937 10,458 10,327
1/31/88 10,303 10,826 10,685
2/28/88 10,432 10,955 10,825
3/31/88 10,332 10,852 10,706
4/30/88 10,291 10,793 10,648
5/31/88 10,226 10,721 10,583
6/30/88 10,532 10,980 10,817
7/31/88 10,491 10,921 10,781
8/31/88 10,562 10,950 10,801
9/30/88 10,812 11,198 11,028
10/31/88 11,013 11,409 11,206
11/30/88 10,932 11,270 11,098
12/31/88 11,019 11,282 11,163
1/31/89 11,199 11,445 11,307
2/28/89 11,089 11,362 11,239
3/31/89 11,125 11,411 11,281
4/30/89 11,349 11,649 11,476
5/31/89 11,630 11,956 11,745
6/30/89 12,048 12,319 12,089
7/31/89 12,236 12,582 12,294
8/31/89 12,079 12,395 12,133
9/30/89 12,131 12,459 12,175
10/31/89 12,337 12,765 12,428
11/30/89 12,418 12,886 12,515
12/31/89 12,389 12,921 12,534
1/31/90 12,228 12,767 12,359
2/28/90 12,269 12,808 12,370
3/31/90 12,266 12,817 12,377
4/30/90 12,115 12,699 12,235
5/31/90 12,424 13,075 12,580
6/30/90 12,585 13,286 12,779
7/31/90 12,719 13,469 12,934
8/31/90 12,488 13,289 12,712
9/30/90 12,523 13,399 12,758
10/31/90 12,634 13,569 12,896
11/30/90 12,904 13,861 13,183
12/31/90 13,093 14,077 13,389
1/31/91 13,254 14,252 13,527
2/28/91 13,446 14,373 13,673
3/31/91 13,559 14,472 13,766
4/30/91 13,752 14,628 13,935
5/31/91 13,866 14,713 14,003
6/30/91 13,851 14,706 13,978
7/31/91 14,016 14,910 14,154
8/31/91 14,316 15,232 14,493
9/30/91 14,635 15,541 14,809
10/31/91 14,736 15,714 14,940
11/30/91 14,855 15,859 15,072
12/31/91 15,351 16,330 15,611
1/31/92 15,173 16,107 15,368
2/28/92 15,237 16,212 15,445
3/31/92 15,229 16,121 15,367
4/30/92 15,290 16,237 15,447
5/31/92 15,581 16,544 15,759
6/30/92 15,834 16,773 15,989
7/31/92 16,212 17,115 16,410
8/31/92 16,360 17,288 16,541
9/30/92 16,579 17,493 16,746
10/31/92 16,310 17,261 16,462
11/30/92 16,314 17,264 16,458
12/31/92 16,580 17,539 16,733
1/31/93 16,918 17,875 17,093
2/28/93 17,276 18,188 17,479
3/31/93 17,336 18,265 17,542
4/30/93 17,453 18,392 17,658
5/31/93 17,456 18,416 17,663
6/30/93 17,785 18,750 18,055
7/31/93 17,942 18,857 18,191
8/31/93 18,294 19,187 18,609
9/30/93 18,355 19,238 18,665
10/31/93 18,437 19,310 18,751
11/30/93 18,186 19,145 18,513
12/31/93 18,258 19,249 18,592
1/31/94 18,494 19,509 18,873
2/28/94 18,078 19,169 18,458
3/31/94 17,534 18,696 17,974
4/30/94 17,381 18,546 17,773
5/31/94 17,331 18,544 17,718
6/30/94 17,217 18,503 17,658
7/31/94 17,588 18,872 17,972
8/31/94 17,579 18,894 17,976
9/30/94 17,253 18,617 17,695
10/31/94 17,181 18,600 17,646
11/30/94 17,194 18,559 17,610
12/31/94 17,371 18,687 17,735
1/31/95 17,712 19,057 18,039
2/28/95 18,098 19,511 18,448
3/31/95 18,220 19,630 18,574
4/30/95 18,499 19,904 18,826
5/31/95 19,292 20,675 19,615
6/30/95 19,439 20,826 19,748
7/31/95 19,296 20,780 19,660
8/31/95 19,559 21,031 19,907
9/30/95 19,732 21,235 20,108
10/31/95 20,020 21,511 20,392
11/30/95 20,333 21,834 20,708
12/31/95 20,640 22,140 21,016
1/31/96 20,748 22,286 21,115
2/28/96 20,269 21,898 20,678
3/31/96 20,047 21,745 20,509
4/30/96 19,918 21,623 20,355
5/31/96 19,884 21,580 20,314
6/30/96 20,140 21,869 20,552
7/31/96 20,179 21,928 20,593
8/31/96 20,071 21,891 20,543
9/30/96 20,451 22,272 20,907
10/31/96 20,933 22,766 21,365
Footnote reads:
As you compare performance, please note that the LB Income Fund's
performance reflects the maximum 5% sales charge. The performance
of the index does not reflect any such charges. If you were to
purchase any of the individual stocks represented in this index,
any sales charges you would pay would reduce your total return
as well.
*See accompanying notes to Portfolio Management Reviews.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Common and Preferred Stocks 1.0%
Mortgage-Backed Securities 18.8%
U.S.Government 20.3%
Foreign Government Bonds 4.3%
Short-Term Securities 3.2%
Asset-Backed Securities 15.5%
Corporate Bonds 36.9%
In the spring of 1996, we again added longer-term issues to make the most of
the attractive bond prices and yields that were available. Expecting interest
rates to decline, we reduced investments in mortgage-backed securities and
corporate bonds that could be called in by their issuers.
As economic growth appeared to slow, we emphasized bonds from companies less
sensitive to economic change -- such as health care firms and supermarket
chains. As a further defense against the bond market's nervousness about the
economy, we gave greater attention to bonds in the highest levels of credit
quality.
Future Strategies
If the economy slows further and interest rates edge lower, as we expect,
longer-term issues could help enhance the Fund's potential for capital gains.
In that case, we may make additional investments in longer-term issues.
However, we would keep Fund maturities about the same or even add shorter-term
issues, if market nervousness about inflation resurfaces. In either case, we
will give greater attention to U.S. Treasury issues, since we feel the spread
between yields for corporate bonds and Treasuries remains quite narrow given
the added credit risk that corporates carry.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: MOODY'S BOND QUALITY
RATING DISTRIBUTION]
Aaa 59.5%
Aa 11.8%
A 15.6%
Baa 10.3%
Ba 2.8%
LB Municipal Bond Fund
[GRAPHIC OMITTED: PHOTO OF Janet I. Grangaard]
Janet I. Grangaard is a Chartered Financial Analyst and portfolio manager for
the LB Municipal Bond Fund. She has managed the Fund since January 1994, and
has been with LB since 1988.
Fund Objective: To seek high current income that is exempt from federal income
tax by investing in municipal bonds.
In the past year prices for municipal bonds outperformed prices for taxable
issues. Municipal bond prices benefited from shrinking supplies as the volume
of maturing and called municipal bonds exceeded the volume of new issues.
Municipal bond prices were also strengthened by waning support for legislation
that would have weakened the tax advantages for municipal bonds.
These factors -- plus changes we made in investment maturities as interest
rates reversed course -- helped the LB Municipal Bond Fund earn a total return
(based on NAV) of 5.33% for the fiscal year ended October 31, 1996. That
compares to an average return of 5.11% for municipal bond funds tracked by
Lipper Analytical Services and a return of 5.70% for the Lehman Municipal Bond
Index.
Adjusting Maturities
Because longer-term bonds generally gain more in price when interest rates
fall than shorter-term bonds do, we held a significant position in longer-term
issues in the Fund's portfolio in the fall of 1995. Late in 1995, we began to
emphasize shorter maturities to help moderate portfolio volatility. In the
early months of 1996, we continued to build this defensive posture by swapping
30-year municipal bonds for 20-year issues, expecting the shorter-term issues
to outperform as interest rates rose. We also added securities with higher
coupons, which tend to outperform in declining markets.
[GRAPHIC WORM CHART OMITTED: Growth of $10,000]
(October 31, 1986 - October 31, 1996)
INSET BOX ON CHART READS:
LB Municipal Bond Fund
Annualized Total Returns* Period Ending 10/31/96
- --------------------------------------------------------
Based on 10 Years 5 Year 1 Year
- --------------------------------------------------------
Net Asset Value 7.65% 7.30% 5.33%
Public Offering Price 7.09% 6.20% 0.08%
- --------------------------------------------------------
Lehman Muni. Lipper Average
LBMBF Bond Index Gen. Municipal
Month End Total Total Debt Funds
Date Value Value Total Value
- ---------- ------- ----------- ----------
10/31/86 10,000 10,000 10,000
11/30/86 9,668 10,198 10,183
12/31/86 9,679 10,169 10,184
1/31/87 9,863 10,476 10,425
2/28/87 9,954 10,527 10,508
3/31/87 9,893 10,415 10,445
4/30/87 9,395 9,892 9,799
5/31/87 9,346 9,843 9,706
6/30/87 9,534 10,132 9,921
7/31/87 9,628 10,236 10,018
8/31/87 9,638 10,259 10,049
9/30/87 9,294 9,881 9,617
10/31/87 9,366 9,915 9,647
11/30/87 9,610 10,174 9,897
12/31/87 9,819 10,322 10,079
1/31/88 10,154 10,689 10,479
2/28/88 10,265 10,802 10,588
3/31/88 10,060 10,677 10,381
4/30/88 10,147 10,758 10,436
5/31/88 10,119 10,727 10,454
6/30/88 10,335 10,884 10,633
7/31/88 10,371 10,954 10,698
8/31/88 10,408 10,964 10,736
9/30/88 10,616 11,163 10,939
10/31/88 10,813 11,359 11,167
11/30/88 10,719 11,255 11,064
12/31/88 10,878 11,369 11,231
1/31/89 11,037 11,605 11,402
2/28/89 10,968 11,472 11,307
3/31/89 10,967 11,445 11,300
4/30/89 11,239 11,716 11,574
5/31/89 11,444 11,960 11,789
6/30/89 11,554 12,123 11,942
7/31/89 11,692 12,287 12,065
8/31/89 11,578 12,167 11,936
9/30/89 11,521 12,130 11,897
10/31/89 11,675 12,278 12,041
11/30/89 11,873 12,493 12,230
12/31/89 11,972 12,596 12,313
1/31/90 11,812 12,537 12,181
2/28/90 11,897 12,648 12,302
3/31/90 11,910 12,652 12,297
4/30/90 11,776 12,561 12,139
5/31/90 12,055 12,835 12,455
6/30/90 12,203 12,948 12,573
7/31/90 12,393 13,138 12,781
8/31/90 12,133 12,947 12,503
9/30/90 12,174 12,955 12,521
10/31/90 12,368 13,190 12,702
11/30/90 12,654 13,455 12,998
12/31/90 12,757 13,509 13,054
1/31/91 12,938 13,690 13,215
2/28/91 13,011 13,809 13,292
3/31/91 13,025 13,814 13,318
4/30/91 13,210 13,998 13,513
5/31/91 13,301 14,123 13,634
6/30/91 13,249 14,108 13,592
7/31/91 13,453 14,281 13,788
8/31/91 13,609 14,469 13,964
9/30/91 13,848 14,657 14,144
10/31/91 13,956 14,789 14,270
11/30/91 13,966 14,831 14,290
12/31/91 14,309 15,149 14,627
1/31/92 14,315 15,184 14,617
2/28/92 14,288 15,189 14,638
3/31/92 14,288 15,195 14,643
4/30/92 14,450 15,330 14,778
5/31/92 14,648 15,511 14,985
6/30/92 14,900 15,772 15,258
7/31/92 15,415 16,245 15,798
8/31/92 15,140 16,086 15,545
9/30/92 15,183 16,190 15,607
10/31/92 15,012 16,031 15,326
11/30/92 15,360 16,318 15,717
12/31/92 15,589 16,485 15,911
1/31/93 15,740 16,676 16,090
2/28/93 16,319 17,280 16,721
3/31/93 16,210 17,097 16,525
4/30/93 16,364 17,269 16,704
5/31/93 16,443 17,366 16,799
6/30/93 16,750 17,656 17,088
7/31/93 16,754 17,679 17,088
8/31/93 17,122 18,047 17,467
9/30/93 17,318 18,252 17,674
10/31/93 17,429 18,287 17,709
11/30/93 17,232 18,126 17,523
12/31/93 17,612 18,509 17,872
1/31/94 17,807 18,720 18,077
2/28/94 17,303 18,235 17,596
3/31/94 16,495 17,493 16,827
4/30/94 16,571 17,641 16,888
5/31/94 16,730 17,795 17,040
6/30/94 16,603 17,686 16,929
7/31/94 16,905 18,010 17,229
8/31/94 16,963 18,073 17,272
9/30/94 16,732 17,807 16,992
10/31/94 16,396 17,490 16,669
11/30/94 16,081 17,174 16,324
12/31/94 16,454 17,551 16,722
1/31/95 16,955 18,053 17,219
2/28/95 17,501 18,579 17,731
3/31/95 17,688 18,792 17,890
4/30/95 17,704 18,815 17,888
5/31/95 18,299 19,415 18,446
6/30/95 18,057 19,246 18,245
7/31/95 18,183 19,429 18,362
8/31/95 18,412 19,676 18,564
9/30/95 18,554 19,800 18,677
10/31/95 18,850 20,087 18,963
11/30/95 19,235 20,420 19,327
12/31/95 19,445 20,616 19,542
1/31/96 19,589 20,773 19,634
2/28/96 19,422 20,632 19,478
3/31/96 19,098 20,368 19,169
4/30/96 18,998 20,311 19,083
5/31/96 18,986 20,303 19,086
6/30/96 19,181 20,524 19,266
7/31/96 19,354 20,711 19,439
8/31/96 19,344 20,707 19,424
9/30/96 19,633 20,996 19,701
10/31/96 19,855 21,234 19,914
Footnote reads:
As you compare performance, please note that the LB Municipal Bond
Fund's performance reflects the maximum 5% sales charge. The
performance of the index does not reflect any such charges. If
you were to purchase any of the individual stocks represented in
this index, any sales charges you would pay would reduce your total
return as well.
*See accompanying notes to Portfolio Management Reviews.
At the end of the summer, when the prices and yields of municipal bonds were
more attractive, we traded some of our holdings with 15-year maturities for
investments with 20-year maturities. Toward the end of the period we added
municipal bonds maturing in 20 to 25 years. This systematic lengthening of
maturities, plus continued emphasis on noncallable issues, helped enhance the
Fund's return as interest rates fell.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Other 13.9%
Education 3.8%
Transportation 10.3%
Housing 1.9%
Water and Sewer 9.4%
Pollution Control 2.9%
Utility 12.3%
Health Care 10.3%
General Obligation 16.9%
Escrowed 18.3%
During the year we took advantage of selective opportunities to enhance the
Fund's yield. This led us to reduce the Fund's exposure in the health care
sector somewhat and increase exposure to electric revenue bonds. We also gave
somewhat greater attention to investment-grade bonds with Baa credit ratings.
A Better Balance
The balance between supply and demand in municipal bonds has returned to
normal. In addition, the boost that municipals received as proposals for major
tax reform were shelved is now complete. As a result of these two factors,
municipal bonds should perform more in line with taxable issues. If inflation
remains reasonable, as we expect, municipal bond prices should continue their
modest rally and we may add longer-term issues to the portfolio. If inflation
worsens, and it looks like interest rates may edge upward, we would return to
a more neutral maturity structure. As always, we will continue to watch for
opportunities to add incremental yield to the Fund's return.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: MOODY'S BOND QUALITY
RATING DISTRIBUTION]
Aaa 68.7%
Aa 14.0%
A 8.8%
Baa 8.3%
B 0.2%
LB Money Market Fund
[GRAPHIC OMITTED: PHOTO OF GAIL R. ONAN]
Gail R. Onan, assistant vice president of Lutheran Brotherhood Research Corp.,
is portfolio manager for the LB Money Market Fund. She has managed the Fund
since January 1994, and has been with LB since 1969.
Fund Objective: To seek current income with stability of principal by
investing in high-quality, short-term debt securities.**
In the fiscal year ended October 31, 1996, yields for money market instruments
were quite volatile. As institutional money managers worried about higher
inflation, they attempted to anticipate changes in short-term interest rates
by the Federal Reserve. Even though the Federal Reserve left short-term rates
unchanged from February through October of 1996, the expectation that rates
could change created frequent fluctuations in short-term market yields.
During the period we adjusted maturities of investments in the LB Money Market
Fund to take advantage of these yield fluctuations. This, plus a reduction in
Fund expenses on April 1, 1996, helped the Fund earn a total return of 4.63%.
Yield Opportunities
At the start of the period, the yield for three-month Treasury bills stood
near 5.5%, the Fund's investments had an average maturity of 42 days, and
short-term yields were beginning to fall. After three-month Treasury bills hit
a low of 4.90% in February of 1996, short-term yields began to rise -- hitting
5.33% in July. During this time we extended the Fund's average maturity to 48
days. As we did, we used a modified "barbell" approach that balanced issues
with maturities as long as six months with issues that matured overnight. This
enabled us to lock in the attractive yields that became available while
maintaining enough portfolio liquidity to move quickly into issues with higher
yields if market developments warranted.
In September, after money market yields had continued to rise while inflation
remained quite modest, we felt investors had overreacted to inflation worries
and that yields would soon head lower. Therefore, we increased the Fund's
average maturity to 54 days in order to lock in higher yields for a longer
period.
Throughout the year we maintained the Fund's historical investment mix --
focusing largely on commercial paper. When appropriate, we enhanced the Fund's
yield with letters of credit, high-quality asset-backed securities, and other
short-term corporate instruments.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Adjustable Rate Notes 14.8%
Certificates of Deposit 4.8%
Bank Notes 1.7%
Commercial Paper 72.7%
Banker's Acceptances 5.5%
Medium-Term Notes 0.5%
Preparing for Slower Growth
If economic growth slows, interest rates and yields should continue to fall.
With this in mind, we are again adding longer-term securities to the Fund's
portfolio. If the markets again become nervous about inflation, and interest
rates appear to be on the rise, we would likely reverse this strategy. As
always, we will maintain a well-diversified asset mix and continue to
emphasize investments with very high credit quality and good liquidity.
Annualized Total Returns*
Period Ending 10/31/96
10 Years 5 Years 1 Year
5.19% 3.58% 4.63%
Footnotes:
*The annualized total return reflects the change in share price, the
reinvestment of all dividends and capital gains, and the effect of
compounding. Since performance varies, the annualized total return, which
assumes a steady rate of growth, differs from the Fund's actual total return
for the years indicated. POP returns have been adjusted for the maximum 5%
sales charge. NAV returns do not include a sales charge. Sales charges do not
apply to the LB Money Market Fund. All returns represent past performance. The
value of an investment fluctuates so that shares, when redeemed, may be worth
more or less than the original investment.
**Investments in the LB Money Market Fund are neither guaranteed nor insured
by the U.S. Government and there is no assurance that the Fund will maintain a
stable net asset value.
This report must be preceded or accompanied by a prospectus of the Lutheran
Brotherhood Family of Funds.
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.
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.
[LUTHERAN BROTHERHOOD LOGO]
LUTHERAN BROTHERHOOD
SECURITIES CORP.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
s
Bulk Rate
U.S. Postage
PAID
Minneapolis, MN
Permit No.1529
SC 502
[GRAPHIC OF PRINTED WITH SOY INK LOGO OMITTED]
