As Filed with the Securities and Exchange
Commission on December 21, 1998
1933 Act File No. 2-25984
1940 Act File No. 811-1467
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 65 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 44 [X]
(Check appropriate box or boxes.)
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
----------------------------------------
(Exact Name of Registrant)
625 Fourth Avenue South, Minneapolis, Minnesota 55415
-----------------------------------------------------
(Address of Principal Executive Offices)
(612) 340-7215
------------------------------
(Registrant's Telephone Number)
Otis F. Hilbert, Secretary
The Lutheran Brotherhood Family of Funds
625 Fourth Avenue South
Minneapolis, Minnesota 55415
--------------------------------------------------
(Name and Address of Agent for Service of Process)
Approximate date of proposed public offering:
It is proposed that this filing will become effective under Rule 485 (check
appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On December 30, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On (date) pursuant to paragraph (a)(2).
If appropriate check the following box:
[X] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
LUTHERAN BROTHERHOOD FAMILY OF FUNDS
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
LUTHERAN BROTHERHOOD MID CAP 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
CLASS A AND CLASS B SHARES
PROSPECTUS December 30, 1998
The Securities and Exchange Commission has not approved or disapproved
these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
PAGE
The Funds
Investment Objectives, Principal Strategies and Risks,
Volatility and Performance, Fees and Expenses
LB Opportunity Growth Fund
LB Mid Cap Growth Fund
LB World Growth Fund
LB Fund
LB High Yield Fund
LB Income Fund
LB Municipal Bond Fund
LB Money Market Fund
Management
Your Investment
Choosing a Class of Shares
Class A Shares
Class B Shares
Buying Shares
Net Asset Value of Your Shares
Exchanging Between Funds
Redeeming Shares
Distributions
Taxes
Other Securities and Investment Practices
Optimum Account
Financial Highlights
The Lutheran Brotherhood Family of Funds are offered to members of
Lutheran Brotherhood and to Lutheran institutions, Lutheran church
organizations, trusts, and employee benefit plans. Lutheran Brotherhood
membership is open to any person who (1) is baptized in the Christian faith
or affiliated with a Lutheran church organization and (2) professes to be a
Lutheran, or to any non-Lutheran who is a spouse, dependent child, sibling,
or grandchild of a member or qualified proposed member.
<PAGE>
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood Opportunity Growth Fund ("LB Opportunity Growth Fund") is to
achieve long-term growth of capital.
PRINCIPAL STRATEGIES. The LB Opportunity Growth Fund seeks to achieve
its objective by investing primarily in common stocks of smaller growth
companies (generally with market capitalizations of less than $1.7 billion
at the time of purchase). (Market capitalization of stocks gives you a
snapshot view of a company's size. A stock's "market cap" is calculated by
multiplying the number of the company's shares outstanding by the stock's
per-share price. Companies are categorized into small, medium and large
based on their capitalization, e.g., "small-cap," "mid-cap," or "large-
cap.")
T. Rowe Price Associates, Inc. ("T. Rowe Price"), the Fund's sub-
adviser, designed and uses a number of quantitative models to identify key
characteristics of small-cap growth stocks. The models generally measure the
major characteristics of stocks in the small-cap growth sector such as
valuations and projected earnings growth. These will often be companies
with shorter histories and less seasoned operations. The Fund will focus
primarily on companies that possess superior earnings prospects.
PRINCIPAL RISKS. The LB Opportunity Growth Fund's principal risks are
the risks generally of stock investing. They include the risk of sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster performance.
In addition, smaller, less seasoned companies often have greater price
volatility, lower trading volume, and less liquidity than larger, more
established companies. These companies tend to be more dependent on the
success of limited product lines and have less experienced management and
financial resources.
For these and other reasons, the LB Opportunity Growth Fund may
underperform other stock funds (such as large company stock funds) when
stocks of small companies are out of favor.
The success of the LB Opportunity Growth Fund's investment strategy
depends significantly on T. Rowe Price's skill in assessing the potential of
the securities in which the Fund invests. Shares of the LB Opportunity
Growth Fund will rise and fall in value and there is a risk that you could
lose money by investing in the Fund. The Fund cannot be certain that it
will achieve its objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB Opportunity Growth Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns for a one-year period and since inception compare to a broad-
based securities market index. The bar chart includes the effects of Fund
expenses, but not sales charges. If sales charges were included, returns
would be lower than those shown. The table includes the effects of Fund
expenses and maximum sales charges for each class, and assumes that you sold
your shares at the end of the period. In both the bar chart and the table,
the returns shown for the Fund include performance from before the creation
of share classes on October 31, 1997. If the returns for Class A shares
reflected their current shareholder servicing fee of 0.25% per year and the
returns for the Class B shares reflected their current 12b-1 distribution
fee of 0.75% per year and shareholder servicing fee of 0.25% per year, the
returns would be lower than those shown. How a Fund has performed in the
past is not necessarily an indication of how it will perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN (CLASS A)]
Annual
Year Return
1994 2.66%
1995 37.71%
1996 12.16%
1997 -0.41%
Footnote reads:
The Fund's year-to-date return as of 9/30/98 (not annualized) was -23.13%.
Best Quarter: Q3 '97 +20.68%
Worst Quarter: Q1 '97 -17.65%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
Since
Inception
1-Year (1/8/93)
LB Opportunity Growth Fund (Class A) -4.39% 13.68%
LB Opportunity Growth Fund (Class B) -5.46% 14.48%
Russell 2000 22.36% 15.96%
The Russell 2000 is an unmanaged index which measures the performance
of the 2,000 smallest companies in the Russell 3000 Index (an index of the
3,000 largest companies based on market capitalization).
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of a Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS A SHARES CLASS B SHARES
-------------- --------------
Maximum Sales Charge (Load)
(as a percentage of offering price) 4% None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value at time of
purchase or redemption, whichever is lower) None 5%
The maximum sales charges for the Fund depends upon the amount of your
investment and whether you buy Class A shares or Class B shares. For a
complete description of the sales charges, see "Choosing a Class of Shares."
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
CLASS A CLASS B
------- -------
Management Fees 0.43% 0.43%
Distribution (12b-1) Fees -- 0.75%
Other Expenses (including a 25% 0.97% 0.97%
shareholder servicing fee)
Total Fund Operating Expenses 1.40% 2.15%
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. FOR CLASS B SHARES, IT
ALSO ASSUMES THE AUTOMATIC CONVERSION TO CLASS A SHARES AFTER FIVE YEARS.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS YOUR COSTS WOULD BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $537 $825 $1,135 $2,013
Class B shares $718 $973 $1,254 $2,036
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $537 $825 $1,135 $2,013
Class B shares $218 $673 $1,154 $2,036
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood Mid Cap Growth Fund ("LB Mid Cap Growth Fund") is to achieve
long-term growth of capital.
PRINCIPAL STRATEGIES. LB Mid Cap Growth Fund tries to increase the
long-term value of your investment by investing in common stocks of
companies with medium market capitalizations. Under normal market
conditions, the LB Mid Cap Growth Fund invests at least 65% of its assets in
companies that fall within the range of companies included in the Standard &
Poor's MidCap 400 Index at the time of the Fund's investment. As of
September 30, 1998, the S&P MidCap 400 included companies with
capitalizations between $185 million and $24 billion. Lutheran Brotherhood
Research Corp. ("LB Research"), the Fund's investment adviser, uses both
fundamental and technical investment research techniques to determine what
stocks to buy and sell. (Fundamental investment analysis generally involves
assessing a company's or security's value based on factors such as sales,
assets, markets, management, products and services, earnings, and financial
structure. Technical analysis generally involves studying trends and
movements in a security's price, trading volume, and other market-related
factors in an attemp to discern patterns.) LB Research focuses on companies
that have a strong record of earnings growth or show good prospects for
growth in sales and earnings and also considers the trends in the market as
a whole.
PRINCIPAL RISKS. The LB Mid Cap Growth Fund's principal risks are the
risks generally of stock investing. They include the risk of sudden and
unpredictable drops in value of the market as a whole and periods of
lackluster performance.
In addition, medium-sized companies often have greater price
volatility, lower trading volume, and less liquidity than larger, more-
established companies. These companies tend to have smaller revenues,
narrower product lines, less management depth and experience, smaller shares
of their product or service markets, fewer financial resources, and less
competitive strength than larger companies. For these and other reasons,
the LB Mid Cap Growth Fund may underperform other stock funds (such as large
company stock funds) when stocks of medium-sized companies are out of favor.
The success of the Fund's investment strategy depends significantly on
LB Research's skill in assessing the potential of the securities in which
the Fund invests. Shares of the LB Mid Cap Growth Fund will rise and fall
in value and there is a risk that you could lose money by investing in the
Fund. The Fund cannot be certain that it will achieve its objective.
No bar chart or performance table has been included for the LB Mid Cap
Growth Fund. The LB Mid Cap Growth Fund commenced operations on May 30,
1997.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of a Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS A SHARES CLASS B SHARES
-------------- --------------
Maximum Sales Charge (Load)
(as a percentage of offering price) 4% None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value at time of
purchase or redemption, whichever is lower) None 5%
The maximum sales charges for the Fund depends upon the amount of your
investment and whether you buy Class A shares or Class B shares. For a
complete description of the sales charges, see "Choosing a Class of Shares."
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
CLASS A CLASS B
------- -------
Management Fees 0.45% 0.45%
Distribution (12b-1) Fees -- 0.75%
Other Expenses (including a 25% 1.77% 1.77%
shareholder servicing fee)
Total Fund Operating Expenses (1) 2.22% 2.97%
(1) LB Research has voluntarily agreed to temporarily waive a portion of
its advisory fee and, if necessary, to bear certain expenses associated with
operating LB Mid Cap Growth Fund in order to limit the Total Fund Operating
Expenses for the Class A shares and Class B shares to an annual rate of
1.95% and 2.70%, respectively, of the average net assets at the relevant
class. This temporary waiver and expense provision may be discontinued at
any time.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. FOR CLASS B SHARES, IT
ALSO ASSUMES THE AUTOMATIC CONVERSION TO CLASS A SHARES AFTER FIVE YEARS.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS YOUR COSTS WOULD BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $616 $1,066 $1,542 $2,852
Class B shares $800 $1,218 $1,662 $2,878
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $616 $1,066 $1,542 $2,852
Class B shares $300 $918 $1,562 $2,878
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
INVESTMENT OJBECTIVE. The investment objective of the Lutheran
Brotherhood World Growth Fund ("LB World Growth Fund") is to seek total
return from long-term growth of capital.
PRINCIPAL STRATEGIES. The LB World Growth Fund seeks to achieve its
objective by investing primarily in common stocks of established non-U.S.
companies. The Fund may invest in companies located anywhere in the world
(including the United States).
While stocks may be purchased without regard to a company's market
capitalization, the focus will typically be on large and, to a lesser
extent, medium-sized, companies. In determining the appropriate distribution
of investments among various countries and geographic regions, Rowe Price-
Fleming International, Inc. ("Price-Fleming"), the Fund's sub-adviser, will
consider prospects for relative economic growth, expected levels of
inflation, government policies influencing business conditions, the outlook
for currency relationships, and the range of individual investment
opportunities available to international investors. Price-Fleming selects
stocks by blending a bottom-up approach, based on fundamental research
techniques, with an awareness of a country's economic status and outlook.
Price-Fleming weighs a company's prospects for achieving and sustaining
above-average, long-term earnings growth and also considers valuation
factors, such as price/earnings and price/cash flows ratios. Valuation
factors often influence allocations among large-cap, medium-cap, or small-
cap companies.
PRINCIPAL RISKS. LB World Growth Fund's principal risks are the risks
generally of stock investing. They include the risk of sudden and
unpredictable drops in value of the market as a whole and periods of
lackluster performance.
Stocks of non-U.S. companies present additional risks for U.S.
investors. Stocks of non-U.S. companies tend to be less liquid and more
volatile than their U.S. counterparts, in part because foreign markets are
generally smaller, more sensitive to trading activity and more likely to
experience delayed or less frequent settlement of transactions. In many
foreign countries, accounting and regulatory standards are less rigorous,
and economic and political climates are less stable. Fluctuations in
exchange rates also may reduce or eliminate gains or create losses. These
risks usually are greater in emerging markets, such as most countries in
Africa, Asia, Latin America and the Middle East. For these and other
reasons, LB World Growth Fund may underperform other stock funds (such as
U.S. stock funds) when international stocks are out of favor.
The success of the Fund's investment strategy depends significantly on
Price-Fleming's skill in assessing the potential of the securities in which
the Fund invests. Shares of the LB World Growth Fund will rise and fall in
value and there is a risk that you could lose money by investing in the
Fund. LB World Growth Fund cannot be certain that it will achieve its
objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB World Growth Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual
returns for a one-year period and since inception compare to a broad-based
securities market index. The bar chart includes the effects of Fund
expenses, but not sales charges. If sales charges were included, returns
would be lower than those shown. The table includes the effects of Fund
expenses and maximum sales charges for each class, and assumes that you sold
your shares at the end of the period. In both the bar chart and the table,
the returns shown for the Fund include performance from before the creation
of share classes on October 31, 1997. If the returns for Class A shares
reflected their current shareholder servicing fee of 0.25% per year and the
returns for the Class B shares reflected their current 12b-1 distribution
fee of 0.75% per year and shareholder servicing fee of 0.25% per year, the
returns would be lower than those shown. How a Fund has performed in the
past is not necessarily an indication of how it will perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN (CLASS A)]
Annual
Year Return
1996 13.43%
1997 2.17%
Footnote reads:
The Fund's year-to-date return as of 9/30/98 (not annualized) was -1.62%.
Best Quarter: Q2 '97 +11.84%
Worst Quarter: Q4 '97 -7.5%
Return from 1/1/98 - 9/30/98 (not annualized): -1.62%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
Since
Inception
1-Year (9/5/95)
LB World Growth Fund (Class A) -1.91% 6.22%
LB World Growth Fund (Class B) -2.94% 6.86%
Morgan Stanley EAFE Index 2.06% 5.58%
The Morgan Stanley EAFE (Europe and Australasia, Far East Equity) is an
unmanaged index which measures the performance of international companies
screened for liquidity, cross-ownership, and industry representation.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of a Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS A SHARES CLASS B SHARES
-------------- --------------
Maximum Sales Charge (Load)
(as a percentage of offering price) 4% None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value at time of
purchase or redemption, whichever is lower) None 5%
The maximum sales charges for the Fund depends upon the amount of your
investment and whether you buy Class A shares or Class B shares. For a
complete description of the sales charges, see "Choosing a Class of Shares."
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
CLASS A CLASS B
------- -------
Management Fees 0.75% 0.75%
Distribution (12b-1) Fees -- 0.75%
Other Expenses (including a 25% 1.11% 1.11%
shareholder servicing fee)
Total Fund Operating Expenses 1.86% 2.61%
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. FOR CLASS B SHARES, IT
ALSO ASSUMES THE AUTOMATIC CONVERSION TO CLASS A SHARES AFTER FIVE YEARS.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS YOUR COSTS WOULD BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $581 $961 $1,366 $2,493
Class B shares $764 $1,111 $1,485 $2,517
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $581 $961 $1,366 $2,493
Class B shares $264 $811 $1,385 $2,517
LUTHERAN BROTHERHOOD FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood Fund ("LB Fund") is to seek growth of capital and income.
PRINCIPAL STRATEGIES. The principal strategy for achieving this
objective is to invest in the common stocks of leading U.S. domestic and
multi-national companies. LB Research, the Fund's investment adviser, uses
fundamental and technical investment research techniques to identify stocks
of companies that it believes have a leading position and successful
business strategy within their industry. The Fund invests primarily in
stocks of companies with large market capitalizations, which LB Research
believes have balance sheet strength and profitability. LB Research seeks
to invest in companies with a strong management team that will develop
business strategies which lead to sales and earnings growth and improving
relative stock value.
PRINCIPAL RISKS. LB Fund's principal risks are the risks generally of
stock investing. They include the risk of sudden and unpredictable drops in
value of the market as a whole and periods of lackluster performance.
In addition, the prices of larger company stocks may not rise as
quickly or as significantly as prices of stocks of well-managed smaller
companies. For these and other reasons, the LB Fund may underperform other
stock funds (such as small company or medium company stock funds) when
larger company stocks are out of favor.
The success of the Fund's investment strategy depends significantly on
LB Research's skill in assessing the potential of the securities in which
the Fund invests. Shares of LB Fund will rise and fall in value and there
is a risk that you could lose money by investing in the Fund. The LB Fund
cannot be certain that it will achieve its objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual returns for
one, five, and ten years compare to a broad-based securities market index.
The bar chart includes the effects of Fund expenses, but not sales charges.
If sales charges were included, returns would be lower than those shown.
The table includes the effects of Fund expenses and maximum sales charges
for each class, and assumes that you sold your shares at the end of the
period. In both the bar chart and the table, the returns shown for the Fund
include performance from before the creation of share classes on October 31,
1997. If the returns for Class A shares reflected their current shareholder
servicing fee of 0.25% per year and the returns for the Class B shares
reflected their current 12b-1 distribution fee of 0.75% per year and
shareholder servicing fee of 0.25% per year, the returns would be lower than
those shown. How a Fund has performed in the past is not necessarily an
indication of how it will perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN (CLASS A)]
Annual
Year Return
1988 9.24%
1989 26.61%
1990 -1.95%
1991 32.77%
1992 5.80%
1993 8.69%
1994 -3.41%
1995 32.04%
1996 17.22%
1997 27.90%
Footnote reads:
The Fund's year-to-date return as of 9/30/98 (not annualized) was 0.62%.
Best Quarter: Q2 '97 +16.12%
Worst Quarter: Q3 '90 -13.46%
Return from 1/1/98 - 9/30/98 (not annualized): 0.62%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
1-Year 5-Years 10-Years
LB Fund (Class A) 22.77% 14.81% 14.28%
LB Fund (Class B) 22.75% 15.61% 14.73%
S&P 500 33.36% 20.24% 18.02%
The S&P 500 is an unmanaged index which measures the performance of 500
widely held common stocks of large-cap companies.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of a Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS A SHARES CLASS B SHARES
-------------- --------------
Maximum Sales Charge (Load)
(as a percentage of offering price) 4% None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value at time of
purchase or redemption, whichever is lower) None 5%
The maximum sales charges for the Fund depends upon the amount of your
investment and whether you buy Class A shares or Class B shares. For a
complete description of the sales charges, see "Choosing a Class of Shares."
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
CLASS A CLASS B
------- -------
Management Fees 0.37% 0.37%
Distribution (12b-1) Fees -- 0.75%
Other Expenses (including a 25% 0.54% 0.54%
shareholder servicing fee)
Total Fund Operating Expenses (1) 0.91% 1.66%
(1) LB Research has voluntarily agreed to temporarily waive a portion of
its advisory fees equal to 0.05% of the average daily net assets of the LB
Fund. With this waiver, the Total Fund Operating Expenses would be 0.86%
for the Class A shares and 1.61% for the Class B shares. The temporary
waiver may be discontinued at any time.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. FOR CLASS B SHARES, IT
ALSO ASSUMES THE AUTOMATIC CONVERSION TO CLASS A SHARES AFTER FIVE YEARS.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS YOUR COSTS WOULD BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $489 $679 $884 $1,475
Class B shares $669 $823 $1,002 $1,496
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $489 $679 $884 $1,475
Class B shares $169 $523 $902 $1,496
LUTHERAN BROTHERHOOD HIGH YIELD FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood High Yield Fund ("LB High Yield Fund") is to obtain high current
income, and secondarily growth of capital.
PRINCIPAL STRATEGIES. Under normal market conditions, the LB High
Yield Fund invests at least 65% of its total assets in high-yield, high risk
bonds, notes, debentures and other debt obligations or preferred stocks.
These securities are commonly known as "junk bonds." At the time of
purchase these securities are rated within or below the BB major rating
category by Standard & Poor's Corporation or the Ba major rating category by
Moody's Investor Services, Inc. or are unrated but considered to be of
comparable quality by LB Research, the Fund's investment adviser. LB
Research uses fundamental investment research techniques to determine what
securities to buy and sell. LB Research focuses on companies which it
believes have or are expected to achieve adequate cash flows or access to
capital markets for the payment of principal and interest obligations. LB
Research generally purchases bonds with a 10-year maturity, although it may
purchase bonds with a shorter or longer maturity.
PRINCIPAL RISKS. The principal risks of LB High Yield Fund include the
tendency of high-yield bond prices to fall when the economy is sluggish or
overall corporate earnings are weak. During those times, it may become
difficult for issuers of high-yield bonds to generate sufficient cash flow
to pay principal or interest. For all bonds, there is a risk that an issuer
will default. High-yield bonds, however, are more susceptible to the risk
of default and their prices usually fall if a number of issuers, or a high
profile issuer, default or go bankrupt or if the market anticipates either
of those events.
The price of LB High Yield Fund shares also may be affected by weak
equity markets, when issuers of high-yield bonds generally find it difficult
to improve their financial condition by replacing debt with equity. In
addition, many high yield securities are traded only among institutional
investors, and it may be difficult for LB Research to sell the Fund's
portfolio investments at fair prices when high-yield bonds fall out of favor
with those investors.
Generally, when interest rates rise, bond prices fall, which may cause
the price of shares of the LB High Yield Fund to fall as well. Bonds with
longer durations and maturities tend to be more sensitive to changes in
interest rates than bonds with shorter durations or maturities. In general,
the prices at which lower quality bonds are traded before they mature may be
more affected by the financial health of the issuer and the economy and less
by changes in interest rates.
The success of the Fund's investment strategy depends significantly on
LB Research's skill in assessing the potential of the securities in which
the Fund invests. Shares of the LB High Yield Fund will rise and fall and
there is a risk that you could lose money by investing in the Fund. The LB
High Yield Fund cannot be certain that it will achieve its objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB High Yield Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual
returns for one, five, and ten years compare to a broad-based securities
market index. The bar chart includes the effects of Fund expenses, but not
sales charges. If sales charges were included, returns would be lower than
those shown. The table includes the effects of Fund expenses and maximum
sales charges for each class, and assumes that you sold your shares at the
end of the period. In both the bar chart and the table, the returns shown
for the Fund include performance from before the creation of share classes
on October 31, 1997. If the returns for Class A shares reflected their
current shareholder servicing fee of 0.25% per year and the returns for the
Class B shares reflected their current 12b-1 distribution fee of 0.75% per
year and shareholder servicing fee of 0.25% per year, the returns would be
lower than those shown. How a Fund has performed in the past is not
necessarily an indication of how it will perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN (CLASS A)]
Annual
Year Return
1988 12.34%
1989 -2.68%
1990 -7.44%
1991 36.09%
1992 20.12%
1993 20.86%
1994 -5.29%
1995 19.38%
1996 10.96%
1997 13.47%
Footnote reads:
The Fund's year-to-date return as of 9/30/98 (not annualized) was -4.75%.
Best Quarter: Q1 '91 +13.06%
Worst Quarter: Q3 '90 -6.47%
Return from 1/1/98 - 9/30/98 (not annualized): -4.75%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
1-Year 5-Years 10-Years
LB High Yield Fund (Class A) 8.97% 10.56% 10.57%
LB High Yield Fund (Class B) 8.30% 11.29% 11.00%
Lehman High Yield Index 12.77% 11.65% 11.66%
The Lehman High Yield Index is an unmanaged index which measures the
performance of fixed-rate non-investment grade bonds.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of a Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS A SHARES CLASS B SHARES
-------------- --------------
Maximum Sales Charge (Load)
(as a percentage of offering price) 4% None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value at time of
purchase or redemption, whichever is lower) None 5%
The maximum sales charges for the Fund depends upon the amount of your
investment and whether you buy Class A shares or Class B shares. For a
complete description of the sales charges, see "Choosing a Class of Shares."
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
CLASS A CLASS B
------- -------
Management Fees 0.38% 0.38%
Distribution (12b-1) Fees -- 0.75%
Other Expenses (including a 25% 0.51% 0.51%
shareholder servicing fee)
Total Fund Operating Expenses (1) 0.89% 1.64%
(1) LB Research has voluntarily agreed to temporarily waive a portion of
its advisory fees equal to 0.05% of the average daily net assets of the LB
High Yield Fund. With this waiver, the Total Fund Operating Expenses would
be 0.84% for the Class A shares and 1.59% for the Class B shares. The
temporary waiver may be discontinued at any time.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. FOR CLASS B SHARES, IT
ALSO ASSUMES THE AUTOMATIC CONVERSION TO CLASS A SHARES AFTER FIVE YEARS.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS YOUR COSTS WOULD BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $487 $672 $873 $1,452
Class B shares $667 $817 $992 $1,473
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $487 $672 $873 $1,452
Class B shares $167 $517 $892 $1,473
LUTHERAN BROTHERHOOD INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood Income Fund ("LB Income Fund") is to seek high current income
while preserving principal. The Fund's secondary investment objective is to
obtain long-term growth of capital in order to maintain investors'
purchasing power.
PRINCIPAL STRATEGIES. The LB Income Fund invests primarily in
investment-grade corporate bonds, government bonds, and mortgage-backed
securities. Under normal conditions, at least 65% of the Fund's assets will
be invested in debt securities or preferred stock at least in the "Baa"
major rating category by Moody's or at least in the "BBB" major rating
category by S&P or unrated securities considered to be of comparable quality
by LB Research, the Fund's investment adviser. The Fund may also invest in
high-yield, high risk bonds, notes, debentures and other debt obligations or
preferred stock commonly known as "junk bonds." LB Research uses
fundamental investment research techniques to determine what debt
obligations to buy and sell. LB Research focuses on companies which it
believes are financially sound and have strong cash flow, asset values, and
interest or dividend earnings.
PRINCIPAL RISKS. The LB Income Fund's principal risks are those of
debt investing, including increases in interest rates and loss of principal.
Generally, when interest rates rise, bond prices fall, which may cause the
price of shares of LB Income Fund to fall as well. Bond prices fall because
bonds issued after rates rise will offer higher yields, making older bonds
with lower rates less attractive. To raise the effective yield on older
bonds, holders of the older bonds must discount their prices. Bonds with
longer durations and maturities tend to be more sensitive to changes in
interest rates than bonds with shorter durations or maturities.
For all bonds there is a risk that an issuer will default. High-yield
bonds generally are more susceptible to risk of default than higher rated
bonds, and to the LB Income Fund, this risk increases as LB Research
increases the percentage of the Fund's portfolio in high-yield bonds.
The success of the Fund's investment strategy depends significantly on
LB Research's skill in assessing the potential of the securities in which
the Fund invests. Shares of the LB Income Fund will rise and fall in value
and there is a risk that you could lose money by investing in the Fund. The
LB Income Fund cannot be certain that it will achieve its goal.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB Income Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual
returns for one, five, and ten years compare to a broad-based securities
market index. The bar chart includes the effects of Fund expenses, but not
sales charges. If sales charges were included, returns would be lower than
those shown. The table includes the effects of Fund expenses and maximum
sales charges for each class, and assumes that you sold your shares at the
end of the period. In both the bar chart and the table, the returns shown
for the Fund include performance from before the creation of share classes
on October 31, 1997. If the returns for Class A shares reflected their
current shareholder servicing fee of 0.25% per year and the returns for the
Class B shares reflected their current 12b-1 distribution fee of 0.75% per
year and shareholder servicing fee of 0.25% per year, the returns would be
lower than those shown. How a Fund has performed in the past is not
necessarily an indication of how it will perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN (CLASS A)]
Annual
Year Return
1988 10.89%
1989 12.44%
1990 5.68%
1991 17.24%
1992 8.00%
1993 10.12%
1994 -4.86%
1995 18.82%
1996 2.21%
1997 8.36%
Footnote reads:
The Fund's year-to-date return as of 9/30/98 (not annualized) was -4.75%.
Best Quarter: Q2 '89 +8.30%
Worst Quarter: Q1 '94 -3.97%
Return from 1/1/98 - 9/30/98 (not annualized): -4.75%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
1-Year 5-Years 10-Years
LB Income Fund (Class A) 4.06% 5.78% 8.24%
LB Income Fund (Class B) 3.17% 6.44% 8.66%
Lehman Aggregate Bond Index 9.68% 7.49% 9.18%
The Lehman Aggregate Bond Index is an unmanaged index which measures
the performance of U.S. investment grade bonds.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of a Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS A SHARES CLASS B SHARES
-------------- --------------
Maximum Sales Charge (Load)
(as a percentage of offering price) 4% None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value at time of
purchase or redemption, whichever is lower) None 5%
The maximum sales charges for the Fund depends upon the amount of your
investment and whether you buy Class A shares or Class B shares. For a
complete description of the sales charges, see "Choosing a Class of Shares."
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
CLASS A CLASS B
------- -------
Management Fees 0.34% 0.34%
Distribution (12b-1) Fees -- 0.75%
Other Expenses (including a 25% 0.51% 0.51%
shareholder servicing fee)
Total Fund Operating Expenses (1) 0.85% 1.60%
(1) LB Research has voluntarily agreed to temporarily waive a portion of
its advisory fees equal to 0.05% of the average daily net assets of the LB
Income Fund. With this waiver, the Total Fund Operating Expenses would be
0.80% for the Class A shares and 1.55% for the Class B shares. The
temporary waiver may be discontinued at any time.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. FOR CLASS B SHARES, IT
ALSO ASSUMES THE AUTOMATIC CONVERSION TO CLASS A SHARES AFTER FIVE YEARS.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS YOUR COSTS WOULD BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $483 $660 $852 $1,407
Class B shares $663 $805 $971 $1,428
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $483 $660 $852 $1,407
Class B shares $163 $505 $871 $1,428
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood Municipal Bond Fund ("LB Municipal Bond Fund") is to provide its
shareholders with a high level of current income which is exempt from
federal income tax.
PRINCIPAL STRATEGIES. The Lutheran Brotherhood Municipal Bond Fund
tries to provide you with high current income which is exempt from federal
income taxation by investing in municipal bonds, which are debt obligations
issued by states, territories, and possessions of the United States and
their political subdivisions or agencies. Under normal market conditions,
the LB Municipal Bond Fund invests at least 80% of its total assets in
municipal bonds. LB Research, the Fund's investment adviser, uses
fundamental investment research techniques to determine what municipal bonds
to buy and sell. LB Research focuses on investment-grade municipal bonds
of issuers that it believes are financially sound and have healthy balance
sheets, strong operating income, and good economic prospects.
PRINCIPAL RISKS. The LB Municipal Bond Fund's principal risks are
those of debt investing, including increases in interest rates and loss of
principal. Generally, when interest rates rise, bond prices fall, which may
cause the price of shares of LB Municipal Bond Fund to fall as well. Bond
prices fall because bonds issued after rates rise will offer higher yields,
making older bonds with lower rates less attractive. To raise the effective
yield on older bonds, holders of the older bonds must discount their prices.
Bonds with longer durations and maturities tend to be more sensitive to
changes in interest rates than bonds with shorter durations or maturities.
The Fund's performance may be affected by political and economic conditions
at the state, regional or federal level. These may include budgetary
problems, declines in the tax base and other factors that may cause rating
agencies to downgrade the credit ratings on certain issues. Actual or
proposed changes in tax rates, regulations or federal programs could also
affect your net return on investment.
The success of the LB Municipal Bond Fund's investment strategy depends
significantly on LB Research's skill in assessing the potential of the
securities in which the Fund invests. Shares of LB Municipal Bond Fund will
rise and fall in value and there is a risk that you could lose money by
investing in the Fund. The LB Municipal Bond Fund cannot be certain that it
will achieve its objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB Municipal Bond Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual
returns for one, five, and ten years compare to a broad-based securities
market index. The bar chart includes the effects of Fund expenses, but not
sales charges. If sales charges were included, returns would be lower than
those shown. The table includes the effects of Fund expenses and maximum
sales charges for each class, and assumes that you sold your shares at the
end of the period. In both the bar chart and the table, the returns shown
for the Fund include performance from before the creation of share classes
on October 31, 1997. If the returns for Class A shares reflected their
current shareholder servicing fee of 0.25% per year and the returns for the
Class B shares reflected their current 12b-1 distribution fee of 0.75% per
year and shareholder servicing fee of 0.25% per year, the returns would be
lower than those shown. How a Fund has performed in the past is not
necessarily an indication of how it will perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN (CLASS A)]
Annual
Year Return
1988 10.78%
1989 10.06%
1990 6.55%
1991 12.17%
1992 8.95%
1993 12.97%
1994 -6.57%
1995 18.18%
1996 3.44%
1997 9.34%
Footnote reads:
The Fund's year-to-date return as of 9/30/98 (not annualized) was 5.86%.
Best Quarter: Q1 '95 +7.50%
Worst Quarter: Q1 '94 -6.34%
Return from 1/1/98 - 9/30/98 (not annualized): 5.86%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
1-Year 5-Years 10-Years
LB Municipal Bond Fund (Class A) 4.96% 6.26% 7.95%
LB Municipal Bond Fund (Class B) 4.15% 6.93% 8.37%
Lehman Municipal Bond Index 9.20% 7.36% 8.58%
The Lehman Municipal Bond Index is an unmanaged index which measures
the performance of investment grade tax-exempt bonds.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of a Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS A SHARES CLASS B SHARES
-------------- --------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4% None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value at time of
purchase or redemption, whichever is lower) None 5%
The maximum sales charges for the Fund depends upon the amount of your
investment and whether you buy Class A shares or Class B shares. For a
complete description of the sales charges, see "Choosing a Class of Shares."
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
CLASS A CLASS B
------- -------
Management Fees 0.32% 0.32%
Distribution (12b-1) Fees -- 0.75%
Other Expenses (including a 25% 0.42% 0.42%
shareholder servicing fee)
Total Fund Operating Expenses (1) 0.74% 1.49%
(1) LB Research has voluntarily agreed to temporarily waive a portion of
its advisory fees equal to 0.05% of the average daily net assets of the LB
Municipal Bond Fund. With this waiver, the Total Fund Operating Expenses
would be 0.69% for the Class A shares and 1.44% for the Class B shares. The
temporary waiver may be discontinued at any time.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. FOR CLASS B SHARES, IT
ALSO ASSUMES THE AUTOMATIC CONVERSION TO CLASS A SHARES AFTER FIVE YEARS.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS YOUR COSTS WOULD BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $473 $627 $795 $1,282
Class B shares $652 $771 $913 $1,302
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $473 $627 $795 $1,282
Class B shares $152 $471 $813 $1,302
LUTHERAN BROTHERHOOD MONEY MARKET FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood Money Market Fund ("LB Money Market Fund") is current income
consistent with stability of principal.
PRINCIPAL STRATEGIES. The LB Money Market Fund tries to produce
current income while preserving the value of your shares by investing in
high quality, short-term money market instruments that mature in 397 days or
less, including U.S. dollar-denominated commercial paper, bank instruments
such as certificates of deposit, U.S. government discount notes, and U.S.
Treasury Bills. LB Research, the Fund's investment adviser, uses
fundamental investment research techniques to determine what money market
instruments to buy and sell. Under normal market conditions, the Fund
invests primarily in prime commercial paper. LB Research looks for prime
commercial paper issued by corporations which it believes are financially
sound, have strong cash flows, and solid capital levels, are leaders in
their industry and have experienced management.
LB Research manages LB Money Market Fund subject to strict rules
established by the Securities and Exchange Commission that are designed so
that LB Money Market Fund may maintain a stable $1.00 share price. Those
guidelines generally require LB Money Market Fund to, among other things,
invest only in high quality securities that generally are diversified with
respect to issuers, are denominated in U.S. dollars and have short remaining
maturities. In addition, the guidelines require LB Money Market Fund to
maintain a dollar-weighted average portfolio maturity of not more than 90
days.
Under the guidelines, at least 95% of LB Money Market Fund's total
assets must be invested in "first tier" securities. First-tier securities
must be rated by at least two rating agencies in their highest short-term
major rating categories (or one, if only one rating agency has rated the
security, or if they have not received a short-term rating, determined by LB
Research to be of comparable quality). First-tier securities generally
include U.S. Government securities, such as U.S. Treasury bills and
securities issued or sponsored by U.S. government agencies. They also may
include corporate debt securities, finance company commercial paper and
certain obligations of U.S. and foreign banks.
The remainder of LB Money Market Fund's assets will be invested in
securities rated within the two highest rating categories by any two rating
agencies (or one, if only one rating agency has rated the security or, if
unrated, determined by LB Research to be of comparable quality), or kept in
cash.
PRINCIPAL RISKS. The LB Money Market Fund's principal risks are those
that could affect the yield of its shares. They include those factors that
could cause short-term interest rates to decline, such as a weak economy,
strong equity markets and changes by the Federal Reserve in its monetary
policies. The success of the Fund's investment strategy depends
significantly on LB Research's skill in assessing the potential of the
securities in which the Fund invests.
An investment in the LB Money Market Fund is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. Although the Fund seeks to preserve the value
of your investment at $1.00 per share, it is possible to lose money by
investing in the Fund.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB Money Market Fund by showing changes in the Fund's
performance from year to year and by showing the Fund's average annual
returns for one, five, and ten years. The bar chart and table include the
effects of Fund expenses and assume that you sold your shares at the end of
the period. In both the bar chart and the table, the returns shown for the
Fund include performance from before the creation of share classes on
October 31, 1997. If the returns for Class A and Class B shares reflected
their current shareholder servicing fee of 0.25% per year, the returns would
be lower than those shown. How a Fund has performed in the past is not
necessarily an indication of how it will perform in the future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN (CLASS A)]
Annual
Year Return
1988 6.84%
1989 8.50%
1990 7.49%
1991 5.35%
1992 2.89%
1993 2.20%
1994 3.28%
1995 5.00%
1996 4.60%
1997 4.81%
Footnote reads:
The Fund's year-to-date return as of 9/30/98 (not annualized) was 3.57%.
Best Quarter: Q2 '89 +2.21%
Worst Quarter: Q3 '93 +0.54%
Return from 1/1/98 - 9/30/98 (not annualized): 3.57%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
1-Year 5-Years 10-Years
LB Money Market Fund (Class A) 4.81% 3.97% 5.08%
LB Money Market Fund (Class B) 4.81% 3.97% 5.08%
You may call 1-800-328-4552 to obtain the Fund's current 7-day yield.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of a Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS A SHARES CLASS B SHARES
-------------- --------------
Maximum Sales Charge (Load)
(as a percentage of offering price None None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value at time of
purchase or redemption, whichever is lower) None None(1)
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
CLASS A CLASS B
------- -------
Management Fees 0.25% 0.25%
Distribution (12b-1) Fees -- --
Other Expenses (including a 25% 0.79% 0.79%
shareholder servicing fee)
Total Fund Operating Expenses (2) 1.04% 1.04%
(1) Class B shares of the LB Money Market Fund are offered solely in
exchange for Class B shares of other Funds of the Lutheran Brotherhood
Family of Funds. Class B shareholders of the LB Money Market Fund will be
responsible for any Contingent Deferred Sales Charge that may be payable at
the time of redemption as a result of an investment in another Fund.
(2) LB Research has voluntarily agreed to temporarily waive a portion of
its advisory fee and, if necessary, to bear certain expenses associated with
operating LB Money Market Fund in order to limit the Total Fund Operating
Expenses for the Class A shares and Class B shares to an annual rate of
0.95% of the average net assets of each class. This temporary waiver and
expense provision may be discontinued at any time.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. FOR CLASS B SHARES, IT
ALSO ASSUMES THE AUTOMATIC CONVERSION TO CLASS A SHARES AFTER FIVE YEARS.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE
ASSUMPTIONS YOUR COSTS WOULD BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $106 $331 $574 $1,271
Class B shares $106 $331 $574 $1,271
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares $106 $331 $574 $1,271
Class B shares $106 $331 $574 $1,271
MANAGEMENT
LB Research, 625 Fourth Avenue South, Minneapolis, Minnesota 55415,
serves as investment adviser for each of the Funds. LB Research is owned by
Lutheran Brotherhood Financial Corporation, which in turn is owned by
Lutheran Brotherhood. Lutheran Brotherhood and LB Research have been in
the investment advisory business since 1970 and managed over $21.6 billion
in assets as of September 30, 1998, including $10.1 billion in mutual fund
assets. LB Research provides investment research and supervision of the
Funds' investments. The following individuals are responsible for the day-
to-day management of the Funds.
LB FUND
James M. Walline, Vice President of LB Research, has been the
portfolio manager of LB Fund since October 31, 1994. Mr. Walline has been
with Lutheran Brotherhood and LB Research since 1968.
LB MID CAP GROWTH FUND
Brian L. Thorkelson, Assistant Vice President of LB Research, has been
the portfolio manager of LB Mid Cap Growth Fund since the Fund's inception
in 1997. Mr. Thorkelson has been with Lutheran Brotherhood and LB Research
since 1987, and previously served as a securities analyst.
LB HIGH YIELD FUND
Paul J. Ocenasek, Assistant Vice President of LB Research, has been the
portfolio manager of LB High Yield Fund since 1997. Mr. Ocenasek has been
with Lutheran Brotherhood and LB Research since 1987, and previously
served as a fixed-income analyst and bond portfolio manager.
LB INCOME FUND
Charles E. Heeren, Vice President of LB Research, and Michael G.
Landreville, Assistant Vice President of LB Research, serve as portfolio co-
managers of LB Income Fund. Mr. Heeren has served as manager of the Fund
since 1987 and has been with Lutheran Brotherhood and LB Research since
1976. Mr. Landreville has served as co-manager of the Fund since January 1,
1998, and has been with Lutheran Brotherhood and LB Research since 1983.
LB MUNICIPAL BOND FUND
Janet I. Grangaard, Assistant Vice President of LB Research, has been
portfolio manager of LB Municipal Bond Fund since 1994. Prior to that time
she served as associate portfolio manager of that Fund. Ms. Grangaard has
been with Lutheran Brotherhood and LB Research since 1988.
LB MONEY MARKET FUND
Gail R. Onan, Assistant Vice President of LB Research, has been the
portfolio manager of LB Money Market Fund since 1994. Prior to that time she
served as associate portfolio manager of that Fund. Ms. Onan
has been with Lutheran Brotherhood and LB Research since 1986.
LB OPPORTUNITY GROWTH FUND
LB Research has engaged T. Rowe Price as investment sub-advisor for LB
Opportunity Growth Fund effective May 15, 1998. T. Rowe Price was founded in
1937 and has its principal office at 100 East Pratt Street, Baltimore,
Maryland 21202. As of June 30, 1998, T. Rowe Price and its affiliates
managed over $141 billion. Richard T. Whitney, Managing Director of T. Rowe
Price, is primarily responsible for day-to-day management of the Lutheran
Brotherhood Opportunity Growth Fund and for developing and executing the
Fund's investment program.
LB WORLD GROWTH FUND
LB Research has engaged Price-Fleming, 100 East Pratt Street,
Baltimore, Maryland 21202, as investment sub-advisor for LB World Growth
Fund. Price-Fleming is one of the world's largest international mutual fund
asset managers with the U.S. equivalent of over $33 billion under management
as of June 30, 1998 in its offices in Baltimore, London, Tokyo, Singapore,
Hong Kong, and Buenos Aires. Price-Fleming has an investment advisory group
that has day-to-day responsibility for managing the Fund and developing and
executing the Fund's investment program.
LB Research, T. Rowe Price, and Price-Fleming personnel may invest in
securities for their own account pursuant to a code of ethics that
establishes procedures for personal investing and restricts certain
transactions.
During the fiscal year ended October 31, 1998, LB Research received
the following advisory fees, expressed as a percentage of the Fund's net
assets:
LB Opportunity Growth Fund 0.43%
LB Mid Cap Growth Fund* 0.18%
LB World Growth Fund 0.75%
LB Fund** 0.32%
LB High Yield Fund** 0.33%
LB Income Fund** 0.29%
LB Municipal Bond Fund** 0.27%
LB Money Market Fund*** 0.16%
- ------------
* After giving effect to a fee waiver of 0.27%.
** After giving effect to a fee waiver of 0.05%.
*** After giving effect to a fee waiver of 0.09%.
YOUR INVESTMENT
CHOOSING A CLASS OF SHARES
This Prospectus offers two classes of shares, each with its own sales
charges and fees. You should choose the class of shares that you believe to
be the most advantageous for you, given the amount of your purchase, the
length of time you anticipate holding the shares, and other factors.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
- --------------------------------------------------------------------------------------------------------------
- -
<S> <C> <C>
Sales Charges Initial sales charge at time of investment Contingent Deferred Sales Charge
("CDSC")
of up to 4% depending on amount of of 5% to 1%, depending on how
investment long you hold your shares before you
redeem them. There is no CDSC after
five years
- -------------------------------------------------------------------------------------------------------------------
- -
Rule 12b-1 Distribution Fee(1) None 0.75%. Class B shares convert
automatically to Class A shares after
five years
- -------------------------------------------------------------------------------------------------------------------
- -
Shareholder Servicing Fee 0.25% each year of average daily net assets 0.25% each year of average daily net
assets
- -------------------------------------------------------------------------------------------------------------------
- -
- --------------
(1) Class B shares (other than those of the LB Money Market Fund) have an annual distribution fee. This is also
called a 12b-1 fee, based on the SEC rule that permits this type of fee. Under its 12b-1 plan, the Funds
other than LB Money Market Fund pay Lutheran Brotherhood Securities Corp. ("LBSC") distribution fees for
the sale and distribution of Class B shares. Those fees are paid out of a Fund's assets attributable to
the Class B shares on an on-going basis, and as a result, these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
</TABLE>
CLASS A SHARES
The table below shows the sales charges you will pay if you purchase
Class A shares of the Funds (except the LB Money Market Fund, which has no
Class A sales charge).
WHEN YOU THIS % IS WHICH EQUALS THIS
INVEST THIS DEDUCTED FOR % OF YOUR
AMOUNT SALES CHARGES INVESTMENT
- ----------------- -------------- ---------------
$500,000 or more 0% 0%
$250,000 and above but less than $500,000 1% 1.01%
$100,000 and above but less than $250,000 2% 2.04%
$50,000 and above but less than $100,000 3% 3.09%
$25,000 and above but less than $50,000 3.75% 3.90%
Less than $25,000 4% 4.17%
Ways to Eliminate or Reduce the Initial Sales Charges
o Cumulative Discount: All current holdings of Class A and Class B shares
of all Funds except the LB Money Market Fund will be aggregated to permit
you to enjoy any initial sales charge reduction allowed for larger sales
of Class A shares. The Funds will combine purchases, including the value
of existing investments, made by you, your spouse and your children under
age 21, of both Class A and Class B shares when it calculates your
initial sales charge. You must inform us that you qualify for this
discount.
o Automatic Reinvestments: Class A shares that you purchase by
automatically reinvesting dividends or capital gains distributions
will not be subject to any initial sales charge.
o Thirteen-month Letter of Intent: If you intend to accumulate $25,000 or
more, including the value of existing investments, in Class A or Class B
shares of one or more of the Funds (except the LB Money Market Fund)
within the next 13 months, you may sign a letter of intent and receive a
reduced sales charge on purchases of any Class A shares.
o Reinvestment upon Redemption: If you redeem any or all of your Class A or
Class B shares of the LB Opportunity Growth Fund, LB Mid Cap Growth Fund,
LB World Growth Fund, LB Fund, LB High Yield Fund, LB Income Fund, or LB
Municipal Bond Fund, or redeem any or all of your Class B shares of
the LB Money Market Fund, or received cash dividends from one of these
Funds, you may reinvest the amount in Class A shares of any of the
Funds without paying a sales charge on the purchase of Class A shares.
You must make your reinvestment within 90 days after redeeming your
Class A shares or Class B shares.
o Loan, Surrender, or Dividend Withdrawal: If you request a loan,
surrender, or dividend withdrawal from a life insurance or annuity
contract issued by Lutheran Brotherhood or Lutheran Brotherhood Variable
Insurance Products Company and direct that the money should be used to
purchase Class A shares of a Fund, the sales charge will be waived.
o Purchases by Tax-exempt Organizations: Class A shares of any Fund are
available at one-half of the regular sales charge, if any, if purchased
by organizations qualifying for tax-exemption under Sections 501(c)(3)
and 501(c)(13) of the Internal Revenue Code.
CLASS B SHARES
If you buy Class B shares, you will not be charged an initial sales
charge. The entire purchase amount is immediately invested, but a CDSC of up
to 5% will apply to shares redeemed within five years of purchase.
When you sell shares in This % of net asset value
this year after you at the time of purchase
bought them (or of sale, if lower) is
deducted from your proceeds
- ------------------------ -----------------------------
1st Year . . . . . . . . . . . . . . . . . . . . . 5%
2nd Year . . . . . . . . . . . . . . . . . . . . . 4
3rd Year . . . . . . . . . . . . . . . . . . . . . 3
4th Year . . . . . . . . . . . . . . . . . . . . . 2
5th Year . . . . . . . . . . . . . . . . . . . . . 1
In order to ensure that you pay the lowest CDSC possible, the Fund will
first redeem Class B shares that are not subject to the CDSC and then Class
B shares held for the longest period of time. There is no CDSC on
exchanges into other Funds. The date of your initial investment will
continue to be used as the basis for CDSC calculations when you exchange.
However, if you exchange Class A shares of LB Money Market Fund for Class B
shares of any other Fund, the date of the exchange will be used for purposes
of calculating the CDSC. If you exchange Class B shares of any other Fund
for Class B shares of the LB Money Market Fund, the CDSC will stop declining
during the period your investment is in the LB Money Market Fund Class B
shares. The amount of any CDSC will be paid to LBSC, the broker-dealer for
the Funds.
Contingent Deferred Sales Charge Waivers
No CDSC will apply on:
o increases in the net asset value of Class B shares above the purchase
price
o Class B shares purchased through reinvestment of dividends and
distributions
o Class B shares purchased more than five years prior to redemption
o shares redeemed due to the death or disability (caused by injury or
the sudden onset of a life threatening illness) of a sole individual
shareholder (but not for shares held in joint accounts or "family,"
"living" or other trusts) and for mandatory retirement distributions
from an IRA or a tax-sheltered custodial account (403(b) plan).
Conversion of Class B Shares to Class A Shares
Your Class B shares will automatically convert into Class A shares of
the same Fund after 5 years and consequently will no longer be subject to
the higher expenses borne by Class B shares. The Fund will not include the
period that you held Class B shares of the LB Money Market Fund in
calculating the five-year period.
BUYING SHARES
INITIAL PURCHASES
To make your first purchase of the Class A or Class B shares of the
Funds:
o Complete and sign the application;
o Enclose a check made payable to the Lutheran Brotherhood Family of
Funds; and
o Mail your application and check to Lutheran Brotherhood Securities
Corp., P.O. Box 310, Minneapolis, MN 55440-0310.
Initial investments in Class B shares of $100,000 or more per purchase
will not be accepted. Because of the reduced sales charges available on such
purchases, Class A shares (or Institutional Class shares if the investor is
eligible) must be purchased instead. Class B shares of the LB Money Market
Fund are offered solely in exchange for Class B shares of other Funds of The
Lutheran Brotherhood Family of Funds.
MINIMUM INVESTMENTS REQUIRED
First Additional
Purchase Purchases
--------- -----------
All Funds except the LB Money Market Fund $500 $50
LB Money Market Fund $1,500 $100
These are the general minimum investment requirements. However, each
Fund except the LB Money Market Fund offers a systematic investment plan
that allows you to make an initial investment of $50. The LB Money Market
Fund allows you to make systematic investments with an initial investment of
$100. Each Fund except the LB Municipal Bond Fund allows you to invest
through an Individual Retirement Account or a tax-deferred retirement plan
with a minimum investment of $50.
Shares of the Funds are issued on days on which the New York Stock
Exchange ("NYSE") is open, which generally are weekdays other than national
holidays. Your order will be considered received when your check or other
payment is received in good order by the home office of LBSC. Orders that
are received before the close of regular trading on the NYSE (generally 4:00
p.m. Eastern time) will be processed at the net asset value calculated that
day. Orders received after the close of regular trading on the NYSE will be
processed at the net asset value calculated on the following business day.
The Funds reserve the right to reject any purchase request.
CERTIFICATES AND STATEMENTS
LBSC will maintain a share account for you. Share certificates will not
be issued. Systematic Investment Plan, Systematic Withdrawal Plan and
Systematic Exchange Plan transactions, as well as dividend transactions will
be confirmed on the quarterly consolidated statement. All other transactions
will be confirmed as they occur. For more information on any of our
investment plans, talk with your LBSC representative or call 1-800-990-6290.
ADDITIONAL PURCHASES
You may purchase additional shares of any of the Funds by sending a
check payable to the "Lutheran Brotherhood Family of Funds" together with a
completed investment ticket to:
Lutheran Brotherhood Securities Corp.
PO Box 59025
Minneapolis, MN 55459-0025
You may also buy additional shares through:
o your LBSC representative;
o the Systematic Investment Plan;
o the automatic Payroll Deduction Plan;
o Invest-by-Phone;
o the Internet; or
o Federal Reserve or bank wire.
NET ASSET VALUE
Each Fund determines its net asset value (NAV) for a particular class
by adding the value of Fund assets attributable to such class, subtracting
the Fund's liabilities attributable to such class, and dividing the result
by the number of outstanding shares of that class. LB Money Market Fund
seeks to maintain a stable $1.00 NAV pursuant to procedures established by
the Board of Trustees for the Funds in connection with the amortized cost
method of portfolio valuation. The NAV for the other Funds varies with the
value of their investments. The other Funds value their securities using
market quotations, other than short-term debt securities maturing in less
than 60 days, which are valued using amortized costs, and securities for
which market quotations are not readily available, which are valued at fair
value.
The Funds determine their NAV on each day the NYSE is open for
business, or any other day as required under the rules of the Securities and
Exchange Commission. The NYSE is currently closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The
calculation is made as of the close of regular trading of the NYSE
(currently 4:00 p.m. Eastern time) after the Fund has declared any
applicable dividends. Because foreign securities markets are open on
different days from U.S. markets, there may be instances when the value of a
Fund's portfolio that invests in foreign securities changes on days when you
are not able to buy or sell the Fund's shares.
INVEST-BY-PHONE
When you elect our Invest-by-Phone service, you can purchase additional
shares by telephone. We will draw your funds directly from your
preauthorized bank or credit union account. Your bank or credit union must
be a member of the Automated Clearing House system. To use this service,
call 800-328-4552 for the Automated Investor Access Line or 800-990-6290 to
speak with an investor representative. You may also redeem shares by
telephone. See "Redeeming Shares."
INTERNET
You may buy or sell shares of a Fund by using our website:
www.luthbro.com.
FEDERAL RESERVE OR BANK WIRE
You may purchase shares by a Federal Reserve or bank wire directly to
Norwest Bank Minnesota, N.A. This method will result in a more rapid
investment in Fund shares. To wire Funds:
Notify LBSC of a pending wire, call: (800) 990-6290
Wire to: Norwest Bank of Minneapolis, NA
Norwest Bank
6th Street and Marquette Avenue
Minneapolis, MN 55479
ABA Routing #: 091000019
Account #: 00-003-156
Account Name: Lutheran Brotherhood Securities Corp.
Use text message to indicate:
Transfer for --shareholder name(s), fund number and account number, LB
Representative name and number.
IRAS AND OTHER TAX-DEFERRED PLANS
Shares of any Fund other than the LB Municipal Bond Fund may be
selected as investments for Individual Retirement Accounts, qualified
Lutheran Brotherhood prototype plans for the self-employed, qualified
pension and profit-sharing plans and tax-sheltered custodial accounts. There
are additional fees and procedural requirements for such plans. See your
LBSC registered representative for more details.
EXCHANGING SHARES BETWEEN FUNDS
o You may exchange some or all of your shares of one Fund for shares of
the same class of any of the other Funds. If you exchange Class A
shares of a Fund for which you have previously paid an initial sales
charge for Class A shares of another Fund, you will not be charged an
initial sales charge for the exchange. If you exchange Class B shares
of one Fund for Class B shares of another Fund, you will not be
charged a CDSC at the time of the exchange.
o If you own Class A shares of LB Money Market Fund which you did not
obtain through an exchange, you may exchange any or all of those shares
for Class B shares of another Fund. The Class B shares which you acquire
from the exchange will be subject to a CDSC from the date of the
exchange.
o Shareholders who are eligible to purchase Institutional
Class shares may exchange some or all of their Class A or Class B shares
for Institutional Class shares.
All exchanges will be based on NAV of the shares you are exchanging and
the shares you are acquiring and will be subject to the minimum investment
requirements. Except as described above, shares of one class may not be
exchanged for shares of another class.
You may obtain an exchange form or receive more information about
making exchanges between Funds by contacting your LBSC representative. We
may modify or terminate our policies on exchanges in the future. If the
exchange policies are materially modified or terminated, we will give you at
least 60 days prior notice.
TELEPHONE EXCHANGES
You may make the type of exchanges between Funds described above by
telephone unless otherwise indicated on the account application. You may
make an unlimited number of telephone exchanges. Telephone exchanges must be
for a minimum amount of $500. Telephone exchanges may be made into new or
existing Fund accounts, and all accounts involved in telephone exchanges
must have the same ownership registration. You may request a telephone
exchange by calling toll-free (800) 328-4552 (Automated Investor Access
Line) or 800-990-6290 (investor representative).
The Funds reserve the right to refuse a wire or telephone redemption or
exchange if it is reasonably believed to be unauthorized. Procedures for
redeeming or exchanging Fund shares by wire or telephone may be modified or
terminated at any time by the Funds. When requesting a redemption or
exchange by telephone, you must have available the correct account
registration and account number or tax identification number. All telephone
redemptions and exchanges are recorded and written confirmations are
subsequently mailed to the address of record. Neither the Funds nor LBSC
will be liable for following redemption or exchange instructions received by
telephone, which are reasonably believed to be genuine, and the shareholder
will bear the risk of loss in the event of unauthorized or fraudulent
telephone instructions. The Funds and LBSC will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. The
Funds and/or LBSC may be liable for any losses due to unauthorized or
fraudulent instructions in the absence of following these procedures.
REDEEMING SHARES
One of the advantages of owning shares in The Lutheran Brotherhood
Family of Funds is the rapid access you have to your investment. Once we
receive your request for redemption, we will redeem your shares at the next
NAV on any day on which the NYSE is open for business, or any other day as
required under the rules of the Securities and Exchange Commission.
WAYS TO REDEEM
You may redeem your shares:
o in writing
o through Redeem-by-Phone
o on the Internet
o through the Systematic Withdrawal Plan
The LB Money Market Fund also allows you to redeem Class A shares by
writing a check, or by using your VISA debit card.
WRITTEN REQUESTS
To redeem all or some of your shares, send a written request to:
Lutheran Brotherhood Securities Corp.
P.O. Box 9491
Minneapolis, Minnesota 55440-9491
We may require your signature to be guaranteed if you are redeeming
your shares in an amount of $50,000 or more, if you are requesting the
payment to be made to another party or sent to another address, or if you
are a beneficiary of an account. Your signature may be guaranteed by:
o a trust company or commercial bank;
o a savings association;
o a credit union; or
o a securities broker, dealer, exchange, association, or clearing
agency.
We will not accept signatures that are notarized by a notary public.
Once your redemption request is received in good order, the Fund
normally will send the proceeds of such redemption within one business day.
However, if making payment could adversely affect a Fund, the Fund may defer
payment for up to seven days or a longer period if permitted. Please note
that a Fund will hold payment of redemption proceeds until your purchase
check clears, which may take up to 15 days.
REDEEM BY PHONE
If you have completed an Account Features Request, you may redeem any
amount of at least $1,000 by calling us at 800-328-4552 to use our Automated
Investor Access Line or 800-990-6290 to speak with an investor
representative. We will send you a check or send the funds electronically
to your commercial bank, savings bank or credit union by the third business
day after your redemption request. This feature is NOT available on IRA or
other Tax Deferred Plans.
INTERNET
You may redeem some or all of your shares by using our website:
www.luthbro.com.
SYSTEMATIC WITHDRAWAL PLAN
If you own shares with a value of at least $5,000, you may request
automatic monthly, quarterly, semiannual or annual redemptions in any
amount. The proceeds will be sent to you, your designated payee, or your
commercial bank, savings bank or credit union.
Income dividends and capital gains distributions will continue to be
reinvested in additional Fund shares. Shares will be redeemed as necessary
to make automatic payments to the shareholder.
WRITING A CHECK
Redeeming by check allows you to earn daily income dividends until your
check clears. This service is offered for Class A shares of LB Money Market
Fund only.
o Establishing check writing privilege: Upon purchasing Class A shares of
LB Money Market Fund, State Street Bank will automatically establish an
LB Money Market Fund checking account for you.
o Using your LB Money Market Fund checking account: With a LB Money
Market Fund checking account, you may redeem your shares simply by
writing a check in any amount of $250 or more. However, you may not
write a check for the entire balance of your account. If you redeem
shares by check before State Street Bank has collected your payment for
shares purchased by check, State Street Bank will return your check
marked "insufficient funds."
Your money market check may be cashed or deposited like any other
check. When it is received by State Street Bank for payment, the bank will
present the check to the Fund and redeem enough of your shares to cover the
amount. The shares will be redeemed at the NAV next determined after State
Street Bank presents the check. Your canceled checks or a copy of your
checks and a statement will be sent to you each month.
When you open a LB Money Market Fund checking account, you will be
subject to State Street Bank's checking account rules and regulations. State
Street Bank and the LB Money Market Fund have the right to modify or
terminate checking account privileges or to charge for establishing or
maintaining a checking account. There are no current charges for
establishing or maintaining a checking account.
VISA DEBIT CARDS
Class A shareholders of LB Money Market Fund are offered the
opportunity to apply for a VISA debit card. With a VISA debit card, you
authorize the redemption of your shares by using the card. The VISA debit
card may be used to purchase merchandise or services from merchants honoring
VISA or to obtain cash advances (which a bank may limit to $5,000 per
account per day for merchandise and services, $600 per account for cash
advances) from any bank honoring VISA. You will earn daily income dividends
on Fund shares up to the date they are redeemed.
When you receive a LB Money Market Fund VISA debit card, you will be
subject to the VISA account regulations of the issuing bank, including an
annual VISA fee of $25 to cover its fees and administrative costs. The
issuing bank may also charge a fee each time an Automated Teller Machine
(ATM) is used. In addition to that fee, the bank that owns the ATM machine
may also charge a fee for each transaction. Enough shares will be redeemed
automatically from your account to pay the fee. Lost or stolen cards should
be reported immediately by calling toll-free (800) 543-6325. LB Money
Market Fund and the issuing bank have the right to modify or terminate the
VISA debit card privilege or to impose additional charges for establishing
or maintaining a VISA account upon 30 days prior written notice.
DIVIDENDS ON REDEMPTION
If you redeem all your shares, the redemption proceeds will include all
dividends to which you have become entitled since they were last paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the
Funds may redeem shares in any account if the value of shares in the account
falls below a certain minimum. The required minimum amount for Class A and
Class B share accounts is $500 for all Funds except LB Money Market Fund,
which has a minimum amount for Class A and Class B share accounts of $1,000.
Before shares are redeemed to close an account, you will be notified in
writing and allowed 60 days to purchase additional shares. Shares will not
be redeemed if the account's value drops below the minimum only because of
market fluctuations.
DISTRIBUTIONS
Dividends. Dividends are declared and paid as follows:
- declared daily and paid monthly LB Money Market Fund
- declared monthly and paid monthly LB High Yield Fund
LB Income Fund
LB Municipal Bond Fund
- declared and paid quarterly LB Fund
- declared and paid annually LB Opportunity Growth Fund
LB Mid Cap Growth Fund
LB World Growth Fund
Income dividends are derived from investment income, including
dividends, interest, realized short-term capital gains, and certain foreign
currency gains received by a Fund.
Capital Gains. Capital gains distributions, if any, will usually be
declared in December.
Distribution Options. When completing your application, you must select
one of the following four options for dividends and capital gains
distributions:
o Full Reinvestment. Both dividends and capital gains distributions
from a Fund will be reinvested in additional shares of the same
class of that Fund. This option will be selected automatically
unless one of the other options is specified.
o Full Reinvestment in a Different Fund. You may also choose to have
your dividends reinvested into an existing account in another Fund
within The Lutheran Brotherhood Family of Funds.
o All Cash. Dividends and capital gains distributions will be paid in
cash. Your request to receive all or a portion of your dividends
and other distributions in cash must be received by LBSC at least
ten days before the record date of the dividend or other
distribution.
o Part Cash and Part Reinvestment. You may request to have part of
your dividends paid in cash and part of your dividends reinvested
in additional shares of the same class of that Fund.
Distributions paid in shares will be credited to your account at the
next determined NAV per share.
TAXES
In general, any dividends and short-term capital gains distributions
you receive from a Fund are taxable as ordinary income. Distributions of
other net capital gains by a Fund are generally taxable as capital gains -
in most cases, at different rates from those that apply to ordinary income.
We expect that dividends from the LB Opportunity Growth Fund, LB Mid Cap
Growth Fund, LB World Growth Fund, and LB Fund will consist primarily of
capital gains and that dividends from the LB High Yield Fund, LB Income
Fund, and LB Money Market Fund will consist primarily of ordinary income.
The tax you pay on a given capital gains distribution generally depends
on how long a Fund has held the portfolio securities it sold. It does not
depend on how long you have owned your Fund shares or whether you reinvest
your distributions or take them in cash.
Every year, the Funds will send you information detailing the amount of
ordinary income and capital gains distributed to you for the previous year.
The sale of shares in your account may produce a gain or loss, and is a
taxable event. For tax purposes, an exchange between Funds is the same as a
sale. You will not be required to pay federal income tax on (i) the
automatic conversion of Class B shares to Class A shares or (ii) exchanges
of Class A or Class B shares of a Fund for Institutional Class Shares of the
same fund.
Your investment in the Funds could have additional tax consequences.
Please consult your tax professional for assistance.
By law, the Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
LB MUNICIPAL BOND FUND. You will not be required to pay federal income
tax on dividends of LB Municipal Bond Fund that represent interest that the
Fund earns on tax-exempt securities. The Fund may, however, invest a
portion of its assets in securities that generate income that is not exempt
from federal income tax. In addition, income of the Fund that is exempt
from federal income tax may be subject to state and local income tax. Any
capital gains distributed by LB Municipal Bond Fund may be taxable.
LB WORLD GROWTH FUND. Foreign investments pose special tax issues for
the LB World Growth Fund and its shareholders. For example, certain gains
and losses from currency fluctuations may be taxable as ordinary income.
Also, certain foreign countries withhold some interest and dividends that
otherwise would be payable to the LB World Growth Fund. If the amount
withheld is material, shareholders may be able to claim a foreign tax
credit.
OTHER SECURITIES AND INVESTMENT PRACTICES
The principal investment strategies and risk factors of each Fund are
outlined beginning on page __. The Funds may also invest in other
securities and engage in other practices. Below are brief discussions of
some of these securities, other practices in which certain of the Funds may
engage, and their associated risks.
REPURCHASE AGREEMENTS. Each of the Funds may buy securities with the
understanding that the seller will buy them back with interest at a later
date. If the seller is unable to honor its commitment to repurchase the
securities, the Fund could lose money.
WHEN-ISSUED SECURITIES. Each Fund may invest in securities prior to
their date of issue. These securities could fall in value by the time they
are actually issued, which may be any time from a few days to over a year.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. LB High Yield Fund, LB
Income Fund, and LB Money Market Fund may invest in mortgage-backed and
asset-backed securities. Mortgage-backed securities are securities that are
backed by pools of mortgages and which pay income based on the payments of
principal and income they receive from the underlying mortgages. Asset-
backed securities are similar but are backed by other assets, such as pools
of consumer loans. Both are sensitive to interest rate changes as well as
to changes in the redemption patterns of the underlying securities. If the
principal payment on the underlying asset is repaid faster or slower than
the holder of the mortgage-backed or asset-backed security anticipates, the
price of the security may fall, especially if the holder must reinvest the
repaid principal at lower rates or must continue to hold the securities when
interest rates rise.
ZERO COUPONS. Each of the Funds may invest in zero coupon securities.
A zero coupon security is a debt security that is purchased and traded at
discount to its face value because it pays no interest for some or all of
its life. Interest, however, is reported as income to the Fund that has
purchased the security and the Fund is required to distribute to
shareholders an amount equal to the amount reported. Those distributions
may require the Fund to liquidate portfolio securities at a disadvantageous
time.
FOREIGN SECURITIES. Each of the Funds may invest in foreign
securities. Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic
risks, lack of reliable information and fluctuations in currency exchange
rates. These risks are usually higher in less developed countries. Each of
these Funds except the LB Money Market Fund may use foreign currencies and
related instruments to hedge its foreign investments.
In addition, foreign securities may be more difficult to resell than
comparable U.S. securities because the markets for foreign securities are
less efficient. Even where a foreign security increases in price in its
local currency, the appreciation may be diluted by the negative effect of
exchange rates when the security's value is converted to U.S. dollars.
Foreign withholding taxes also may apply and errors and delays may occur in
the settlement process for foreign securities.
RESTRICTED AND ILLIQUID SECURITIES. Each of the Funds may invest in
restricted or illiquid securities. Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and
price. Some of these securities are new and complex, and trade only among
institutions. The markets for these securities are still developing and may
not function as efficiently as established markets. Owning a large
percentage of restricted or illiquid securities could hamper a Fund's
ability to raise cash to meet redemptions. Also, because there may not be
an established market price for these securities, the Fund may have to
estimate their value, which means that their valuation (and, to a much
smaller extent, the valuation of the Fund) may have a subjective element.
SECURIITES LENDING. Each of the Funds except the LB Money Market Fund
may seek additional income by lending portfolio securities to qualified
institutions. By reinvesting any cash collateral it receives in these
transactions, a Fund could realize additional gains or losses. If the
borrower fails to return the securities and the invested collateral has
declined in value, the Fund could lose money.
DERIVATIVES. Each of the Funds except the LB Money Market Fund may
invest in derivatives. Derivatives, a category that includes options and
futures, are financial instruments whose value derives from another
security, an index or a currency. Each Fund may use derivatives for hedging
(attempting to offset a potential loss in one position by establishing an
interest in an opposite position). This includes the use of currency-based
derivatives for hedging its positions in foreign securities. Each Fund may
also use derivatives for speculation (investing for potential income or
capital gain).
While hedging can guard against potential risks, it adds to the Fund's
expenses and can eliminate some opportunities for gains. There is also a
risk that a derivative intended as a hedge may not perform as expected.
The main risk with derivatives is that some types can amplify a gain or
loss, potentially earning or losing substantially more money than the actual
cost of the derivative.
With some derivatives, whether used for hedging or speculation, there
is also the risk that the counterpart may fail to honor its contract terms,
causing a loss for the Fund. In addition, suitable derivative investments
for hedging or speculation may not be available.
HIGH-YIELD BONDS. LB Opportunity Growth Fund, LB Mid Cap Growth Fund,
LB World Growth Fund, LB Fund, LB High Yield Fund and LB Income Fund may
invest in high-yield bonds. High-yield bonds are debt securities rated
below BBB by S&P or Baa by Moody's. To the extent that a Fund invests in
high-yield bonds, it takes on certain risks:
o The risk of a bond's issuer defaulting on principal or interest
payments is greater than on higher quality bonds
o Issuers of high-yield bonds are less secure financially and are more
likely to be hurt by interest rate increases and declines in the
health of the issuer or the economy.
SHORT-TERM TRADING. The investment strategy for the LB Opportunity
Growth Fund, LB Mid Cap Growth Fund, LB World Growth Fund, LB High Yield
Fund, and LB Income Fund at times may include short-term trading. While
each other Fund ordinarily does not trade securities for short-term profits,
it will sell any security at any time it believes best, which may result in
short-term trading. Short-term trading can increase a Fund's transaction
costs and may increase your tax liability.
INTERNATIONAL EXPOSURE. Many U.S. companies in which the LB
Opportunity Growth Fund, LB Mid Cap Growth Fund, LB World Growth Fund, LB
Fund, LB High Yield Fund, and LB Income Fund may invest generate significant
revenues and earnings from abroad. As a result, these companies and the
prices of their securities may be affected by weaknesses in global and
regional economies and the relative value of foreign currencies to the U.S.
dollar. These factors, taken as a whole, could adversely affect the price
of Fund shares.
BONDS. The value of any bonds held by a Fund is likely to decline when
interest rates rise; this risk is greater for bonds with longer maturities.
A less significant risk is that a bond issuer could default on principal or
interest payments, possibly causing a loss for the Fund.
COMPUTER RISKS. LB Research does not currently anticipate that
computer problems related to the year 2000 or to the conversion of various
European currencies into a single currency, the Euro, will have a material
effect on any Fund. However, there can be no assurances in this area,
including the possibility that year 2000 computer problems could negatively
affect communications systems, the investment markets or the economy in
general or that Euro conversion-related computer problems could negatively
affect the European investment markets or the global economy.
SECURITIES RATINGS. When fixed-income securities are rated by one or
more independent rating agencies, a Fund uses these ratings to determine
bond quality. Investment grade bonds are those that are rated within or
above the BBB major rating category by S&P or the Baa major rating category
by Moody's, or unrated but considered of equivalent quality by the Fund's
adviser. High-yield bonds are below investment grade bonds in terms of
quality.
In cases where a bond is rated in conflicting categories by different
rating agencies, a Fund (other LB Money Market Fund) may choose to follow
the higher rating. If a bond is unrated, the Fund may assign it to a given
category based on its own credit research. If a rating agency downgrades a
security, the Fund will determine whether to hold or sell the security,
depending on all of the facts and circumstances at that time.
DEFENSIVE INVESTING During unusual market conditions, each Fund (other
than LB Money Market Fund) may place up to 100% of its total assets in cash
or quality short-term debt securities. To the extent that the Fund does
this, it is not pursuing its investment objective.
OPTIMUM ACCOUNT(R)
LBSC offers the Optimum Account to all LB Money Market Fund Class A
shareholders. Optimum Account features include:
o VISA Debit Card Privilege. You can use the VISA card to purchase
merchandise or obtain cash advances. There is no annual fee,
although you will be subject to other VISA account regulations
of the issuing bank, as discussed on page ___.
o Checkwriting Privileges. You can write as many checks as you want
with no minimum and at no charge per check. Checks or copies of
checks will be returned to you for recordkeeping. State Street
Bank will redeem enough shares from your LB Money Market Fund
account to cover the checks you write on the date the check
reaches the Bank.
o Tax-free Money Market Fund. You have access to Tax-Free
Instruments Trust, a money market fund with dividends exempt from
federal income tax.
o Discount Brokerage. You can use Optimum Account Discount
Brokerage Services for direct purchases of general securities.
o Automatic Settlement. Purchase and sell transactions for general
securities placed through Optimum Account Discount Brokerage
Services will clear automatically through your LB Money Market
Fund account.
o Monthly Consolidated Statement. In lieu of an immediate
confirmation of LB Money Market Fund financial transactions, you
will receive your monthly Optimum Account statement. The monthly
statement will report all activity in your accounts held in The
Lutheran Brotherhood Family of Funds, Tax-Free Instruments Trust,
Optimum Account Discount Brokerage Account, and VISA Debit cards.
o Newsletter. Money management tips and information about Optimum
Account will be sent to you on a regular basis through the
quarterly newsletter offered to Optimum Account holders.
In the future, LBSC may offer additional features to shareholders in
Optimum Account.
There is a one-time new account fee of $25 for the Optimum Account
package. This fee is waived for LB Money Market Fund Class A shareholders
who already have the LB Money Market Fund VISA debit card when they add the
features of Optimum Account. A monthly administrative fee of $5.00 is
charged. These fees will be automatically redeemed from your LB Money Market
Fund account each month.
FINANCIAL HIGHLIGHTS
The financial highlights tables for each of the Funds are intended to
help you understand the Funds' financial performance for the past 5 years
or, if shorter, the period of the Funds' operations. The total returns in
the tables represent the rate that an investor would have earned or lost on
an investment in a Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP, independent accountants, whose report, along with the Funds' financial
statements, are included in the Annual Report to Shareholders for the fiscal
year ended October 31, 1998, which is available upon request.
Shares of the Funds had no class designations until October 31, 1997,
when designations were assigned based on the sales charges, Rule 12b-1 fees
and shareholder servicing fees applicable to shares sold after that date.
The tables below cover periods prior to the adoption of class designations
and therefore do not reflect the Rule 12b-1 fees of 0.75% per year
applicable to the Class B shares (except Class B shares of the LB Money
Market Fund) and the shareholder servicing fees of 0.25% per year applicable
to the Class A and Class B shares, which will adversely affect performance
results for periods after October 31, 1997. The tables also do not show the
effect of a sales charge.
<PAGE>
<TABLE>
<CAPTION>
LB OPPORTUNITY GROWTH FUND
CLASS A SHARES
CLASS B SHARES
---------------------------------------------------------------------- --
- -----------
Year ended Year Ended Year Ended Year Ended Year Ended
Year Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
10/31/98
----------- ---------- ---------- ---------- -----------
- -----------
<S> <C> <C> <C> <C> <C>
<C>
Net Asset Value, Beginning of Period..... $12.97 $13.62 $13.83 $10.76 $10.66
$12.97
------ ------ ------ ------ ------
- -------
Investment Operations:
Net Investment Loss.................... (0.06) (0.07) (0.11) (0.09) (0.06)
(0.08)
Net Realized and Unrealized Gain
(Loss) on Investment................. (3.14) .91 2.63 3.16 0.16
(3.18)
------- ------ ------ ------ ------
- -------
Total from Investment Operations......... (3.20) .84 2.52 3.07 0.10
(3.26)
------- ------ ------ ------ ------
- -------
Less Distributions:
Distributions from Net Realized
Gain on Investments.................. (0.44) (1.49) (2.73) -- --
(0.44)
------- ------ ------ ------ ------
- -------
Net Asset Value, End of Period........... $9.33 $12.97 $13.62 $13.83 $10.76
$ 9.27
======= ====== ====== ====== ======
=======
Total Investment Return at Net Asset
Value(%) (25.18)% 7.52% 21.27% 28.53% 0.94%
(25.66%)
Net Assets, End of Period (in millions).. $205.7 $311.4 $265.8 $165.7 $99.6
$4.2
Ratio of Expenses to Average Net
Assets (%) 1.40% 1.29% 1.28% 1.43% 1.66%
2.15%
Ratio of Net Investment Loss to
Average Net Assets (%)................. (0.51%) (0.60%) (0.92%) (0.88%) (0.83%)
(1.26%)
Portfolio Turnover Rate (%)............... 155% 136% 176% 213% 64%
155%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB MID CAP GROWTH FUND
CLASS A SHARES CLASS B
SHARES
--------------------------------------- ---------
- ------
For the period from
May 30, 1997
Year Ended (effective date) Year
Ended
10/31/98 to October 31, 1997
10/31/98
----------- ------------------ -----
- ------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ...................... $10.33 $ 9.25
$10.33
------ -------- ----
- ---
Investment Operations:
Net Investment Loss ....................................... 0.36 (0.02)
0.30
Net Realized and Unrealized Gain
(Loss) on Investments ................................... (0.89) 1.10
(0.90)
------ -------- ----
- ---
Total from Investment Operations .......................... (0.53) 1.08
(0.60)
------ -------- ----
- ---
Less Distributions from:
Net Investment Income......................... (0.37) 0.00
(0.37)
Net Realized Gains on Investments............. (0.24) 0.00
(0.24)
----- -------- ----
- ---
Total Distributions................................ (0.61) 0.00
(0.61)
----- -------- ----
- ---
Net Asset Value, End of Period .................... $9.19 $ 10.33 $
9.12
====== ========
=======
Total Investment Return at
Net Asset Value % ...................................... (5.28%) 11.68%
(6.00%)
Net Assets, End of Period ($ in millions) ................. $31.9 $ 14.6
$6.4
Ratio of Expenses to Average
Net Assets (1) ........................................... 1.95% 1.95%
2.70%
Ratio of Net Investment Loss to
Average Net Assets (1).................................... 1.93% (0.84%)
(1.18%)
Portfolio Turnover Rate ................................... 436% 94%
436%
- -----------------
(1) Effective May 30, 1997, LB Research voluntarily lowered the expense limit prospectively to 1.95% for Class A
shares, and effective October 31, 1997, LB Research voluntarily lowered the expense limit to 2.70% for Class B
shares. Had LB Research not undertaken such action, for Class A shares, the ratio of expenses to average net
assets would have been 2.22% and 2.19%, and the ratio of net investment loss to average net assets would have
been 1.66% and (1.08%), respectively, for the year ended October 31, 1998 and for the period from May 30, 1997
to
October 31, 1997; for Class B shares, the ratio of expenses to average net assets would have been 2.97% and
the ratio of net investment loss to average net assets would have been 0.91% for the year ended October 31,
1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB WORLD GROWTH FUND
CLASS A SHARES
CLASS B SHARES
---------------------------------------------------------------
- - -------------
For the Period From
September 5, 1995
Year Ended Year Ended Year Ended (effective date) to
Year Ended
10/31/98 10/31/97 10/31/96 October 31, 1995
10/31/98
------------ ----------- ---------- -----------------
- ------------
<S> <C> <C> <C> <C>
<C>
Net Asset Value, Beginning of Period............... $10.09 $9.48 $8.44 $8.50
$10.09
------ ----- ----- -----
- -------
Income From Investment Operations:
Net Investment Income......................... 0.00 0.02 0.04 0.01
0.01
Net Realized and Unrealized Gain (Loss)
on Investments............................. 0.67 0.67 1.02 (0.07)
0.59
------ ----- ----- -----
- ------
Total from Investment Operations................... 0.67 0.69 1.06 (0.06)
0.60
------ ----- ----- -----
- ------
Less Distributions from:
Net Investment Income......................... (0.04) (0.04) (0.02) --
(0.04)
Net Realized Gains on Investments............. (0.14) (0.04) -- --
(0.14)
------ ----- ----- -----
- -------
Total Distributions................................ (0.18) (0.08) (0.02) --
(0.18)
------ ----- ----- -----
- -------
Net Asset Value, End of Period..................... $10.58 $10.09 $9.48 $8.44
$10.51
====== ===== ===== =====
=======
Total Investment Return at Net Asset Value (%) 6.80% 7.38% 12.53% (0.71%)
6.10%
Net Assets, End of Period (in millions)............ $73.1 $75.1 $52.9 $14.0
$3.5
Ratio of Expenses to Average Net Assets............ 1.86% 1.82% 1.95%(1) 1.95%(1)
2.61%
Ratio of Net Investment Income to Average Net Assets.. 0.06% 0.17% 0.67%(1) 1.60%(1)
(0.69%)
Portfolio Turnover Rate............................... 20% 17% 11% 0%
20%
- ------------------
(1) Effective September 5, 1995 through October 31, 1998, LB Research Corp. had voluntarily undertaken to limit
the Fund's
expense ratio at 1.95%. Had LB Research not undertaken such action, the ratio of expenses to average net
assets would
have been 2.13% and 2.89%, and the ratio of net investment income to average net assets would have been 0.49%
and 0.66%,
respectively, for the year ended October 31, 1996 and for the period from September 5, 1995 to October 31,
1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB FUND
CLASS A SHARES CLASS B SHARES
------------------------------------------------------------- ---------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94 10/31/98
--------- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $26.98 $ 23.07 $ 21.19 $17.67 $18.85 $26.98
------ ------- ------- ------ ------ -------
Investment Operations:
Net Investment Income...... 0.13 0.19 0.20 0.22 0.19 (0.01)
Net Realized and Unrealized
Gain (Loss) on Investments. 3.57 5.68 3.33 3.52 (0.20) 3.51
------ ------- ------- ------ ------- -------
Total from Investment
Operations 3.70 5.87 3.53 3.74 (0.01) 3.50
------ ------- ------- ------ ------ -------
Less Distributions from:
Net Investment Income... (0.12) (0.20) (0.20) (0.22) (0.20) (0.03)
Net Realized Gain on
Investments............. (2.62) (1.76) (1.45) -- (0.97) (2.62)
------ ------- ------- ------ ------ -------
Total Distributions........ (2.74) (1.96) (1.65) (0.22) (1.17) (2.65)
------ ------- ------- ------ ------ ------ -------
Net Asset Value End of
Period.................. $27.94 $26.98 $ 23.07 $21.19 $17.67 $27.83
====== ======= ======= ====== ====== =======
Total Investment Return a
Net Asset Value(%)... 15.07% 26.99% 17.61% 21.34% (0.11%) 14.26%
Net Assets, End of Period
(in millions)........... $1,120.5 $ 989.8 $ 768.8 $645.5 $548.6 $25.0
Ratio of Expenses to
Average Net Assets (%)(1) 0.86% 0.88% 0.97% 1.02% 1.04% 1.61%
Ratio of Net Investment
Income to Average Net
Assets (%)(1)........... 0.47% 0.76% 0.94% 1.15% 1.10% (0.28%)
Portfolio Turnover Rate (%).... 57% 54% 91% 127% 234% 57%
- -----------------------
(1) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory
fees
payable by the LB Fund. Had LB Research not undertaken such action, for Class A shares, the ratio of expenses
to
average net assets would have been 0.91% and 0.92%, and the ratio of net investment income to average net
assets
would have been 0.42% and 0.72%, respectively, for the years ended October 31, 1998 and 1997; for Class B
shares,
the ratio of expenses to average net assets would have been 1.66% and the ratio of net investment income would
have been (0.33%) for the year ended October 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB HIGH YIELD FUND
CLASS A SHARES CLASS B SHARES
---------------------------------------------------------- ----------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94 10/31/98
--------- -------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... $ 9.58 $ 9.21 $ 9.03 $ 8.86 $ 9.73 $9.58
------ ------ ------ ------ ----- ------
Investment Operations:
Net Investment Income . 0.86 0.85 0.84 0.83 0.83 0.79
Net Realized and
Unrealized Gain (Loss)
on Investments........ (1.32) 0.41 0.17 0.24 (0.86) (1.31)
------ ------ ------ ----- ------ ------
Total from Investment
Operations............ (0.46) 1.26 1.01 1.07 (0.03) (0.52)
------ ------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income. (0.85) (0.86) (0.83) (0.85) (0.82) (0.80)
Net Realized Gain
on Investments........ (0.18) (0.03) -- (0.05) (0.02) (0.18)
------ ------ ----- ------ ------ ------
Total Distributions.... (1.03) (0.89) (0.83) (0.90) (0.84) (0.98)
------ ------ ------ ------ ------ ------
Net Asset Value End
of Period............. $ 8.09 $ 9.58 $ 9.21 $ 9.03 $ 8.86 $8.08
====== ====== ====== ====== ====== ======
Total Investment
Return at Net
Asset Value(%) (5.55%) 14.43% 11.64% 12.93% (0.47%) (6.24%)
Net Assets, End of
Period (in millions).. $784.8 $862.9 $703.1 $594.3 $499.6 $19.3
Ratio of Expenses to
Average Net Assets (%)(1). 0.84% 0.84% 0.91% 0.93% 0.95% 1.59%
Ratio of Net Investment
Income to Average
Net Assets (%)(1)..... 9.32% 9.14% 9.23% 9.53% 8.92% 8.57%
Portfolio Turnover Rate 73% 113% 104% 71% 50% 73%
- -------------------
(1) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory
fees
payable by the LB High Yield Fund. Had LB Research not undertaken such action, for Class A Shares, the ratio
of
expenses to average net assets would have been 0.89% and 0.88%, and the ratio of net investment income to
average
net assets would have been 9.27% and 9.10%, respectively, for the years ended October 31, 1998 and 1997; for
Class B
shares, the ratio of expenses to average net assets would have been 1.64% and the ratio of net investment
income
would have been 8.52% for the year ended October 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB INCOME FUND
CLASS A SHARES CLASS B SHARES
----------------------------------------------------- ----------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94 10/31/98
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period....... $ 8.61 $ 8.50 $ 8.72 $ 8.01 $ 9.43 $ 8.61
------ ------ ------ ------ ------ -------
Investment Operations:
Net Investment Income...... 0.54 0.55 0.57 0.59 0.58 0.48
Net Realized and
Unrealized Gain (Loss)
on Investments............ 0.17 0.11 (0.19) 0.69 (1.19) 0.16
------ ------ ------ ------ ------ -------
Total from Investment
Operations................ 0.71 0.66 0.38 1.28 (0.61) 0.64
------ ------ ------ ------ ------ -------
Less Distributions from:
Net Investment Income..... (0.54) (0.55) (0.60) (0.57) (0.56) (0.49)
Net Realized Gain on
Investments............... -- -- -- -- (0.25) --
------ ------ ------ ----- ------ -------
Total Distributions........ (0.54) (0.55) (0.60) (0.57) (0.81) (0.49)
------ ------ ------ ------ ------ -------
Net Asset Value End of
Period.................... $ 8.78 $ 8.61 $ 8.50 $ 8.72 $ 8.01 $ 8.76
====== ====== ===== ====== ====== =======
Total Investment Return
at Net Asset
Value(%) .... 8.42% 8.05% 4.56% 16.53% (6.81%) 7.65%
Net Assets, End of
Period (in millions)..... $739.1 $778.0 $871.0 $942.1 $907.2 $6.9
Ratio of Expenses to
Average Net Assets (%)(1). 0.80% 0.80% 0.83% 0.83% 0.82% 1.55%
Ratio of Net Investment
Income to Average
Net Assets (%)(1)........ 6.16% 6.44% 6.61% 7.01% 6.77% 5.41%
Portfolio Turnover Rate (%)..98% 97% 142% 131% 155% 98%
- ------------------------
(e) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory
fees
payable by the LB Income Fund. Had LB Research not undertaken such action, for Class A Shares, the ratio of
expenses
to average net assets would have been 0.85% and 0.84%, and the ratio of net investment income to average net
assets
would have been 6.11% and 6.40%, respectively, for the years ended October 31, 1998 and 1997; for Class B
shares,
the ratio of expenses to average net assets would have been 1.60% and the ratio of net investment income would
have
been 5.36% for the year ended October 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB MUNICIPAL BOND FUND
CLASS A SHARES CLASS B SHARES
----------------------------------------------------------- ----------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94 10/31/98
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......... $ 8.85 $ 8.60 $ 8.58 $ 7.88 $ 9.00 $ 8.85
------ ------ ------ ------ ------ -------
Investment Operations:
Net Investment Income.......... 0.41 0.45 0.44 0.45 0.46 0.39
Net Realized and Unrealized Gain
(Loss) on Investments....... 0.29 0.24 0.01 0.70 (0.96) 0.24
------ ------ ------ ------ ------ -------
Total from Investment Operations. 0.70 0.69 0.45 1.15 0.50 0.63
------ ------ ------ ------ ------ -------
Less Distributions from:
Net Investment Income....... (0.44) (0.44) (0.43) (0.45) (0.46) (0.39)
Net Realized Gain on
Investments............... -- -- -- -- (0.16) --
------ ------ ------ ------ ------ -------
Total Distributions............ (0.44) (0.44) (0.43) (0.45) (0.62) (0.39)
------ ------ ------ ------ ------ -------
Net Asset Value End of Period.. $ 9.11 $ 8.85 $ 8.60 $ 8.58 $ 7.88 $ 9.09
====== ====== ===== ====== ====== =======
Total Investment Return at
Net Asset Value(%) 8.12% 8.28% 5.33% 14.97% (5.93%) 7.23%
Net Assets, End of
Period (in millions)........ $605.0 $591.9 $609.5 $628.7 $595.2 $4.0
Ratio of Expenses to Average
Net Assets (%)(1)........... 0.69% 0.70% 0.74% 0.74% 0.75% 1.44%
Ratio of Net Investment Income
to Average Net Assets (%)(1). 4.88% 5.13% 5.14% 5.43% 5.44% 4.13%
Portfolio Turnover Rate (%).... 14% 18% 33% 36% 38% 14%
- ------------------------
(1) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory
fees
payable by the LB Municipal Bond Fund. Had LB Research not undertaken such action, for Class A shares, the
ratio of
expenses to average net assets would have been 0.74% and 0.74%, and the ratio of net investment income to
average net
assets would have been 4.83% and 5.09%, respectively, for the years ended October 31, 1998 and 1997; for Class
B shares,
the ratio of expenses to average net assets would have been 1.49% and the ratio of net investment income would
have
been 4.08% for the year ended October 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB MONEY MARKET FUND
CLASS A SHARES CLASS B SHARES
----------------------------------------------------------- ----------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94 10/31/98
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset Value,
Beginning of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
------ ------ ------ ------ ------ ------
Investment Operations:
Net Investment Income.... 0.04 0.05 0.05 0.05 0.03 0.04
------ ------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income.... (0.04) (0.05) (0.05) (0.05) (0.03) (0.04)
------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
====== ====== ====== ====== ====== ======
Total Investment Return
at Net Asset Value (%) 4.82% 4.74% 4.63% 4.95% 2.89% 4.82%
Net Assets, End of
Period (in millions).. $493.2 $469.2 $417.6 $341.1 $276.9 $0.1
Ratio of Expenses to
Average Net Assets (%)(1). 0.95% 0.95% 1.01% 1.10% 1.10% 0.95%
Ratio of Net Investment
Income to Average Net
Assets (%)(1). 4.72% 4.64% 4.53% 4.85% 2.85% 4.72%
- ----------------------
(1) Effective February 1, 1992 through March 31, 1996, LB Research had voluntarily undertaken to limit the Fund's
expense
ratio to 1.10% of annual average daily net assets. Effective April 1, 1996, LB Research voluntarily lowered
the expense
limit prospectively to 0.95% of average daily net assets. Had LB Research not undertaken such action to limit
expenses,
for Class A shares, the ratio of expenses to average net assets would have been 1.04%, 1.05%, 1.07%, 1.18% and
1.36%, and
the ratio of net investment income to average net assets would have been 4.63%, 4.35%, 4.47%, 4.77% and 2.59%,
respectively,
for the years ended October 31, 1998, 1997, 1996, 1995, and 1994; for Class B shares, the ratio of expenses to
average net
assets would have been 1.04% and the ratio of net investment income would have been 4.63% for the year ended
October 31,
1998.
</TABLE>
<PAGE>
[Back cover page]
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
1-800-328-4552 Automated Investor Access Line
1-800-990-6290 to speak with an investor representative
www.luthbro.com
o Lutheran Brotherhood Securities Corp.
P.O. Box 9491
Minneapolis, Minnesota 55440-9491
The Statement of Additional Information which is incorporated by
reference into this Prospectus) contains additional information about the
Funds. Additional information about the Funds' investments is available in
the Funds' annual and semi-annual reports to shareholders. In the Funds'
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the performance of each of
the Funds during their last fiscal year. You may request a free copy of the
Statement of Additional Information, the annual report, or the semi-annual
report, or you may make additional requests or inquiries by calling 1-800-
990-6290. You may also review and copy information about the Funds
(including the Statement of Additional Information) at the Public Reference
Room of the Securities and Exchange Commission in Washington, DC. You may
get more information about the Public Reference Room by calling 1-800-SEC-
0330. You may also get information about the Funds at the SEC web site
(www.sec.gov) or by mail, upon payment of a duplicating fee, by writing the
Public Reference Section of the SEC, Washington, DC 20549-6009.
1940 Act File No. 811-1467
<PAGE>
LUTHERAN BROTHERHOOD FAMILY OF FUNDS
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
LUTHERAN BROTHERHOOD MID CAP 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
NO LOAD
INSTITUTIONAL CLASS SHARES
PROSPECTUS December 30, 1998
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
PAGE
The Funds
Investment Objectives, Principal Strategies and Risks,
Volatility and Performance, Fees and Expenses
LB Opportunity Growth Fund
LB Mid Cap Growth Fund
LB World Growth Fund
LB Fund
LB High Yield Fund
LB Income Fund
LB Municipal Bond Fund
LB Money Market Fund
Management
Your Investment
Buying Shares of The Lutheran Brotherhood Family of Funds
Additional Purchases
Net Asset Value of Your Shares
Exchanging Between Funds
Redeeming Shares
Distributions
Taxes
Other Securities and Investment Practices
Financial Highlights
The Lutheran Brotherhood Family of Funds are offered to members of
Lutheran Brotherhood and to qualifying Lutheran institutional investors.
This is the Prospectus for the Institutional Class Shares which are only
offered to Lutheran institutions, Lutheran church organizations, retirement
plans sponsored by Lutheran institutions, and Lutheran participants in the
Allocation Advantage(sm) mutual fund asset allocation program offered by
Lutheran Brotherhood Securities Corp.
<PAGE>
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood Opportunity Growth Fund ("LB Opportunity Growth Fund") is to
achieve long-term growth of capital.
PRINCIPAL STRATEGIES. The LB Opportunity Growth Fund seeks to achieve
its objective by investing primarily in common stocks of smaller growth
companies (generally with market capitalizations of less than $1.7 billion
at the time of purchase). (Market capitalization of stocks gives you a
snapshot view of a company's size. A stock's "market cap" is calculated by
multiplying the number of the company's shares outstanding by the stock's
per-share price. Companies are categorized into small, medium and large
based on their capitalization, e.g., "small-cap," "mid-cap," or "large-
cap.")
T. Rowe Price Associates, Inc. ("T. Rowe Price"), the Fund's sub-
adviser, designed and uses a number of quantitative models to identify key
characteristics of small-cap growth stocks. The models generally measure the
major characteristics of stocks in the small-cap growth sector such as
valuations and projected earnings growth. These will often be companies
with shorter histories and less seasoned operations. The Fund will focus
primarily on companies that possess superior earnings prospects.
PRINCIPAL RISKS. The LB Opportunity Growth Fund's principal risks are
the risks generally of stock investing. They include the risk of sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster performance.
In addition, smaller, less seasoned companies often have greater price
volatility, lower trading volume, and less liquidity than larger, more
established companies. These companies tend to be more dependent on the
success of limited product lines and have less experienced management and
financial resources.
For these and other reasons, the LB Opportunity Growth Fund may
underperform other stock funds (such as large company stock funds) when
stocks of small companies are out of favor.
The success of the LB Opportunity Growth Fund's investment strategy
depends significantly on T. Rowe Price's skill in assessing the potential of
the securities in which the Fund invests. Shares of the LB Opportunity
Growth Fund will rise and fall in value and there is a risk that you could
lose money by investing in the Fund. The Fund cannot be certain that it
will achieve its objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB Opportunity Growth Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns for a one-year period and since inception compare to a broad-
based securities market index.
The bar chart and the table include the effects of Fund expenses and
assume that you sold your shares at the end of the period. The returns
shown for the Fund include performance from before the creation of the
Institutional Class shares on October 31, 1997. How a Fund has performed in
the past is not necessarily an indication of how it will perform in the
future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1994 2.66%
1995 37.71%
1996 12.16%
1997 -0.32%
Footnote reads:
The Fund's year-to-date return (Institutional Class) as of 9/30/98 (not
annualized) was -23.02%
Best Quarter: Q3 '97 +20.68%
Worst Quarter: Q1 '97 -17.65%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
Since
Inception
1-Year (1/8/93)
LB Opportunity Growth Fund (Institutional Class) -0.32% 14.63%
Russell 2000 22.36% 15.96%
The Russell 2000 is an unmanaged index which measures the performance
of the 2,000 smallest companies in the Russell 3000 Index (an index of the
3,000 largest companies based on market capitalization).
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of a Fund. The Institutional Class shares of the Fund have no
sales charge (load) and no 12b-1 distribution fees.
SHAREHOLDER FEES (fees paid directly from
your investment)
Maximum Sales Charge (Load) None
Maximum Deferred Sales Charge (Load) None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
Management Fees 0.43%
Other Expenses 0.72%
Total Fund Operating Expenses 1.15%
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD
BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Opportunity Growth Fund $117 $365 $633 $1,398
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Opportunity Growth Fund $117 $365 $633 $1,398
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood Mid Cap Growth Fund ("LB Mid Cap Growth Fund") is to achieve
long-term growth of capital.
PRINCIPAL STRATEGIES. LB Mid Cap Growth Fund tries to increase the
long-term value of your investment by investing in common stocks of
companies with medium market capitalizations. Under normal market
conditions, the LB Mid Cap Growth Fund invests at least 65% of its assets in
companies that fall within the range of companies included in the Standard &
Poor's MidCap 400 Index at the time of the Fund's investment. As of
September 30, 1998, the S&P MidCap 400 included companies with
capitalizations between $185 million and $24 billion. Lutheran Brotherhood
Research Corp. ("LB Research"), the Fund's investment adviser uses both
fundamental and technical investment research techniques to determine what
stocks to buy and sell. (Fundamental investment analysis generally involves
assessing a company's or security's value based on factors such as sales,
assets, markets, management, products and services, earnings, and financial
structure. Technical analysis generally involves studying trends and
movements in a security's price, trading volume, and other market-related
factors in an attemp to discern patterns.) LB Research focuses on companies
that have a strong record of earnings growth or show good prospects for
growth in sales and earnings and also considers the trends in the market as
a whole.
PRINCIPAL RISKS. The LB Mid Cap Growth Fund's principal risks are the
risks generally of stock investing. They include the risk of sudden and
unpredictable drops in value of the market as a whole and periods of
lackluster performance.
In addition, medium-sized companies often have greater price
volatility, lower trading volume, and less liquidity than larger, more-
established companies. These companies tend to have smaller revenues,
narrower product lines, less management depth and experience, smaller shares
of their product or service markets, fewer financial resources, and less
competitive strength than larger companies. For these and other reasons,
the LB Mid Cap Growth Fund may underperform other stock funds (such as large
company stock funds) when stocks of medium-sized companies are out of favor.
The success of the Fund's investment strategy depends significantly on
LB Research's skill in assessing the potential of the securities in which
the Fund invests. Shares of the LB Mid Cap Growth Fund will rise and fall
in value and there is a risk that you could lose money by investing in the
Fund. The Fund cannot be certain that it will achieve its objective.
No bar chart or performance table has been included for the LB Mid Cap
Growth Fund. The LB Mid Cap Growth Fund commenced operations on May 30,
1997.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy
and hold shares of the LB Mid Cap Growth Fund. The Institutional Class
shares of the Fund have no sales charge (load) and no 12b-1 distribution
fees.
SHAREHOLDER FEES (fees paid directly from
your investment)
Maximum Sales Charge (Load) None
Maximum Deferred Sales Charge (Load) None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
Management Fees 0.45%
Other Expenses 1.52%
Total Fund Operating Expenses (1) 1.97%
(1) LB Research has voluntarily agreed to temporarily waive a portion of
its advisory fee and, if necessary, to bear certain expenses associated with
operating LB Mid Cap Growth Fund in order to limit the Total Fund Operating
Expenses for the Institutional Class shares to an annual rate of 1.70% of
the average net assets. This temporary waiver and expense provision may be
discontinued at any time.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD
BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Mid Cap Growth Fund $200 $618 $1,062 $2,296
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Mid Cap Growth Fund $200 $618 $1,062 $2,296
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
INVESTMENT OJBECTIVE. The investment objective of the Lutheran
Brotherhood World Growth Fund ("LB World Growth Fund") is to seek total
return from long-term growth of capital.
PRINCIPAL STRATEGIES. The LB World Growth Fund seeks to achieve its
objective by investing primarily in common stocks of established non-U.S.
companies. The Fund may invest in companies located anywhere in the world
(including the United States).
While stocks may be purchased without regard to a company's market
capitalization, the focus will typically be on large and, to a lesser
extent, medium-sized, companies. In determining the appropriate distribution
of investments among various countries and geographic regions, Rowe Price-
Fleming International, Inc. ("Price-Fleming"), the Fund's sub-adviser, will
consider prospects for relative economic growth, expected levels of
inflation, government policies influencing business conditions, the outlook
for currency relationships, and the range of individual investment
opportunities available to international investors. Price-Fleming selects
stocks by blending a bottom-up approach, based on fundamental research
techniques, with an awareness of a country's economic status and outlook.
Price-Fleming weighs a company's prospects for achieving and sustaining
above-average, long-term earnings growth and also considers valuation
factors, such as price/earnings and price/cash flows ratios. Valuation
factors often influence allocations among large-cap, medium-cap, or small-
cap companies.
PRINCIPAL RISKS. LB World Growth Fund's principal risks are the risks
generally of stock investing. They include the risk of sudden and
unpredictable drops in value of the market as a whole and periods of
lackluster performance.
Stocks of non-U.S. companies present additional risks for U.S.
investors. Stocks of non-U.S. companies tend to be less liquid and more
volatile than their U.S. counterparts, in part because foreign markets are
generally smaller, more sensitive to trading activity and more likely to
experience delayed or less frequent settlement of transactions. In many
foreign countries, accounting and regulatory standards are less rigorous,
and economic and political climates are less stable. Fluctuations in
exchange rates also may reduce or eliminate gains or create losses. These
risks usually are greater in emerging markets, such as most countries in
Africa, Asia, Latin America and the Middle East. For these and other
reasons, LB World Growth Fund may underperform other stock funds (such as
U.S. stock funds) when international stocks are out of favor.
The success of the Fund's investment strategy depends significantly on
Price-Fleming's skill in assessing the potential of the securities in which
the Fund invests. Shares of the LB World Growth Fund will rise and fall in
value and there is a risk that you could lose money by investing in the
Fund. LB World Growth Fund cannot be certain that it will achieve its
objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB World Growth Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual
returns for a one-year period and since inception compare to a broad-based
securities market index.
The bar chart and the table include the effects of Fund expenses and
assume that you sold your shares at the end of the period. The returns
shown for the Fund include performance from before the creation of the
Institutional Class shares on October 31, 1997. How a Fund has performed in
the past is not necessarily an indication of how it will perform in the
future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1996 13.43%
1997 2.27%
Footnote reads:
The Fund's year-to-date return (Institutional Class) as of 9/30/98 (not
annualized) was -1.41%
Best Quarter: Q2 '97 +11.84%
Worst Quarter: Q4 '97 -7.50%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
Since
Inception
1-Year (9/5/95)
LB World Growth Fund (Institutional Class) 2.27% 8.13%
Morgan Stanley EAFE Index 2.06% 5.58%
The Morgan Stanley EAFE (Europe and Australasia, Far East Equity) is an
unmanaged index which measures the performance of international companies
screened for liquidity, cross-ownership, and industry representation.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy
and hold shares of the LB World Growth Fund. The Institutional Class shares
of the Fund have no sales charge (load) and no 12b-1 distribution fees.
SHAREHOLDER FEES (fees paid directly from
your investment)
Maximum Sales Charge (Load) None
Maximum Deferred Sales Charge (Load) None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
Management Fees 0.75%
Other Expenses 0.86%
Total Fund Operating Expenses 1.61%
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD
BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB World Growth Fund $164 $508 $876 $1,911
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB World Growth Fund $164 $508 $876 $1,911
LUTHERAN BROTHERHOOD FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood Fund ("LB Fund") is to seek growth of capital and income.
PRINCIPAL STRATEGIES. The principal strategy for achieving this objective
is to invest in the common stocks of leading U.S. domestic and multi-
national companies. LB Research, the Fund's investment adviser, uses
fundamental and technical investment research techniques to identify stocks
of companies that it believes have a leading position and successful
business strategy within their industry. The Fund invests primarily in
stocks of companies with large market capitalizations, which LB Research
believes have balance sheet strength and profitability. LB Research seeks
to invest in companies with a strong management team that will develop
business strategies which lead to sales and earnings growth and improving
relative stock value.
PRINCIPAL RISKS. LB Fund's principal risks are the risks generally of
stock investing. They include the risk of sudden and unpredictable drops in
value of the market as a whole and periods of lackluster performance.
In addition, the prices of larger company stocks may not rise as
quickly or as significantly as prices of stocks of well-managed smaller
companies. For these and other reasons, the LB Fund may underperform other
stock funds (such as small company or medium company stock funds) when
larger company stocks are out of favor.
The success of the Fund's investment strategy depends significantly on
LB Research's skill in assessing the potential of the securities in which
the Fund invests. Shares of LB Fund will rise and fall in value and there
is a risk that you could lose money by investing in the Fund. The LB Fund
cannot be certain that it will achieve its objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual returns for
one, five, and ten years compare to a broad-based securities market index.
The bar chart and the table include the effects of Fund expenses and
assume that you sold your shares at the end of the period. The returns
shown for the Fund include performance from before the creation of the
Institutional Class shares on October 31, 1997. How a Fund has performed in
the past is not necessarily an indication of how it will perform in the
future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1988 9.24%
1989 26.61%
1990 -1.95%
1991 32.77%
1992 5.80%
1993 8.69%
1994 -3.41%
1995 32.04%
1996 17.22%
1997 27.95%
Footnote reads:
The Fund's year-to-date return (Institutional Class) as of 9/30/98 (not
annualized) was 0.81%
Best Quarter: Q2 '97 +16.12%
Worst Quarter: Q3 '97 -13.46%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
1-Year 5-Years 10-Years
LB Fund (Institutional Class) 27.95% 15.75% 14.74%
S&P 500 33.36% 20.24% 18.02%
The S&P 500 is an unmanaged index which measures the performance of 500
widely held common stocks of large-cap companies.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy
and hold shares of the LB Fund. The Institutional Class shares of the Fund
have no sales charge (load) and no 12b-1 distribution fees.
SHAREHOLDER FEES (fees paid directly from
your investment)
Maximum Sales Charge (Load) None
Maximum Deferred Sales Charge (Load) None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
Management Fees 0.37%
Other Expenses 0.29%
Total Fund Operating Expenses (1) 0.66%
(1) LB Research voluntarily agreed to temporarily waive a portion of its
advisory fees equal to 0.05% of the average daily net assets of the LB Fund.
With this waiver, the Total Fund Operating Expenses would be 0.61% for the
Institutional Class. The temporary waiver may be discontinued at any time.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD
BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Fund $67 $211 $368 $822
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Fund $67 $211 $368 $822
LUTHERAN BROTHERHOOD HIGH YIELD FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood High Yield Fund ("LB High Yield Fund") is to obtain high current
income, and secondarily growth of capital.
PRINCIPAL STRATEGIES. Under normal market conditions, the LB High
Yield Fund invests at least 65% of its total assets in high-yield, high risk
bonds, notes, debentures and other debt obligations or preferred stocks.
These securities are commonly known as "junk bonds." At the time of
purchase these securities are rated within or below the BB major rating
category by Standard & Poor's Corporation or the Ba major rating category by
Moody's Investor Services, Inc. or are unrated but considered to be of
comparable quality by LB Research, the Fund's investment adviser. LB
Research uses fundamental investment research techniques to determine what
securities to buy and sell. LB Research focuses on companies which it
believes have or are expected to achieve adequate cash flows or access to
capital markets for the payment of principal and interest obligations. LB
Research generally purchases bonds with a 10-year maturity, although it may
purchase bonds with a shorter or longer maturity.
PRINCIPAL RISKS. The principal risks of LB High Yield Fund include the
tendency of high-yield bond prices to fall when the economy is sluggish or
overall corporate earnings are weak. During those times, it may become
difficult for issuers of high-yield bonds to generate sufficient cash flow
to pay principal or interest. For all bonds, there is a risk that an issuer
will default. High-yield bonds, however, are more susceptible to the risk
of default and their prices usually fall if a number of issuers, or a high
profile issuer, default or go bankrupt or if the market anticipates either
of those events.
The price of LB High Yield Fund shares also may be affected by weak
equity markets, when issuers of high-yield bonds generally find it difficult
to improve their financial condition by replacing debt with equity. In
addition, many high yield securities are traded only among institutional
investors, and it may be difficult for LB Research to sell the Fund's
portfolio investments at fair prices when high-yield bonds fall out of favor
with those investors.
Generally, when interest rates rise, bond prices fall, which may cause
the price of shares of the LB High Yield Fund to fall as well. Bonds with
longer durations and maturities tend to be more sensitive to changes in
interest rates than bonds with shorter durations or maturities. In general,
the prices at which lower quality bonds are traded before they mature may be
more affected by the financial health of the issuer and the economy and less
by changes in interest rates.
The success of the Fund's investment strategy depends significantly on
LB Research's skill in assessing the potential of the securities in which
the Fund invests. Shares of the LB High Yield Fund will rise and fall and
there is a risk that you could lose money by investing in the Fund. The LB
High Yield Fund cannot be certain that it will achieve its objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB High Yield Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual
returns for one, five, and ten years compare to a broad-based securities
market index.
The bar chart and the table include the effects of Fund expenses and
assume that you sold your shares at the end of the period. The returns
shown for the Fund include performance from before the creation of the
Institutional Class shares on October 31, 1997. How a Fund has performed in
the past is not necessarily an indication of how it will perform in the
future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1988 12.34%
1989 -2.68%
1990 -7.44%
1991 36.09%
1992 20.12%
1993 20.86%
1994 -5.29%
1995 19.38%
1996 10.96%
1997 13.51%
Footnote reads:
The Fund's year-to-date return (Institutional Class) as of 9/30/98 (not
annualized)was -4.46%
Best Quarter: Q1' 91 +13.06%
Worst Quarter: Q3 '90 -6.47%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
1-Year 5-Years 10-Years
LB High Yield Fund (Institutional Class) 13.51% 11.47% 11.02%
Lehman High Yield Index 12.77% 11.65% 11.66%
The Lehman High Yield Index is an unmanaged index which measures the
performance of fixed-rate non-investment grade bonds.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy
and hold shares of the LB High Yield Fund. The Institutional Class shares of
the Fund have no sales charge (load) and no 12b-1 distribution fees.
SHAREHOLDER FEES (fees paid directly from
your investment)
Maximum Sales Charge (Load) None
Maximum Deferred Sales Charge (Load) None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
Management Fees 0.38%
Other Expenses 0.26%
Total Fund Operating Expenses (1) 0.64%
(1) LB Research has voluntarily agreed to temporarily waive a portion of
its advisory fees equal to 0.05% of the average daily net assets of the LB
High Yield Fund. With this wiaver, the Total Fund Operating Expenses would
be 0.59% for the Institutional Class shares. The temporary waiver may be
discontinued at any time.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD
BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB High Yield Fund $65 $205 $357 $798
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB High Yield Fund $65 $205 $357 $798
LUTHERAN BROTHERHOOD INCOME FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood Income Fund ("LB Income Fund") is to seek high current income
while preserving principal. The Fund's secondary investment objective is to
obtain long-term growth of capital in order to maintain investors'
purchasing power.
PRINCIPAL STRATEGIES. The LB Income Fund invests primarily in
investment-grade corporate bonds, government bonds, and mortgage-backed
securities. Under normal conditions, at least 65% of the Fund's assets will
be invested in debt securities or preferred stock at least in the "Baa"
major rating category by Moody's or at least in the "BBB" major rating
category by S&P or unrated securities considered to be of comparable quality
by LB Research, the Fund's investment adviser. The Fund may also invest in
high-yield, high risk bonds, notes, debentures and other debt obligations or
preferred stock commonly known as "junk bonds." LB Research uses
fundamental investment research techniques to determine what debt
obligations to buy and sell. LB Research focuses on companies which it
believes are financially sound and have strong cash flow, asset values, and
interest or dividend earnings.
PRINCIPAL RISKS. The LB Income Fund's principal risks are those of
debt investing, including increases in interest rates and loss of principal.
Generally, when interest rates rise, bond prices fall, which may cause the
price of shares of LB Income Fund to fall as well. Bond prices fall because
bonds issued after rates rise will offer higher yields, making older bonds
with lower rates less attractive. To raise the effective yield on older
bonds, holders of the older bonds must discount their prices. Bonds with
longer durations and maturities tend to be more sensitive to changes in
interest rates than bonds with shorter durations or maturities.
For all bonds there is a risk that an issuer will default. High-yield
bonds generally are more susceptible to risk of default than higher rated
bonds, and to the LB Income Fund, this risk increases as LB Research
increases the percentage of the Fund's portfolio in high-yield bonds.
The success of the Fund's investment strategy depends significantly on
LB Research's skill in assessing the potential of the securities in which
the Fund invests. Shares of the LB Income Fund will rise and fall in value
and there is a risk that you could lose money by investing in the Fund. The
LB Income Fund cannot be certain that it will achieve its goal.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB Income Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual
returns for one, five, and ten years compare to a broad-based securities
market index.
The bar chart and the table include the effects of Fund expenses and
assume that you sold your shares at the end of the period. The returns
shown for the Fund include performance from before the creation of the
Institutional Class shares on October 31, 1997. How a Fund has performed in
the past is not necessarily an indication of how it will perform in the
future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1988 10.89%
1989 12.44%
1990 5.68%
1991 17.24%
1992 8.00%
1993 10.12%
1994 -4.86%
1995 18.82%
1996 2.21%
1997 8.40%
Footnote reads:
The Fund's year-to-date return (Institutional Class) as of 9/30/98 (not
annualized) was 8.15%
Best Quarter: Q2 '89 +8.30%
Worst Quarter: Q1 '94 -3.97%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
1-Year 5-Years 10-Years
LB Income Fund (Institutional Class) 8.40% 6.64% 8.69%
Lehman Aggregate Bond Index 9.68% 7.49% 9.18%
The Lehman Aggregate Bond Index is an unmanaged index which measures
the performance of U.S. investment grade bonds.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy
and hold shares of the LB Income Fund. The Institutional Class shares of the
Fund have no sales charge (load) and no 12b-1 distribution fees.
SHAREHOLDER FEES (fees paid directly from
your investment)
Maximum Sales Charge (Load) None
Maximum Deferred Sales Charge (Load) None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
Management Fees 0.34%
Distribution (12b-1) Fees --
Other Expenses 0.26%
Total Fund Operating Expenses (1) 0.60%
(1) LB Research has voluntarily agreed to temporarily waive a portion of
its advisory fees equal to .05% of the average daily net assets of the LB
Income Fund. With this waiver, the Total Fund Operating Expenses would be
0.55% for the Institutional Class shares. The temporary waiver may be
discontinued at any time.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD
BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Income Fund $61 $192 $335 $750
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Income Fund $61 $192 $335 $750
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood Municipal Bond Fund ("LB Municipal Bond Fund") is to provide its
shareholders with a high level of current income which is exempt from
federal income tax.
PRINCIPAL STRATEGIES. The LB Municipal Bond Fund tries to provide you
with high current income which is exempt from federal income taxation by
investing in municipal bonds, which are debt obligations issued by states,
territories, and possessions of the United States and their political
subdivisions or agencies. Under normal market conditions, the LB Municipal
Bond Fund invests at least 80% of its total assets in municipal bonds. LB
Research, the Fund's investment adviser, uses fundamental investment
research techniques to determine what municipal bonds to buy and sell. LB
Research focuses on investment-grade municipal bonds of issuers that it
believes are financially sound and have healthy balance sheets, strong
operating income, and good economic prospects.
PRINCIPAL RISKS. The LB Municipal Bond Fund's principal risks are
those of debt investing, including increases in interest rates and loss of
principal. Generally, when interest rates rise, bond prices fall, which may
cause the price of shares of LB Municipal Bond Fund to fall as well. Bond
prices fall because bonds issued after rates rise will offer higher yields,
making older bonds with lower rates less attractive. To raise the effective
yield on older bonds, holders of the older bonds must discount their prices.
Bonds with longer durations and maturities tend to be more sensitive to
changes in interest rates than bonds with shorter durations or maturities.
The Fund's performance may be affected by political and economic conditions
at the state, regional or federal level. These may include budgetary
problems, declines in the tax base and other factors that may cause rating
agencies to downgrade the credit ratings on certain issues. Actual or
proposed changes in tax rates, regulations or federal programs could also
affect your net return on investment.
The success of the LB Municipal Bond Fund's investment strategy depends
significantly on LB Research's skill in assessing the potential of the
securities in which the Fund invests. Shares of LB Municipal Bond Fund will
rise and fall in value and there is a risk that you could lose money by
investing in the Fund. The LB Municipal Bond Fund cannot be certain that it
will achieve its objective.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB Municipal Bond Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual
returns for one, five, and ten years compare to a broad-based securities
market index.
The bar chart and the table include the effects of Fund expenses and
assume that you sold your shares at the end of the period. The returns
shown for the Fund include performance from before the creation of the
Institutional Class shares on October 31, 1997. How a Fund has performed in
the past is not necessarily an indication of how it will perform in the
future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1988 10.78%
1989 10.06%
1990 6.55%
1991 12.17%
1992 8.95%
1993 12.97%
1994 -6.57%
1995 18.18%
1996 3.44%
1997 9.38%
Footnote reads:
The Fund's year-to-date return (Institutional Class) as of 9/30/98 (not
annualized) was 5.95%
Best Quarter: Q1 '95 +7.50%
Worst Quarter: Q1 '94 -6.34%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
1-Year 5-Years 10-Years
LB Municipal Bond Fund (Institutional Class) 9.38% 7.13% 8.39%
Lehman Municipal Bond Index 9.20% 7.36% 8.58%
The Lehman Municipal Bond Index is an unmanaged index which measures
the performance of investment grade tax-exempt bonds.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy
and hold shares of the LB Municipal Bond Fund. The Institutional Class
shares of the Fund have no sales charge (load) and no 12b-1 distribution
fees.
SHAREHOLDER FEES (fees paid directly from
your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
Management Fees 0.32%
Distribution (12b-1) Fees --
Other Expenses 0.17%
Total Fund Operating Expenses (1) 0.49%
(1) LB Research has voluntarily agreed to temporarily waive a portion of
its advisory fees equal to 0.05% of the average daily net assets of the LB
Municipal Bond Fund. With this waiver, the Total Fund Operating Expenses
would be 0.44% for the Institutional Class shares. The temporary waiver may
be discontinued at any time.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD
BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Municipal Bond Fund $50 $157 $274 $616
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Municipal Bond Fund $50 $157 $274 $616
LUTHERAN BROTHERHOOD MONEY MARKET FUND
INVESTMENT OBJECTIVE. The investment objective of the Lutheran
Brotherhood Money Market Fund ("LB Money Market Fund") is current income
consistent with stability of principal.
PRINCIPAL STRATEGIES. The LB Money Market Fund tries to produce
current income while preserving the value of your shares by investing in
high quality, short term money market instruments that mature in 397 days or
less, including U.S. dollar-denominated commercial paper, bank instruments
such as certificates of deposit, U.S. government discount notes, and U.S.
Treasury Bills. LB Research, the Fund's investment adviser, uses
fundamental investment research techniques to determine what money market
instruments to buy and sell. Under normal market conditions, the Fund
invests primarily in prime commercial paper. LB Research looks for prime
commercial paper issued by corporations which it believes are financially
sound, have strong cash flows, and solid capital levels, are leaders in
their industry and have experienced management.
LB Research manages LB Money Market Fund subject to strict rules
established by the Securities and Exchange Commission that are designed so
that LB Money Market Fund may maintain a stable $1.00 share price. Those
guidelines generally require LB Money Market Fund to, among other things,
invest only in high quality securities that generally are diversified with
respect to issuers, are denominated in U.S. dollars and have short remaining
maturities. In addition, the guidelines require LB Money Market Fund to
maintain a dollar-weighted average portfolio maturity of not more than 90
days.
Under the guidelines, at least 95% of LB Money Market Fund's total
assets must be invested in "first tier" securities. First-tier securities
must be rated by at least two rating agencies in their highest short-term
major rating categories (or one, if only one rating agency has rated the
security, or if they have not received a short-term rating, determined by LB
Research to be of comparable quality). First-tier securities generally
include U.S. Government securities, such as U.S. Treasury bills and
securities issued or sponsored by U.S. government agencies. They also may
include corporate debt securities, finance company commercial paper and
certain obligations of U.S. and foreign banks.
The remainder of LB Money Market Fund's assets will be invested in
securities rated within the two highest rating categories by any two rating
agencies (or one, if only one rating agency has rated the security or, if
unrated, determined by LB Research to be of comparable quality), or kept in
cash.
PRINCIPAL RISKS. The LB Money Market Fund's principal risks are those
that could affect the yield of its shares. They include those factors that
could cause short-term interest rates to decline, such as a weak economy,
strong equity markets and changes by the Federal Reserve in its monetary
policies. The success of the Fund's investment strategy depends
significantly on LB Research's skill in assessing the potential of the
securities in which the Fund invests.
An investment in the LB Money Market Fund is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. Although the Fund seeks to preserve the value
of your investment at $1.00 per share, it is possible to lose money by
investing in the Fund.
VOLATILITY AND PERFORMANCE
The bar chart and table shown below provide an indication of the risks
of investing in the LB Money Market Fund by showing changes in the Fund's
performance from year to year and by showing the Fund's average annual
returns for one, five, and ten years.
The bar chart and the table include the effects of Fund expenses and
assume that you sold your shares at the end of the period. The returns
shown for the Fund include performance from before the creation of the
Institutional Class shares on October 31, 1997. How a Fund has performed in
the past is not necessarily an indication of how it will perform in the
future.
[GRAPHIC BAR CHART OMITTED: YEAR-BY-YEAR TOTAL RETURN]
Annual
Year Return
1988 6.84%
1989 8.50%
1990 7.49%
1991 5.35%
1992 2.89%
1993 2.20%
1994 3.28%
1995 5.00%
1996 4.60%
1997 4.85%
Footnote reads:
The Fund's year-to-date return (Institutional Class) as of 9/30/98 (not
annualized) was 3.76%
Best Quarter: Q2 '89 +2.21%
Worst Quarter: Q3 '93 +0.54%
Average Annual Total Returns
(periods ending
December 31, 1997)
-----------------------------
1-Year 5-Years 10-Years
LB Money Market Fund (Institutional Class) 4.85% 3.98% 5.08%
You may call 1-800-328-4552 to obtain the Fund's current 7-day yield.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy
and hold shares of the LB Money Market Fund. The Institutional Class shares
of the Fund have no sales charge (load) and no 12b-1 distribution fees.
SHAREHOLDER FEES (fees paid directly from
your investment)
Maximum Sales Charge (Load) None
Maximum Deferred Sales Charge (Load) None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets, as a percentage of average net assets)
Management Fees 0.25%
Other Expenses 0.54%
Total Fund Operating Expenses (1) 0.79%
(1) LB Research has voluntarily agreed to temporarily waive a portion of
its advisory fee, and, if necessary, to bear certain expenses associated
with operating LB Money Market Fund in order to limit the Total Fund
Operating Expenses for the Institutional Class shares to an annual rate of
0.70% of the average net assets of each class. This temporary waiver and
expense provision may be discontinued at any time.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS.
THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND
THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD
BE:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Money Market Fund $81 $252 $439 $978
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Money Market Fund $81 $252 $439 $978
MANAGEMENT
LB Research, 625 Fourth Avenue South, Minneapolis, Minnesota 55415,
serves as investment adviser for each of the Funds. LB Research is owned by
Lutheran Brotherhood Financial Corporation, which in turn is owned by
Lutheran Brotherhood. Lutheran Brotherhood and LB Research have been in
the investment advisory business since 1970 and managed over $21.6 billion
in assets as of September 30, 1998, including $10.1 billion in mutual fund
assets. LB Research provides investment research and supervision of the
Funds' investments. The following individuals are responsible for the day-
to-day management of the Funds.
LB FUND
James M. Walline, Vice President of LB Research, has been the
portfolio manager of LB Fund since October 31, 1994. Mr. Walline has been
with Lutheran Brotherhood and LB Research since 1968.
LB MID CAP GROWTH FUND
Brian L. Thorkelson, Assistant Vice President of LB Research, has been
the portfolio manager of LB Mid Cap Growth Fund since the Fund's inception
in 1997. Mr. Thorkelson has been with Lutheran Brotherhood and LB Research
since 1987, and previously served as a securities analyst.
LB HIGH YIELD FUND
Paul J. Ocenasek, Assistant Vice President of LB Research, has been the
portfolio manager of LB High Yield Fund since 1997. Mr. Ocenasek has been
with Lutheran Brotherhood and LB Research since 1987, and previously
served as a fixed-income analyst and bond portfolio manager.
LB INCOME FUND
Charles E. Heeren, Vice President of LB Research, and Michael G.
Landreville, Assistant Vice President of LB Research, serve as portfolio co-
managers of LB Income Fund. Mr. Heeren has served as manager of the Fund
since 1987 and has been with Lutheran Brotherhood and LB Research since
1976. Mr. Landreville has served as co-manager of the Fund since January 1,
1998, and has been with Lutheran Brotherhood and LB Research since 1983.
LB MUNICIPAL BOND FUND
Janet I. Grangaard, Assistant Vice President of LB Research, has been
portfolio manager of LB Municipal Bond Fund since 1994. Prior to that time
she served as associate portfolio manager of that Fund. Ms. Grangaard has
been with Lutheran Brotherhood and LB Research since 1988.
LB MONEY MARKET FUND
Gail R. Onan, Assistant Vice President of LB Research, has been the
portfolio manager of LB Money Market Fund since 1994. Prior to that time she
served as associate portfolio manager of that Fund. Ms. Onan
has been with Lutheran Brotherhood and LB Research since 1986.
LB OPPORTUNITY GROWTH FUND
LB Research has engaged T. Rowe Price as investment sub-advisor for LB
Opportunity Growth Fund effective May 15, 1998. T. Rowe Price was founded in
1937 and has its principal office at 100 East Pratt Street, Baltimore,
Maryland 21202. As of June 30, 1998, T. Rowe Price and its affiliates
managed over $141 billion. Richard T. Whitney, Managing Director of T. Rowe
Price, is primarily responsible for day-to-day management of the Lutheran
Brotherhood Opportunity Growth Fund and for developing and executing the
Fund's investment program.
LB WORLD GROWTH FUND
LB Research has engaged Price-Fleming, 100 East Pratt Street,
Baltimore, Maryland 21202, as investment sub-advisor for LB World Growth
Fund. Price-Fleming is one of the world's largest international mutual fund
asset managers with the U.S. equivalent of over $33 billion under management
as of June 30, 1998 in its offices in Baltimore, London, Tokyo, Singapore,
Hong Kong, and Buenos Aires. Price-Fleming has an investment advisory group
that has day-to-day responsibility for managing the Fund and developing and
executing the Fund's investment program.
LB Research, T. Rowe Price, and Price-Fleming personnel may invest in
securities for their own account pursuant to a code of ethics that
establishes procedures for personal investing and restricts certain
transactions.
During the fiscal year ended October 31, 1998, LB Research received
the following advisory fees, expressed as a percentage of the Fund's net
assets:
LB Opportunity Growth Fund 0.43%
LB Mid Cap Growth Fund* 0.18%
LB World Growth Fund 0.75%
LB Fund** 0.32%
LB High Yield Fund** 0.33%
LB Income Fund** 0.29%
LB Municipal Bond Fund** 0.27%
LB Money Market Fund*** 0.16%
- ------------
* After giving effect to a fee waiver of 0.27%.
** After giving effect to a fee waiver of 0.05%.
*** After giving effect to a fee waiver of 0.09%.
YOUR INVESTMENT
INSTITUTIONAL CLASS SHARES
The Lutheran Brotherhood Family of Funds has adopted a system of
multiple classes of shares for each of the Funds. There is no sales load
imposed in connection with the purchase of Institutional Class shares and
such shares are not subject to any Rule 12b-1 fee or shareholder servicing
fee. Institutional Class shares are offered to Lutheran institutions,
Lutheran church organizations, retirement plans sponsored by Lutheran
institutions and Lutheran participants in the Allocation Advantage(sm)
mutual fund asset allocation program offered by Lutheran Brotherhood
Securities Corp. ("LBSC") Because the sales charges and expenses vary
between the Class A shares, Class B shares and Institutional Class shares,
performance will vary with respect to each class. A copy of the Class A and
Class B prospectus may be obtained by writing us or by calling toll free
(800)990-6290.
BUYING SHARES
INITIAL PURCHASES
To make your first purchase of the Institutional Class shares of the
Funds:
o Complete and sign the application;
o Enclose a check made payable to the Lutheran Brotherhood Family of
Funds; and
o Mail your application and check to Lutheran Brotherhood Securities
Corp., P.O. Box 310, Minneapolis, MN 55440-0310.
MINIMUM INVESTMENTS REQUIRED
The minimum aggregate investment in the Lutheran Brotherhood Family of
Funds for retirement plans sponsored by Lutheran institutions is $100,000,
which can be allocated among any number of the Funds. The minimum investment
in a Fund for other Lutheran institutions is $100,000.
The Allocation Advantage(sm) program is a fee-based investment advisory
service which LBSC offers to persons who make an initial investment of
$100,000. Lutheran participants in the Allocation Advantage(sm) program may
purchase Institutional Class shares of any Fund by making an initial minimum
investment of $5,000 for a non-IRA account and $1,000 for an IRA account.
LBSC will charge participants in the Allocation Advantage(sm) program a fee
of $50.00 for any redemption of shares of a mutual fund that have been held
I the participant's account for less than six months. However, if the
redemption of shares is made through a systematic withdrawal program, LBSC
will charge the participant a fee of $5.00 for each such redemption. In
additiion, LBSC will also charge a fee of $15.00 for any redemption from a
participant's account of shares of a mutual fund that is not available
through the Allocation Advantage(sm) program.
The minimum investment required for additional purchases is $100 for
Allocation Advantage(sm) clients and $1,000 for retirement plans sponsored
by Lutheran institutions or other Lutheran institutional investors.
Shares of the Funds are issued on days on which the New York Stock
Exchange ("NYSE") is open, which generally are weekdays other than national
holidays. Your order will be considered received when your check or other
payment is received in good order by the home office of LBSC. Orders that
are received before the close of regular trading on the NYSE (generally 4:00
p.m. Eastern time) will be processed at the net asset value calculated that
day. Orders received after the close of regular trading on the NYSE will be
processed at the net asset value calculated on the following business day.
The Funds reserve the right to reject any purchase request.
CERTIFICATES AND STATEMENTS
LBSC will maintain a share account for you. Share certificates will not
be issued. Systematic Investment Plan, Systematic Withdrawal Plan and
Systematic Exchange Plan transactions, as well as dividend transactions will
be confirmed on the quarterly consolidated statement. All other transactions
will be confirmed as they occur. For more information on any of our
investment plans, talk with your LBSC representative or call 800-990-6290.
ADDITIONAL PURCHASES
You may purchase additional shares of any of the Funds by sending a
check payable to the "Lutheran Brotherhood Family of Funds" together with a
completed investment ticket to:
Lutheran Brotherhood Securities Corp.
PO Box 59025
Minneapolis, MN 55459-0025
You may also buy additional shares through:
o your LBSC representative;
o the Systematic Investment Plan;
o Invest-by-Phone;
o the Internet; or
o Federal Reserve or bank wire.
NET ASSET VALUE
Each Fund determines its net asset value (NAV) for a particular class
by adding the value of Fund assets attributable to such class, subtracting
the Fund's liabilities attributable to such class, and dividing the result
by the number of outstanding shares of that class. LB Money Market Fund
seeks to maintain a stable $1.00 NAV pursuant to procedures established by
the Board of Trustees for the Funds in connection with the amortized cost
method of portfolio valuation. The NAV for the other Funds varies with the
value of their investments. The other Funds value their securities using
market quotations, other than short-term debt securities maturing in less
than 60 days, which are valued using amortized costs, and securities for
which market quotations are not readily available, which are valued at fair
value.
The Funds determine their NAV on each day the NYSE is open for
business, or any other day as required under the rules of the Securities and
Exchange Commission. The NYSE is currently closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The
calculation is made as of the close of regular trading of the NYSE
(currently 4:00 p.m. Eastern time) after the Fund has declared any
applicable dividends. Because foreign securities markets are open on
different days from U.S. markets, there may be instances when the value of a
Fund's portfolio that invests in foreign securities changes on days when you
are not able to buy or sell the Fund's shares.
INVEST-BY-PHONE
Our Invest-by-Phone service allows you to purchase additional shares by
telephone if you elect this feature on your application or complete an
Account Features Request. We will draw your funds directly from your
preauthorized bank or credit union account. Your bank or credit union must
be a member of the Automated Clearing House system. To use this service, you
must call 800-328-4552 for the Automated Investor Access Line or 800-990-
6290 to speak with an investor representative before 4:00 p.m. Eastern time.
You may also redeem shares by telephone. See "Redeeming Shares."
INTERNET
You may buy or sell shares of a Fund by using our website:
www.luthbro.com.
FEDERAL RESERVE OR BANK WIRE
You may purchase shares by a Federal Reserve or bank wire directly to
Norwest Bank Minnesota, N.A. This method will result in a more rapid
investment in Fund shares. To wire Funds:
Notify LBSC of a pending wire, call: (800) 990-6290
Wire to: Norwest Bank of Minneapolis, NA
Norwest Bank
6th Street and Marquette Avenue
Minneapolis, MN 55479
ABA Routing #: 091000019
Account #: 00-003-156
Account Name: Lutheran Brotherhood Securities Corp.
Use text message to indicate:
Transfer for --shareholder name(s), fund number and account number, LB
Representative name and number.
EXCHANGING SHARES BETWEEN FUNDS
You may exchange some or all of your shares of one Fund for shares of
the same class of any of the other Funds. In addition, shareholders who are
eligible to purchase Institutional Class shares may exchange some or all of
their Class A or Class B shares for Institutional Class shares. All
exchanges will be based on NAV of the shares you are exchanging and the
shares you are acquiring and will be subject to the minimum investment
requirements. You may obtain an exchange form or receive more information
about making exchanges between Funds by contacting your LBSC representative.
This exchange offer may be modified or terminated in the future. If the
exchange offer is materially modified or terminated, you will receive at
least 60 days prior notice.
TELEPHONE EXCHANGES
You may make the type of exchanges between Funds described above by
telephone unless otherwise indicated on the account application. You may
make an unlimited number of telephone exchanges. Telephone exchanges must be
for a minimum amount of $1,000. Telephone exchanges may be made into new or
existing Fund accounts, and all accounts involved in telephone exchanges
must have the same ownership registration. You may request a telephone
exchange by calling toll-free (800) 328-4552 (Automated Investor Access
Line) or 800-990-6290 (investor representative).
The Funds reserve the right to refuse a wire or telephone redemption or
exchange if it is reasonably believed to be unauthorized. Procedures for
redeeming or exchanging Fund shares by wire or telephone may be modified or
terminated at any time by the Funds. When requesting a redemption or
exchange by telephone, you must have available the correct account
registration and account number or tax identification number. All telephone
redemptions and exchanges are recorded and written confirmations are
subsequently mailed to the address of record. Neither the Funds nor LBSC
will be liable for following redemption or exchange instructions received by
telephone, which are reasonably believed to be genuine, and the shareholder
will bear the risk of loss in the event of unauthorized or fraudulent
telephone instructions. The Funds and LBSC will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. The
Funds and/or LBSC may be liable for any losses due to unauthorized or
fraudulent instructions in the absence of following these procedures.
REDEEMING SHARES
One of the advantages of owning shares in The Lutheran Brotherhood
Family of Funds is the rapid access you have to your investment. Once we
receive your request for redemption, we will redeem your shares at the next
NAV on any day on which the NYSE is open for business, or any other day as
required under the rules of the Securities and Exchange Commission.
WAYS TO REDEEM
You may redeem your shares:
o in writing
o through Redeem-by-Phone
o on the Internet
o through the Systematic Withdrawal Plan
WRITTEN REQUESTS
To redeem all or some of your shares, send a written request to:
Lutheran Brotherhood Securities Corp.
P.O. Box 9491
Minneapolis, Minnesota 55440-9491
The signature of an authorized representative of your institution must
be guaranteed by:
o a trust company or commercial bank;
o a savings association;
o a credit union; or
o a securities broker, dealer, exchange, association, or clearing
agency.
We will not accept signatures that are notarized by a notary public.
Once your redemption request is received in good order, the Fund
normally will send the proceeds of such redemption within one business day.
However, if making payment could adversely affect a Fund, the Fund may defer
payment for up to seven days or a longer period if permitted. Please note
that a Fund will hold payment of redemption proceeds until your purchase
check clears, which may take up to 15 days.
REDEEM BY PHONE
If you have completed an Account Features Request, you may redeem any
amount of at least $1,000 by calling us at 800-328-4552 to use our Automated
Investor Access Line or 800-990-6290 to speak with an investor
representative. We will send you a check or send the funds electronically
to your commercial bank, savings bank or credit union by the third business
day after your redemption request. This feature is NOT available on IRA or
other Tax Deferred Plans.
INTERNET
You may redeem some or all of your shares by using our website:
www.luthbro.com.
SYSTEMATIC WITHDRAWAL PLAN
If you own shares with a value of at least $150,000, you may order
automatic monthly, quarterly, semiannual or annual redemptions in any
amount. The proceeds will be sent to you, your designated payee, or your
commercial bank, savings bank or credit union.
Income dividends and capital gains distributions will continue to be
reinvested in additional Fund shares. Shares will be redeemed as necessary
to make automatic payments to the shareholder.
DIVIDENDS ON REDEMPTION
If you redeem all your shares, the redemption proceeds will include all
dividends to which you have become entitled since they were last paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the
Funds may redeem shares in any account if the value of Institutional Class
shares in the account falls below the required minimum amount for your type
of account.
Before shares are redeemed to close an account, you will be notified in
writing and allowed 60 days to purchase additional shares. Shares will not
be redeemed if the account's value drops below the minimum only because of
market fluctuations.
DISTRIBUTIONS
Dividends. Dividends are declared and paid as follows:
- declared daily and paid monthly LB Money Market Fund
- declared monthly and paid monthly LB High Yield Fund
LB Income Fund
LB Municipal Bond Fund
- declared and paid quarterly LB Fund
- declared and paid annually LB Opportunity Growth Fund
LB Mid Cap Growth Fund
LB World Growth Fund
Income dividends are derived from investment income, including
dividends, interest, realized short-term capital gains, and certain foreign
currency gains received by a Fund.
Capital Gains. Capital gains distributions, if any, will usually be
declared in December.
Distribution Options. When completing your application, you must select
one of the following three options for dividends and capital gains
distributions:
o Full Reinvestment. Both dividends and capital gains distributions
from a Fund will be reinvested in additional shares of the same
class
of that Fund. This option will be selected automatically unless one
of the other options is specified.
o Full Reinvestment in a Different Fund. You may also choose to have
your dividends reinvested into an existing account in another Fund
within The Lutheran Brotherhood Family of Funds.
o All Cash. Dividends and capital gains distributions will be paid in
cash. Your request to receive all or a portion of your dividends
and
other distributions in cash must be received by LBSC at least ten
days before the record date of the dividend or other distribution.
o Part Cash and Part Reinvestment. You may request to have part of
your
dividends part in cash and part of your dividends reinvested in
additional shares of the same class of that Fund.
Distributions paid in shares will be credited to your account at the
next determined NAV per share.
TAXES
In general, any dividends and short-term capital gains distributions
you receive from a Fund are taxable as ordinary income. Distributions of
other net capital gains by a Fund are generally taxable as capital gains -
in most cases, at different rates from those that apply to ordinary income.
We expect that dividends from the LB Opportunity Growth Fund, LB Mid Cap
Growth Fund, LB World Growth Fund, and LB Fund will consist primarily of
capital gains and that dividends from the LB High Yield Fund, LB Income
Fund, and LB Money Market Fund will consist primarily of ordinary income.
The tax you pay on a given capital gains distribution generally depends
on how long a Fund has held the portfolio securities it sold. It does not
depend on how long you have owned your Fund shares or whether you reinvest
your distributions or take them in cash.
Every year, the Funds will send you information detailing the amount of
ordinary income and capital gains distributed to you for the previous year.
The sale of shares in your account may produce a gain or loss, and is a
taxable event. For tax purposes, an exchange between Funds is the same as a
sale. You will not be required to pay federal income tax on exchanges of
Class A or Class B shares of a Fund for Institutional Class Shares of the
same Fund.
Your investment in the Funds could have additional tax consequences.
Please consult your tax professional for assistance.
By law, the Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
LB MUNICIPAL BOND FUND. You will not be required to pay federal income
tax on dividends of LB Municipal Bond Fund that represent interest that the
Fund earns on tax-exempt securities. The Fund may, however, invest a
portion of its assets in securities that generate income that is not exempt
from federal income tax. In addition, income of the Fund that is exempt
from federal income tax may be subject to state and local income tax. Any
capital gains distributed by LB Municipal Bond Fund may be taxable.
LB WORLD GROWTH FUND. Foreign investments pose special tax issues for
the LB World Growth Fund and its shareholders. For example, certain gains
and losses from currency fluctuations may be taxable as ordinary income.
Also, certain foreign countries withhold some interest and dividends that
otherwise would be payable to the LB World Growth Fund. If the amount
withheld is material, shareholders may be able to claim a foreign tax
credit.
OTHER SECURITIES AND INVESTMENT PRACTICES
The principal investment strategies and risk factors of each Fund are
outlined beginning on page __. The Funds may also invest in other
securities and engage in other practices. Below are brief discussions of
some of these securities, other practices in which certain of the Funds may
engage, and their associated risks.
REPURCHASE AGREEMENTS. Each of the Funds may buy securities with the
understanding that the seller will buy them back with interest at a later
date. If the seller is unable to honor its commitment to repurchase the
securities, the Fund could lose money.
WHEN-ISSUED SECURITIES. Each Fund may invest in securities prior to
their date of issue. These securities could fall in value by the time they
are actually issued, which may be any time from a few days to over a year.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. LB High Yield Fund, LB
Income Fund, and LB Money Market Fund may invest in mortgage-backed and
asset-backed securities. Mortgage-backed securities are securities that are
backed by pools of mortgages and which pay income based on the payments of
principal and income they receive from the underlying mortgages. Asset-
backed securities are similar but are backed by other assets, such as pools
of consumer loans. Both are sensitive to interest rate changes as well as
to changes in the redemption patterns of the underlying securities. If the
principal payment on the underlying asset is repaid faster or slower than
the holder of the mortgage-backed or asset-backed security anticipates, the
price of the security may fall, especially if the holder must reinvest the
repaid principal at lower rates or must continue to hold the securities when
interest rates rise.
ZERO COUPONS. Each of the Funds may invest in zero coupon securities.
A zero coupon security is a debt security that is purchased and traded at
discount to its face value because it pays no interest for some or all of
its life. Interest, however, is reported as income to the Fund that has
purchased the security and the Fund is required to distribute to
shareholders an amount equal to the amount reported. Those distributions
may require the Fund to liquidate portfolio securities at a disadvantageous
time.
FOREIGN SECURITIES. Each of the Funds may invest in foreign
securities. Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic
risks, lack of reliable information and fluctuations in currency exchange
rates. These risks are usually higher in less developed countries. Each of
these Funds except the LB Money Market Fund may use foreign currencies and
related instruments to hedge its foreign investments.
In addition, foreign securities may be more difficult to resell than
comparable U.S. securities because the markets for foreign securities are
less efficient. Even where a foreign security increases in price in its
local currency, the appreciation may be diluted by the negative effect of
exchange rates when the security's value is converted to U.S. dollars.
Foreign withholding taxes also may apply and errors and delays may occur in
the settlement process for foreign securities.
RESTRICTED AND ILLIQUID SECURITIES. Each of the Funds may invest in
restricted or illiquid securities. Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and
price. Some of these securities are new and complex, and trade only among
institutions. The markets for these securities are still developing and may
not function as efficiently as established markets. Owning a large
percentage of restricted or illiquid securities could hamper a Fund's
ability to raise cash to meet redemptions. Also, because there may not be
an established market price for these securities, the Fund may have to
estimate their value, which means that their valuation (and, to a much
smaller extent, the valuation of the Fund) may have a subjective element.
SECURIITES LENDING. Each of the Funds except the LB Money Market Fund
may seek additional income by lending portfolio securities to qualified
institutions. By reinvesting any cash collateral it receives in these
transactions, a Fund could realize additional gains or losses. If the
borrower fails to return the securities and the invested collateral has
declined in value, the Fund could lose money.
DERIVATIVES. Each of the Funds except the LB Money Market Fund may
invest in derivatives. Derivatives, a category that includes options and
futures, are financial instruments whose value derives from another
security, an index or a currency. Each Fund may use derivatives for hedging
(attempting to offset a potential loss in one position by establishing an
interest in an opposite position). This includes the use of currency-based
derivatives for hedging its positions in foreign securities. Each Fund may
also use derivatives for speculation (investing for potential income or
capital gain).
While hedging can guard against potential risks, it adds to the fund's
expenses and can eliminate some opportunities for gains. There is also a
risk that a derivative intended as a hedge may not perform as expected.
The main risk with derivatives is that some types can amplify a gain or
loss, potentially earning or losing substantially more money than the actual
cost of the derivative.
With some derivatives, whether used for hedging or speculation, there
is also the risk that the counterpart may fail to honor its contract terms,
causing a loss for the Fund. In addition, suitable derivative investments
for hedging or speculative purposes may not be available.
HIGH-YIELD BONDS. LB Opportunity Growth Fund, LB Mid Cap Growth Fund,
LB World Growth Fund, LB Fund, LB High Yield Fund and LB Income Fund may
invest in high-yield bonds. High-yield bonds are debt securities rated
below BBB by S&P or Baa by Moody's. To the extent that a Fund invests in
high-yield bonds, it takes on certain risks:
o The risk of a bond's issuer defaulting on principal or interest
payments is greater than on higher quality bonds.
o Issuers of high-yield bonds are less secure financially and are more
likely to be hurt by interest rate increases and declines in the
health of the issuer or the economy.
SHORT-TERM TRADING. The investment strategy for the LB Opportunity
Growth Fund, LB Mid Cap Growth Fund, LB World Growth Fund, LB High Yield
Fund, and LB Income Fund at times may include short-term trading. While
each other Fund ordinarily does not trade securities for short-term profits,
it will sell any security at any time it believes best, which may result in
short-term trading. Short-term trading can increase a Fund's transaction
costs and may increase your tax liability.
INTERNATIONAL EXPOSURE. Many U.S. companies in which the LB
Opportunity Growth Fund, LB Mid Cap Growth Fund, LB World Growth Fund, LB
Fund, LB High Yield Fund, and LB Income Fund may invest generate significant
revenues and earnings from abroad. As a result, these companies and the
prices of their securities may be affected by weaknesses in global and
regional economies and the relative value of foreign currencies to the U.S.
dollar. These factors, taken as a whole, could adversely affect the price
of Fund shares.
BONDS. The value of any bonds held by a Fund is likely to decline when
interest rates rise; this risk is greater for bonds with longer maturities.
A less significant risk is that a bond issuer could default on principal or
interest payments, possibly causing a loss for the Fund.
COMPUTER RISKS. LB Research does not currently anticipate that
computer problems related to the year 2000 or to the conversion of various
European currencies into a single currency, the Euro, will have a material
effect on any Fund. However, there can be no assurances in this area,
including the possibility that year 2000 computer problems could negatively
affect communications systems, the investment markets or the economy in
general or that Euro conversion-related computer problems could negatively
affect the European investment markets or the global economy.
SECURITIES RATINGS. When fixed-income securities are rated by one or
more independent rating agencies, a Fund uses these ratings to determine
bond quality. Investment grade bonds are those that are rated within or
above the BBB major rating category by S&P or the Baa major rating category
by Moody's, or unrated but considered of equivalent quality by the Fund's
adviser. High-yield bonds are below investment grade bonds in terms of
quality.
In cases where a bond is rated in conflicting categories by different
rating agencies, a Fund (other LB Money Market Fund) may choose to follow
the higher rating. If a bond is unrated, the Fund may assign it to a given
category based on its own credit research. If a rating agency downgrades a
security, the Fund will determine whether to hold or sell the security,
depending on all of the facts and circumstances at that time.
DEFENSIVE INVESTING. During unusual market conditions, each Fund
(other than LB Money Market Fund) may place up to 100% of its total assets
in cash or quality short-term debt securities. To the extent that the Fund
does this, it is not pursuing its investment objective.
FINANCIAL HIGHLIGHTS
The financial highlights tables for each of the Funds are intended to
help you understand the Funds' financial performance for the past 5 years
or, if shorter, the period of the Funds' operations. The total returns in
the table represent the rate that an investor would have earned or lost on
an investment in a Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP, independent accounts, whose report, along with the Funds' financial
statements, are included in the Annual Report to Shareholders for the fiscal
year ended October 31, 1998, which is available upon request. Shares of the
Funds had no class designations until October 31, 1997, when designations
were assigned based on the sales charges, Rule 12b-1 fees and shareholder
servicing fees applicable to shares sold after that date.
<PAGE>
<TABLE>
<CAPTION>
LB OPPORTUNITY GROWTH FUND
INSTITUTIONAL
CLASS SHARES CLASS A SHARES
-------------- --------------------------------------------------------
Year ended Year Ended Year Ended Year Ended Year Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..... $12.97 $13.62 $13.83 $10.76 $10.66
------ ------ ------ ------ ------
Investment Operations:
Net Investment Loss.................... (0.03) (0.07) (0.11) (0.09) (0.06)
Net Realized and Unrealized Gain
(Loss) on Investment................. (3.15) .91 2.63 3.16 0.16
------- ------ ------ ------ ------
Total from Investment Operations......... (3.18) .84 2.52 3.07 0.10
------- ------ ------ ------ ------
Less Distributions:
Distributions from Net Realized
Gain on Investments.................. (0.44) (1.49) (2.73) -- --
------- ------ ------ ------ ------
Net Asset Value, End of Period........... $9.35 $12.97 $13.62 $13.83 $10.76
======= ====== ====== ====== ======
Total Investment Return at Net Asset
Value(%) (25.02)% (7.52)% 21.27% 28.53% 0.94%
Net Assets, End of Period (in millions).. $5.4 $311.4 $265.8 $165.7 $99.6
Ratio of Expenses to Average Net
Assets (%) 1.15% 1.29% 1.28% 1.43% 1.66%
Ratio of Net Investment Loss to
Average Net Assets (%)................. (0.26%) (0.60%) (0.92%) (0.88%) (0.83%)
Portfolio Turnover Rate (%)............... 155% 136% 176% 213% 64%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB MID CAP GROWTH FUND
INSTITUTIONAL
CLASS SHARES CLASS A SHARES
-------------- --------------------------------
For the period from
May 30, 1997
Year Ended (effective date)
10/31/98 to October 31, 1997
----------- ------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ...................... $10.33 $ 9.25
------ --------
Investment Operations:
Net Investment Loss ....................................... 0.39 (0.02)
Net Realized and Unrealized Gain
(Loss) on Investments ................................... (0.90) 1.10
------ --------
Total from Investment Operations .......................... (0.51) 1.08
------ --------
Less Distributions from:
Net Investment Income......................... (0.37) 0.00
Net Realized Gains on Investments............. (0.24) 0.00
----- --------
Total Distributions................................ (0.61) 0.00
----- --------
Net Asset Value, End of Period .................... $9.21 $ 10.33
====== ========
Total Investment Return at
Net Asset Value % ...................................... (5.06%) 11.68%
Net Assets, End of Period ($ in millions) ................. $0.7 $ 14.6
Ratio of Expenses to Average
Net Assets (1)............................................ 1.70% 1.95%
Ratio of Net Investment Loss to
Average Net Assets (1).................................... 2.18% (0.84%)
Portfolio Turnover Rate ................................... 436% 94%
- -----------------
(1) Effective May 30, 1997, LB Research voluntarily agreed to limit the expenses prospectively to 1.95% for Class
A
shares, and effective October 31, 1997, LB Research voluntarily lowered the expense limit to 1.70% for
Institutional class shares. Had LB Research not undertaken such action, for Class A shares, the ratio of
expenses
to average net assets would have been 2.19%, and the ratio of net investment loss to average net assets would
have been (1.08%) for the period from May 30, 1997 to October 31, 1997; for Institutional Class shares, the
ratio
of expenses to average net assets would have been 1.97% and the ratio of net investment loss to average net
assets
would have been 1.91% for the year ended October 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB WORLD GROWTH FUND
INSTITUTIONAL
CLASS SHARES CLASS A SHARES
-------------- -------------------------------------------------
- ---
For the Period From
September 5, 1995
Year Ended Year Ended Year Ended (effective date) to
10/31/98 10/31/97 10/31/96 October 31, 1995
------------ ----------- ---------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $10.09 $9.48 $8.44 $8.50
------ ----- ----- -----
Income From Investment Operations:
Net Investment Income......................... 0.04 0.02 0.04 0.01
Net Realized and Unrealized Gain (Loss)
on Investments............................. 0.66 0.67 1.02 (0.07)
------ ----- ----- -----
Total from Investment Operations................... 0.70 0.69 1.06 (0.06)
------ ----- ----- -----
Less Distributions from:
Net Investment Income......................... (0.04) (0.04) (0.02) --
Net Realized Gains on Investments............. (0.14) (0.04) -- --
------ ----- ----- -----
Total Distributions................................ (0.18) (0.08) (0.02) --
------ ----- ----- -----
Net Asset Value, End of Period..................... $10.61 $10.09 $9.48 $8.44
====== ===== ===== =====
Total Investment Return at Net Asset Value (%) 7.20% 7.38% 12.53% (0.71%)
Net Assets, End of Period (in millions)............ $10.4 $75.1 $52.9 $14.0
Ratio of Expenses to Average Net Assets.(1)........ 1.61% 1.82% 1.95% 1.95%
Ratio of Net Investment Income to Average Net Assets(1) 0.31% 0.17% 0.67% 1.60%
Portfolio Turnover Rate............................... 20% 17% 11% 0%
- ------------------
(1) Effective September 5, 1995, LB Research Corp. had voluntarily undertaken to limit the Fund's expense
ratio at 1.95%. Had LB Research not undertaken such action, the ratio of expenses to average net assets
would have been 2.13% and 2.89%, and the ratio of net investment income to average net assets would have
been 0.49% and 0.66%, respectively, for the year ended October 31, 1996 and for the period from September 5,
1995 to October 31, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB FUND
INSTITUTIONAL
CLASS SHARES CLASS A SHARES
-------------- --------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
--------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $26.98 $ 23.07 $ 21.19 $17.67 $18.85
------ ------- ------- ------ ------
Investment Operations:
Net Investment Income...... 0.20 0.19 0.20 0.22 0.19
Net Realized and Unrealized
Gain (Loss) on Investments. 3.57 5.68 3.33 3.52 (0.20)
------ ------- ------- ------ -------
Total from Investment
Operations 3.77 5.87 3.53 3.74 (0.01)
------ ------- ------- ------ ------
Less Distributions from:
Net Investment Income... (0.18) (0.20) (0.20) (0.22) (0.20)
Net Realized Gain on
Investments............. (2.62) (1.76) (1.45) -- (0.97)
------ ------- ------- ------ ------
Total Distributions........ (2.80) (1.96) (1.65) (0.22) (1.17)
------ ------- ------- ------ ------ ------
Net Asset Value End of
Period.................. $27.95 $26.98 $ 23.07 $21.19 $17.67
====== ======= ======= ====== ======
Total Investment Return a
Net Asset Value(%)... 15.41% 26.99% 17.61% 21.34% (0.11%)
Net Assets, End of Period
(in millions)........... $28.7 $ 989.8 $ 768.8 $645.5 $548.6
Ratio of Expenses to
Average Net Assets (%)(1) 0.62% 0.88% 0.97% 1.02% 1.04%
Ratio of Net Investment
Income to Average Net
Assets (%) (1).......... 0.73% 0.76% 0.94% 1.15% 1.10%
Portfolio Turnover Rate (%).... 57% 54% 91% 127% 234%
- -----------------------
(1) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory
fees
payable by the LB Fund. Had LB Research not undertaken such action, for Class A shares, the ratio of expenses
to
average net assets would have been 0.92%, and the ratio of net investment income to average net assets would
have
been 0.72% for the year ended October 31, 1997; for Institutional Class shares, the ratio of expenses to
average
net assets would have been 0.66% and the ratio of net investment income would have been 0.67% for the year
ended
October 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB HIGH YIELD FUND
INSTITUTIONAL
CLASS SHARES CLASS A SHARES
-------------- -------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
--------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...... $ 9.58 $ 9.21 $ 9.03 $ 8.86 $ 9.73
------ ------ ------ ------ -----
Investment Operations:
Net Investment Income..... 0.88 0.85 0.84 0.83 0.83
Net Realized and
Unrealized Gain (Loss)
on Investments........... (1.31) 0.41 0.17 0.24 (0.86)
------ ------ ------ ----- ------
Total from Investment
Operations............... (0.43) 1.26 1.01 1.07 (0.03)
------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income.... (0.88) (0.86) (0.83) (0.85) (0.82)
Net Realized Gain
on Investments........... (0.18) (0.03) -- (0.05) (0.02)
------ ------ ----- ------ ------
Total Distributions....... (1.06) (0.89) (0.83) (0.90) (0.84)
------ ------ ------ ------ ------
Net Asset Value End
of Period................ $ 8.09 $ 9.58 $ 9.21 $ 9.03 $ 8.86
====== ====== ====== ====== ======
Total Investment
Return at Net
Asset Value(%)........... (5.33%) 14.43% 11.64% 12.93% (0.47%)
Net Assets, End of
Period (in millions)..... $52.3 $862.9 $703.1 $594.3 $499.6
Ratio of Expenses to
Average Net Assets (%)(1) 0.59% 0.84% 0.91% 0.93% 0.95%
Ratio of Net Investment
Income to Average
Net Assets (%)(1)........ 9.57% 9.14% 9.23% 9.53% 8.92%
Portfolio Turnover Rate... 73% 113% 104% 71% 50%
- -------------------
(1) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory
fees
payable by the LB High Yield Fund. Had LB Research not undertaken such action, for Class A Shares, the ratio
of
expenses to average net assets would have been 0.88%, and the ratio of net investment income to average net
assets
would have been 9.10% for the year ended October 31, 1997; for Institutional Class shares, the ratio of
expenses to
average net assets would have been 0.64% and the ratio of net investment income would have been 9.52% for the
year
ended October 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB INCOME FUND
INSTITUTIONAL
CLASS SHARES CLASS A SHARES
-------------- -------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period....... $ 8.61 $ 8.50 $ 8.72 $ 8.01 $ 9.43
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income...... 0.56 0.55 0.57 0.59 0.58
Net Realized and
Unrealized Gain (Loss)
on Investments............ 0.16 0.11 (0.19) 0.69 (1.19)
------ ------ ------ ------ ------
Total from Investment
Operations................ 0.72 0.66 0.38 1.28 (0.61)
------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income..... (0.56) (0.55) (0.60) (0.57) (0.56)
Net Realized Gain on
Investments............... -- -- -- -- (0.25)
------ ------ ------ ----- ------
Total Distributions........ (0.56) (0.55) (0.60) (0.57) (0.81)
------ ------ ------ ------ ------
Net Asset Value End of
Period.................... $ 8.77 $ 8.61 $ 8.50 $ 8.72 $ 8.01
====== ====== ===== ====== ======
Total Investment Return
at Net Asset
Value(%) .... 8.69% 8.05% 4.56% 16.53% (6.81%)
Net Assets, End of
Period (in millions)..... $26.6 $778.0 $871.0 $942.1 $907.2
Ratio of Expenses to
Average Net Assets (%)(1). 0.55% 0.80% 0.83% 0.83% 0.82%
Ratio of Net Investment
Income to Average
Net Assets (%)(1)........ 6.41% 6.44% 6.61% 7.01% 6.77%
Portfolio Turnover Rate (%).. 98% 97% 142% 131% 155%
- ------------------------
(e) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory
fees
payable by the LB Income Fund. Had LB Research not undertaken such action, for Class A Shares, the ratio of
expenses
to average net assets would have been 0.84%, and the ratio of net investment income to average net assets
would have
been 6.40% for the year ended October 31, 1997; for Institutional Class shares, the ratio of expenses to
average net
assets would have been 0.60% and the ratio of net investment income would have been 6.36% for the year ended
October 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB MUNICIPAL BOND FUND
INSTITUTIONAL
CLASS SHARES CLASS A SHARES
-------------- -----------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......... $ 8.85 $ 8.60 $ 8.58 $ 7.88 $ 9.00
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income.......... 0.46 0.45 0.44 0.45 0.46
Net Realized and Unrealized Gain
(Loss) on Investments....... 0.26 0.24 0.01 0.70 (0.96)
------ ------ ------ ------ ------
Total from Investment Operations. 0.72 0.69 0.45 1.15 0.50
------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income....... (0.46) (0.44) (0.43) (0.45) (0.46)
Net Realized Gain on
Investments............... -- -- -- -- (0.16)
------ ------ ------ ------ ------
Total Distributions............ (0.46) (0.44) (0.43) (0.45) (0.62)
------ ------ ------ ------ ------
Net Asset Value End of Period.. $ 9.11 $ 8.85 $ 8.60 $ 8.58 $ 7.88
====== ====== ===== ====== ======
Total Investment Return at
Net Asset Value(%) 8.39% 8.28% 5.33% 14.97% (5.93%)
Net Assets, End of
Period (in millions)........ $4.0 $591.9 $609.5 $628.7 $595.2
Ratio of Expenses to Average
Net Assets (%)(1)........... 0.44% 0.70% 0.74% 0.74% 0.75%
Ratio of Net Investment Income
to Average Net Assets (%)(1). 5.13% 5.13% 5.14% 5.43% 5.44%
Portfolio Turnover Rate (%).... 14% 18% 33% 36% 38%
- ------------------------
(1) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory
fees
payable by the LB Municipal Bond Fund. Had LB Research not undertaken such action, for Class A shares, the
ratio of
expenses to average net assets would have been 0.74%, and the ratio of net investment income to average net
assets
would have been 5.09% for the year ended October 31, 1997; for Institutional Class shares, the ratio of
expenses to
average net assets would have been 0.49% and the ratio of net investment income would have been 5.08% for the
year
ended October 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LB MONEY MARKET FUND
INSTITUTIONAL
CLASS SHARES CLASS A SHARES
-------------- -------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
10/31/98 10/31/97 10/31/96 10/31/95 10/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset Value,
Beginning of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income.... 0.05 0.05 0.05 0.05 0.03
------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income.... (0.05) (0.05) (0.05) (0.05) (0.03)
------ ------ ------ ------ ------
Net Asset Value,
End of Period. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total Investment Return
at Net Asset Value (%) 5.08% 4.74% 4.63% 4.95% 2.89%
Net Assets, End of
Period (in millions).. $47.3 $469.2 $417.6 $341.1 $276.9
Ratio of Expenses to
Average Net Assets (%)(1). 0.70% 0.95% 1.01% 1.10% 1.10%
Ratio of Net Investment
Income to Average Net
Assets (%)(1). 4.97% 4.64% 4.53% 4.85% 2.85%
- ----------------------
(1) Effective February 1, 1992 through March 31, 1996, LB Research had voluntarily undertaken to limit the Fund's
expense
ratio to 1.10% of annual average daily net assets. Effective April 1, 1996, LB Research voluntarily lowered
the expense
limit prospectively to 0.95% of average daily net assets, and effective October 31, 1997, LB Research
voluntarily lowered
the expense limit for Institutional Class shares prospectively to 0.70%. Had LB Research not undertaken such
action to
limit expenses, for Class A shares, the ratio of expenses to average net assets would have been 1.05%, 1.07%,
1.18%
and 1.36%, and the ratio of net investment income to average net assets would have been 4.35%, 4.47%, 4.77%
and 2.59%,
respectively, for the years ended October 31, 1998, 1997, 1996, 1995, and 1994; for Institutional Class
shares, the
ratio of expenses to average net assets would have been 0.79% and the ratio of net investment income would
have been
4.88% for the year ended October 31, 1998.
</TABLE>
<PAGE>
[Back cover page]
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
(800) 328-4552 Automated Investor Access Line
(800) 990-6290 to speak with an investor representative
www.luthbro.com
o Lutheran Brotherhood Securities Corp.
P.O. Box 9491
Minneapolis, Minnesota 55440-9491
Additional information about these Funds is available in the Statement
of Additional Information dated December 30, 1998 (which is incorporated by
reference into this Prospectus), the Annual Report to Shareholders for the
fiscal year ended October 31, 1998, and Semiannual Report to Shareholders
for the period ended April 30, 1998. In the Funds' annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the performance of each of the Funds during their
last fiscal year. You may request a free copy of the Statement of Additional
Information, the annual report, or the semi-annual report, or you may make
additional requests or inquiries by calling 1-800-990-6290. You may also
review and copy information about the Funds (including the Statement of
Additional Information) at the Public Reference Room of the Securities and
Exchange Commission in Washington, DC. You may get more information about
the Public Reference Room by calling 1-800-SEC-0330. You may also get
information about the Funds at the SEC web site (www.sec.gov), and copies of
the information may be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the SEC, Washington, DC 20549-6009.
1940 Act File No. 811-1467
<PAGE>
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
LUTHERAN BROTHERHOOD FUND
LUTHERAN BROTHERHOOD HIGH YIELD FUND
LUTHERAN BROTHERHOOD INCOME FUND
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
LUTHERAN BROTHERHOOD MONEY MARKET FUND
SERIES OF
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
STATEMENT OF ADDITIONAL INFORMATION
December 30, 1998
TABLE OF CONTENTS
Page
History of the Lutheran Brotherhood Family of Funds......................
Investment Policies and Restrictions.....................................
Fund Management..........................................................
Investment Advisory Services.............................................
Administrative Services..................................................
Distribution and Shareholder Services....................................
Brokerage Transactions...................................................
Code of Ethics...........................................................
Purchasing Shares........................................................
Sales Charges............................................................
Net Asset Value..........................................................
Redeeming Shares.........................................................
Tax Status...............................................................
General Information......................................................
Calculation of Performance Data..........................................
Description of Debt Ratings..............................................
Report of Independent Public Accountants and Financial Statements........
The Lutheran Brotherhood Family of Funds offers eight Funds, each of
which offer three classes of shares: Class A, Class B and Institutional
Class shares. Class A and B shares are offered through a combined prospectus
and Institutional Class shares are offered through a separate prospectus.
Each such prospectus is referred to hereinafter as a "prospectus". This
Statement of Additional Information should be read in conjunction with the
prospectus dated December 30, 1998 for the applicable class of the Lutheran
Brotherhood Opportunity Growth Fund ("LB Opportunity Growth Fund"), Lutheran
Brotherhood Mid Cap Growth Fund ("LB Mid Cap Growth Fund"), Lutheran
Brotherhood World Growth Fund ("LB World Growth Fund"), Lutheran Brotherhood
Fund ("LB Fund"), Lutheran Brotherhood High Yield Fund ("LB High Yield
Fund"), Lutheran Brotherhood Income Fund ("LB Income Fund"), Lutheran
Brotherhood Municipal Bond Fund ("LB Municipal Bond Fund") and Lutheran
Brotherhood Money Market Fund ("LB Money Market Fund"), each a series of The
Lutheran Brotherhood Family of Funds (the "Trust"). This Statement is not a
prospectus itself. To receive a copy of either prospectus, write to Lutheran
Brotherhood Securities Corp., 625 Fourth Avenue South, Minneapolis,
Minnesota 55415 or call toll-free (800) 328-4552 for Automated Investor
Access Line or (800) 990-6290 to speak with an Investor Representative.
HISTORY OF THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
Each Fund in The Lutheran Brotherhood Family of Funds is a diversified
series of The Lutheran Brotherhood Family of Funds (the "Trust"), an open-
end management investment company. All the Funds, except the LB World
Growth Fund and LB Mid Cap Growth Fund, were organized in 1993 as series of
The Lutheran Brotherhood Family of Funds, a Delaware business trust. Each of
those Funds is the successor to a fund of the same name that previously
operated as a separate corporation or trust pursuant to a reorganization
that was effective as of November 1, 1993. The LB World Growth Fund and LB
Mid Cap Growth Fund began operating as a series of the LB Family of Funds on
September 5, 1995 and May 30, 1997, respectively. The fiscal year end of the
Trust and each Fund is October 31. Prior to October 31, 1997, the shares of
the Funds had no specific class designations. As of that date, Class A,
Class B and Institutional Class shares were authorized by the Board of
Trustees of the Trust. The Trust has reserved the right to create other
classes of shares in the future.
INVESTMENT POLICIES AND RESTRICTIONS
ADDITIONAL INVESTMENT PRACTICES
In addition to those practices stated in the Prospectus, various of the
Funds may purchase the following securities or may engage in the following
transactions.
OTHER SECURITIES
The LB Opportunity Growth Fund, the LB Mid Cap Growth Fund, the LB
World Growth Fund, and the LB Fund may each invest in other types of
securities, including bonds, preferred stocks, convertible bonds,
convertible preferred stocks, warrants, American Depository Receipts
(ADR's), and other debt or equity securities. In addition, each of these
Funds may invest in U.S. Government securities or cash, and the LB World
Growth Fund may also invest in European Depository Receipts (EDR's) and the
securities of foreign investment trusts and or trusts. At no time will the
LB Opportunity Growth Fund, LB Mid Cap Growth Fund, or LB World Growth Fund
invest more than 5% of its net assets in debt obligations. In calculating
this per cent limitation for LB Opportunity Growth and LB World Growth Fund,
cash and U.S. Government securities are excluded.
The LB Opportunity Growth Fund, the LB Mid Cap Growth Fund, the LB
World Growth Fund, and the LB Fund will not use any minimum level of credit
quality. Debt obligations may be rated less than investment grade, which is
defined as having a quality rating below "Baa", as rated by Moody's
Investors Service, Inc. ("Moody's"), or below "BBB", as rated by Standard &
Poor's Corporation ("S&P"). For a description of Moody's and S&P's ratings,
see "Description of Debt Ratings". Securities rated below investment grade
(sometimes referred to as "high yield" or "junk bonds") are considered to be
speculative and involve certain risks, including a higher risk of default
and greater sensitivity to interest rate and economic changes.
The LB High Yield Fund and the LB Income Fund may also invest in common
stocks, warrants to purchase stocks, bonds or preferred stocks convertible
into common stock, and other equity securities. No more than 20% of the LB
High Yield Fund's assets will be invested in equity securities. No more than
10% of the LB Income Fund's assets will be invested in common stocks and no
more than 25% of its assets will be invested in high yield securities,
common stocks, and bonds and preferred stocks that are convertible into
common stock.
The LB Municipal Bond Fund does not generally intend to purchase any
securities which would cause more than 25% of the value of its total assets
to be invested in the securities of governmental subdivisions located in any
one state, territory or possession of the United States. The Fund may invest
more than 25% of the value of its total assets in industrial development
bonds. The Fund also may invest up to 25% of its total assets in securities
issued in connection with the financing of projects with similar
characteristics, such as toll road revenue bonds, housing revenue bonds or
electric power project revenue bonds, or in industrial development revenue
bonds which are based, directly or indirectly, on the credit of private
entities in any one industry.
BANK INSTRUMENTS
The LB Money Market Fund may invest in bank instruments including, but
not limited to, certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are generally short-term (i.e., less than
one year), interest-bearing negotiable certificates issued by commercial
banks or savings and loan associations against funds deposited in the
issuing institution. A banker's acceptance is a time draft drawn on a
commercial bank by a borrower, usually in connection with an international
commercial transaction (to finance the import, export, transfer or storage
of goods). A banker's acceptance may be obtained from a domestic or foreign
bank including a U.S. branch or agency of a foreign bank. The borrower is
liable for payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most acceptances
have maturities of six months or less and are traded in secondary markets
prior to maturity. Time deposits are non-negotiable deposits for a fixed
period of time at a stated interest rate.
U.S. branches of foreign banks are offices of foreign banks and are not
separately incorporated entities. They are chartered and regulated either
federally or under state law. U.S. federal branches of foreign banks are
chartered and regulated by the Comptroller of the Currency, while state
branches and agencies are chartered and regulated by authorities of the
respective state or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however,
not all such branches elect FDIC insurance. U.S. branches of foreign banks
can maintain credit balances, which are funds received by the office
incidental to or arising out of the exercise of their banking powers and can
exercise other commercial functions, such as lending activities.
Investing in foreign branches of U.S. banks and U.S. branches of
foreign banks may involve risks. These risks may include future unfavorable
political and economic developments, possible withholding or confiscatory
taxes, seizure of foreign deposits, currency controls, interest limitations
and other governmental restrictions that might affect payment of principal
or interest, and possible difficulties pursuing or enforcing claims against
banks located outside the U.S. Additionally, foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or other regulatory requirements and practices comparable to U.S.
issuers, and there may be less public information available about foreign
banks and their branches and agencies.
REPURCHASE AGREEMENTS
Each of the Funds may engage in repurchase agreement transactions in
pursuit of its investment objective. A repurchase agreement consists of a
purchase and a simultaneous agreement to resell for later delivery at an
agreed upon price and rate of interest U.S. Government obligations. The Fund
or its custodian will take possession of the obligations subject to a
repurchase agreement. If the original seller of a security subject to a
repurchase agreement fails to repurchase the security at the agreed upon
time, the Fund could incur a loss due to a drop in the market value of the
security during the time it takes the Fund to either sell the security or
take action to enforce the original seller's agreement to repurchase the
security. Also, if a defaulting original seller filed for bankruptcy or
became insolvent, disposition of such security might be delayed by pending
court action. The Fund may only enter into repurchase agreements with banks
and other recognized financial institutions such as broker/dealers which are
found by LB Research (or a sub-advisor) to be creditworthy.
RESTRICTED SECURITIES
The Funds may buy or sell restricted securities, including securities
that meet the requirements of Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Securities may be resold pursuant to Rule 144A
under certain circumstances only to qualified institutional buyers as
defined in the rule, and the markets and trading practices for such
securities are relatively new and still developing; depending on the
development of such markets, such Rule 144A Securities may be deemed to be
liquid as determined by or in accordance with methods adopted by the
Trustees. Under such methods the following factors are considered, among
others: the frequency of trades and quotes for the security, the number of
dealers and potential purchasers in the market, market making activity, and
the nature of the security and marketplace trades. Investments in Rule 144A
Securities could have the effect of increasing the level of a Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, a Fund may be
adversely impacted by the subjective valuation of such securities in the
absence of an active market for them. Restricted securities that are not
resalable under Rule 144A may be subject to risks of illiquidity and
subjective valuations to a greater degree than Rule 144A securities.
REVERSE REPURCHASE AGREEMENTS
Each of the Funds also may enter into reverse repurchase agreements,
which are similar to borrowing cash. A reverse repurchase agreement is a
transaction in which the Fund transfers possession of a portfolio instrument
to another person, such as a financial institution, broker or dealer, in
return for a percentage of the instrument's market value in cash, with an
agreement that at a stipulated date in the future the Fund will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase agreements
may enable the Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous, but the ability to enter into
reverse repurchase agreements does not assure that the Fund will be able to
avoid selling portfolio instruments at a disadvantageous time. The Fund will
engage in reverse repurchase agreements which are not in excess of 60 days
to maturity and will do so to avoid borrowing cash and not for the purpose
of investment leverage or to speculate on interest rate changes. When
effecting reverse repurchase agreements, assets of the Fund in a dollar
amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued and delayed
delivery basis. When-issued and delayed delivery transactions arise when
U.S. Government obligations and other types of securities are bought by the
Fund with payment and delivery taking place in the future. The settlement
dates of these transactions, which may be a month or more after entering
into the transaction, are determined by mutual agreement of the parties.
There are no fees or other expenses associated with these types of
transactions other than normal transaction costs. To the extent a Fund
engages in when-issued and delayed delivery transactions, it will do so for
the purpose of acquiring portfolio instruments consistent with its
investment objective and policies and not for the purpose of investment
leverage or to speculate on interest rate changes. On the settlement date,
the value of such instruments may be less than the cost thereof. When
effecting when-issued and delayed delivery transactions, cash, cash
equivalents or high grade debt obligations of a dollar amount sufficient to
make payment for the obligations to be purchased will be segregated at the
trade date and maintained until the transaction has been settled.
LENDING SECURITIES (ALL FUNDS EXCEPT THE LB MONEY MARKET FUND)
Consistent with applicable regulatory requirements, each of the Funds
may from time to time lend the securities it holds to broker-dealers,
provided that such loans are made pursuant to written agreements and are
continuously secured by collateral in the form of cash, U.S. Government
securities, irrevocable standby letters of credit or other liquid securities
in an amount at all times equal to at least the market value of the loaned
securities plus the accrued interest and dividends. For the period during
which the securities are on loan, the lending Fund will be entitled to
receive the interest and dividends, or amounts equivalent thereto, on the
loaned securities and a fee from the borrower or interest on the investment
of the cash collateral. The right to terminate the loan will be given to
either party subject to appropriate notice. Upon termination of the loan,
the borrower will return to the Fund securities identical to the loaned
securities.
The primary risk in lending securities is that the borrower may become
insolvent on a day on which the loaned security is rapidly increasing in
value. In such event, if the borrower fails to return the loaned security,
the existing collateral might be insufficient to purchase back the full
amount of the security loaned, and the borrower would be unable to furnish
additional collateral. The borrower would be liable for any shortage, but
the lending Fund would be an unsecured creditor with respect to such
shortage and might not be able to recover all or any thereof. However, this
risk may be minimized by a careful selection of borrowers and securities to
be lent and by monitoring collateral.
No Fund will lend securities to broker-dealers affiliated with LB
Research or a sub-advisor. LB Research believes that this will not affect
the Fund's ability to maximize its securities lending opportunities. No Fund
may lend any security or make any other loan if, as a result, more than one-
third of its total assets would be lent to other parties.
PUT AND CALL OPTIONS (ALL FUNDS EXCEPT THE LB MONEY MARKET FUND)
Selling ("Writing" Covered Call Options: Certain of the Funds may from
time to time sell ("write") covered call options on any portion of its
portfolio as a hedge to provide partial protection against adverse movements
in prices of securities in those Funds and, subject to the limitations
described below, for the non- hedging purpose of attempting to create
additional income. A call option gives the buyer of the option, upon payment
of a premium, the right to call upon the writer to deliver a specified
amount of a security on or before a fixed date at a predetermined ("strike")
price. As the writer of a call option, a Fund assumes the obligation to
deliver the underlying security to the holder of the option on demand at the
strike price.
If the price of a security hedged by a call option falls below or
remains below the strike price of the option, a Fund will generally not be
called upon to deliver the security. A Fund will, however, retain the
premium received for the option as additional income, offsetting all or part
of any decline in the value of the security. If the price of a hedged
security rises above or remains above the strike price of the option, the
Fund will generally be called upon to deliver the security. In this event, a
Fund limits its potential gain by limiting the value it can receive from the
security to the strike price of the option plus the option premium.
Buying Call Options: Certain of the Funds may also from time to time
purchase call options on securities in which those Funds may invest. As the
holder of a call option, a Fund has the right to purchase the underlying
security or currency at the exercise price at any time during the option
period (American style) or at the expiration of the option (European style).
A Fund generally will purchase such options as a hedge to provide protection
against adverse movements in the prices of securities which the Fund intends
to purchase. In purchasing a call option, a Fund would realize a gain if,
during the option period, the price of the underlying security increased by
more than the amount of the premium paid. A Fund would realize a loss equal
to all or a portion of the premium paid if the price of the underlying
security decreased, remained the same, or did not increase by more than the
premium paid.
Buying Put Options: Certain of the Funds may from time to time purchase
put options on any portion of its portfolio. A put option gives the buyer of
the option, upon payment of a premium, the right to deliver a specified
amount of a security to the writer of the option on or before a fixed date
at a predetermined ("strike") price. A Fund generally will purchase such
options as a hedge to provide protection against adverse movements in the
prices of securities in the Fund. In purchasing a put option, a Fund would
realize a gain if, during the option period, the price of the security
declined by an amount in excess of the premium paid. A Fund would realize a
loss equal to all or a portion of the premium paid if the price of the
security increased, remained the same, or did not decrease by more than the
premium paid.
Options on Foreign Currencies: The LB World Growth Fund may also write
covered call options and purchase put and call options on foreign currencies
as a hedge against changes in prevailing levels of currency exchange rates.
Selling Put Options: The Funds may not sell put options, except in the
case of a closing purchase transaction (see Closing Transactions).
Index Options: As part of its options transactions, certain of the
Funds may also purchase and sell call options and purchase put options on
stock and bond indices. Options on securities indices are similar to options
on a security except that, upon the exercise of an option on a securities
index, settlement is made in cash rather than in specific securities.
Closing Transactions: Certain of the Funds may dispose of options which
they have written by entering into "closing purchase transactions". Those
Funds may dispose of options which they have purchased by entering into
"closing sale transactions". A closing transaction terminates the rights of
a holder, or the obligation of a writer, of an option and does not result in
the ownership of an option.
A Fund realizes a profit from a closing purchase transaction if the
premium paid to close the option is less than the premium received by the
Fund from writing the option. The Fund realizes a loss if the premium paid
is more than the premium received. The Fund may not enter into a closing
purchase transaction with respect to an option it has written after it has
been notified of the exercise of such option.
A Fund realizes a profit from a closing sale transaction if the
premium received to close out the option is more than the premium paid for
the option. A Fund realizes a loss if the premium received is less than the
premium paid.
Spreads and Straddles: Certain of the Funds may also engage in
"straddle" and "spread" transactions in order to enhance return, which is a
speculative, non-hedging purpose. A straddle is established by buying both a
call and a put option on the same underlying security, each with the same
exercise price and expiration date. A spread is a combination of two or more
call options or put options on the same security with differing exercise
prices or times to maturity. The particular strategies employed by a Fund
will depend on LB Research's or the Sub-advisor's perception of anticipated
market movements.
Negotiated Transactions: Certain of the Funds will generally purchase
and sell options traded on a national securities or options exchange. Where
options are not readily available on such exchanges, a Fund may purchase and
sell options in negotiated transactions. A Fund effects negotiated
transactions only with investment dealers and other financial institutions
deemed creditworthy by its investment adviser. Despite the investment
adviser's or sub-advisor's best efforts to enter into negotiated options
transactions with only creditworthy parties, there is always a risk that the
opposite party to the transaction may default in its obligation to either
purchase or sell the underlying security at the agreed upon time and price,
resulting in a possible loss by the Fund. This risk is described more
completely in the section of this Prospectus entitled, "Risks of
Transactions in Options and Futures". Options written or purchased by a Fund
in negotiated transactions are illiquid and there is no assurance that a
Fund will be able to effect a closing purchase or closing sale transaction
at a time when its investment adviser or sub-advisor believes it would be
advantageous to do so. In the event the Fund is unable to effect a closing
transaction with the holder of a call option written by the Fund, the Fund
may not sell the security underlying the option until the call written by
the Fund expires or is exercised.
Limitations: A Fund will not purchase any option if, immediately
thereafter, the aggregate cost of all outstanding options purchased and held
by the Fund would exceed 5% of the market value of the Fund's total assets.
FINANCIAL FUTURES AND OPTIONS ON FUTURES (ALL FUNDS EXCEPT THE LB MONEY
MARKET FUND)
Selling Futures Contracts: Certain of the Funds may sell financial
futures contracts ("futures contracts") as a hedge against adverse movements
in the prices of securities in those Funds. Such contracts may involve
futures on items such as U.S. Government Treasury bonds, notes and bills,
government mortgage-backed securities; corporate and municipal bond indices;
and stock indices. A futures contract sale creates an obligation for the
Fund, as seller, to deliver the specific type of instrument called for in
the contract at a specified future time for a specified price. In selling a
futures contract, the Fund would realize a gain on the contract if, during
the contract period, the price of the securities underlying the futures
contract decreased. Such a gain would be expected to approximately offset
the decrease in value of the same or similar securities in the Fund. The
Fund would realize a loss if the price of the securities underlying the
contract increased. Such a loss would be expected to approximately offset
the increase in value of the same or similar securities in the Fund.
Futures contracts have been designed by and are traded on boards of
trade which have been designated "contract markets" by the Commodity Futures
Trading Commission ("CFTC"). These boards of trade, through their clearing
corporations, guarantee performance of the contracts. Although the terms of
some financial futures contracts specify actual delivery or receipt of
securities, in most instances these contracts are closed out before the
settlement due date without the making or taking of delivery of the
securities. Other financial futures contracts, such as futures contracts on
a securities index, by their terms call for cash settlements. The closing
out of a futures contract is effected by entering into an offsetting
purchase or sale transaction.
When a Fund sells a futures contract, or a call option on a futures
contract, it is required to make payments to the commodities broker which
are called "margin" by commodities exchanges and brokers.
The payment of "margin" in these transactions is different than
purchasing securities "on margin". In purchasing securities "on margin" an
investor pays part of the purchase price in cash and receives an extension
of credit from the broker, in the form of a loan secured by the securities,
for the unpaid balance. There are two categories of "margin" involved in
these transactions: initial margin and variation margin. Initial margin does
not represent a loan between a Fund and its broker, but rather is a "good
faith deposit" by a Fund to secure its obligations under a futures contract
or an option. Each day during the term of certain futures transactions, a
Fund will receive or pay "variation margin" equal to the daily change in the
value of the position held by the Fund.
Buying Futures Contracts: Certain of the Funds may purchase financial
futures contracts as a hedge against adverse movements in the prices of
securities which they intend to purchase. The Opportunity Growth and World
Growth Funds may buy and sell futures contracts for a number of reasons,
including to manage their exposure to changes in securities prices and
foreign currencies as an efficient means of adjusting their overall exposure
to certain markets in an effort to enhance income; and to protect the value
of portfolio securities. A futures contract purchase creates an obligation
by a Fund, as buyer, to take delivery of the specific type of instrument
called for in the contract at a specified future time for a specified price.
In purchasing a futures contract, a Fund would realize a gain if, during the
contract period, the price of the securities underlying the futures contract
increased. Such a gain would approximately offset the increase in cost of
the same or similar securities which a Fund intends to purchase. A Fund
would realize a loss if the price of the securities underlying the contract
decreased. Such a loss would approximately offset the decrease in cost of
the same or similar securities which a Fund intends to purchase.
Options on Futures Contracts: Certain of the Funds may also sell
("write") covered call options on futures contracts and purchase put and
call options on futures contracts in connection with the above strategies. A
Fund may not sell put options on futures contracts. An option on a futures
contract gives the buyer of the option, in return for the premium paid for
the option, the right to assume a position in the underlying futures
contract (a long position if the option is a call and a short position if
the option is a put). The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of securities
underlying the futures contract to the extent of the premium received for
the option. The purchase of a put option on a futures contract constitutes a
hedge against price declines below the exercise price of the option and net
of the premium paid for the option. The purchase of a call option
constitutes a hedge, net of the premium, against an increase in cost of
securities which a Fund intends to purchase.
Currency Futures Contracts and Options: The LB World Growth Fund may
also sell and purchase currency futures contracts (or options thereon) as a
hedge against changes in prevailing levels of currency exchange rates. Such
contracts may be traded on U.S. or foreign exchanges. The Fund will not use
such contracts or options for leveraging purposes.
Limitations: Certain of the Funds may engage in futures transactions,
and transactions involving options on futures, only on regulated commodity
exchanges or boards of trade. A Fund will not enter into a futures contract
or purchase or sell related options if immediately thereafter (a) the sum of
the amount of initial margin deposits on the Fund's existing futures and
related options positions and premiums paid for options with respect to
futures and options used for non-hedging purposes would exceed 5% of the
market value of the Fund's total assets or (b) the sum of the then aggregate
value of open futures contracts sales, the aggregate purchase prices under
open futures contract purchases, and the aggregate value of futures
contracts subject to outstanding options would exceed 30% of the market
value of the Fund's total assets. In addition, in instances involving the
purchase of futures contracts or call options thereon, a Fund will maintain
cash or cash equivalents, less any related margin deposits, in an amount
equal to the market value of such contracts. "Cash and cash equivalents" may
include cash, government securities, or liquid high quality debt
obligations.
HYBRID INVESTMENTS (ALL FUNDS EXCEPT THE LB MONEY MARKET FUND)
As part of its investment program and to maintain greater flexibility,
the Fund may invest in hybrid instruments (a potentially high risk
derivative) which have the characteristics of futures, options and
securities. Such instruments may take a variety of forms, such as debt
instruments with interest or principal payments determined by reference to
the value of a currency, security index or commodity at a future point in
time. The risks of such investments would reflect both the risks of
investing in futures, options, currencies and securities, including
volatility and illiquidity. Under certain conditions, the redemption value
of a hybrid instrument could be zero. In addition, because the purchase and
sale of Hybrid Instruments could take place in an over-the-counter market or
in a private transaction between the Fund and the seller of the Hybrid
Instrument, the creditworthiness of the contra party to the transaction
would be a risk factor which the Fund would have to consider. Hybrid
Instruments also may not be subject to regulation of the Commodities Futures
Trading Commission ("CFTC"), which generally regulates the trading of
commodity futures by U.S. persons, the SEC, which regulates the offer and
sale of securities by and to U.S. persons, or any other governmental
regulatory authority. The Fund does not expect to hold more than 5% of its
total assets in hybrid instruments.
RISKS OF TRANSACTIONS IN OPTIONS AND FUTURES
There are certain risks involved in the use of futures contracts,
options on securities and securities index options, and options on futures
contracts, as hedging devices. There is a risk that the movement in the
prices of the index or instrument underlying an option or futures contract
may not correlate perfectly with the movement in the prices of the assets
being hedged. The lack of correlation could render a Fund's hedging strategy
unsuccessful and could result in losses. The loss from investing in futures
transactions is potentially unlimited.
There is a risk that LB Research or a sub-advisor could be incorrect in
their expectations about the direction or extent of market factors such as
interest rate movements. In such a case a Fund would have been better off
without the hedge. In addition, while the principal purpose of hedging is to
limit the effects of adverse market movements, the attendant expense may
cause a Fund's return to be less than if hedging had not taken place. The
overall effectiveness of hedging therefore depends on the expense of hedging
and LB Research's or a Fund's sub-advisor's accuracy in predicting the
future changes in interest rate levels and securities price movements.
A Fund will generally purchase and sell options traded on a national
securities or options exchange. Where options are not readily available on
such exchanges a Fund may purchase and sell options in negotiated
transactions. When a Fund uses negotiated options transactions it will seek
to enter into such transactions involving only those options and futures
contracts for which there appears to be an active secondary market. There is
nonetheless no assurance that a liquid secondary market such as an exchange
or board of trade will exist for any particular option or futures contract
at any particular time. If a futures market were to become unavailable, in
the event of an adverse movement, a Fund would be required to continue to
make daily cash payments of maintenance margin if it could not close a
futures position. If an options market were to become unavailable and a
closing transaction could not be entered into, an option holder would be
able to realize profits or limit losses only by exercising an option, and an
option writer would remain obligated until exercise or expiration. In
addition, exchanges may establish daily price fluctuation limits for options
and futures contracts, and may halt trading if a contract's price moves
upward or downward more than the limit in a given day. On volatile trading
days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for a Fund to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent
prompt liquidation of unfavorable positions, and potentially could require a
Fund to continue to hold a position until delivery or expiration regardless
of changes in its value. As a result, a Fund's access to other assets held
to cover its options or futures positions could also be impaired.
When conducting negotiated options transactions there is a risk that
the opposite party to the transaction may default in its obligation to
either purchase or sell the underlying security at the agreed upon time and
price. In the event of such a default, a Fund could lose all or part of
benefit it would otherwise have realized from the transaction, including the
ability to sell securities it holds at a price above the current market
price or to purchase a security from another party at a price below the
current market price.
Finally, if a broker or clearing member of an options or futures
clearing corporation were to become insolvent, a Fund could experience
delays and might not be able to trade or exercise options or futures
purchased through that broker or clearing member. In addition, a Fund could
have some or all of its positions closed out without its consent. If
substantial and widespread, these insolvencies could ultimately impair the
ability of the clearing corporations themselves.
SHORT SALES AGAINST THE BOX
The Funds may effect short sales, but only if such transactions are
short sale transactions known as short sales "against the box". A short sale
is a transaction in which a Fund sells a security it does not own by
borrowing it from a broker, and consequently becomes obligated to replace
that security. A short sale against the box is a short sale where a Fund
owns the security sold short or has an immediate and unconditional right to
acquire that security without additional cash consideration upon conversion,
exercise or exchange of options with respect to securities held in its
portfolio. The effect of selling a security short against the box is to
insulate that security against any future gain or loss.
FOREIGN FUTURES AND OPTIONS
Participation in foreign futures and foreign options transactions
involves the execution and clearing of trades on or subject to the rules of
a foreign board of trade. Neither the National Futures Association nor any
domestic exchange regulates activities of any foreign boards of trade,
including the execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked
to a domestic market so that a position taken on the market may be
liquidated by a transaction on another market. Moreover, such laws or
regulations will vary depending on the foreign country in which the foreign
futures or foreign options transaction occurs. For these reasons, customers
who trade foreign futures or foreign options contracts may not be afforded
certain of the protective measures provided by the Commodity Exchange Act,
the CFTC's regulations and the rules of the National Futures Association and
any domestic exchange, including the right to use reparations proceedings
before the Commission and arbitration proceedings provided by the National
Futures Association or any domestic futures exchange. In particular, funds
received from customers for foreign futures or foreign options transactions
may not be provided the same protections as funds received in respect of
transactions on United States futures exchanges. In addition, the price of
any foreign futures or foreign options contract and, therefore, the
potential profit and loss thereon may be affected by any variance in the
foreign exchange rate between the time an order is placed and the time it is
liquidated, offset or exercised.
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
Foreign Currency Warrants. Foreign currency warrants are warrants which
entitle the holder to receive from their issuer an amount of cash
(generally, for warrants issued in the United States, in U.S. dollars) which
is calculated pursuant to a predetermined formula and based on the exchange
rate between a specified foreign currency and the U.S. dollar as of the
exercise date of the warrant. Foreign currency warrants generally are
exercisable upon their issuance and expire as of a specified date and time.
Foreign currency warrants have been issued in connection with U.S. dollar-
denominated debt offerings by major corporate issuers in an attempt to
reduce the foreign currency exchange risk which, from the point of view of
prospective purchasers of the securities, is inherent in the international
fixed-income marketplace. Foreign currency warrants may attempt to reduce
the foreign exchange risk assumed by purchasers of a security by, for
example, providing for a supplemental payment in the event that the U.S.
dollar depreciates against the value of a major foreign currency such as the
Japanese Yen or German Deutschmark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. dollar appreciates or
depreciates against the particular foreign currency to which the warrant is
linked or indexed). Foreign currency warrants are severable from the debt
obligations with which they may be offered, and may be listed on exchanges.
Foreign currency warrants may be exercisable only in certain minimum
amounts, and an investor wishing to exercise warrants who possesses less
than the minimum number required for exercise may be required either to sell
the warrants or to purchase additional warrants, thereby incurring
additional transaction costs. In the case of any exercise of warrants, there
may be a time delay between the time a holder of warrants gives instructions
to exercise and the time the exchange rate relating to exercise is
determined, during which time the exchange rate could change significantly,
thereby affecting both the market and cash settlement values of the warrants
being exercised. The expiration date of the warrants may be accelerated if
the warrants should be delisted from an exchange or if their trading should
be suspended permanently, which would result in the loss of any remaining
"time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case the
warrants were "out-of-the-money," in a total loss of the purchase price of
the warrants. Warrants are generally unsecured obligations of their issuers
and are not standardized foreign currency options issued by the Options
Clearing Corporation ("OCC"). Unlike foreign currency options issued by OCC,
the terms of foreign exchange warrants generally will not be amended in the
event of governmental or regulatory actions affecting exchange rates or in
the event of the imposition of other regulatory controls affecting the
international currency markets. The initial public offering price of foreign
currency warrants is generally considerably in excess of the price that a
commercial user of foreign currencies might pay in the interbank market for
a comparable option involving significantly larger amounts of foreign
currencies. Foreign currency warrants are subject to significant foreign
exchange risk, including risks arising from complex political or economic
factors.
Principal Exchange Rate Linked Securities. Principal exchange rate
linked securities are debt obligations the principal on which is payable at
maturity in an amount that may vary based on the exchange rate between the
U.S. dollar and a particular foreign currency at or about that time. The
return on "standard" principal exchange rate linked securities is enhanced
if the foreign currency to which the security is linked appreciates against
the U.S. dollar, and is adversely affected by increases in the foreign
exchange value of the U.S. dollar; "reverse" principal exchange rate linked
securities are like the "standard" securities, except that their return is
enhanced by increases in the value of the U.S. dollar and adversely impacted
by increases in the value of foreign currency. Interest payments on the
securities are generally made in U.S. dollars at rates that reflect the
degree of foreign currency risk assumed or given up by the purchaser of the
notes (i.e., at relatively higher interest rates if the purchaser has
assumed some of the foreign exchange risk, or relatively lower interest
rates if the issuer has assumed some of the foreign exchange risk, based on
the expectations of the current market). Principal exchange rate linked
securities may in limited cases be subject to acceleration of maturity
(generally, not without the consent of the holders of the securities), which
may have an adverse impact on the value of the principal payment to be made
at maturity.
Performance Indexed Paper. Performance indexed paper is U.S. dollar-
denominated commercial paper the yield of which is linked to certain foreign
exchange rate movements. The yield to the investor on performance indexed
paper is established at maturity as a function of spot exchange rates
between the U.S. dollar and a designated currency as of or about that time
(generally, the index maturity two days prior to maturity). The yield to the
investor will be within a range stipulated at the time of purchase of the
obligation, generally with a guaranteed minimum rate of return that is
below, and a potential maximum rate of return that is above, market yields
on U.S. dollar-denominated commercial paper, with both the minimum and
maximum rates of return on the investment corresponding to the minimum and
maximum values of the spot exchange rate two business days prior to
maturity.
TEMPORARY DEFENSIVE INVESTMENTS
The LB Opportunity Growth Fund, LB World Growth Fund, LB Fund, LB Mid
Cap Growth Fund, LB High Yield Fund, LB Income Fund, and LB Municipal Bond
Fund, may hold up to 100% of their assets in cash or short-term debt
securities for temporary defensive position when, in the opinion of LB
Research or a Fund's sub-advisor such a position is more likely to provide
protection against unfavorable market conditions than adherence to the
Funds' other investment policies. The types of short-term instruments in
which the Funds may invest for such purposes include short-term money market
securities such as repurchase agreements and securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, certificates of
deposit, Eurodollar certificates of deposit, commercial paper and banker's
acceptances issued by domestic and foreign corporations and banks. When
investing in short-term money market obligations for temporary defensive
purposes, a Fund will invest only in securities rated at the time of
purchase Prime-1 or Prime-2 by Moody's, A-1 or A-2 by S&P, F-1 or F-2 by
Fitch Investors Service, Inc., or unrated instruments that are determined by
LB Research or the Sub-advisor to be of a comparable level of quality. When
a Fund adopts a temporary defensive position its investment objective may
not be achieved.
COMPUTER RELATED RISKS
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may
be adversely affected by computer systems (whether their own systems or
systems of their service providers) that do not properly process dates
beginning with January 1, 2000 and information related to those dates. In
addition, many funds and other companies, especially those funds and
companies that do business in one or more national currencies of the
countries in the European Union (the "EU"), may be adversely affected by
computer systems that cannot accommodate concurrent references to two
currencies, the national currency and the euro (the proposed currency unit
of the EU). Beginning on January 1, 1999 and for the three years
thereafter, businesses and governments in most EU countries generally must
be prepared to conduct their businesses in their national currency and the
euro. After such three-year period, they must conduct their businesses only
in the euro.
The euro conversion presents additional risks for the LB World Growth
Fund and the LB Opportunity Growth Fund to the extent that they invest in
securities denominated in a national currency that eventually will be
replaced by the euro. For example, trading, accounting and other
administrative systems must be able to reflect exchange rates between a
national currency of an EU member and the euro and to redenominate
outstanding tradable debt securities into the euro in accordance with
specific technical requirements.
The Investment Manager currently is in the process of reviewing its
internal computer systems as they relate to each of these Funds, as well as
the computer systems of those service providers upon which the Funds rely,
in order to obtain reasonable assurances that the Funds will not experience
a material adverse impact related to either problem. The Funds do not
currently anticipate that either problem will have a material adverse impact
on their portfolio investments, taken as a whole. There can be no
assurances in either area, however, including the possibility that either or
both problems could negatively affect the investment markets or the economy
generally.
INVESTMENT LIMITATIONS
The fundamental investment restrictions for the Funds are set forth
below. These fundamental investment restrictions may not be changed by a
Fund except by the affirmative vote of a majority of the outstanding voting
securities of that Fund as defined in the Investment Company Act of 1940.
(Under the Investment Company Act of 1940, a "vote of the majority of the
outstanding voting securities" means the vote, at a meeting of security
holders duly called, (i) of 67% or more of the voting securities present at
a meeting if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (ii) of more than 50% of
the outstanding voting securities, whichever is less (a "1940 Act Majority
Vote").) Under these restrictions, with respect to each Fund:
(1) The Fund may not borrow money, except that the Fund may
borrow money (through the issuance of debt securities or
otherwise) in an amount not exceeding one-third of the
Fund's total assets immediately after the time of such
borrowing.
(2) The Fund may not purchase or sell commodities or commodity
contracts, except that the Fund may invest in financial
futures contracts, options thereon and similar instruments.
(3) The Fund may not purchase or sell real estate unless acquired
as a result of ownership of securities or other instruments,
except that the Fund may invest in securities or other
instruments backed by real estate or securities of companies
engaged in the real estate business or that invest or deal in
real estate.
(4) The Fund may not engage in underwriting or agency
distribution of securities issued by others; provided,
however, that this restriction shall not be construed to
prevent or limit in any manner the power of the Fund to
purchase and resell restricted securities or securities for
investment.
(5) The Fund may not lend any of its assets except portfolio
securities. The purchase of corporate or U.S. or foreign
governmental bonds, debentures, notes, certificates of
indebtedness, repurchase agreements or other debt securities
of an issuer permitted by the Fund's investment objective and
policies will not be considered a loan for purposes of this
limitation.
(6) The Fund may not with respect to 75% of its total assets,
purchase the securities of any issuer (except Government
Securities, as such term is defined in the Investment Company
Act of 1940) if, as a result, the Fund would own more than
10% of the outstanding voting securities of such issuer or
the Fund would have more than 5% of its total assets invested
in the securities of such issuer.
(7) The Fund may not issue senior securities, except as permitted
under the Investment Company Act of 1940 or any exemptive
order or rule issued by the Securities and Exchange
Commission.
(8) The Fund may, notwithstanding any other fundamental
investment policy or limitation, invest all of its assets in
the securities of a single open-end management investment
company with substantially the same fundamental investment
objectives, policies, and limitations as the Fund.
(9) The Fund may not invest in a security if the transaction
would result in 25% or more of the Fund's total assets being
invested in any one industry. With respect to Lutheran
Brotherhood Money Market Fund, this restriction does not apply
to Government Securities (as such term is defined in the
Investment Company Act of 1940) or instruments issued by
domestic banks. This restriction does not apply to the LB
Municipal Bond Fund.
The following nonfundamental investment restriction may be changed
without shareholder approval. Under this restriction with respect to the
Fund:
(1) The Fund will not purchase any security while borrowings,
including reverse repurchase agreements, representing more
than 5% of the Fund's total assets are outstanding.
FUND MANAGEMENT
The Board of Trustees of the Trust is responsible for the management
and supervision of the Funds' business affairs and for exercising all powers
except those reserved to the shareholders.
The officers and Trustees of the Trust and their addresses, positions
with the Trust, and principal occupations are set forth below. As of
September 21, 1998 the officers and Trustees own less than 1% of any Fund's
outstanding shares.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATION DURING THE
PAST 5 YEARS
<S> <C> <C>
Rolf F. Bjelland* Chairman, Trustee and Executive Vice President and Chief
625 Fourth Avenue South President Investment Officer, Lutheran
Minneapolis, MN Brotherhood; Director and President,
Age 60 Lutheran Brotherhood Research Corp;
Director and Executive Vice President,
Lutheran Brotherhood Financial
Corporation; Director, Lutheran
Brotherhood Securities Corp.; Director,
Vice President and Chief Investment
Officer, Lutheran Brotherhood Variable
Insurance Products Company; Director,
Lutheran Brotherhood Real Estate Products
Company; Director, Chairman and President
of LB Series Fund, Inc.
Herbert F. Eggerding, Jr. Trustee Management consultant to several
privately
12587 Glencroft Drive owned companies; formerly Executive Vice
St. Louis, MO President and Chief Financial Officer,
Age 61 Petrolite Corporation; Director, Lutheran
Charities Foundation of St. Louis, MO;
Director of LB Series Fund, Inc.
Noel K. Estenson Trustee President and Chief Executive Officer,
CENEX,
Inc. CENEX, Inc.; Vice Chairman, CF
P.O. Box 64089 Industries; Board member, National
St. Paul, MN Cooperative Refinery Association;
Age 59 Board member, Farm Credit Leasing;
Board member, National Council of
Farmer Cooperatives; Director, LB Series
Fund, Inc.
Jodi L. Harpstead Trustee Vice President, U.S. Cardiac Rhythm
Medtronic Management for Medtronic, Inc.;
Previously,
7000 Central Avenue NE Manager and Vice President, U.S. Pacing
Minneapolis, MN Marketing, Medtronic, Inc.; Board member
Age 41 of Delta Dental Plan of Minnesota;
Director, LB Series Fund, Inc.
Richard A. Hauser Trustee Partner, Baker & Hostetler, LLP;
Previously,
1050 Connecticut Avenue NW Chairman of the Pennsylvania Avenue
Suite 1100 Development Corporation, Washington, DC;
Washington, DC Director, The Luther Institute; Director,
Age 55 LB Series Fund, Inc.
Connie M. Levi Trustee Retired President of the Greater
P.O. Box 675325 Minneapolis Chamber of Commerce;
Rancho Santa Fe, CA served in the Minnesota House of
Age 59 Representatives from 1978 to 1986,
including in the capacity as majority
leader; former Director or member of
numerous governmental, public service
and non-profit boards and organizations;
Director, Norstan, Inc.; Director of
LB Series Fund, Inc.
Bruce J. Nicholson* Trustee Executive Vice President and Chief
625 Fourth Avenue South Operating Officer, Lutheran
Minneapolis, MN Brotherhood; Director, Executive Vice
Age 52 President and Chief Operating Officer,
Lutheran Brotherhood Financial
Corporation; Director and Chief
Operating Officer, Lutheran Brotherhood
Variable Insurance Products Company;
Director, Lutheran Brotherhood Research
Corp; Director, Lutheran Brotherhood
Securities Corp.; Director, Lutheran
Brotherhood Real Estate Products Company;
Director, LB Series Fund, Inc.
Ruth E. Randall Trustee Retired Interim Dean, Division of
25 Coolidge Road Continuing Studies, University of
West Hartford, CT Nebraska-Lincoln; formerly Associate
Age 69 Dean, Teachers College and Professor,
Department of Educational
Administration, Teachers College,
University of Nebraska-Lincoln;
Commissioner of Education for the
State of Minnesota; Director or member
of numerous governmental, public
service and non-profit boards and
organizations; Director, LB Series
Fund, Inc.
James R. Olson Vice President Senior Vice President, Lutheran
625 Fourth Avenue South Brotherhood; Vice President, Lutheran
Minneapolis, MN Brotherhood Variable Insurance Products
Age 56 Company; Vice President, Lutheran
Brotherhood Research Corp.; Vice
President, Lutheran Brotherhood Research
Corp.; Vice President, Lutheran
Brotherhood Securities Corp.; Vice
President, Lutheran Brotherhood Real
Estate Products Company; Vice President,
LB Series Fund, Inc.
Richard B. Ruckdashel Vice President Vice President, Lutheran Brotherhood;
625 Fourth Avenue South Vice President, Lutheran Brotherhood
Minneapolis, MN Variable Insurance Products Company; Vice
Age 43 President, Lutheran Brotherhood
Securities Corp.; Vice President, LB
Series Fund, Inc.
James M. Walline Vice President Vice President, Lutheran Brotherhood;
625 Fourth Avenue South Vice President, Lutheran Brotherhood
Minneapolis, MN Research Corp.; Vice President,
Age 53 Lutheran Brotherhood Variable
Insurance Products Company; Vice
President, LB Series Fund, Inc.
Wade M. Voigt Treasurer Assistant Vice President, Mutual Fund
625 Fourth Avenue South Accounting, Lutheran Brotherhood;
Minneapolis, MN Treasurer of LB Series Fund, Inc.
Age 42
Otis F. Hilbert Secretary and Vice President Vice President, Lutheran Brotherhood;
625 Fourth Avenue South Vice President and Secretary,
Minneapolis, MN Lutheran Brotherhood Securities Corp.;
Age 61 Secretary of Lutheran Brotherhood
Research Corp.; Vice President and
Secretary, Lutheran Brotherhood
Real Estate Products Company; Vice
President and Assistant Secretary,
Lutheran Brotherhood Variable
Insurance Products Company; Secretary and
Vice President of LB Series Fund, Inc.
Frederick P. Johnson Vice President Assistant Vice President, Lutheran
625 Fourth Avenue South Brotherhood; Assistant Vice President,
Minneapolis, MN Lutheran Brotherhood Variable Insurance
Age 36 Products Company; Assistant Vice
President, Lutheran Brotherhood
Securities Corp.; Assistant Vice
President, LB Research; Vice President,
LB Series Fund, Inc.
</TABLE>
- -----------------------
(*) "Interested person" of the Fund as defined in the Investment Company
Act of 1940 by virtue of his positions with affiliated entities
referred to elsewhere herein.
PRINCIPAL HOLDERS
The following shareholders were record owners of 5% or more of a Class
of a Fund's outstanding securities as of December 2, 1998:
Owner % Ownership
Lutheran Brotherhood (including its
wholly-owned subsidiary companies)
625 Fourth Avenue South
Minneapolis, Minnesota 55415-1624 20.02% Class B LB Money Market Fund
8.73% Institutional Class LB Fund
74.35% Institutional Class LB Mid
Cap Growth Fund
9.78% Institutional Class LB
Opportunity Growth Fund
71.84% Institutional Class LB World
Growth Fund
79.58% Institutional Class LB Money
Market Fund
5.27% Institutional Class LB High
Yield Fund
Berkey Land Company
524 Berkey Road
Boswell, Pennsylvania 15531-2315 8.91% Institutional Class LB
Municipal Bond Fund
Better Visio Optical Company
125 South 4th Street
DeKalb, Illinois 60115-3766 5.09% Institutional Class LB
Municipal Bond Fund
Calahan Family Partnership
6314 Hillview Way
Missoula, Montana 59803-3373 13.04% Institutional Class LB
Municipal Bond Fund
California Lutheran University
60 West Olsen Road
Thousand Oaks, California 91360-2700 8.16% Institutional Class LB Fund
Central Suppliers, Inc.
207 North Oak
Lake Mills, Iowa 50450-1229 6.26% Institutional Class LB
Municipal Bond Fund
Russel S. Delp & Sons
RR1, Box 24A
Seven Valleys, Pennsylvania 17360-9707 6.31% Institutional Class LB
Municipal Bond Fund
FFB Financial Partnership
12435 East Doubletree Road
Scottsdale, Arizona 85259 5.80% Institutional Class LB
Municipal Bond Fund
KV Management
25 Gateway Drive
Reedsville, Pennsylvania 17084-9641 18.07% Institutional Class LB
Municipal Bond Fund
Kahman Lands LTD
Box 145
Fairfield, Nebraska 68938-0145 5.01% Institutional Class LB
Municipal Bond Fund
Lutheran Charities Foundation
PO Box 14737
St. Louis, Missouri 63178-4737 10.26% Institutional Class LB High
Yield Fund
Lutheran Church Missouri Synod
1333 South Kirkwood Road
St. Louis, Missouri 63122-7295 54.30% Institutional Class LB High
Yield Fund
Lutheran Community Foundation
625 Fourth Avenue South
Minneapolis, Minnesota 55415-1624 35.45% Institutional Class LB Fund
26.94% Institutional Class LB
Income Fund
74.18% Institutional Class LB
Opportunity Growth Fund
23.89% Institutional Class LB World
Growth Fund
St. Andrew By the Sea Lutheran Church
PO Box 1567
Atlantic City, New Jersey 08404-1567 25.63% Institutional Class LB Mid
Cap Growth Fund
COMPENSATION OF TRUSTEES AND OFFICERS
The Funds make no payments to any of its officers for services
performed for the Fund. Trustees of the Trust who are not interested persons
of the Trust are paid an annual retainer fee by the Trust of $23,500 and an
annual fee of $9,000 per year to attend meetings of Board of Trustees.
Trustees who are not interested persons of the Trust are reimbursed by
the Trust for any expenses they may incur by reason of attending Board
meetings or in connection with other services they may perform in connection
with their duties as Trustees of the Trust. The Trustees receive no pension
or retirement benefits in connection with their service to the Fund.
For the fiscal year ended October 31, 1998, the Trustees of the Trust
received the following amounts of compensation either directly or in the
form of payments made into a deferred compensation plan:
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL TOTAL COMPENSATION
NAME AND POSITION COMPENSATION AS PART OF FUND BENEFITS UPON PAID BY FUND
OF PERSON FROM TRUST EXPENSES RETIREMENT AND FUND COMPLEX (1)
<S> <C> <C> <C> <C>
Rolf F. Bjelland(2) $ 0 $ 0 $ 0 $ 0
Chairman and Trustee
Herbert F. Eggerding, Jr. 18,315 0 0 33,124
Trustee
Noel K. Estenson 18,315 0 0 33,124
Trustee
Jodi L. Harpstead 0 0 0 0
Trustee
Richard K. Hauser 4,708 0 0 0
Trustee
Connie M. Levi 18,315 0 0 0
Trustee
Bruce J. Nicholson(2) 0 0 0 0
Trustee
Ruth E. Randall 18,315 (3) 0 0 33,124
Trustee
- -------------------------
(1) The "Fund Complex" includes The Lutheran Brotherhood Family of Funds and
LB Series Fund, Inc.
(2) "Interested person" of the Fund as defined in the Investment Company Act of 1940.
(3) Dr. Randall elected to receive her compensation as deferred compensation. The total
amount of deferred compensation payable to Dr. Randall as of October 31, 1998, was
$43,341.
</TABLE>
INVESTMENT ADVISORY SERVICES
The Funds' investment adviser, LB Research, was organized as a
Pennsylvania corporation in 1969 and was reincorporated as a Minnesota
corporation in 1987. It has been in the investment advisory business since
1970. LB Research is a wholly-owned subsidiary of Lutheran Brotherhood
Financial Corporation which, in turn, is a wholly-owned subsidiary of
Lutheran Brotherhood, a fraternal benefit society. The officers and
directors of LB Research who are affiliated with the Trust are set forth
under "Fund Management".
Investment decisions for each of the Funds, except the LB Opportunity
Growth Fund and the LB World Growth Fund, are made by LB Research, subject
to the overall direction of the Board of Trustees. LB Research provides
overall investment supervision of the LB Opportunity Growth Fund's and the
LB World Growth Fund's investments, with investment decisions for that Fund
being made by investment sub-advisors. Except for the LB Opportunity Growth
Fund and the LB World Growth Fund, LB Research provides investment research
and supervision of each Fund's investments and conducts a continuous program
of investment evaluation and appropriate disposition and reinvestment of
each Fund's assets. LB Research assumes the expense of providing the
personnel to perform its advisory functions. Lutheran Brotherhood, the
indirect parent company of LB Research, also serves as the investment
adviser for LB Series Fund, Inc. The Master Advisory Contract (the "Advisory
Contract") for the Funds provides that Lutheran Brotherhood has reserved the
right to grant the non-exclusive use of the name "Lutheran Brotherhood" or
any derivative thereof to any other investment company, investment adviser,
distributor or other business enterprise, and to withdraw from each Fund the
use of the name "Lutheran Brotherhood". The name "Lutheran Brotherhood" will
continue to be used by each Fund as long as such use is mutually agreeable
to Lutheran Brotherhood and the Funds.
Investment decisions for the LB Opportunity Growth Fund are made by T.
Rowe Price Associates, Inc. ("T. Rowe Price"), which LB Research has engaged
as the sub-advisor for that Fund. T. Rowe Price manages the LB Opportunity
Growth Fund on a daily basis, subject to the overall direction of LB
Research and the Funds' Board of Trustees.
T. Rowe Price was founded in 1937 and has its principal offices in
Baltimore, Maryland. As of June 30, 1998, T. Rowe Price and its affiliates
managed over $141 billion.
Investment decisions for the LB World Growth Fund are made by Rowe
Price-Fleming International, Inc. ("Price-Fleming"), which LB Research has
engaged as the sub-advisor for that Fund. Price-Fleming manages that Fund on
a daily basis, subject to the overall direction of LB Research and the
Funds' Board of Trustees.
Price-Fleming was founded in 1979 as a joint venture between T. Rowe
Price Associates, Inc. and Robert Fleming Holdings Limited. Price-Fleming
is one of the world's largest international mutual fund asset managers with
the U.S. equivalent of over $33 billion under management as of June 30, 1998
in its offices in Baltimore, London, Tokyo, Singapore, Hong Kong, and Buenos
Aires.
To the extent required under applicable state regulatory requirements,
the Investment Manager will reduce its management fee up to the amount of
any expenses (exclusive of interest, taxes, brokerage expenses, distribution
expenses, extra-ordinary items and any other items allowed to be excluded by
applicable state law) paid or incurred by any of the Funds in any fiscal
year which exceed specified percentages of the average daily net assets of
such Fund for such fiscal year. The most restrictive of such percentage
limitations is (which does not presently apply to any of the Funds)
currently 2.5% of the first $30 million of average net assets, 2.0% of the
next $70 million of average net assets and 1.5% of the remaining average net
assets. These commitments may be amended or rescinded in response to changes
in the requirements of the various states by the Trustees without
shareholder approval.
The Advisory Contract provides that it shall continue in effect with
respect to each Fund from year to year as long as it is approved at least
annually both (i) by a vote of a majority of the outstanding voting
securities of such Fund (as defined in the 1940 Act) or by the Trustees of
the Trust, and (ii) in either event by a vote of a majority of the Trustees
who are not parties to the Advisory Contract or "interested persons" of any
party thereto, cast in person at a meeting called for the purpose of voting
on such approval. The Advisory Contract may be terminated on 60 days'
written notice by either party and will terminate automatically in the event
of its assignment, as defined under the 1940 Act and regulations thereunder.
Such regulations provide that a transaction which does not result in a
change of actual control or management of an adviser is not deemed an
assignment.
The Sub-advisory Contract between the Trust and T. Rowe Price provides
that it shall continue in effect with respect to the LB Opportunity Growth
Fund from year to year as long as it is approved at least annually both (i)
by a vote of a majority of the outstanding voting securities of such Fund
(as defined in the 1940 Act) or by the Trustees of the Trust, and (ii) in
either event by a vote of a majority of the Trustees who are not parties to
the Sub-advisory Contract or "interested persons" of any party thereto, cast
in person at a meeting called for the purpose of voting on such approval.
The Sub-advisory Contract may be terminated on 60 days' written notice by
either party and will terminate automatically in the event of its
assignment, as defined under the 1940 Act and regulations thereunder. Such
regulations provide that a transaction which does not result in a change of
actual control or management of an adviser is not deemed an assignment.
The Sub-advisory Contract between the Trust and Price-Fleming provides
that it shall continue in effect with respect to the LB World Growth Fund
from year to year as long as it is approved at least annually both (i) by a
vote of a majority of the outstanding voting securities of such Fund (as
defined in the 1940 Act) or by the Trustees of the Trust, and (ii) in either
event by a vote of a majority of the Trustees who are not parties to the
Sub-advisory Contract or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Sub-advisory Contract may be terminated on 60 days' written notice by either
party and will terminate automatically in the event of its assignment, as
defined under the 1940 Act and regulations thereunder. Such regulations
provide that a transaction which does not result in a change of actual
control or management of an adviser is not deemed an assignment.
LB Research receives an annual investment advisory fee from each Fund.
The advisory contract between LB Research and the Trust provides for the
following advisory fees: LB Opportunity Growth Fund pays an advisory fee
equal to .50% of average daily net assets up to $100 million, .40% of
average daily net assets over $100 million but not over $250 million, .35%
of average daily net assets over $250 million but not over $500 million,
.30% of average daily net assets over $500 million but not over $1 billion,
and .25% of average daily net assets over $1 billion. LB Mid Cap Growth Fund
pays an advisory fee equal to .45% of average daily net assets up to $100
million, .40% of average daily net assets over $100 million but not over
$250 million, .35 % of average daily net assets over $250 million but not
over $500 million, .30% of average daily net assets over $500 million but
not over $1 billion and .25% of average daily net assets over $1 billion. LB
World Growth Fund pays an advisory fee equal to 1.00% of average daily net
assets up to $20 million, .85% of average daily net assets over $20 million
but not over $50 million, and .75% of average daily net assets over $50
million. LB Fund pays an advisory fee equal to .40% of average daily net
assets of $500 million or less, .35% of average daily net assets over $500
million but not over $1 billion, and .30% of average daily net assets over
$1 billion. LB High Yield Fund pays an advisory fee equal to .40% of average
daily net assets of $500 million or less, .35% of average daily net assets
over $500 million but not over $1 billion, and .30% of average daily assets
over $1 billion. LB Income Fund pays an advisory fee equal to .35% of
average daily net assets of $500 million or less, .325% of average daily net
assets over $500 million but not over $1 billion, and .30% of average daily
net assets over $1 billion. LB Municipal Bond Fund pays an advisory fee
equal to .325% of average daily net assets of $500 million or less, .3125%
of average daily net assets over $500 million but not over $1 billion, and
.30% of average daily net assets over $1 billion. LB Money Market Fund pays
an advisory fee equal to .25% of average daily net assets of $500 million or
less, .225% of average daily net assets on the next $500 million of average
daily net assets, .20% of average daily net assets on the next $500 million
of average daily net assets, .175% of average daily net assets on the next
$500 million of average daily net assets, and .15% of average daily net
assets over $2 billion.
Effective January 1, 1997, LB Research voluntarily agreed to waive 5
basis points (0.05%) from the advisory fees payable by the LB Fund, LB High
Yield Fund, LB Income Fund, and LB Municipal Bond Fund. These voluntary
partial waivers of advisory fees may be discontinued at any time.
LB Research has voluntarily agreed to temporarily waive a portion of
the advisory fee for LB Mid Cap Growth Fund and, if necessary, to bear
certain expenses associated with operating the Fund in order to limit the
Fund's total operating expenses for the Class A shares, Class B shares and
Institutional Class shares to an annual rate of 1.95%, 2.70%, and 1.70%,
respectively, of the average daily net assets of the relevant class. LB
Research has voluntarily agreed to temporarily waive a portion of the
advisory fees in order to limit LB Money Market Fund's total operating
expenses for the Class A, Class B shares and Institutional Class shares to
0.95%, 0.95%, and 0.70%, respectively of the average net assets of the
relevant class.
The total dollar amounts paid to LB Research under the investment
advisory contract then in effect for the last three fiscal years (other than
LB Mid Cap Growth Fund, which is in its second year of operations) are as
follows:
10/31/98 10/31/97 10/31/96
LB Opportunity Growth Fund $1,819,274 $1,868,475 $1,563,341
LB Mid Cap Growth Fund 203,949 21,586 --
LB World Growth Fund 834,624 682,203 392,419
LB Fund 6,971,792 5,686,741 4,529,474
LB High Yield Fund 5,720,730 4,911,490 4,150,072
LB Income Fund 4,538,239 4,799,245 5,330,930
LB Municipal Bond Fund 3,439,413 3,424,258 3,551,045
LB Money Market Fund 2,530,134 2,210,254 1,922,505
LB Research waived fees with respect to LB World Growth Fund totaling
$208.656, and $66,807 for the fiscal years ended October 31, 1998, 1997, and
1996, respectively. LB Research waived fees with respect to the LB Fund
totaling $3,393,704 and $385,904 for the fiscal years ended October 31, 1998
and 1997, respectively. LB Research waived fees with respect to LB High
Yield Fund totaling $$2,735,365 and $328,810 for the fiscal years ended
October 31, 1998 and 1997, respectively. LB Research waived fees with
respect to LB Income Fund totaling $2,302,559 and $333,931 for the fiscal
years ended October 31, 1998 and 1997, respectively. LB Research waived fees
with respect to LB Municipal Bond Fund totaling $1,801,021 and $247,844 for
the fiscal years ended October 31, 1998 and 1997, respectively. LB Research
waived fees with respect to the Mid Cap Growth Fund totaling $152,651 and
$7,357 for the fiscal years ended October 31, 1998 and 1997, respectively.
LB Research waived fees with respect to the Money Market Fund totaling
$1,712,946 and $435,799 for the fiscal years ended October 31, 1998, 1997,
and 1998, respectively. LB Research waived fees with respect to the
Opportunity Growth Fund totaling $664,301 for the fiscal year ended October
31, 1998.
LB Research pays the T. Rowe Price an annual sub-advisory fee for the
performance of sub-advisory services for the LB Opportunity Growth Fund. The
fee payable is equal to .30% of that Fund's average daily net assets up to
$500 million, .25% of that Fund's average daily net assets over $500 million
but not over $1 billion, and .20% of that Fund's average daily net assets
over $1 billion.
LB Research pays Price-Fleming an annual sub-advisory fee for the
performance of sub-advisory services for the LB World Growth Fund. The fee
payable is equal to a percentage of that Fund's average daily net assets.
The percentage decreases as the Fund's assets increase. For purposes of
determining the percentage level of the sub-advisory fee for the Fund, the
assets of the Fund are combined with the assets of the World Growth
Portfolio of LB Series Fund, Inc., another fund with investment objectives
and policies that are similar to the LB World Growth Fund and for which
Price-Fleming also provides sub-advisory services. The sub-advisory fee LB
Research pays Price-Fleming is equal to the World Growth Fund's pro rata
share of the combined assets of the Fund and the World Growth Portfolio of
LB Series Fund, Inc. and is equal to .75% of combined average daily net
assets up to $20 million, .60% of combined average daily net assets over $20
million but not over $50 million, and .50% of combined average daily net
assets over $50 million. When the combined assets of the LB World Growth
Fund and the World Growth Portfolio of LB Series Fund, Inc. exceed $200
million, the sub-advisory fee for the LB World Growth Fund is equal to .50%
of all of the Fund's average daily net assets. Price-Fleming has agreed to
waive its fees so that when the combined assets of the LB World Growth Fund
and The LB Series Fund, Inc. World Growth Portfolio exceed $500 million, the
sub-advisory fee for the LB World Growth Fund is equal to .45% of all the
Fund's average daily net assets. At October 31, 1998, the combined assets of
LB World Growth Fund and World Growth Portfolio totaled $351.0 million.
The total dollar amount paid by LB Research to T. Rowe Price under the
investment sub-advisory contract for LB Opportunity Growth Fund for the
fiscal year ended October 31, 1998 is $330,425. The total dollar amount paid
by LB Research to Price-Fleming under the investment sub-advisory contract
for LB World Growth Fund for the fiscal year ended October 31, 1998 is
$417,312.
ADMINISTRATIVE SERVICES
Lutheran Brotherhood Securities Corp. ("LB Securities") provides
administrative personnel and services necessary to operate the Funds on a
daily basis for a fee equal to 0.02 percent of the Funds' average daily net
assets. Prior to January 1, 1997, the fee equaled 0.0225 percent of the
Fund's average daily net assets. The total dollar amounts paid to LB
Securities for administrative services for the last three fiscal years are
as follows:
10/31/98 10/31/97 10/31/96
LB Opportunity Growth Fund $ 53,144 $ 55,875 $ 51,379
LB Mid Cap Growth Fund 5,827 617 --
LB World Growth Fund 16,693 13,826 8,217
LB Fund 226,247 184,583 163,270
LB High Yield Fund 182,358 158,365 148,767
LB Income Fund 153,504 166,209 207,659
LB Municipal Bond Fund 120,068 122,078 142,190
LB Money Market Fund 101,269 90,172 87,973
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian, State Street
Bank and Trust Company is responsible for, among other things, safeguarding
and controlling the Funds' cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on the Funds'
investments.
TRANSFER AGENT
LB Securities provides transfer agency services necessary to the Funds
on a daily basis for a fee that is based on the number of shareholder
accounts. The total dollar amounts paid to LB Securities for transfer agency
services for the last three fiscal years are as follows:
10/31/98 10/31/97 10/31/96
LB Opportunity Growth Fund $ 1,282,211 $ 1,147,649 $ 865,339
LB Mid Cap Growth Fund 238,905 21,145 --
LB World Growth Fund 421,984 311,027 169,451
LB Fund 2,173,882 1,791,020 1,610,381
LB High Yield Fund 1,425,789 1,205,817 1,061,296
LB Income Fund 1,223,151 1,275,325 1,382,275
LB Municipal Bond Fund 480,276 492,743 516,423
LB Money Market Fund 1,549,977 1,383,639 1,239,592
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 3100 Multifoods Tower, 33 South Sixth
Street, Minneapolis, Minnesota 55402, serves as the Trust's independent
accountants, providing professional services including audits of the Funds'
annual financial statements, assistance and consultation in connection with
Securities and Exchange Commission filings, and review of the annual income
tax returns filed on behalf of the Funds.
DISTRIBUTION AND SHAREHOLDER SERVICES
PLAN OF DISTRIBUTION AND DISTRIBUTION CONTRACT
The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "12b-1 Plan") with respect to the Class B shares of
each Fund except for the LB Money Market Fund. The 12b-1 Plan permits, among
other things, payment by each such Fund for the purpose of (1) making
payments to underwriters, securities dealers and others engaged in the sale
of Class B shares, including payments to LB Securities to be used to
compensate or reimburse the LB Securities and others (including affiliates
of LB Securities) engaged in the distribution and marketing of Class B
shares or furnishing assistance to investors on an ongoing basis, and (2)
providing reimbursement of direct out-of-pocket expenditures incurred by LB
Securities in connection with the distribution and marketing of Class B
shares, (3) providing reimbursements of payments of commissions to LB
Securities's field force and others involved in the distribution of the
Class B shares at the time of purchase, plus interest at a rate not to
exceed prime plus 1% on the amount of unreimbursed commissions and (4)
providing payment of expenses relating to the formulation and implementation
of marketing strategies and promotional activities such as direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising, the preparation, printing and distribution of sales literature,
the preparation, printing and distribution of prospectuses of the Trust and
reports for recipients other than existing shareholders of the Trust, and
obtaining such information, analyses and reports with respect to marketing
and promotional activities and investor accounts as the Trust may, from time
to time, deem advisable. The Trust and the Funds are authorized to engage in
the activities listed above, and in other activities primarily intended to
result in the sale of Class B shares, either directly or through other
persons with which the Trust has entered into agreements pursuant to the
12b-1 Plan.
The 12b-1 Plan provides that it may not be amended to increase
materially the costs which a Fund may bear pursuant to the 12b-1 Plan
without approval by a 1940 Act Majority Vote of the Class B shareholders and
that other material amendments of the 12b-1 Plan must be approved by the
Trustees, and by the Trustees who are neither "interested persons" (as
defined in the 1940 Act) of the Trust nor have any direct or indirect
financial interest in the operation of the 12b-1 Plan or in any related
agreement (the "Qualified Trustees"), by vote cast in person at a meeting
called for the purpose of considering such amendments. While the 12b-1 Plan
is in effect, the selection and nomination of the Trustees of the Trust who
are not "interested persons" of the Trust has been committed to the
discretion of the Trustees who are not "interested persons" of the Trust.
The 12b-1 Plan was initially approved by the Board of Trustees, including a
majority of the Qualified Trustees, on September 9, 1997, and is subject to
annual approval, by the Board of Trustees and by the Qualified Trustees by
vote cast in person at a meeting called for the purpose of voting on the
12b-1 Plan. The 12b-1 Plan is terminable with respect to the Class B shares
of any Fund at any time by a vote of a majority of the Qualified Trustees or
by 1940 Act Majority Vote of the Class B shareholders of such Fund. A
quarterly report of the amounts expended under the 12b-1 Plan and the
purposes for which such expenditures were incurred must be made to the
Trustees for their review.
The Funds' distributor, LB Securities, is a Pennsylvania corporation
organized in 1969. LB Securities is a wholly-owned subsidiary of LB Research
and is located in Minneapolis, Minnesota. The officers and directors of LB
Securities who are affiliated with the Trust are set forth under "Fund
Management". Under a First Amended and Restated Distribution Contract dated
October 31, 1997 (the "Distribution Contract"), LB Securities is granted the
right to sell Class A, Class B and Institutional Class shares of the Funds
as agent for the Trust. LB Securities agrees to use its best efforts to
secure purchasers for the shares of the Funds. In connection with the
services to be provided by LB Securities under the Distribution Contract, LB
Securities receives from each Fund other than LB Money Market Fund an amount
with respect to Class B shares determined at an annual rate of .75% of the
average daily net asset value represented by such shares, such amount to be
paid in arrears at the end of each calendar month. The Distribution Contract
was initially approved by the Board of Trustees including a majority of the
Qualified Trustees, on September 9, 1997, and will continue in effect from
year to year so long as its continuance is approved at least annually by the
Board of Trustees and the Qualified Trustees.
For the fiscal year ended October 31, 1998 each Fund paid LB Securities
fees under the Distribution Plan and the distributor used all of such
payments for compensation to sales personnel on behalf of the Class B shares
of the Funds as follows:
LB Opportunity Growth Fund 18,013
LB Mid Cap Growth Fund 25,499
LB World Growth Fund 13,298
LB Fund 91,640
LB High Yield Fund 77,834
LB Income Fund 23,639
LB Municipal Bond Fund 14,379
SHAREHOLDER SERVICING PLANS
The Trust has adopted shareholder servicing plans (each a "Shareholder
Servicing Plan") for the Class A and Class B shares of each Fund (including
LB Money Market Fund). Each Shareholder Servicing Plan provides that the
relevant class may spend annually, directly or indirectly, up to .25% of the
average daily value of the net assets attributable to the relevant class for
shareholder servicing activities. Under the Distribution Contract, LB
Securities has agreed to undertake certain shareholder servicing activities
on behalf of the Funds in exchange for a fee of .25% of the average daily
value of the net assets represented by Class A and Class B shares. A
quarterly report of the amounts expended under the Shareholder Servicing
Plans, and the purposes for which such expenditures were incurred, must be
made to the Trustees for their review. Each Shareholder Servicing Plans may
be amended by a majority of the Qualified Trustees or by a 1940 Act Majority
Vote by shareholders of the respective class. The Shareholder Servicing
Plans have been approved, and are subject to annual approval, by the Board
of Trustees and the Qualified Trustees.
UNDERWRITING COMMISSIONS
The total dollar amounts of (i) initial sales charges reserved by LB
Securities for the last three fiscal years and (ii) contingent deferred
sales charge upon redemptions of Class B shares for the fiscal year ended
October 31, 1998 are as follows:
<TABLE>
<CAPTION>
10/31/98
10/31/98 10/31/97 10/31/96 Contingent
Initial Initial Initial Deferred
Sales Sales Sales Sales
Charges Charges Charges Charges
<S> <C> <C> <C> <C>
LB Opportunity Growth Fund $ 778,363 $1,724,236 $2,272,864 $ 1,307
LB Mid Cap Growth Fund 427,170 278,924 -- 2,314
LB World Growth Fund 310,483 637,128 857,697 675
LB Fund 2,551,224 2,613,029 2,306,035 12,268
LB High Yield Fund 3,625,091 3,716,291 3,372,402 15,247
LB Income Fund 1,114,000 905,599 1,486,518 4,381
LB Municipal Bond Fund 843,903 689,914 988,150 5,242
</TABLE>
BROKERAGE TRANSACTIONS
PORTFOLIO TRANSACTIONS
In connection with the management of the investment and reinvestment of
the assets of the Funds, the Advisory Contract authorizes LB Research,
acting by its own officers, directors or employees or by a duly authorized
subcontractor, including T. Rowe Price and Price-Fleming (each a "sub-
advisor"), to select the brokers or dealers that will execute purchase and
sale transactions for the Funds. In executing portfolio transactions and
selecting brokers or dealers, if any, LB Research and the sub-advisors will
use reasonable efforts to seek on behalf of the Funds the best overall terms
available. In assessing the best overall terms available for any
transaction, LB Research and the sub-advisors will consider all factors it
deems relevant, including the breadth of the market in and the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis). In evaluating the best overall terms
available, and in selecting the broker or dealer, if any, to execute a
particular transaction, LB Research and the sub-advisors may also consider
the brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) provided to any other accounts
over which LB Research or the sub-advisors or an affiliate of LB Research or
the sub-advisors exercises investment discretion. LB Research and the sub-
advisors may pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, LB Research or the
sub-advisors determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided.
To the extent that the receipt of the above-described services may
supplant services for which LB Research or the sub-advisors might otherwise
have paid, it would, of course, tend to reduce the expenses of LB Research
or the sub-advisors.
The investment decisions for a Fund are and will continue to be made
independently from those of other investment companies and accounts managed
by LB Research, a sub-advisor, or their affiliates. Such other investment
companies and accounts may also invest in the same securities as a Fund.
When purchases and sales of the same security are made at substantially the
same time on behalf of such other investment companies and accounts,
transactions may be averaged as to the price and available investments
allocated as to the amount in a manner which LB Research and its affiliates
believe to be equitable to each investment company or account, including the
Fund. In some instances, this investment procedure may affect the price paid
or received by a Fund or the size of the position obtainable or sold by a
Fund.
AFFILIATED TRANSACTIONS OF THE SUB-ADVISORS
Subject to applicable SEC rules, as well as other regulatory
requirements, the sub-advisors of the LB Opportunity Growth Fund and the LB
World Growth Fund may allocate orders to brokers or dealers affiliated with
such sub-advisors. Such allocation shall be in such amounts and proportions
as the sub-advisor shall determine and the Fund's sub-advisor will report
such allocations either to LB Research, which will report such allocations
to the Board of Trustees, or, if requested, directly to the Board of
Trustees.
BROKERAGE COMMISSIONS
During the last three fiscal years, the Funds paid the following
brokerage fees:
10/31/98 10/31/97 10/31/96
LB Opportunity Growth Fund $ 748,871 $ 520,660 $ 472,846
LB Mid Cap Growth Fund 362,449 29,180 --
LB World Growth Fund* 87,386 102,408 108,394
LB Fund 1,282,269 941,481 1,349,473
LB High Yield Fund 11,048 15,071 36,567
LB Income 94,514 162,275 92,838
LB Municipal Bond Fund 0 7,399 7,399
LB Money Market Fund 0 0 0
- --------------------
* Amount paid to affiliated broker-dealer is $4,586 for the fiscal year
ended October 31, 1998, $2,608 for the fiscal year ended October 31, 1997,
and $4,028 for the fiscal year ended October 31, 1996.
Of the brokerage fee amounts stated above and underwriting concessions
of dealers from whom the Funds purchased newly issued debt securities, the
following percentages were paid to firms which provided research,
statistical, or other services to LB Research or the Sub-advisor in
connection with the management of the Funds:
10/31/98 10/31/97 10/31/96
LB Opportunity Growth Fund 5.63% 6.68% 0.60%
LB Mid Cap Growth Fund 25.69 68.99 --
LB World Growth Fund 3.55 1.30 0.48
LB Fund 30.50 10.01 7.17
LB High Yield Fund 0.00 0.00 0.24
LB Income Fund 3.35 5.12 6.41
LB Municipal Bond Fund 0.00 0.00 0.00
LB Money Market Fund 0.00 0.00 0.00
PORTFOLIO TURNOVER RATE
The rate of portfolio turnover in the Funds will not be a limiting
factor when LB Research or the Sub-advisor deems changes in a Fund's
portfolio appropriate in view of its investment objectives. As a result,
while a Fund will not purchase or sell securities solely to achieve short
term trading profits, a Fund may sell portfolio securities without regard to
the length of time held if consistent with the Fund's investment objective.
A higher degree of equity portfolio activity will increase brokerage costs
to a Fund. The portfolio turnover rate is computed by dividing the dollar
amount of securities purchased or sold (whichever is smaller) by the average
value of securities owned during the year. Short-term investments such as
commercial paper and short-term U.S. Government securities are not
considered when computing the turnover rate.
For the last three fiscal years, the portfolio turnover rates of the LB
Opportunity Growth Fund, LB Mid Cap Growth Fund, LB World Growth Fund, LB
Fund, LB High Yield Fund, LB Income Fund, and LB Municipal Bond Fund were as
follows:
10/31/98 10/31/97 10/31/96
LB Opportunity Growth Fund 155% 136% 176%
LB Mid Cap Growth Fund 436% 94% --
LB World Growth Fund 18% 17% 11%
LB Fund 58% 54% 91%
LB High Yield Fund 86% 113% 104%
LB Income Fund 102% 97% 142%
LB Municipal Bond Fund 14% 18% 33%
CODE OF ETHICS
The Trust has adopted a code of ethics that imposes certain limitations
and restrictions on personal securities transactions by persons having
access to Fund investment information, including portfolio managers. Such
access persons may not purchase any security being offered under an initial
public offering, any security for which one of the Funds has a purchase or
sale order pending, or any security currently under active consideration for
purchase or sale by a Fund. Additionally, portfolio managers of the Funds
may not purchase or sell any security within seven days before or after any
transaction in such security by the Fund that he or she manages. In order
for the Trust to monitor the personal investment transactions, all access
persons must obtain the approval of an officer of the Trust designated by
the Trustees before they may purchase or sell any security and they must
have all such transactions reported to such officer by the broker-dealer
through which the transaction was accomplished.
PURCHASING SHARES
Initial purchases of Fund shares must be made by check and accompanied
by an application. Subsequent purchases may be made by:
- check;
- Federal Reserve or bank wire;
- Invest-by-Phone;
- Systematic Investment Plan (SIP); and
- automatic payroll deduction.
Use of checks, Federal Reserve or bank wire and Invest-by-Phone is
explained in the General Information section of the Fund's prospectus under
"Buying Shares of The Lutheran Brotherhood Family of Funds".
SYSTEMATIC INVESTMENT PLAN
Under the Systematic Investment Plan program, funds may be withdrawn
monthly from the shareholder's checking account and invested in the Funds.
LB Securities representatives will provide shareholders with the necessary
authorization forms.
AUTOMATIC PAYROLL DEDUCTION
Under the Automatic Payroll Deduction program, funds may be withdrawn
monthly from the payroll account of any eligible shareholder of a Fund and
invested in a Fund. To be eligible for this program, the shareholder's
employer must permit and be qualified to conduct automatic payroll
deductions. LB Securities representatives will provide shareholders with the
necessary authorization forms.
SALES CHARGES
Purchases of Fund shares other than the Institutional Class shares
carry either an initial sales charges (Class A) or contingent deferred sales
charge (Class B) as explained in the section of the Funds' prospectus
relating to such shares entitled, "Choosing Your Class of Shares", which
also lists ways to reduce or avoid sales charges on subsequent purchases.
In addition to the situations described in the prospectus, sales
charges are waived when shares are purchased by:
- directors and regular full-time and regular part-time
employees of Lutheran Brotherhood and its subsidiaries;
- registered representatives of LB Securities; and
- any trust, pension, profit-sharing or other benefit plan
for such persons.
FULL-TIME EMPLOYEES
Regular full-time and regular part-time employees of Lutheran
Brotherhood are persons who are defined as such by the Lutheran Brotherhood
Human Resources Policy Manual.
RESTRICTION ON SALE OF SHARES PURCHASED
Sales to any of the persons or groups mentioned in this section are
made only with the purchaser's written promise that the shares will not be
resold, except through redemption or repurchase by or on behalf of a Fund.
NET ASSET VALUE
LB OPPORTUNITY GROWTH FUND, LB MID CAP GROWTH FUND, LB WORLD GROWTH FUND,
LB FUND, LB HIGH YIELD FUND, LB INCOME FUND, AND LB MUNICIPAL BOND FUND
The net asset value per share is determined at the close of each day
the New York Stock Exchange is open, or any other day as provided by Rule
22c-1 under the Investment Company Act of 1940. Determination of net asset
value may be suspended when the Exchange is closed or if certain emergencies
have been determined to exist by the Securities and Exchange Commission, as
allowed by the Investment Company Act of 1940.
Net asset value is determined by adding the market or appraised value
of all securities and other assets attributable to each class of shares;
subtracting liabilities attributable to such class; and dividing the result
by the number of shares of such class outstanding.
The market value of each Fund's portfolio securities is determined at
the close of regular trading of the New York Stock Exchange (the "Exchange")
on each day the Exchange is open. The value of portfolio securities is
determined in the following manner:
- - Equity securities traded on the Exchange or any other national
securities exchange are valued at the last sale price. If there has
been no sale on that day or if the security is unlisted, it is
valued at prices within the range of the current bid and asked
prices considered best to represent value in the circumstances.
- - Equity securities not traded on a national securities exchange are
valued at prices within the range of the current bid and asked
prices considered best to represent the value in the circumstances,
except that securities for which quotations are furnished through
the nationwide automated quotation system approved by the NASDAQ
will be valued at their last sales prices so furnished on the date
of valuation, if such quotations are available for sales occurring
on that day.
- - Bonds and other income securities traded on a national securities
exchange will be valued at the last sale price on such national
securities exchange that day. LB Research may value such securities
on the basis of prices provided by an independent pricing service
or within the range of the current bid and asked prices considered
best to represent the value in the circumstances, if those prices
are believed to better reflect the fair market value of such
exchange listed securities.
- - Bonds and other income securities not traded on a national
securities exchange will be valued within the range of the current
bid and asked prices considered best to represent the value in the
circumstances. Such securities may also be valued on the basis of
prices provided by an independent pricing service if those prices
are believed to reflect the fair market value of such securities.
For all Funds other than the Money Market Fund, short-term securities
with maturities of 60 days or less are valued at amortized cost; those with
maturities greater than 60 days are valued at the mean between bid and asked
price.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices and may consider institutional
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics and other market data
employed in determining valuation for such securities.
All other securities and assets will be appraised at fair value as
determined by the Board of Trustees.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is
substantially completed each day at various times prior to the close of the
Exchange. The values of such securities used in computing the net asset
value of shares of a Fund are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the
Exchange. Occasionally, events affecting the value of such securities and
exchange rates may occur between the times at which they are determined and
the close of the Exchange, which will not be reflected in the computation of
net asset values. If during such periods events occur which materially
affect the value of such securities, the securities will be valued at their
fair market value as determined in good faith by the Trustees of the Fund.
For purposes of determining the net asset value of shares of a Fund all
assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing
service that takes into account the quotes provided by a number of such
major banks.
LB MONEY MARKET FUND
Securities held by the LB Money Market Fund are valued on the basis of
amortized cost, which involves a constant amortization of premium or
accretion of discount to maturity regardless of the impact of fluctuating
interest rates on the market value of the security. While this method
provides certainty in valuation, it may result in periods in which the value
as determined by amortized cost is higher or lower than the price the LB
Money Market Fund would receive if it sold the security.
The LB Money Market Fund anticipates that under ordinary and usual
circumstances it will be able to maintain a constant net asset value of
$1.00 per share and the LB Money Market Fund will use its best efforts to do
so. However, such maintenance at $1.00 might not be possible if (1) there
are changes in short-term interest rates or other factors such as
unfavorable changes in the credit of issuers affecting the values of the
securities held by the LB Money Market Fund and the LB Money Market Fund is
compelled to sell such securities at a time when the prices which it is able
to realize vary significantly from the values determined on the amortized
cost basis or (2) the LB Money Market Fund should have negative net income.
It is expected that the LB Money Market Fund will have positive net income
at the time of each determination thereof.
The utilization of the amortized cost method of valuation requires
compliance with the requirements of Rule 2a-7 under the 1940 Act. Such
compliance requires, among other things, the following:
(1) The Trustees must adopt procedures whereby the extent of
deviation, if any, of the current net asset value per share
calculated using available market quotations (or an appropriate
substitute which reflects current market conditions) from the LB
Money Market Fund's net asset value per share under the amortized
cost valuation method will be determined at such intervals as the
Trustees deem appropriate and reasonable in light of current
market conditions, and the Trustees must review periodically the
amount of the deviation as well as the methods used to calculate
the deviation;
(2) In the event such deviation from the LB Money Market Fund's net
asset value under the amortized cost valuation method exceeds
1/2 of 1%, the Trustees must promptly consider what action should
be initiated by them, and when the Trustees believe the extent of
any deviation from the LB Money Market Fund's net asset value per
share under the amortized cost valuation method may result in
material dilution or any other unfair results to investors or
existing shareholders, they must take such action as they deem
appropriate to eliminate or reduce to the extent reasonably
practicable such dilution or unfair results (shareholders will be
notified in the event any such corrective action is taken by the
Trustees);
(3) The LB Money Market Fund may not purchase any instrument with a
remaining maturity greater than 397 calendar days or maintain a
dollar-weighted average portfolio maturity which exceeds 90 days;
(4) The LB Money Market Fund must limit its portfolio investments,
including repurchase agreements, to those United States dollar-
denominated instruments which the Trustees determine present
minimal credit risks and which are "eligible securities" as
defined in Rule 2a-7; and
(5) The LB Money Market Fund must record, maintain and preserve
certain records and observe certain reporting obligations in
accordance with Rule 2a-7.
Securities in which the LB Money Market Fund invests must be U.S.
dollar-denominated Eligible Securities (as defined in Rule 2a-7 under the
1940 Act) that are determined to present minimal credit risks. In general,
the term "Eligible Security" is limited to any security that:
(i) (a) either (1) has received a short-term rating from a nationally
recognized statistical rating organization (NRSRO") or has been
issued by an issuer that has received a short-term rating from an
NRSRO with respect to a class of debt obligations (or any debt
obligation within that class) that is comparable in priority and
security with the security or (2) is subject to a guarantee that
has received a short-term rating from an NRSRO, or a guarantee
issued by a guarantor that has received a short-term rating from
an NRSRO with respect to a class of debt obligations (or any debt
obligation within that class) that is comparable in priority and
security with the guarantee, (b) has a remaining maturity of 397
calendar days or less and (c) has received a rating from the
requisite number of NRSROs (i.e.. two, if two organizations have
issued ratings and one if only one has issued a rating) in one of
the two highest short-term major rating categories; or
(ii) is unrated but is of comparable quality to a rated security as
described in (i), above, and which at the time of issuance (a)
had a remaining maturity of more than 397 calendar days and now
has a remaining maturity of 397 calendar days or less, and (b)
has not received a long-term rating from an NRSRO in any NRSRO
major rating category outside of the NRSRO's three highest major
rating categories, unless the security has received a long-term
rating from the requisite number of NRSROs (i.e., two, if two
organizations have issued ratings and one if only one has issued
a rating) in one of the three highest long-term major rating
categories.
As indicated in the Prospectus, at least 95% of the LB Money Market
Fund's total assets will consist of government securities and "first tier"
eligible securities as defined in Rule 2a-7 under the 1940 Act, with the
balance of the LB Money Market Fund's assets invested in "second tier"
eligible securities as defined in Rule 2a-7. For this purpose, "second
tier" eligible securities generally are those which have been (i) rated by
at least two nationally recognized statistical rating organizations in one
of the two highest rating categories for short-term obligations (or so rated
by one such organization if it alone has rated the security), (ii) issued by
an issuer with comparable short-term obligations that are rated in one of
the two highest rating categories, or (iii) if unrated, determined to be
comparable to such securities. The LB Money Market Fund may not invest more
than the greater of 1% of its total assets or $1 million in "second tier"
eligible securities of any single issuer.
CONVERSION TO FEDERAL FUNDS
It is the LB Money Market Fund's policy to be as fully invested as
possible so that maximum interest may be earned on money market instruments
in the Fund's portfolio. To the end, all payments from investors must be in
federal funds or be converted into federal funds when deposited to State
Street Bank' account at the Boston Federal Reserve Bank. This conversion
must be made before shares are purchased. State Street Bank will act as the
investor's agent in depositing checks and converting them to federal funds.
State Street will convert the funds and enter the investor's order for
shares within two days of receipt of the check.
REDEEMING SHARES
Shares may be redeemed with requests made:
- in writing;
- through Redeem-by-Phone; or
- through the Lutheran Brotherhood systematic withdrawal plan.
All methods of redemption are described in the Funds' prospectus under
"Redeeming Shares".
TAX STATUS
THE FUNDS' TAX STATUS
The Funds expect to pay no federal income tax because they intend to
meet requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, each Fund must,
among other requirements:
- derive at least 90% of its gross income from dividends,
interest, gains from the sale of securities, and certain
other investments;
- invest in securities within certain statutory limits; and
- distribute at least 90% of its ordinary income to
shareholders.
It is each Fund's policy to distribute substantially all of its income
on a timely basis, including any net realized gains on investments each
year.
To avoid payment of a 4% excise tax, each Fund is also generally
required to distribute to shareholders at least 98% of its ordinary income
earned during the calendar year and 98% of its net capital gains realized
during the 12-month period ending October 31.
SHAREHOLDERS' TAX STATUS
Information on a shareholder's tax status is described in the Fund's
prospectus under "Taxes."
CAPITAL GAINS
While the Funds do not intend to engage in short-term trading, they may
dispose of securities held for only a short time if LB Research believes it
to be advisable. Such changes may result in the realization of capital
gains. Each Fund distributes its realized gains in accordance with federal
tax regulations. Distributions from any net realized capital gains will
usually be declared in December.
GENERAL INFORMATION
The Lutheran Brotherhood Family of Funds, a business trust organized
under the laws of the State of Delaware, was established pursuant to a
Master Trust Agreement dated July 15, 1993. The Trust is authorized to issue
shares of beneficial interest, par value $.001 per share, divisible into an
indefinite number of different series and classes and operates as a "series
company" as provided by Rule 18f-2 under the 1940 Act. Currently, eight
series of the Trust exist and each series is authorized to issue three
classes of shares: Class A, Class B and Institutional Class shares.
Effective October 31, 1997, all of the outstanding shares of the Funds were
redesignated as Class A shares and, immediately thereafter, shares held by
Lutheran institutions and church organizations with accounts of at least
$100,000 were automatically converted to Institutional Class shares. The
attributes of the various classes of shares are more fully described in
their respective prospectus. The interests of investors in the various
series of the Trust will be separate and distinct.
The assets received by the Trust from the issue and sale of shares of a
Fund and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are specially allocated to each class of such Fund
and constitute the underlying assets of such Fund. The underlying assets of
such Fund are required to be segregated on the books of account, and are
charged with the expenses in respect of each class of the Fund and with a
share of the general expenses of the Trust. Under the Trust's Multiple Class
Expense Allocation Plan adopted under Rule 18f-3 of the 1940 Act, all
expenses other than Rule 12b-1 and shareholder servicing fees are allocated
pro rata based on the relative net assets of each class. Upon any
liquidation of a Fund, shareholders thereof are entitled to share pro rata
in the net assets of each class available for distribution.
Except for the LB World Growth Fund and the LB Mid Cap Growth Fund,
each Fund is the successor to a fund of the same name that previously
operated as a separate corporation or trust. At a Special Meeting of
Shareholders of each such fund held on October 28, 1993, the shareholders of
each fund approved a reorganization of the respective funds as separate
series of the Trust, which reorganization became effective on November 1,
1993. The LB World Growth Fund and the LB Mid Cap Growth Fund commenced
operations as a series of The Lutheran Brotherhood Family of Funds on
September 5, 1995 and May 30, 1997, respectively.
CALCULATION OF PERFORMANCE DATA
The total return and yield of the Class A, Class B and Institutional
Class shares will be calculated as set forth below. Total return and yield
are computed separately for each class of shares of the Funds. The
performance data listed below covers periods prior to the adoption of the
current class designations. Shares of the Funds had no class designations
until October 31, 1997, when designations were assigned based upon the sales
charges, Rule 12b-1 fees and shareholder servicing fees applicable to shares
sold thereafter. Total return and yield performance data for periods prior
to October 31, 1997 have been restated to reflect the revised initial sales
charge schedule for the Class A shares and the CDSC for the Class B shares
that became effective on that date. However, the total return and yield
performance data have not been restated to reflect Rule 12b-1 fees for the
Class B shares and shareholder servicing fees for the Class A and B shares,
which will adversely affect performance after October 31, 1997.
Performance data after October 31, 1997 reflects Rule 12b-1 fees,
shareholder servicing fees and sales charges, where applicable, as follows:
Class Rule 12b-1 Shareholder Sales Charge
Servicing Fee
---------- ------------- -------------
A None .25% of average Maximum 4.0% initial
daily net assets sales charge
reflected(1)
B .75% of .25% of average 1- and 5- year
average daily daily net assets periods reflect a
net assets(1) 5% and 1% CDSD,
respectively(1)
Institutional None None None
- -----------------
(1) Except for LB Money Market Fund, which is not subject to initial sales
charges, CDSC or Rule 12b-1 fees.
Calculations of performance data for all Funds in this section reflect
the subsidization by Fund affiliates of fees and expenses relating to the
Fund during the subject period. In the absence of such subsidization actual
performance would be lower.
TOTAL RETURN
Average annual total return is computed by determining the average
annual compounded rates of return over the designated periods that, if
applied to the initial amount invested would produce the ending redeemable
value, according to the following formula:
P(1+T)(n) = ERV
[In the above formula "n" is an exponent.]
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
designated period assuming a hypothetical
$1,000 payment made at the beginning of the
designated period
The calculation is based on the further assumptions that the maximum
initial sales charge applicable to the investment is deducted, and that all
dividends and distributions by the Fund are reinvested at net asset value on
the reinvestment dates during the periods. All accrued expenses are also
taken into account as described later herein.
YIELD
Yield is computed by dividing the net investment income per share
earned during a recent month or other specified 30-day period by the
applicable maximum offering price per share on the last day of the period
and annualizing the result, according to the following formula:
[A formula is expressed here that is as follows:
Yield is equal to 2 times the difference between the sixth power of a
number and 1, where that number is equal to the sum of the quotient of a
divided by b and 1.]
Where:
a = dividends and interest earned during the period
minus expenses accrued for the period (net of
voluntary expense reductions by the Investment
Manager)
b = the average daily number of shares outstanding
during the period that were entitled to receive
dividends multiplied by the maximum offering
price per share on the last day of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, a Fund computes the yield to maturity of each obligation held
by a Fund based on the market value of the obligation (including actual
accrued interest) at the close of the last business day of the preceding
period, or, with respect to obligations purchased during the period, the
purchase price (plus actual accrued interest). The yield to maturity is then
divided by 360 and the quotient is multiplied by the market value of the
obligation (including actual accrued interest) to determine the interest
income on the obligation for each day of the period that the obligation is
in the portfolio. Dividend income is recognized daily based on published
rates.
In the case of a tax-exempt obligation issued without original issue
discount and having a current market discount, the coupon rate of interest
is used in lieu of the yield to maturity. Where, in the case of a tax-exempt
obligation with original issue discount, the discount based on the current
market value exceeds the then-remaining portion of original issue discount
(market discount), the yield to maturity is the imputed rate based on the
original issue discount calculation. Where, in the case of a tax-exempt
obligation with original issue discount, the discount based on the current
market value is less than the then-remaining portion of original issue
discount (market premium), the yield to maturity is based on the market
value. Dividend income is recognized daily based on published rates.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to
monthly payments of principal and interest ("paydowns"), a Fund accounts for
gain or loss attributable to actual monthly paydowns as a realized capital
gain or loss during the period. Each Fund has elected not to amortize
discount or premium on such securities.
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the
end of the base period, has not been declared as a dividend, but is
reasonably expected to be declared as a dividend shortly thereafter. The
maximum offering price includes, as applicable, a maximum sales charge of
4.0%.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings
accounts and similar investment alternatives which are insured and/or often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that yield is a function of the kind and
quality of the instruments in the Fund's portfolio, portfolio maturity and
operating expenses and market conditions.
TAX EQUIVALENT YIELD
The LB Municipal Bond Fund may quote its tax equivalent yield. The LB
Municipal Bond Fund's tax equivalent yield is computed by dividing that
portion of such Fund's yield (computed as described under "Yield" above)
which is tax-exempt, by the complement of the combined federal and state
maximum effective marginal rate and adding the result to that portion, if
any, of the yield of such Fund that is not tax-exempt. The complement, for
example, of a tax rate of 31% is 69%, that is 1.00 - 0.31 = 0.69.
The tables below present the average annual returns for all Funds
except LB Money Market Fund, the yields for LB High Yield Fund, LB Income
Fund, and LB Municipal Bond Fund, and the tax-equivalent yield for LB
Municipal Bond Fund of the Class A, Class B, and Institutional Class shares
for the indicated periods ended October 31, 1998. The tables reflect the
revised initial sales charge schedule for the Class A shares and the CDSC
for Class B shares effective October 31, 1997,and they do not reflect the
shareholder servicing fee applicable to the Class A and Class B shares for
periods prior to October 31, 1997.
<TABLE>
<CAPTION>
CLASS A PERFORMANCE
Current
SEC Average Annual Total Returns as of 10/31/98 Date
Yield --------------------------------------------- of
Fund 10/31/98 1-Year 5-Years 10-Years Inception Inception
- -------------------------- -------- ------ ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
LB Opportunity Growth Fund n/a -28.17% 3.98% n/a 7.67% 01/08/93
LB Mid Cap Growth Fund n/a -9.06% n/a n/a 1.05% 05/30/97
LB World Growth Fund n/a 2.53% n/a n/a 6.80% 09/05/95
LB Fund n/a 10.48% 14.85% 14.36% n/a --
LB High Yield Fund 10.60% -9.34% 5.41% 8.70% n/a --
LB Income Fund 5.15% 4.07% 5.01% 7.88% n/a --
LB Municipal Bond Fund 3.62%(a) 3.78% 5.05% 7.51% n/a --
--------------------------------------------------
(a) Tax Equivalent Yields
--------------------------------------------------
Tax Bracket 39.6% 36% 31% 28% 15%
------ ------ ------ ------ ------
LB Municipal Bond Fund 5.99% 5.66% 5.25% 5.03% 4.26%
</TABLE>
<TABLE>
<CAPTION>
CLASS B PERFORMANCE
Current Total Returns as of 10/31/98
SEC ---------------------------- Date
Yield Inception Inception of
Fund 10/31/98 (If Held) (If Redeemed) Inception
- -------------------------- -------- --------- ------------- ---------
<S> <C> <C> <C> <C>
LB Opportunity Growth Fund n/a -25.66% -29.37% 10/31/97
LB Mid Cap Growth Fund n/a -6.00% -10.70% 10/31/97
LB World Growth Fund n/a 6.10% 1.10% 10/31/97
LB Fund n/a 14.26% 9.26% 10/31/97
LB High Yield Fund 10.29% -6.24% -10.92% 10/31/97
LB Income Fund 4.61% 7.65% 2.65% 10/31/97
LB Municipal Bond Fund 3.02%(b) 7.23% 2.23% 10/31/97
--------------------------------------------------
(b) Tax Equivalent Yields
--------------------------------------------------
Tax Bracket 39.6% 36% 31% 28% 15%
------ ------ ------ ------ ------
LB Municipal Bond Fund 5.00% 4.72% 4.38% 4.19% 3.55%
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS PERFORMANCE
Current
SEC Total Returns as of 10/31/98 Date
Yield ---------------------------- of
Fund 10/31/98 Inception Inception
- -------------------------- -------- --------- ---------
<S> <C> <C> <C>
LB Opportunity Growth Fund n/a -25.02% 10/31/97
LB Mid Cap Growth Fund n/a -5.06% 10/31/97
LB World Growth Fund n/a 7.20% 10/31/97
LB Fund n/a 15.41% 10/31/97
LB High Yield Fund 11.31% -5.33% 10/31/97
LB Income Fund 5.62% 8.69% 10/31/97
LB Municipal Bond Fund 4.02%(a) 8.39% 10/31/97
--------------------------------------------------
(b) Tax Equivalent Yields
--------------------------------------------------
Tax Bracket 39.6% 36% 31% 28% 15%
------ ------ ------ ------ ------
LB Municipal Bond Fund 6.66% 6.28% 5.83% 5.58% 4.73%
</TABLE>
YIELD - MONEY MARKET FUND
When the LB Money Market Fund quotes a "current annualized" yield, it
is based on a specified recent seven calendar-day period. It is computed by
(1) determining the net change, exclusive of capital changes, in the value
of a hypothetical preexisting account having a balance of one share at the
beginning of the period, (2) dividing the net change in account value by the
value of the account at the beginning of the base period to obtain the base
return, then (3) multiplying the base period by 52.14 (365 divided by 7).
The resulting yield figure is carried to the nearest hundredth of one
percent.
The calculation includes (1) the value of additional shares purchased
with dividends on the original share, and dividends declared on both the
original share and any such additional shares, and (2) all fees charge to
all shareholder accounts, in proportion to the length of the base period and
the Trust's average account size.
The capital changes excluded from the calculation are realized capital
gains and losses from the sale of securities and unrealized appreciation and
depreciation. The Fund's effective (compounded) yield will be computed by
dividing the seven-day annualized yield as defined above by 365, adding 1 to
the quotient, raising the sum to the 365th power, and subtracting 1 from the
result.
Current and effective yields fluctuate daily and will vary with factors
such as interest rates and the quality, length of maturities, and type of
investments in the portfolio.
Class Institutional
A & B Class
----- -----
Yield For 7-day Period Ended 10/31/98 4.47% 4.69%
Effective Yield For 7-day Period Ended 10/31/98 4.56% 4.80%
ACCRUED EXPENSES
Accrued expenses include all recurring expenses that are charged to all
shareholder accounts in proportion to the length of the base period. The
average annual total return and yield results take sales charges, if
applicable, into account, although the results do not take into account
recurring and nonrecurring charges for optional services which only certain
shareholders elect and which involve nominal fees.
Accrued expenses include the subsidization by Fund affiliates of fees
or expenses relating to a Fund, during the subject period.
NONSTANDARDIZED TOTAL RETURN
A Fund may provide the above described average annual total return
results for periods which end no earlier than the most recent calendar
quarter end and which begin one, five and ten years before such quarter end
and at the commencement of such Fund's operations. In addition, a Fund may
provide nonstandardized total return results for differing periods, such as
for the most recent six months, and/or without taking sales charges into
account. Such nonstandardized total return is computed as otherwise
described under "Total Return" except that the result may or may not be
annualized, and as noted any applicable sales charge may not be taken into
account and therefore not deducted from the hypothetical initial payment of
$1,000.
DESCRIPTION OF DEBT RATINGS
Moody's Investors Service, Inc. describes grades of corporate debt
securities and "Prime-1" and "Prime-2" commercial paper as follows:
BONDS:
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged". Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
COMMERCIAL PAPER:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return of funds employed.
o Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
o Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of senior short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earning trends and coverage ratios, while sound,
will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's Corporation describes grades of corporate debt
securities and "A" commercial paper as follows:
BONDS:
AAA Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher rated categories. However, the obligor's capacity to meet
its financial commitments on the obligation is still strong.
BBB Debt rated BBB exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial
commitments on the obligation in this category than in higher rated
categories.
BB Debt rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity of the obligor to meet its
financial commitments on the obligation. The BB rating category is
also used for debt subordinated to senior debt that is assigned an
actual or implied BBB-rating.
B Debt rated B is more vulnerable to nonpayment but currently has the
capacity to meet its financial commitments on the obligation.
Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial
commitments on the obligation.
The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC is vulnerable to nonpayment, and is dependent upon
favorable business, financial, and economic conditions for the
obligor to meet its financial commitments on the obligation. In the
event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitments on the obligation.
The CCC rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied B or B- rating.
CC The rating CC typically is currently highly vulnerable to
nonpayment.
C The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken but payments on the
obligation are being continued.
D Debt rated D is in payment default. The D rating category is used
when payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition or the taking
of similar action if payments on the obligation are jeopardized.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
The investor should exercise judgment with respect to such likelihood and
risk.
Commercial Paper: Commercial paper rated A by Standard & Poor's
Corporation has the following characteristics: liquidity ratios are better
than the industry average; long-term senior debt rating is "A" or better
(however, in some cases a "BBB" long-term rating may be acceptable); the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowances made for unusual
circumstances. Also, the issuer's industry typically is well established,
the issuer has a strong position within its industry and the reliability and
quality of management is unquestioned. Issuers rated A are further referred
to by use of numbers 1, 2 and 3 to denote relative strength within this
classification.
REPORT OF INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The Report of Independent Accountants and financial statements in the
Annual Report to Shareholders for the fiscal year ended October 31, 1998 of
the Funds are a separate report furnished with this Statement of Additional
Information and are incorporated herein by reference.
<PAGE>
PART C
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
PART C
OTHER INFORMATION
-----------------
Item 23. Exhibits
- -------------------------------------------
(a)(1) First Amended and Restated Master Trust Agreement of the
Registrant (4)
(a)(2) Form of Amendment No. 1 to First Amended and Restated Master
Trust Agreement (1)
(a)(3) Form of Amendment No. 2 to First Amended and Restated Master
Trust Agreement (2)
(a)(4) Form of Amendment No. 3 to First Amended and Restated Master
Trust Agreement (3)
(a)(5) Amendment No. 4 to First Amended and Restated Master Trust
Agreement (7)
(b) By-Laws of the Registrant (4)
(c) Not applicable
(d)(1) Form of Master Advisory Contract between the Registrant and
Lutheran Brotherhood Research Corp. (4)
(d)(2) Form of Letter Amendment to Master Advisory Contract (1)(2)
(d)(3) Form of Sub-Advisory Agreement between Lutheran Brotherhood
Research Corp. and Rowe Price-Fleming International, Inc. (1)
(d)(4) Form of Sub-Advisory Agreement between Lutheran Brotherhood
Research Corp., the Registrant and T. Rowe Price Associates,
Inc. (5)
(d)(5) Amendment No. 1 to Master Advisory Contract (7)
(d)(6) Amendment No. 2 to Master Advisory Contract (7)
(e) Form of Amended and Restated Distribution Contract (3)
(f) Not applicable
(g)(1) Form of Custodian Contract between the Registrant and State
Street Bank and Trust Company (4)
(g)(2) Form of Amended and Restated Transfer Agency Agreement between
the Registrant and Lutheran Brotherhood Securities Corp. (3)
(g)(3) Form of Administrative Services Agreement between the Registrant
and Lutheran Brotherhood Securities Corp. (4)
(g)(4) Form of Amendment to Custodian Contract (1)
(g)(5) Administration Contract Between The Lutheran Brotherhood Family
of Funds and Lutheran Brotherhood Securities Corp. (1)
(g)(6) Form of Amendment to Administrative Services Agreement (1)
(g)(7) Form of Amendment to Custodian Contract (2)
(g)(8) Form of Amendment to Administration Contract (2)
(h) Not applicable
(i) Opinion and consent of counsel (4)(7)
(j) Consent of Independent Accountants (7)
(k) Financial Statements included in PART A (Prospectus) of this
Registration Statement:
(A) Financial Highlights for Lutheran Brotherhood Opportunity
Growth Fund for the fiscal year ended October 31, 1998
(B) Financial Highlights for Lutheran Brotherhood Mid Cap
Growth Fund for the fiscal year ended October 31, 1998
(C) Financial Highlights for Lutheran Brotherhood World
Growth Fund for the fiscal year ended October 31, 1998
(D) Financial Highlights for Lutheran Brotherhood Fund
for the fiscal year ended October 31, 1998
(E) Financial Highlights for Lutheran Brotherhood High Yield
Fund for the fiscal year ended October 31, 1998
(F) Financial Highlights for Lutheran Brotherhood Income
Fund for the fiscal year ended October 31, 1998
(G) Financial Highlights for Lutheran Brotherhood Municipal
Bond Fund for the fiscal year ended October 31, 1998
(H) Financial Highlights for Lutheran Brotherhood Money
Market Fund for the fiscal year ended October 31, 1998
Financial Statements included in the Annual Report to
Shareholders for the period ended October 31, 1998 as
incorporated by reference into PART B (Statement of Additional
Information) of this Registration Statement for Lutheran
Brotherhood Opportunity Growth Fund, Lutheran Brotherhood Mid
Cap Growth Fund, Lutheran Brotherhood World Growth Fund,
Lutheran Brotherhood Fund, Lutheran Brotherhood High Yield
Fund, Lutheran Brotherhood Income Fund, Lutheran Brotherhood
Municipal Bond Fund, Lutheran Brotherhood Money Market Fund:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements (including Financial Highlights
referenced to the Prospecuts)
Report of Independent Accountants (7)
(l)(1) Subscription and Investment Letter with respect to each of
Lutheran Brotherhood Opportunity Growth Fund, Lutheran
Brotherhood Fund, Lutheran Brotherhood High Yield Fund, Lutheran
Brotherhood Income Fund, Lutheran Brotherhood Municipal Bond Fund
and Lutheran Brotherhood Money Market Fund (4)
(l)(2) Form of Subscription and Investment Letter with respect to
Lutheran Brotherhood World Growth Fund (1)
(l)(3) Form of Subscription and Investment Letter with respect to
Lutheran Brotherhood Mid Cap Growth Fund (2)
(m)(1) Plan of Distribution Pursuant to Rule 12b-1 with respect to the
Class B Shares (3)
(m)(2) Shareholder Servicing Plan with respect to the Class A Shares (3)
(m)(3) Shareholder Servicing Plan with respect to the Class B Shares (3)
(n) Financial Data Schedule (7)
(o)(1) Multiple Class Expense Allocation Plan Adopted Pursuant to Rule
18f-3 (3)
(o)(2) Form of Amended Multiple Class Expense Allocation Plan Adopted
Pursuant to Rule 18f-3 (6)
(p) Powers of Attorney for:
Rolf F. Bjelland, Wade M. Voigt, Herbert F. Eggerding, Jr.,
Noel K. Estenson, Jodi L. Harpstead, Richard A. Hauser, Connie
M. Levi, Bruce J. Nicholson, and Ruth E. Randall (7)
- --------------------
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote
Reference Securities Act of 1933 Amendment Date Filed
--------- -------------------------------- ----------
(1) Post-Effective Amendment No. 55 June 19, 1995
(2) Post-Effective Amendment No. 58 March 10, 1997
(3) Post-Effective Amendment No. 60 October 28, 1997
(4) Post-Effective Amendment No. 61 December 31, 1997
(5) Post-Effective Amendment No. 62 March 16, 1998
(6) Post-Effective Amendment No. 64 October 23, 1998
(7) Filed herewith
Item 24. Persons Controlled by or under Common Control with Registrant
None.
Item 25. Indemnification
Under Article VI of the Registrant's Master Trust Agreement each
of its Trustees and officers or persons serving in such capacity with
another entity at the request of the Registrant ("Covered Person") shall be
indemnified against all liabilities, including, but not limited to, amounts
paid in satisfaction of judgments, in compromises or as fines or penalties,
and expenses, including reasonable legal and accounting fees, in connection
with the defense or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or administrative or legislative
body, in which such Covered Person may be or may have been involved as a
party or otherwise or with which such Covered Person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer, director or trustee, except with respect to any
matter as to which it has been determined that such Covered Person had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's office (such
conduct referred to hereafter as "Disabling Conduct"). A determination that
the Covered Person is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before which the proceeding
was brought that the person to be indemnified was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of evidence of
Disabling Conduct, or (iii) a reasonable determination, based upon a review
of the facts, that the indemnitee was not liable by reason of Disabling
Conduct by (a) a vote of a majority of a quorum of Trustees who are neither
"interested persons" of the Registrant as defined in section 2(a)(19) of the
1940 Act nor parties to the proceeding, or (b) an independent legal counsel
in a written opinion.
Under the Distribution Agreement between the Registrant and
Lutheran Brotherhood Securities Corp., the Registrant's distributor, the
Registrant has agreed to indemnify, defend and hold Lutheran Brotherhood
Securities Corp., its officers, directors, employees and agents and any
person who controls Lutheran Brotherhood Securities Corp. free and harmless
from and against any loss, claim, damage, liability and expense incurred by
any of them arising out of or based upon any untrue or alleged untrue
statement of material fact, or the omission or alleged omission to state a
material fact necessary to make the statements made not misleading, in a
Registration Statement, the Prospectus or Statement of Additional
Information of the Registrant, or any amendment or supplement thereto,
unless such statement or omission was made in reliance upon written
information furnished by Lutheran Brotherhood Securities Corp.
Under the Amended and Restated Transfer Agent and Service
Agreement between the Registrant and Lutheran Brotherhood Securities Corp.,
the Registrant has agreed, provided that Lutheran Brotherhood Securities
Corp. has at all relevant times acted in good faith and without negligence
or willful misconduct, to indemnify and hold Lutheran Brotherhood Securities
Corp. harmless from and against any and all losses, damages, costs, charges,
attorneys fees, payments, expenses and liability arising out of or
attributable to (a) all actions of Lutheran Brotherhood Securities Corp. or
its agents or subcontractors required to be taken under the Transfer Agency
and Service Agreement or which arise out of the Registrant's lack of good
faith, negligence, or willful misconduct or the breach of any representation
or warranty of the Registrant under the Transfer Agency and Service
Agreement, (c) the reliance on or use by Lutheran Brotherhood Securities
Corp. or its agents or subcontractors of information, records or documents
which are furnished by or on behalf of Registrant, (d) the reliance on or
the carrying out by Lutheran Brotherhood Securities Corp. or its agents or
subcontractors of any instructions or requests by Registrant, or (e) the
offer or sale of shares of the Registrant unknown by Lutheran Brotherhood
Securities Corp. to be in violation of law.
Insofar as indemnification by the Registrant for liabilities
arising under the Securities Act of 1933 may be permitted to trustees,
officers, underwriters and controlling persons of the Registrant, pursuant
to Article VI of the Registrant's Master Trust Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such
trustee, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser.
Lutheran Brotherhood Research Corp. has been engaged in the investment
advisory business since 1970. Lutheran Brotherhood, the indirect parent
company of LB Research, also acts as investment adviser to LB Series Fund,
Inc.
The directors and officers of Lutheran Brotherhood Research Corp. are
listed below, together with their principal occupations during the past two
years. (Their titles may have varied during that period.)
Directors:
Robert P. Gandrud, Chairman (President and Chief Executive Officer of
Lutheran Brotherhood)
Bruce J. Nicholson (Executive Vice President and Chief Operating
Officer of Lutheran Brotherhood)
David W. Angstadt (Executive Vice President and Chief Marketing Officer
of Lutheran Brotherhood)
Rolf F. Bjelland (Executive Vice President of Lutheran Brotherhood)
Jerald E. Sourdiff (Senior Vice President and Chief Financial Officer
of Lutheran Brotherhood)
David J. Larson (Secretary, Senior Vice President and General Counsel
of Lutheran Brotherhood)
Jennifer H. Martin (Senior Vice President of Lutheran Brotherhood)
Officers:
Rolf F. Bjelland, President
David K. Stewart, Treasurer (Vice President and Treasurer of Lutheran
Brotherhood)
Otis F. Hilbert, Secretary (Vice President of Lutheran Brotherhood)
Jerald E. Sourdiff, Chief Financial Officer (Chief Financial Officer
and Senior Vice President of Lutheran Brotherhood)
Charles E. Heeren, Vice President (Vice President of Lutheran
Brotherhood)
James R. Olson, Vice President (Senior Vice President of Lutheran
Brotherhood)
James M. Walline, Vice President (Vice President of Lutheran
Brotherhood)
Randall L. Boushek, Vice President (Vice President of Lutheran
Brotherhood)
Michael A. Binger, Assistant Vice President (Associate Portfolio
Manager of Lutheran Brotherhood)
Janet I. Grangaard, Assistant Vice President (Assistant Vice President
of Lutheran Brotherhood)
Thomas N. Haag, Assistant Vice President (Assistant Vice President of
Lutheran Brotherhood)
Fred P. Johnson, Assistant Vice President (Assistant Vice President of
Lutheran Brotherhood)
Michael G. Landreville, Assistant Vice President (Assistant Vice
President of Lutheran Brotherhood)
Paul J. Ocenasek, Assistant Vice President (Assistant Vice President of
Lutheran Brotherhood)
Gail R. Onan, Assistant Vice President (Portfolio Manager of Lutheran
Brotherhood)
Brian L. Thorkelson, Assistant Vice President (Portfolio Manager of
Lutheran Brotherhood)
Scott A. Vergin, Assistant Vice President (Portfolio Manager of
Lutheran Brotherhood)
Marie A. Sorensen, Assistant Vice President (Assistant Vice President
of Lutheran Brotherhood)
John C. Bjork, Assistant Secretary (Counsel of Lutheran Brotherhood)
James M. Odland, Assistant Secretary (Assistant Vice President of
Lutheran Brotherhood)
The business address of each of the above directors and officers
employed by Lutheran Brotherhood is 625 Fourth Avenue South, Minneapolis,
Minnesota 55415.
The business and other connections of the officers and directors of
Rowe Price-Fleming International, Inc. ("Sub-advisor") are set forth in the
Form ADV of Sub-advisor currently on file with the Securities and Exchange
Commission (File No. 801-14713)
Item 27. Principal Underwriters
(a) Lutheran Brotherhood Securities Corp. also serves as principal
underwriter for LB Series Fund, Inc.
(b) Directors and officers of Lutheran Brotherhood Securities Corp.
are as follows:
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
------------------ ---------------- --------------------
David W. Angstadt Director --
625 Fourth Avenue South
Minneapolis, MN 55415
Rolf F. Bjelland Director --
625 Fourth Avenue South
Minneapolis, MN 55415
Bruce J. Nicholson Director --
625 Fourth Avenue South
Minneapolis, MN 55415
Robert P. Gandrud Chairman and Director --
625 Fourth Avenue South
Minneapolis, MN 55415
David J. Larson Director --
625 Fourth Avenue South
Minneapolis, MN 55415
Jennifer H. Martin Director --
625 Fourth Avenue South
Minneapolis, MN 55415
Jerald E. Sourdiff Chief Financial Officer --
625 Fourth Avenue South and Director
Minneapolis, MN 55415
J. Keith Both President --
625 Fourth Avenue South
Minneapolis, MN 55415
Otis F. Hilbert Vice President Vice President
625 Fourth Avenue South and Secretary and Secretary
Minneapolis, MN 55415
David K. Stewart Treasurer --
625 Fourth Avenue South
Minneapolis, MN 55415
Larry A. Borlaug Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
Colleen Both Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
Mitchell F. Felchle Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
Wayne A. Hellbusch Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
Douglas B. Miller Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
C. Theodore Molen Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
James R. Olson Vice President Vice President
625 Fourth Avenue South
Minneapolis, MN 55415
William H. Reichwald Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
Richard B. Ruckdashel Vice President Vice President
625 Fourth Avenue South
Minneapolis, MN 55415
(c) Not Applicable.
Item 28. Location of Accounts and Records
The Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment Company
Act of 1940 at its principal executive offices at 625 Fourth Avenue South,
Minneapolis, Minnesota 55415. Certain records, including records relating to
Registrant's shareholders and the physical possession of its securities, may
be maintained pursuant to Rule 31a-3 under the Investment Company Act of
1940 by the Registrant's transfer agent or custodian at the following
locations:
Name Address
---- -------
Lutheran Brotherhood Securities Corp. 625 Fourth Avenue South
Minneapolis, Minnesota 55415
Norwest Bank Minnesota, N.A. Sixth and Marquette Avenue
Minneapolis, Minnesota 55402
State Street Bank and Trust Company 225 Franklin Street
Boston, Massachusetts 02110
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this amendment to its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of
Minneapolis and State of Minnesota, on the 21st day of December, 1998.
THE LUTHERAN BROTHERHOOD
FAMILY OF FUNDS
By: /s/ John C. Bjork
-------------------------------
John C. Bjork,
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to this registration statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature Title Date
* Trustee and President December 21, 1998
- ------------------------ (Principal Executive Officer)
Rolf F. Bjelland
* Treasurer December 21, 1998
- ------------------------ (Principal Financial and
Wade M. Voigt Accounting Officer)
* Trustee December 21, 1998
- -------------------------
Herbert F. Eggerding, Jr.
* Trustee December 21, 1998
- -------------------------
Noel K. Estenson
* Trustee December 21, 1998
- -------------------------
Jodi L. Harpstead
* Trustee December 21, 1998
- -------------------------
Richard A. Hauser
* Trustee December 21, 1998
- ------------------------
Connie M. Levi
* Trustee December 21, 1998
- ------------------------
Bruce J. Nicholson
* Trustee December 21, 1998
- ------------------------
Ruth E. Randall
By: /s/ John C. Bjork
----------------------------
John C. Bjork,
Attorney-in-Fact Under Powers
of Attorney filed herewith.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Item
- ----------- -----------------------------------------------------
(a)(5) Amendment No. 4 to First Amended and Restated Master
Trust Agreement
(d)(5) Amendment No. 1 to Master Advisory Contract
(d)(6) Amendment No. 2 to Master Advisory Contract
(i) Opinion and Consent of Counsel
(j) Consent of Independent Accountants
(k) Annual Report for period ended October 31, 1998
(n) Financial Data Schedules
(p) Powers of Attorney for:
Rolf F. Bjelland, Wade M. Voigt, Herbert F. Eggerding,
Jr., Noel K. Estenson, Jodi L. Harpstead, Richard A.
Hauser, Connie M. Levi, Bruce J. Nicholson, and Ruth E.
Randall
<PAGE>
LUTHERAN BROTHERHOOD
FAMILY OF FUNDS
ANNUAL REPORT
October 31, 1998
PROSPECTUS
December 30, 1998
[GRAPHIC OMITTED: THREE PHOTOS CENTERED UNDER PROSPECTUS DATE:
PHOTO OF SUNDIAL, PHOTO OF MAGNIFYING GLASS, PHOTO OF LOCK]
Our Message to You
October 31, 1998
Dear Shareholder,
Enclosed is your December 30, 1998, Lutheran Brotherhood Family of
Funds Prospectus and Annual Report, covering the fiscal year ended
October 31, 1998.
On the following pages, we review the economic conditions that affected
your investments and offer our thoughts going into the new fiscal year.
Our portfolio managers also lend insights into investment strategies
and financial conditions within their individual market sectors.
Additionally, you're provided with each fund's performance history and
top 10 holdings.
In the summer of 1998, most stock and bond investors witnessed -- some
for the first time -- the downside of the past few years' stellar market
returns. Risk can take many different forms, and this year much of the
market turmoil we experienced in the United States had less to do with
the health of our own economy than with conditions around the globe,
particularly declining currency values in emerging markets.
No matter the circumstances, market setbacks should never be completely
unexpected. Watching one's investments fluctuate in value can be
disconcerting to even the most seasoned of investors. Nonetheless,
market corrections are occasionally necessary to bring market prices
more closely in line with corporate earnings, thereby providing more
accurate company valuations.
Fortunately, despite the nerve-racking ride of late summer, a healthy
recovery in both the corporate equity and bond markets at the end of the
period reversed much of the earlier damage. Those investors who resisted
the temptation to time the market and, instead, adhered to a long-term
investment plan, were rewarded with improved stock and corporate bond
prices. Regrettably, many of those who fled the market when conditions
grew choppy watched the market upturn from the sidelines.
Your Lutheran Brotherhood Securities Corp. (LBSC) registered
representative can provide you with the means to better prepare for the
risks inherent in investing, including AssetMatchSM, our asset
allocation program for personalizing investment strategies. AssetMatch
can help you build strategies that balance risk and return with your
personal investment goals. Also, ask about the Lutheran Brotherhood
Retirement Planner, a program designed to set you on the path to
financial security in your retirement years.
In addition to the tools and expertise your LBSC registered
representative can provide, Lutheran Brotherhood also offers you easy
access to information about your investments. Callers to our Investor
Access Line can obtain everything from account balances to market
updates direct from portfolio managers via our new MarketViewsm service.
To access the Investor Access Line, call 1-800-328-4552, or access
Investor Access OnLine by directing your Internet browser to Lutheran
Brotherhood's Web site at www.luthbro.com.
Thank you for the chance to serve you. Thousands of investors continue
to place their trust in the Lutheran Brotherhood Family of Funds, and
we're honored to count you among them.
Sincerely,
/S/ ROLF F. BJELLAND
Rolf F. Bjelland
Chairman and President
Lutheran Brotherhood Family of Funds
This page does not constitute part of the prospectus or annual report.
Economic and Market Overview October 31, 1998
Market Conditions
Steady gains in the stock and bond markets gave way to increased
volatility during the 12-month period ending October 31, 1998. Financial
crises in Southeast Asia and Russia triggered a broad-based retreat from
higher-risk asset classes during the summer months, punctuated by a
series of sharp, one-day sell-offs on Wall Street. Stock values began
plummeting precipitously in July, and by early October, most major
equity indices had fallen nearly 20% from their highs, before Federal
Reserve interest rate cuts spurred a recovery in stock market values.
U.S. Treasury bonds and money market instruments were the primary
beneficiaries of a global "flight to quality," as demand soared for safe
havens of liquidity and low credit risk. Heightened demand drove yields
on the benchmark 30-year Treasury bond beneath the 5% threshold for 10
days in September and October, before yields eventually edged higher.
Correspondingly, the spread in yields between corporate bonds and U.S.
Treasuries widened to the highest levels in nearly a decade, reflecting
investors' demands for higher risk premiums from corporate issuers.
Economy Remains Strong
Despite market turbulence and slowing corporate earnings growth, the
U.S. economy displayed remarkable resiliency. After expanding at a
vigorous 5.5% from January through March, annualized GDP growth fell to
1.8% during the following three months. However, brisk levels of
consumer spending and real estate construction propelled the economy to
a 3.9% growth rate during the third quarter of 1998. In an environment
of declining interest rates, the U.S. unemployment rate hovered in a
historically low range, closing out the 12-month period at 4.6%, down
0.1% from the previous fiscal year-end.
Global conditions of excess industrial capacity and limited corporate
pricing power mitigated the effects of a tight U.S. labor market and
helped keep inflation in check. The Consumer Price Index finished the
period at a modest 1.5% rate of growth.
This page is part of the annual report.
The Fed's Influence
The calming influence of the U.S. Federal Reserve played a major role in
restoring stability to the financial markets, both in the United States
and abroad. Concerned about interrupted capital flows and unusual market
strains, the Federal Reserve moved toward an accommodative monetary
policy in September, cutting short-term interest rates twice within a
three-week period.
By mid-October 1998, the Federal Funds rate on overnight bank loans had
been lopped from 5.5% to 5%. Many central banks around the world
followed with comparable reductions in short-term interest rates,
highlighting the Federal Reserve's increasing influence on the world
banking system.
These stimulative monetary policies generally buoyed the financial
markets. Beginning in early October, the Dow Jones Industrial Average
began a steady upward advance, by month-end recapturing a good portion
of the value it had lost during the third quarter. In the closing weeks
of the fiscal period, a broad rally in stock prices, coupled with
increasing demand for corporate bonds, underscored gradually improving
investor sentiment.
Sector Performance
Although profit margins continued to shrink for many blue-chip
companies, the large-company Standard & Poor's 500 Index finished the
fiscal year with a flourish, with a trailing 12-month total return of
21.97% after rallying in October. The name recognition, reliable
earnings history, and liquidity associated with larger companies
continued to attract strong investor interest.
Throughout much of the year, small- and medium-company stocks
significantly underperformed those of larger companies. Market
participants were quick to jettison holdings of smaller companies whose
earnings fell below expectations, undermining an already fragile
investor psyche. During the latter months of the period, however,
investors appeared more willing to accept greater risk. As a result,
small- and medium-company stock prices rebounded after bottoming out in
early October. The small-company Russell 2000 Index finished the 12-
month period down -11.84%, while the Standard & Poor's 400 Mid Cap Index
returned 6.71%.
Sustained low inflation provided momentum to the bond markets throughout
much of 1998, though a widespread aversion to risk slowed the flow of
cash into high-yield bond funds. High-yield bond default rates remained
consistent with their long-term averages, but are expected to rise
somewhat in 1999. The trailing 12-month total return for the Lehman
Brothers High Yield Index was off -0.50% during the period, while the
investment grade Lehman Brothers Aggregate Index fared much better, with
a 12-month total return of 9.34%.
Most Southeast Asian economies remained mired in an economic quagmire,
notwithstanding economic reforms in Japan and pockets of improving
conditions elsewhere in the region. Despite turmoil in Russia and
concern over possible currency devaluations in Latin America, the Morgan
Stanley Capital International Europe, Australasia, Far East (EAFE) Index
returned 9.95% for the period, owing largely to a relatively robust
economic climate in Europe.
Challenges in the Year Ahead
In the coming year, attention to Year 2000 ("Y2K") computer fixes will
reach a fever pitch as corporations and units of government prepare for
the new millenium. This issue centers around the ability of computers
and other date-sensitive components to accurately distinguish dates in
their program codes for the year 2000 and beyond. While no organization
can promise to be totally Y2K compliant, Lutheran Brotherhood has
allocated significant resources to update and test our critical computer
systems. Additionally, we have incorporated the Y2K issue into
investment research, reviewing the Y2K compliance efforts of securities
issuers and weighing the risks of non-compliance with the other risks of
investing. Though no investment manager can insure against securities
price declines relating to Y2K, we are committed to taking steps to
minimize its impact on Lutheran Brotherhood's investment portfolios.
Currency issues could also have an effect on European markets over the
coming year. The nations of the European Economic and Monetary Union
(EMU) are preparing for the establishment of a common European currency,
the Euro, to be introduced in January, 1999. Circulation of existing
currencies in these countries will gradually be reduced until the Euro
becomes the sole currency among EMU member nations on January 1, 2002.
Though advancement of the EMU is generally considered a positive
influence for European investments, conversion to the Euro will present
both challenges and opportunities for European companies, though the
ultimate effect of this transition on global financial markets remains
unclear.
Outlook
The coming year is expected to bring slower economic growth worldwide,
though fears of a full-blown U.S. recession have subsided significantly.
The economic malaise hovering over the Pacific Rim nations could further
dampen U.S. exports and commodity prices, while slipping domestic
industrial production and capital spending levels provide additional
cause for concern.
Fortunately, however, low levels of unemployment, interest rates, and
inflation are catalyzing a surging market for new homes and continued
growth in consumer spending, which accounts for two-thirds of Gross
Domestic Product. To what extent these trends can counter recessionary
pressures from overseas could depend on how much more liquidity the
Federal Reserve is willing to pump into the U.S. economy.
While large-company shareholders have disproportionately reaped the
rewards of stock market gains in recent years, conditions appear ripe
for much-needed additional market breadth. Smaller-company stocks
typically perform well in a stimulative monetary environment, and with
these issues in the low regions of their historical valuations,
prospects for this sector of the market are clearly improving.
Rallies in the broader stock market could, in turn, serve to revive
high-yield bond prices, which tend to trace the same general patterns of
stocks, particularly those of smaller companies. The competitive current
yields that corporate bonds now offer provide an excellent buying
opportunity for investors seeking high current income. While there are
no guarantees that the bull market of the past few years will continue
at its torrid pace, the possibility of more widely shared-market gains,
regardless of degree, offers reason for optimism.
Results of the LB Opportunity Growth Fund Shareholder Meeting
A special meeting of the shareholders of the Lutheran Brotherhood
Opportunity Growth Fund was held at Lutheran Brotherhood's Minneapolis
headquarters on Wednesday, May 6, 1998, to consider the proposed
appointment of T. Rowe Price Associates, Inc. of Baltimore, Maryland to
serve as investment sub-adviser for the Fund. A total of
14,675,181.9880 shares, or more than 59.6% of all shares, was present or
voted by proxy. 13,590,737.91290 shares voted in favor of the proposal,
while 196,521.1340 shares voted against the proposal and 887,922.9420
shares abstained. As a result of this vote, T. Rowe Price began serving
as the investment sub-adviser for the Fund on May 15, 1998.
This page is part of the annual report.
LB Opportunity Growth Fund
[GRAPHIC OMITTED: PHOTO OF RICHARD T. WHITNEY]
Richard T. Whitney is portfolio manager of the LB Opportunity Growth
Fund and a managing director of T. Rowe Price Associates, the investment
subadvisor for the Fund. Rich has been with T. Rowe Price since 1985 and
heads the firm's investment advisory committee. Rich is a Chartered
Financial Analyst.
Investors seeking strong liquidity in the 12 months ended October 31,
1998 generally favored stocks of large companies over small-company
shares. Returns for companies with the smallest market capitalizations
were hurt most in this environment (market capitalization is calculated
by multiplying the number of stock shares outstanding by the price of
those shares).
Early in the period, the LB Opportunity Growth Fund held a larger
concentration of companies with smaller market capitalizations. And,
although we increased investments in larger companies during the year as
part of an overall portfolio restructuring, the early emphasis on
smaller firms caused the Fund to underperform its market benchmarks.
Top 10 Holdings % of Portfolio
- -----------------------------------------------
ADAC Labs, Inc. 0.9%
NOVA Corp. 0.8%
Citrix Systems, Inc. 0.7%
Lincare Holdings, Inc. 0.7%
Orbital Sciences Corp. 0.6%
PSS World Medical, Inc. 0.6%
Concord EFS, Inc. 0.6%
O'Reilly Automotive, Inc. 0.6%
Symbol Technologies, Inc. 0.6%
Metamor Worldwide, Inc. 0.6%
These holdings represent 6.7% of the Fund's total investment portfolio.
This page is part of the annual report.
During the reporting period, the Fund had a total return (based on Class
A Share NAV) of -25.18%. That compares to an average return of -13.68%
for small-company growth funds tracked by Lipper Analytical Services and
a return of -11.84% for the Russell 2000 Index.
[GRAPHIC PIE CHART OMITTED]
Portfolio Composition
(% of Portfolio)
Short-Term Securities 4.0%
Common Stocks 96.0%
The Fund's portfolio composition and top holdings represent all share
classes.
Diversification Adds Stability
When the period began in November 1997, the LB Opportunity Growth Fund
had a weighted average market capitalization of about $612 million.
During the months that followed, we sold many of the Fund's stocks with
capitalizations of $200 million or less and bought stocks of companies
with somewhat greater size. By the end of the October 1998, the Fund had
an average capitalization of $931 million. This strategy gave the Fund
somewhat greater stability when shares of small companies plunged nearly
40% between April and October of 1998.
In the first six months of the period we further enhanced stability by
reducing investments in consumer growth stocks in favor of shares in
technology, financial, transportation and consumer staples firms.
Diversifying the portfolio with additional holdings also helped to
stabilize Fund returns during this time. In the months that followed, we
reduced exposure to economically-sensitive firms in the natural
resource, energy, basic materials, and consumer cyclical sectors, while
increasing shares of retail and health care firms. These changes helped
increase the median projected earnings growth rate for stocks in the
portfolio to 24% as of October 31, 1998. That compares to a median rate
of 16% for stocks in the Russell 2000 Index.
[GRAPHIC HORIZONTAL BAR CHART OMITTED]
Top 10 Sectors
Computer Software 14.5%
Business Services 9.5%
Retail 7.3%
Bank & Finance 7.1%
Hospital Supplies & Management 6.9%
Media & Communications 5.7%
Electronic Components 4.2%
Telecommunications Equipment 3.1%
Pharmaceuticals 2.8%
Miscellaneous Consumer Products 2.8%
These sectors represent 63.9% of the Fund's total investment portfolio.
Investment Objective:
To seek long-term growth
of capital by investing in
small-company stocks.
Fund Facts
Inception Date: 1/8/93
Shareholder
Accounts: 59,532
Total Net Assets
(in millions): $215.3
Poised for a Rebound
Even with the October and November 1998 rally in small-company stocks,
these issues are as cheap relative to other asset classes as they've
been in the past 40 years. If overseas economic problems begin to
subside, and prospects for continued U.S. economic growth improve,
small-cap stocks could continue to rally. Because these stocks offer
such outstanding value, they could perform well in the months ahead.
With a fully invested portfolio and a greater focus on growth, the LB
Opportunity Growth Fund is well positioned to take advantage of such a
rebound.
[GRAPHIC WORM CHART OMITTED:
Performance Through October 31, 1998
Growth of a $10,000 Investment
Class A shares (since 1/31/93)]
Lipper Average
Small Co.
Growth
LBOGF Russell 2000 Stocks CPI Index
Month End Total Total Total Total
Date Value Value Value Value
- ----------------------------------------------------------------------
1/31/93 $10,000 $10,000 $10,000 $10,000
2/28/93 9,156 9,769 9,608 10,035
3/31/93 9,512 10,086 9,934 10,070
4/30/93 9,267 9,809 9,619 10,098
5/31/93 9,967 10,243 10,127 10,112
6/30/93 10,122 10,307 10,206 10,126
7/31/93 10,055 10,449 10,263 10,126
8/31/93 10,755 10,900 10,737 10,154
9/30/93 11,443 11,208 11,076 10,175
10/31/93 11,831 11,497 11,232 10,217
11/30/93 11,387 11,122 10,886 10,224
12/31/93 11,687 11,503 11,348 10,224
1/31/94 11,964 11,863 11,650 10,252
2/28/94 11,842 11,820 11,643 10,287
3/31/94 11,043 11,197 11,014 10,322
4/30/94 11,121 11,263 11,016 10,336
5/31/94 10,699 11,137 10,778 10,343
6/30/94 10,078 10,762 10,388 10,378
7/31/94 10,433 10,938 10,451 10,406
8/31/94 11,343 11,547 11,048 10,448
9/30/94 11,509 11,508 11,285 10,476
10/31/94 11,942 11,462 11,275 10,484
11/30/94 11,698 10,999 10,848 10,497
12/31/94 11,998 11,295 11,265 10,497
1/31/95 11,476 11,153 11,229 10,539
2/28/95 12,087 11,617 11,539 10,582
3/31/95 12,531 11,816 11,892 10,617
4/30/95 12,619 12,079 12,050 10,652
5/31/95 12,963 12,286 12,232 10,673
6/30/95 14,140 12,924 12,880 10,694
7/31/95 15,716 13,669 13,823 10,694
8/31/95 15,971 13,962 14,062 10,722
9/30/95 16,315 14,212 14,375 10,743
10/31/95 15,350 13,577 13,864 10,778
11/30/95 16,049 14,147 14,366 10,771
12/31/95 16,523 14,521 14,592 10,764
1/31/96 16,249 14,505 14,520 10,827
2/29/96 17,315 14,957 15,088 10,862
3/31/96 17,698 15,267 15,450 10,918
4/30/96 19,393 16,084 16,600 10,960
5/31/96 20,759 16,717 17,262 10,981
6/30/96 19,338 16,030 16,594 10,989
7/31/96 17,630 14,631 15,222 11,010
8/31/96 18,682 15,481 16,109 11,031
9/30/96 20,158 16,086 16,919 11,065
10/31/96 18,614 15,839 16,601 11,101
11/30/96 17,944 16,491 17,108 11,122
12/31/96 18,532 16,923 17,381 11,122
1/31/97 18,887 17,262 17,769 11,156
2/28/97 17,174 16,844 17,149 11,192
3/31/97 15,261 16,049 16,291 11,220
4/30/97 14,535 16,094 16,238 11,234
5/31/97 16,757 17,883 18,111 11,226
6/30/97 17,683 18,651 19,098 11,241
7/31/97 18,686 19,518 20,250 11,255
8/31/97 19,134 19,965 20,663 11,276
9/30/97 21,340 21,426 22,205 11,304
10/31/97 20,013 20,486 21,239 11,332
11/30/97 19,165 20,352 20,994 11,325
12/31/97 18,457 20,709 21,221 11,311
1/31/98 17,911 20,381 20,843 11,332
2/28/98 19,002 21,888 22,436 11,353
3/31/98 19,725 22,789 23,457 11,374
4/30/98 19,773 22,915 23,616 11,395
5/31/98 18,168 21,680 22,339 11,416
6/30/98 18,296 21,725 22,394 11,430
7/31/98 16,868 19,965 20,789 11,444
8/31/98 13,177 16,092 16,585 11,458
9/30/98 14,188 17,352 17,514 11,473
10/31/98 14,974 18,060 18,227 11,500
As you compare performance, please note that the LB Opportunity Growth
Fund's performance reflects the maximum 4% sales charge. The
performances of the Russell 2000 index and the Lipper Median do not
reflect any such charges. If you were to purchase any of the individual
stocks or funds represented in these indexes, any charges you would pay
would reduce your total return as well.
Inset Box on Chart Reads:
LB Opportunity Growth Fund
Annualized Total Returns*
- --------------------------
Since
Inception
Class A shares 1-Year 5-Year 1/8/93
Net Asset Value -25.18% 4.82% 8.43%
Public Offering Price -28.17% 3.98% 7.67%
Since
Inception
Class B shares 1-Year 10/31/97
If Held (NAV) -25.66% -25.66%
If Redeemed (CDSC) -29.37% -29.37%
Institutional shares
Net Asset Value -25.02% -25.02%
*See accompanying notes to
Portfolio Management Reviews.
This page is part of the annual report.
LB Mid Cap Growth Fund
[GRAPHIC OMITTED: PHOTO OF BRIAN L. THORKELSON]
Brian L. Thorkelson, assistant vice president of Lutheran Brotherhood
Research Corp., is portfolio manager for the LB Mid Cap Growth Fund. He
joined Lutheran Brotherhood in 1987, working for five years as a bond
trader and another five years as an equity analyst for several Lutheran
Brotherhood portfolios.
In the past year, as economic uncertainty drove investors to stocks with
good liquidity and strong earnings histories, mid-cap stocks
outperformed stocks with smaller market capitalizations but under-
performed large-cap issues. (Market capitalization is calculated by
multiplying the number of stock shares outstanding by the price of those
shares.) In building the portfolio of the LB Mid Cap Growth Fund
during this time, we focused on quality mid-cap companies with strong
growth prospects and reasonable valuations.
During the period, many other funds with similar investment objectives
migrated into large-cap stocks hoping to take advantage of the stronger
demand for these issues. In addition, the Standard & Poor's 400 MidCap
Index (the Fund's market benchmark) posted a sharp increase in average
capitalization as a result of the strong increases in stock prices.
These changes caused the Fund, which remained focused on mid-cap growth
stocks, to underperform during the 12 months ended October 31, 1998.
Top 10 Holdings % of Portfolio
- ----------------------------------------------------------
America Online, Inc. 1.0%
Watson Pharmaceuticals, Inc. 0.8%
Staples, Inc. 0.8%
Fiserv, Inc. 0.8%
Qwest Communications International, Inc. 0.7%
SunGard Data Systems, Inc. 0.7%
Elan Corp. plc, ADS 0.7%
Standard & Poor's Depositary Receipts Trust 0.7%
Consolidated Natural Gas Co. 0.7%
Compuware Corp. 0.7%
These holdings represent 7.6% of the Fund's total investment portfolio.
During the reporting period, the Fund had a total return (based on Class
A Share NAV) of -5.28%. That compares to an average return of -2.81% for
mid-cap growth funds tracked by Lipper Analytical Services and 6.71% for
the Standard & Poor's 400 Mid Cap Index.
[GRAPHIC PIE CHART OMITTED]
Portfolio Composition
(% of Portfolio)
Short-Term Securities 5.2%
Common Stocks 94.8%
The Fund's portfolio composition and top holdings represent all share
classes.
Investment Strategy
In the first half of the period, the Fund enjoyed strong gains from
shares of technology and consumer cyclical stocks. These gains, plus
solid performances by certain individual stocks, helped offset
disappointing returns from holdings in the energy, basic materials, and
capital goods sectors. With investors concerned about economies here and
abroad, we emphasized firms focused on domestic sales and adjusted the
weightings of individual industry sectors for greater diversity and
stability. These strategies, plus changes in the market values of Fund
holdings, decreased the Fund's assets in consumer growth and basic
industry shares while increasing assets in energy and consumer staples
firms.
During the closing months of 1997, we actively traded securities in the
Fund's portfolio. The principal purpose of this trading activity was to
generate sufficient dividend income to balance, for regulatory purposes,
the short-term capital gains the portfolio had realized earlier in the
year. This is not unusual for a new fund experiencing rapid growth in a
strong market, and the Fund's management team does not anticipate a
turnover ratio of this magnitude in the future.
[GRAPHIC HORIZONTAL BAR CHART OMITTED]
Top 10 Sectors
Computer Software 11.1%
Drugs & Health Care 9.9%
Bank & Finance 9.5%
Retail 8.6%
Services 7.1%
Oil & Oil Service 5.8%
Electronics 5.6%
Computers & Office Equipment 5.2%
Healthcare Management 4.4%
Telephone & Telecommunications 2.8%
These sectors represent 70% of the Fund's total investment portfolio.
In May and June of 1998 we gave greater emphasis to consumer growth
stocks, including drug and health care stocks, which we felt could
benefit from long-term consumer trends. We also increased investments in
technology and financial shares. When stocks corrected between July and
October, the Fund's technology stocks held up relatively well. Returns
from that sector, along with an under-weighting in basic materials and
capital goods stocks, helped offset poor performances from energy and
consumer cyclical shares.
In the summer of 1998, when economic troubles abroad threatened
financial institutions worldwide, we trimmed positions in some financial
firms. When stock prices bottomed in October, we took advantage of
strong opportunities in the financial sector. We also found attractive
values in other sectors where some of the Fund's cash reserves could be
put to work. At the end of the reporting period, the Fund was
overweighted compared to its benchmark in technology, energy, health
care, and biotechnology stocks, and underweighted in basic materials and
capital goods shares.
Investment Objective:
To seek long-term growth of
capital by investing in common
stocks of medium-sized companies.
Fund Facts
Inception Date: 5/30/97
Shareholder
Accounts: 16,232
Total Net Assets
(in millions): $39.0
Looking Ahead
Although mid-cap stocks have participated in the recent market rebound,
they remain attractively priced versus the stock market as a whole. As
investors become more confident about future economic growth, they
should take advantage of the many investment opportunities in the mid-
cap sector. In the meantime, we'll continue to take advantage of periods
of market weakness, adding stocks of quality firms with good valuations.
We remain especially interested in technology and consumer growth
stocks, as well as shares of health care and biotechnology firms.
[GRAPHIC WORM CHART OMITTED:
Performance Through October 31, 1998
Growth of a $10,000 Investment
Class A shares (since 5/30/97)]
Lipper Average
LBMCGF S & P 400 Mid Cap CPI Index
Month End Total Total Total Total
Date Value Value Value Value
- ------------------------------------------------------------------
5/31/97 10,000 10,000 10,000 10,000
6/30/97 9,979 10,285 10,395 10,013
7/31/97 10,622 11,303 11,225 10,026
8/31/97 10,519 11,290 11,193 10,044
9/30/97 11,079 11,939 11,924 10,069
10/31/97 10,716 11,419 11,380 10,094
11/30/97 10,560 11,588 11,378 10,088
12/31/97 10,802 12,038 11,571 10,075
1/31/98 10,647 12,038 11,368 10,094
2/28/98 11,608 13,035 12,382 10,113
3/31/98 12,083 13,623 12,962 10,131
4/30/98 12,171 13,872 13,084 10,150
5/31/98 11,520 13,248 12,484 10,169
6/30/98 11,862 13,331 12,760 10,182
7/31/98 11,299 12,814 12,113 10,194
8/31/98 8,979 10,431 9,763 10,206
9/30/98 9,576 11,434 10,439 10,219
10/31/98 10,150 12,456 11,064 10,244
As you compare performance, please note that the LB Mid Cap Growth
Fund's performance reflects the maximum 4% sales charge. The
performances of the S&P 400 MidCap Index and the Lipper Median do not
reflect any such charges. If you were to purchase any of the individual
stocks or funds represented in these indexes, any charges you would pay
would reduce your total return as well.
Inset Box on Chart Reads:
LB Mid Cap Growth Fund
Annualized Total Returns*
- -------------------------
Since
Inception
Class A shares 1 Year 5/30/97
Net Asset Value -5.28% 4.03%
Public Offering Price -9.06% 1.05%
Since
Inception
Class B shares 1 Year 10/31/97
If Held (NAV) -6.00% -6.00%
If Redeemed (CDSC) -10.70% -10.70%
Institutional shares
Net Asset Value -5.06% -5.06%
*See accompanying notes to
Portfolio Management Reviews.
This page is part of the annual report.
LB World Growth Fund
[GRAHIC OMITTED: PHOTO OF MARTIN G. WADE]
Martin G. Wade is chief executive officer and vice chairman of Rowe
Price-Fleming International, the investment subadvisor for the LB World
Growth Fund. He heads the Fund's portfolio management team and has done
so since the Fund's inception in September of 1995. Martin has been
working in research and investment management since 1968 and has been
with Rowe Price-Fleming since 1979.
The financial crisis that began in Southeast Asia in the summer of
1997 deepened over the 12 months ended October 31, 1998, helping spawn a
recession in Japan and other parts of the Pacific Rim. During the same
time, economies in Russia and the emerging markets of Latin America also
deteriorated. Although the economies of Europe remained relatively
sound, fears of a worldwide recession depressed stocks in the region.
% of
Top 10 Holdings Country Portfolio
- ------------------------------------------------------------------
National Westminster Bank United Kingdom 2.6%
SmithKline Beecham plc United Kingdom 2.4%
Wolters Kluwer Netherlands 2.3%
Nestle Switzerland 2.2%
Glaxo Wellcome United Kingdom 1.7%
Eaux Cie Generale France 1.7%
Royal Dutch Petroleum Netherlands 1.6%
Novartis AG Switzerland 1.5%
ING Groep NV Netherlands 1.4%
Kingfisher United Kingdom 1.4%
These holdings represent 18.8% of the Fund's total investment portfolio.
This page is part of the annual report.
During this time, Asian stocks continued to represent less of the LB
World Growth Fund than they did in the Fund's market benchmark, Morgan
Stanley Capital International's Europe, Australasia, Far East (EAFE)
Index, while the Fund was overweighted in European stocks. For much of
the period the Fund also benefited from an overweighting in France and
the Netherlands, while stock selection in other parts of Europe and in
Asia further enhanced Fund returns.
[GRAPHIC PIE CHART OMITTED]
Portfolio Composition
(% of Portfolio)
Preferred Stocks 0.2%
Short-Term Securities 5.1%
Common Stocks & Warrants 94.7%
The Fund's portfolio composition and top holdings represent all share
classes.
An underweighting in Germany diminished returns earlier in the year,
although it was beneficial in the third quarter of 1998, when German
stocks were hurt by problems in Russia. Underweightings in the strongly
performing markets of Spain and Portugal, as well as an overweighting in
the poorly performing markets of Latin America, also limited Fund
returns.
On balance, the Fund lagged the Index for the 12 months ended October
31, 1998, earning a total return (based on Class A Share NAV) of 6.80%,
versus 9.95% for the EAFE Index. Over the same time, international
equity funds tracked by Lipper Analytical Services had an average return
of 4.07%.
Trading Out of Asia
When the fiscal year began, Japanese stocks represented about 21% of
Fund assets, versus 29% of the EAFE Index. By the end of October, Japan
represented 16% of the Fund, versus 22% for the EAFE Index. After
holding a slightly overweighted position in the emerging markets of
Asia, we sold stocks of financial and real estate firms there. We also
traded holdings in European companies with ties to Asia for shares of
European banks. In Latin America, we traded stocks in Brazil and
Argentina for Televisa, a Mexican media concern.
Top 10 Countries
- -----------------------------
United Kingdom 17.7%
Japan 15.7%
Netherlands 11.5%
France 10.6%
Germany 7.6%
Switzerland 7.4%
Italy 5.3%
Sweden 3.3%
Spain 3.0%
Australia 2.3%
These countries represent 84.4% of the
Fund's total investment portfolio.
During the first and second quarters of 1998, we cut Asian investments
further, while continuing to add financial stocks in Europe, along with
Royal Philips Electronics, an electronics firm in the Netherlands. We
took advantage of weaker prices in the third quarter to increase
existing positions in European stocks with strong growth potential. In
Japan, we reduced investments in several blue-chip companies, believing
the earnings of such firms are likely to slow.
Investment Objective:
To seek long-term growth of capital
by investing primarily in common
stocks of established companies
outside of the United States.
Fund Facts
Inception Date: 9/5/95
Shareholder
Accounts: 21,232
Total Net Assets
(in millions): $86.9
Brighter Promise in Europe and Latin America
We believe the reduced weightings in Asia should help the Fund weather
further economic difficulty in that region. Although Japan shows signs
of solving its financial problems, corporate profits are likely to
remain under pressure from weaknesses in neighboring Asian economies.
While economic fundamentals have been damaged in Latin America, many
well-managed companies are now available at attractive valuations. As a
result, we will maintain a modest allocation of the Fund's assets in
that region.
In Europe, companies are still trimming their earnings forecasts. We
remain encouraged, however, by low inflation, continued corporate
restructuring, and a greater focus on "shareholder value." In this
environment we believe that the 71% allocation of Fund assets to Europe
will continue to enhance returns.
[GRAPHIC WORM CHART OMITTED:
Performance Through October 31, 1998
Growth of a $10,000 Investment
Class A shares (since 9/30/95)]
Morgan Stanley
Lipper
Morgan Stanley Average
Captial International
International Fund
LBWGF EAFE Index Stocks CPI Index
Month End Total Total Total Total
Date Value Value Value Value
- --------------------------------------------------------------------
9/30/95 $10,000 $10,000 $10,000 $10,000
10/31/95 9,430 9,734 9,790 10,033
11/30/95 9,508 10,008 9,893 10,027
12/31/95 9,817 10,413 10,203 10,020
1/31/96 10,041 10,458 10,413 10,078
2/29/96 10,108 10,495 10,443 10,111
3/31/96 10,265 10,721 10,625 10,163
4/30/96 10,567 11,035 10,957 10,202
5/31/96 10,522 10,834 10,899 10,222
6/30/96 10,634 10,898 10,975 10,229
7/31/96 10,298 10,582 10,581 10,249
8/31/96 10,444 10,607 10,691 10,268
9/30/96 10,679 10,892 10,919 10,301
10/31/96 10,612 10,783 10,829 10,333
11/30/96 11,093 11,214 11,290 10,353
12/31/96 11,135 11,073 11,320 10,353
1/31/97 10,977 10,688 11,247 10,385
2/28/97 11,090 10,865 11,394 10,418
3/31/97 11,068 10,907 11,421 10,444
4/30/97 11,135 10,967 11,449 10,457
5/31/97 11,869 11,683 12,144 10,450
6/30/97 12,378 12,331 12,702 10,464
7/31/97 12,705 12,533 13,039 10,477
8/31/97 11,531 11,599 12,078 10,497
9/30/97 12,299 12,251 12,839 10,523
10/31/97 11,395 11,311 11,862 10,548
11/30/97 11,350 11,198 11,763 10,542
12/31/97 11,377 11,299 11,862 10,529
1/31/98 11,779 11,819 12,158 10,548
2/28/98 12,458 12,580 12,944 10,568
3/31/98 12,883 12,970 13,584 10,588
4/30/98 12,975 13,075 13,772 10,607
5/31/98 12,941 13,015 13,786 10,627
6/30/98 12,941 13,116 13,703 10,640
7/31/98 13,102 13,253 13,891 10,653
8/31/98 11,469 11,613 11,937 10,666
9/30/98 11,192 11,260 11,520 10,679
10/31/98 12,170 12,437 12,411 10,705
As you compare performance, please note that the LB World Growth Fund's
performance reflects the maximum 4% sales charge. The performances of
the MSCI EAFE index and the Lipper Median do not reflect any such
charges. If you were to purchase any of the individual stocks or funds
represented in these indexes, any charges you would pay would reduce
your total return as well.
Inset Box on Chart Reads:
LB World Growth Fund
Annualized Total Returns*
- --------------------------------------------------------------
Since
Inception
Class A shares 1-Year 9/5/95
Net Asset Value 6.80% 8.17%
Public Offering Price 2.53% 6.80%
Since
Inception
Class B shares 1-Year 10/31/97
If Held (NAV) 6.10% 6.10%
If Redeemed (CDSC) 1.10% 1.10%
Institutional shares
Net Asset Value 7.20% 7.20%
*See accompanying notes to
Portfolio Management Reviews.
This page is part of the annual report.
LB Fund
[GRAPHIC OMITTED: PHOTO OF JAMES M. WALLINE]
James M. Walline is a Chartered Financial Analyst and portfolio manager
of the LB Fund. He is a vice president of Lutheran Brotherhood and has
managed the LB Fund since 1994. He has been with Lutheran Brotherhood
Research Corp. since its inception in 1970.
As economic and market uncertainty drove investors to stocks of large,
high-quality growth firms, the LB Fund benefited from its selection of
leading firms with sound fundamentals, good earnings prospects, and
reasonable valuations. By focusing on individual stocks, rather than
industry sectors, we helped the Fund make the most of a challenging
market environment.
For the 12 months ended October 31, 1998, the Fund had a total return
(based on Class A Share NAV) of 15.07%. This compared to an average
return of 9.85% for growth and income funds tracked by Lipper Analytical
Services. Over the same time the Standard & Poor's 500 Index, which
includes many of the period's top-performing large-cap issues, had a
return of 21.97%.
Top 10 Holdings % of Portfolio
- ------------------------------------------------------
MCI Worldcom, Inc. 2.4%
Sara Lee Corp. 2.0%
AlliedSignal, Inc. 2.0%
U.S. Bancorp 2.0%
American International Group, Inc. 2.0%
Procter & Gamble Co. 2.0%
Cisco Systems, Inc. 2.0%
Ameritech Corp. 2.0%
Royal Dutch Petroleum Co. 2.0%
General Electric Co. 2.0%
These holdings represent 20.4% of the Fund's total investment portfolio.
This page is part of the annual report.
[GRAPHIC PIE CHART OMITTED]
Portfolio Composition
(% of Portfolio)
Short-Term Securities 2.5%
Common Stocks 97.5%
The Fund's portfolio composition and top holdings represent all share
classes.
Focus on Quality
Throughout the reporting period, we emphasized leading companies capable
of growth in a variety of economic conditions. In the first half of the
period, the Fund enjoyed particularly strong gains from its selection of
consumer stocks, including drug, health care, and retail shares. Stocks
in these groups that made the largest contribution to Fund returns
included Merck, Pfizer, and Wal-Mart. The Fund also benefited from good
performances by communications stocks like Ameritech and WorldCom,
capital goods stocks like Honeywell and AlliedSignal, and technology
stocks like Lucent, Microsoft, and Cisco Systems. The gains from these
and other issues far outweighed lesser performances from shares of home-
loan resellers hurt by proposed changes in mortgage insurance laws and
energy firms hurt by falling oil prices.
During this time we traded shares of General Motors and Oracle for
shares of American Home Products and American Express. In the banking
sector, we trimmed holdings in Citicorp and introduced BankAmerica to
the portfolio. In the energy sector, we sold shares of Unocal and Amoco
and added energy-service firms, such as Schlumberger.
[GRAPHIC HORIZONTAL BAR CHART OMITTED]
Top 10 Sectors
Bank & Finance 16.4%
Drugs & Health Care 11.5%
Oil & Oil Service 9.7%
Telephone & Telecommunications 7.3%
Computers & Office Equipment 7.1%
Food & Beverage 5.8%
Retail 5.1%
Conglomerates 5.0%
Household Products 4.9%
Chemicals 4.1%
These sectors represent 76.9% of the Fund's total investment portfolio.
As world economic conditions deteriorated in the second half of the
period, we sold stocks of companies whose fundamentals had weakened,
including Thermo Electron, Parametric Technology, Adaptec, Cendant,
Amtel, Deere, Household International, Marriott, and Federated
Department Stores. In the wake of declining stock prices from August
into October, we took advantage of attractive investment opportunities
by adding Time Warner, Omnicom, Tyco International, Medtronic, Xerox,
United Technologies, and Gap Inc.
Investment Objective:
To seek long-term growth
of capital and income
by investing in the stocks
of leading U.S. companies.
Fund Facts
Inception Date: 6/2/70
Shareholder
Accounts: 109,699
Total Net Assets
(in millions): $1,174.2
Diversification Remains Key
While recent cuts in interest rates should provide much-needed support
for future U.S. growth, capital spending has slowed dramatically and,
along with lower exports, may slow the economy. However, we think the
market has largely accounted for the possibility of economic uncertainty
in 1999, and is anticipating stronger growth in the year 2000. This
should help to advance cyclical stocks that have underperformed in
recent months.
We believe a well-diversified portfolio can make the most of these
conditions. We plan to keep the LB Fund invested in a representative
sample of the market, emphasizing the best companies in each industry
sector. As before, we will focus on stocks with strong company
fundamentals, attractive earnings prospects, and reasonable valuations.
[GRAPHIC WORM CHART OMITTED:
Performance Through October 31, 1998
Growth of a $10,000 Investment
Class A shares (since 10/31/88)]
Lehman High Lipper Average
LBHYLD Yield Index High Current CPI Index
Month End Total Total Total Total
Date Value Value Value Value
- ---------------------------------------------------------------------
10/31/88 10,000 $10,000 $10,000 $10,000
11/30/88 9,603 10,059 10,013 10,008
12/31/88 9,744 10,106 10,065 10,025
1/31/89 9,940 10,284 10,239 10,075
2/28/89 9,993 10,307 10,282 10,116
3/31/89 9,912 10,226 10,247 10,175
4/30/89 9,846 10,269 10,241 10,241
5/31/89 10,065 10,469 10,389 10,300
6/30/89 10,319 10,598 10,562 10,324
7/31/89 10,283 10,585 10,577 10,349
8/31/89 10,345 10,621 10,583 10,366
9/30/89 10,131 10,442 10,417 10,399
10/31/89 9,713 10,195 10,109 10,449
11/30/89 9,654 10,174 10,059 10,474
12/31/89 9,483 10,191 9,987 10,491
1/31/90 9,193 9,971 9,730 10,599
2/28/90 8,971 9,766 9,493 10,649
3/31/90 9,008 10,022 9,604 10,707
4/30/90 9,011 10,005 9,598 10,724
5/31/90 9,307 10,198 9,808 10,749
6/30/90 9,422 10,445 10,006 10,807
7/31/90 9,588 10,726 10,213 10,849
8/31/90 9,221 10,115 9,797 10,948
9/30/90 8,812 9,377 9,303 11,040
10/31/90 8,501 8,885 8,903 11,106
11/30/90 8,638 9,162 8,939 11,131
12/31/90 8,777 9,213 8,966 11,131
1/31/91 8,827 9,467 9,092 11,198
2/28/91 9,472 10,502 9,745 11,215
3/31/91 9,923 11,121 10,230 11,231
4/30/91 10,284 11,577 10,623 11,248
5/31/91 10,377 11,598 10,689 11,281
6/30/91 10,671 11,941 10,914 11,314
7/31/91 10,969 12,323 11,239 11,331
8/31/91 11,131 12,606 11,451 11,364
9/30/91 11,307 12,782 11,643 11,414
10/31/91 11,714 13,209 12,014 11,431
11/30/91 11,893 13,277 12,126 11,464
12/31/91 11,944 13,468 12,232 11,473
1/31/92 12,498 13,943 12,717 11,489
2/28/92 12,847 14,287 13,021 11,531
3/31/92 13,080 14,464 13,223 11,589
4/30/92 13,194 14,519 13,318 11,606
5/31/92 13,400 14,724 13,513 11,622
6/30/92 13,477 14,862 13,649 11,664
7/31/92 13,710 15,087 13,893 11,689
8/31/92 13,898 15,284 14,070 11,722
9/30/92 14,040 15,440 14,215 11,755
10/31/92 13,785 15,222 13,977 11,797
11/30/92 14,025 15,414 14,184 11,814
12/31/92 14,348 15,590 14,373 11,805
1/31/93 14,937 16,044 14,764 11,864
2/28/93 15,117 16,326 15,049 11,905
3/31/93 15,409 16,537 15,347 11,947
4/30/93 15,470 16,680 15,468 11,980
5/31/93 15,732 16,879 15,712 11,997
6/30/93 16,217 17,233 16,077 12,013
7/31/93 16,347 17,401 16,236 12,013
8/31/93 16,477 17,547 16,356 12,047
9/30/93 16,471 17,592 16,407 12,072
10/31/93 16,987 17,948 16,774 12,121
11/30/93 17,050 18,034 16,882 12,130
12/31/93 17,341 18,257 17,132 12,130
1/31/94 17,852 18,654 17,539 12,163
2/28/94 17,790 18,605 17,506 12,205
3/31/94 17,131 17,902 16,942 12,246
4/30/94 16,869 17,780 16,697 12,263
5/31/94 16,935 17,789 16,735 12,271
6/30/94 16,945 17,844 16,712 12,313
7/31/94 16,808 17,996 16,682 12,346
8/31/94 16,932 18,124 16,692 12,396
9/30/94 16,852 18,125 16,692 12,429
10/31/94 16,907 18,169 16,675 12,438
11/30/94 16,500 17,940 16,451 12,454
12/31/94 16,424 18,073 16,471 12,454
1/31/95 16,498 18,319 16,605 12,504
2/28/95 17,127 18,947 17,056 12,554
3/31/95 17,303 19,152 17,211 12,596
4/30/95 17,721 19,638 17,631 12,637
5/31/95 18,080 20,188 18,023 12,662
6/30/95 18,179 20,323 18,079 12,687
7/31/95 18,751 20,579 18,397 12,687
8/31/95 18,830 20,643 18,447 12,720
9/30/95 18,992 20,897 18,666 12,745
10/31/95 19,093 21,026 18,815 12,787
11/30/95 19,321 21,211 18,941 12,779
12/31/95 19,608 21,544 19,229 12,770
1/31/96 20,078 21,924 19,629 12,845
2/28/96 20,593 21,941 19,796 12,887
3/31/96 20,393 21,926 19,723 12,953
4/30/96 20,499 21,974 19,879 13,003
5/31/96 20,693 22,106 20,034 13,028
6/30/96 20,533 22,289 20,060 13,037
7/31/96 20,372 22,392 20,168 13,062
8/31/96 20,708 22,634 20,489 13,087
9/30/96 21,389 23,179 21,026 13,128
10/31/96 21,316 23,358 21,139 13,170
11/30/96 21,520 23,818 21,530 13,195
12/31/96 21,757 23,989 21,787 13,195
1/31/97 22,015 24,224 22,004 13,236
2/28/97 22,298 24,624 22,398 13,278
3/31/97 21,597 24,257 21,953 13,311
4/30/97 21,595 24,512 22,130 13,328
5/31/97 22,423 25,037 22,699 13,319
6/30/97 23,035 25,385 23,067 13,336
7/31/97 23,826 26,083 23,667 13,353
8/31/97 23,898 26,023 23,714 13,378
9/30/97 24,625 26,650 24,269 13,411
10/31/97 24,392 26,855 24,174 13,444
11/30/97 24,441 27,384 24,368 13,436
12/31/97 24,688 27,581 24,640 13,419
1/31/98 25,191 27,851 25,114 13,444
2/28/98 25,536 28,311 25,302 13,469
3/31/98 25,858 27,889 25,623 13,494
4/30/98 25,722 28,182 25,695 13,519
5/31/98 25,640 28,785 25,700 13,544
6/30/98 25,750 29,185 25,723 13,561
7/31/98 25,887 29,988 25,903 13,577
8/31/98 23,851 29,919 24,150 13,594
9/30/98 23,515 30,511 23,988 13,611
10/31/98 23,037 30,539 23,467 13,644
As you compare performance, please note that the LB Fund's performance
reflects the maximum 4% sales charge. The performances of the S&P 500
index and the Lipper Median do not reflect any such charges. If you were
to purchase any of the individual stocks or funds represented in these
indexes, any charges you would pay would reduce your total return as
well.
Inset Box on Chart Reads:
LB Fund
Annualized Total Returns*
- ------------------------------------------------------------------------
Class A shares 1-Year 5-Year 10-Year
Net Asset Value 15.07% 15.80% 14.83%
Public Offering Price 10.48% 14.85% 14.36%
Since
Inception
Class B shares 1-Year 10/31/97
If Held (NAV) 14.26% 14.26%
If Redeemed (CDSC) 9.26% 9.26%
Institutional shares
Net Asset Value 15.41% 15.41%
*See accompanying notes to
Portfolio Management Reviews.
This page is part of the annual report.
LB High Yield Fund
[GRAPHIC OMITTED: PHOTO OF PAUL J. OCENASEK]
Paul J. Ocenasek, an assistant vice president of Lutheran Brotherhood,
is a Chartered Financial Analyst and portfolio manager of the LB High
Yield Fund. Paul has been with Lutheran Brotherhood's Investment
Division since 1987 and served many roles: analyst, researcher,
associate manager and portfolio manager.
The same economic uncertainty that made stock prices volatile in the 12
months ended October 31, 1998 increased fluctuations in the prices of
corporate bonds. Like stocks, corporate bonds rallied when confidence in
U.S. growth was strong and weakened as confidence waned. Corporate bond
prices also suffered as falling interest rates increased the supply of
new issues.
During this time, high-yield bond prices were particularly susceptible
to changing investor sentiment. High-yield issues fell sharply in the
third quarter of 1998, when threats of a global credit crisis shifted
demand toward high-quality bonds with strong liquidity. Throughout the
period, however, most high-yield issues continued to produce strong
income streams, which helped to improve their returns.
Top 10 Industries % of Portfolio
Telecommunications 19.1%
Broadcasting 11.6%
Bank, Finance & Insurance 6.2%
Oil & Gas 3.9%
Electric Utilities 3.1%
Hospital Management 2.9%
Leisure & Entertainment 2.9%
Food & Beverage 2.5%
Containers & Packaging 2.4%
Textiles & Apparel 2.3%
These industries represent 56.9% of the Fund's total investment
portfolio.
[GRAPHIC PIE CHART OMITTED]
PORTFOLIO COMPOSITION
(% of portfolio)
Corporate Bonds 82.2%
Foreign Government Bonds 0.2%
Convertible Preferred Stocks 2.1%
Non-Convertible Preferred Stocks 7.1%
Common Stocks & Stock Warrants 2.0%
Short-Term Securities 6.4%
The Fund's portfolio composition and top holdings represent all share
classes.
The LB High Yield Fund had a total return (based on Class A Share NAV)
of -5.55% for the reporting period. That compares with an average return
of -3.40% for high-yield bond funds tracked by Lipper Analytical
Services. Over the same time, the Lehman Brothers High Yield Index had a
return of -0.50%.
Adding Stability
Fluctuations in returns for the Fund were increased by a heavy weighting
in issues of media and telecommunications firms, which we believe will
benefit from long-term trends like industry deregulation. These issues
outperformed early in the period, before concerns about earnings and a
large supply of new issues weakened their prices. To make the most of
price changes, we trimmed our positions when media and
telecommunications issues became expensive and added to positions when
their prices were more attractive.
As investors became concerned about corporate earnings, we increased
emphasis on corporate debt in the upper tiers of high-yield credit
ratings. Over the year, we increased our position in these higher-
quality issues by more than 20%. To give the Fund added stability, we
increased investments in shorter-maturity issues, which tend to be less
sensitive to changes in interest rates. We also gave greater attention
to bonds from "defensive" industries which are less influenced by a
changing economy.
[GRAPHIC HORIZONTAL BAR CHART OMITTED]
Moody's Bond Quality Rating Distribution
Aaa 0.0%
Aa 0.0%
A 0.4%
Baa 0.9%
Ba 26.9%
B 52.1%
Caa 11.1%
Ca 1.5%
C 0.0%
D 0.1%
Non Rated 7.0%
Investment Objective:
To seek high current income and growth
of capital by investing primarily in high-
yielding ("junk") corporate bonds.
Fund Facts
Inception Date: 4/3/87
Shareholder
Accounts: 67,573
Total Net Assets
(in millions): $856.4
New Opportunities
If economic growth slows next year, as we expect, the Federal Reserve
may cut short-term interest rates even further, which would be good news
for bonds. On the other hand, slower growth could lead to concerns about
earnings, leading to possible underperformance from the corporate bond
sector. Fortunately, prices for high-yield corporates are already
reflecting an anticipated slowdown in growth, which could help prevent
another price drop of the magnitude we experienced in the third quarter
of 1998.
Given this outlook, we plan to remain relatively defensive in our
investment strategies. Once we feel the economy has turned a corner and
prices for high-yield corporates are set to improve, we'll give greater
attention to new investment opportunities.
[GRAPHIC WORM CHART OMITTED:
Performance Through October 31, 1998
Growth of a $10,000 Investment
Class A shares (since 10/31/88)]
LUTHERAN BROTHERHOOD HIGH YIELD GROWTH FUND
Lehman High Lipper Average
LBHYLD Yield Index High Current CPI Index
Month End Total Total Total Total
Date Value Value Value Value
- ---------------------------------------------------------------------
10/31/88 10,000 $10,000 $10,000 $10,000
11/30/88 9,603 10,059 10,013 10,008
12/31/88 9,744 10,106 10,065 10,025
1/31/89 9,940 10,284 10,239 10,075
2/28/89 9,993 10,307 10,282 10,116
3/31/89 9,912 10,226 10,247 10,175
4/30/89 9,846 10,269 10,241 10,241
5/31/89 10,065 10,469 10,389 10,300
6/30/89 10,319 10,598 10,562 10,324
7/31/89 10,283 10,585 10,577 10,349
8/31/89 10,345 10,621 10,583 10,366
9/30/89 10,131 10,442 10,417 10,399
10/31/89 9,713 10,195 10,109 10,449
11/30/89 9,654 10,174 10,059 10,474
12/31/89 9,483 10,191 9,987 10,491
1/31/90 9,193 9,971 9,730 10,599
2/28/90 8,971 9,766 9,493 10,649
3/31/90 9,008 10,022 9,604 10,707
4/30/90 9,011 10,005 9,598 10,724
5/31/90 9,307 10,198 9,808 10,749
6/30/90 9,422 10,445 10,006 10,807
7/31/90 9,588 10,726 10,213 10,849
8/31/90 9,221 10,115 9,797 10,948
9/30/90 8,812 9,377 9,303 11,040
10/31/90 8,501 8,885 8,903 11,106
11/30/90 8,638 9,162 8,939 11,131
12/31/90 8,777 9,213 8,966 11,131
1/31/91 8,827 9,467 9,092 11,198
2/28/91 9,472 10,502 9,745 11,215
3/31/91 9,923 11,121 10,230 11,231
4/30/91 10,284 11,577 10,623 11,248
5/31/91 10,377 11,598 10,689 11,281
6/30/91 10,671 11,941 10,914 11,314
7/31/91 10,969 12,323 11,239 11,331
8/31/91 11,131 12,606 11,451 11,364
9/30/91 11,307 12,782 11,643 11,414
10/31/91 11,714 13,209 12,014 11,431
11/30/91 11,893 13,277 12,126 11,464
12/31/91 11,944 13,468 12,232 11,473
1/31/92 12,498 13,943 12,717 11,489
2/28/92 12,847 14,287 13,021 11,531
3/31/92 13,080 14,464 13,223 11,589
4/30/92 13,194 14,519 13,318 11,606
5/31/92 13,400 14,724 13,513 11,622
6/30/92 13,477 14,862 13,649 11,664
7/31/92 13,710 15,087 13,893 11,689
8/31/92 13,898 15,284 14,070 11,722
9/30/92 14,040 15,440 14,215 11,755
10/31/92 13,785 15,222 13,977 11,797
11/30/92 14,025 15,414 14,184 11,814
12/31/92 14,348 15,590 14,373 11,805
1/31/93 14,937 16,044 14,764 11,864
2/28/93 15,117 16,326 15,049 11,905
3/31/93 15,409 16,537 15,347 11,947
4/30/93 15,470 16,680 15,468 11,980
5/31/93 15,732 16,879 15,712 11,997
6/30/93 16,217 17,233 16,077 12,013
7/31/93 16,347 17,401 16,236 12,013
8/31/93 16,477 17,547 16,356 12,047
9/30/93 16,471 17,592 16,407 12,072
10/31/93 16,987 17,948 16,774 12,121
11/30/93 17,050 18,034 16,882 12,130
12/31/93 17,341 18,257 17,132 12,130
1/31/94 17,852 18,654 17,539 12,163
2/28/94 17,790 18,605 17,506 12,205
3/31/94 17,131 17,902 16,942 12,246
4/30/94 16,869 17,780 16,697 12,263
5/31/94 16,935 17,789 16,735 12,271
6/30/94 16,945 17,844 16,712 12,313
7/31/94 16,808 17,996 16,682 12,346
8/31/94 16,932 18,124 16,692 12,396
9/30/94 16,852 18,125 16,692 12,429
10/31/94 16,907 18,169 16,675 12,438
11/30/94 16,500 17,940 16,451 12,454
12/31/94 16,424 18,073 16,471 12,454
1/31/95 16,498 18,319 16,605 12,504
2/28/95 17,127 18,947 17,056 12,554
3/31/95 17,303 19,152 17,211 12,596
4/30/95 17,721 19,638 17,631 12,637
5/31/95 18,080 20,188 18,023 12,662
6/30/95 18,179 20,323 18,079 12,687
7/31/95 18,751 20,579 18,397 12,687
8/31/95 18,830 20,643 18,447 12,720
9/30/95 18,992 20,897 18,666 12,745
10/31/95 19,093 21,026 18,815 12,787
11/30/95 19,321 21,211 18,941 12,779
12/31/95 19,608 21,544 19,229 12,770
1/31/96 20,078 21,924 19,629 12,845
2/28/96 20,593 21,941 19,796 12,887
3/31/96 20,393 21,926 19,723 12,953
4/30/96 20,499 21,974 19,879 13,003
5/31/96 20,693 22,106 20,034 13,028
6/30/96 20,533 22,289 20,060 13,037
7/31/96 20,372 22,392 20,168 13,062
8/31/96 20,708 22,634 20,489 13,087
9/30/96 21,389 23,179 21,026 13,128
10/31/96 21,316 23,358 21,139 13,170
11/30/96 21,520 23,818 21,530 13,195
12/31/96 21,757 23,989 21,787 13,195
1/31/97 22,015 24,224 22,004 13,236
2/28/97 22,298 24,624 22,398 13,278
3/31/97 21,597 24,257 21,953 13,311
4/30/97 21,595 24,512 22,130 13,328
5/31/97 22,423 25,037 22,699 13,319
6/30/97 23,035 25,385 23,067 13,336
7/31/97 23,826 26,083 23,667 13,353
8/31/97 23,898 26,023 23,714 13,378
9/30/97 24,625 26,650 24,269 13,411
10/31/97 24,392 26,855 24,174 13,444
11/30/97 24,441 27,384 24,368 13,436
12/31/97 24,688 27,581 24,640 13,419
1/31/98 25,191 27,851 25,114 13,444
2/28/98 25,536 28,311 25,302 13,469
3/31/98 25,858 27,889 25,623 13,494
4/30/98 25,722 28,182 25,695 13,519
5/31/98 25,640 28,785 25,700 13,544
6/30/98 25,750 29,185 25,723 13,561
7/31/98 25,887 29,988 25,903 13,577
8/31/98 23,851 29,919 24,150 13,594
9/30/98 23,515 30,511 23,988 13,611
10/31/98 23,037 30,539 23,467 13,644
As you compare performance, please note that the LB High Yield Fund's
performance reflects the maximum 4% sales charge. The performances of
the Lehman High Yield Index and the Lipper Median do not reflect any
such charges. If you were to purchase any of the individual bonds or
funds represented in these indexes, any charges you would pay would
reduce your total return as well.
Inset Box on Chart Reads:
LB High Yield Fund
Annualized Total Returns*
- ------------------------------------------------------------------------
Class A shares 1-Year 5-Year 10-Year
Net Asset Value -5.55% 6.28% 9.14%
Public Offering Price -9.34% 5.41% 8.70%
Since
Inception
Class B shares 1-Year 10/31/97
If Held (NAV) -6.24% -6.24%
If Redeemed (CDSC) -10.92% -10.92%
Institutional shares
Net Asset Value -5.33% -5.33%
*See accompanying notes to
Portfolio Management Reviews.
This page is part of the annual report.
LB Income Fund
[GRAPHIC OMITTED: PHOTO OF CHARLES E. HEEREN AND MICHAEL G. LANDREVILLE]
Charles E. Heeren (on right), a vice president of Lutheran Brotherhood,
is a Chartered Financial Analyst and co-portfolio manager for the LB
Income Fund. He has managed the Fund since January 1986, and has been
with Lutheran Brotherhood since 1976.
Michael G. Landreville, an assistant vice president of Lutheran
Brotherhood, is a Chartered Financial Analyst and co-portfolio manager
of the LB Income Fund. He has worked in Lutheran Brotherhood's bond
department for more than 14 years and managed various fixed-income
portfolios. Mike is also a Certified Public Accountant.
After trading in a relatively narrow range from the end of 1997 through
May of 1998, high-quality bond prices rallied strongly in the months
that followed. This was due largely to slowing economic growth, which
caused stock investors to hesitate and prompted the Federal Reserve to
cut short-term interest rates. As part of a "flight to quality," many
investors favored U.S. Treasury bonds over corporate debt, and higher-
quality corporate bonds over lower-rated corporate bonds.
By balancing corporate bonds offering attractive prices and yields with
U.S. government issues, we helped the LB Income Fund outperform other
funds with similar investment objectives. For the 12 months ended
October 31, 1998, the Fund earned a total return (based on Class A Share
NAV) of 8.42%, versus a return of 7.72% for the average high-quality
corporate bond fund tracked by Lipper Analytical Services. Over the same
time, the Lehman Aggregate Bond Index, which has a much larger
representation of government securities, had a return of 9.34%.
% of
Top 10 Holdings Security Portfolio
- ------------------------------------------------------------------------
U.S. Treasury Bonds (Nov. 2022) U.S. Government 6.5%
U.S. Treasury Notes (July 2006) U.S. Government 5.2%
U.S. Treasury Bonds (Nov. 2010) U.S. Government 3.9%
U.S. Treasury Bonds (Nov. 2016) U.S. Government 3.0%
U.S. Treasury Notes (Nov. 2004) U.S. Government 2.9%
Government National
Mortgage Association Mortgage-backed 2.8%
Federal National Mortgage
Association Mortgage-backed 2.6%
World Financial Network Credit Card
Master Trust Asset-backed 2.1%
Equitable Life Assurance Society
of the United States Corporate 1.8%
Standard Credit Master Trust I Asset-backed 1.8%
These holdings represent 32.6% of the Fund's total investment portfolio.
[GRAPHIC PIE CHART OMITTED]
PORTFOLIO COMPOSITION
(% of portfolio)
Corporate Bonds 51.2%
U.S. Government 22.8%
Mortgage-Backed Securities 10.8%
Asset-Backed Securities 8.0%
U.S. Government Agency 4.3%
Foreign Government Bonds 3.1%
Short-Term Securities 2.9%
Preferred Stocks 1.1%
Common Stocks 0.1%
Options on U.S. Treasury Bond Futures 0.1%
The Fund's portfolio composition and top
holdings represent all share classes.
Enhancing Returns
At the end of 1997, we began adding higher-yielding corporate bonds to
the portfolio. We concentrated on issues with improving fundamentals
that we thought had been oversold, including those of energy, utility,
health care, and media/telecommunications firms. In addition to giving
the Fund extra income, many of these holdings helped support the price
of Fund shares, as strong economic growth improved their credit ratings.
To offset the greater risk that high-yield issues carry, we traded some
of the Fund's asset-backed securities for U.S. Treasuries and higher-
quality corporate bonds.
We further enhanced returns by holding convertible bonds (which can be
converted into the common stock of their issuers) as well as dollar-
denominated "Yankee" bonds issued in the United States by foreign
companies and governments. The convertibles enjoyed strong gains when
stock prices rallied. In addition, some of the Yankee bonds issued by
Southeast Asian concerns experienced sharp price increases as certain
markets in the Pacific Rim briefly rebounded early in 1998.
[GRAPHIC HORIZONTAL BAR CHART OMITTED]
Moody's Bond Quality Rating Distribution
Aaa 47.1%
Aa 10.0%
A 17.1%
Baa 12.7%
Ba 11.6%
B 1.5%
Caa 0.0%
Ca 0.0%
C 0.0%
D 0.0%
Non Rated 0.0%
Investment Objective:
To seek high current income
while preserving principal by investing in
investment-grade bonds and other
income-producing securities.
Fund Facts
Inception Date: 6/1/72
Shareholder
Accounts: 54,629
Total Net Assets
(in millions): $772.6
In the second and third quarters of 1998, as investors became
increasingly concerned about the world economy, we reduced positions in
Yankee bonds and higher-yielding corporate debt, while increasing the
credit quality of our holdings. These moves reduced the Fund's
allocation to financial firms by about 9%, thereby reducing our exposure
to overseas credit problems. Because most of the Treasuries we bought
were longer-term issues, the average maturity of Fund investments
increased slightly. This gave the Fund added price appreciation as
interest rates fell. As lower interest rates encouraged homeowners to
prepay their loans, we reduced investments in mortgage-backed
securities.
Focus on Quality to Continue
With inflation at very low levels, the Fed may continue to cut interest
rates until the threat of recession has passed. Bonds should perform
well in this environment, though corporate bonds may continue to lag due
to earnings concerns. Under these conditions we plan to remain focused
on quality investments with a slightly longer average maturity and
emphasize sectors that are more economically "defensive."
[GRAPHIC WORM CHART OMITTED:
Performance Through October 31, 1998
Growth of a $10,000 Investment
Class A shares (since 10/31/88)]
Lehman Agg. Lipper Average
LBINC Bond Index Corp. Debt A CPI Index
Month End Total Total TOTAL TOTAL
Date Value Value VALUE VALUE
- -----------------------------------------------------------------------
10/31/88 10,000 $10,000 $0,000 $10,000
11/30/88 9,527 9,878 9,904 10,008
12/31/88 9,602 9,889 9,961 10,025
1/31/89 9,759 10,031 10,090 10,075
2/28/89 9,663 9,959 10,029 10,116
3/31/89 9,694 10,002 10,068 10,175
4/30/89 9,890 10,211 10,241 10,241
5/31/89 10,135 10,479 10,481 10,300
6/30/89 10,499 10,798 10,788 10,324
7/31/89 10,663 11,028 10,971 10,349
8/31/89 10,527 10,865 10,827 10,366
9/30/89 10,571 10,920 10,865 10,399
10/31/89 10,751 11,189 11,091 10,449
11/30/89 10,822 11,295 11,169 10,474
12/31/89 10,796 11,326 11,185 10,491
1/31/90 10,656 11,191 11,029 10,599
2/28/90 10,691 11,227 11,039 10,649
3/31/90 10,689 11,235 11,045 10,707
4/30/90 10,557 11,131 10,918 10,724
5/31/90 10,827 11,461 11,226 10,749
6/30/90 10,967 11,645 11,404 10,807
7/31/90 11,084 11,806 11,543 10,849
8/31/90 10,883 11,648 11,344 10,948
9/30/90 10,913 11,744 11,385 11,040
10/31/90 11,010 11,894 11,508 11,106
11/30/90 11,245 12,149 11,765 11,131
12/31/90 11,410 12,339 11,948 11,131
1/31/91 11,550 12,492 12,071 11,198
2/28/91 11,717 12,598 12,201 11,215
3/31/91 11,815 12,685 12,284 11,231
4/30/91 11,984 12,822 12,436 11,248
5/31/91 12,084 12,896 12,496 11,281
6/30/91 12,070 12,890 12,474 11,314
7/31/91 12,215 13,069 12,631 11,331
8/31/91 12,475 13,351 12,933 11,364
9/30/91 12,753 13,622 13,215 11,414
10/31/91 12,841 13,773 13,333 11,431
11/30/91 12,945 13,900 13,450 11,464
12/31/91 13,378 14,313 13,931 11,473
1/31/92 13,222 14,118 13,714 11,489
2/28/92 13,278 14,210 13,783 11,531
3/31/92 13,271 14,131 13,714 11,589
4/30/92 13,324 14,232 13,785 11,606
5/31/92 13,578 14,501 14,064 11,622
6/30/92 13,798 14,701 14,269 11,664
7/31/92 14,128 15,001 14,644 11,689
8/31/92 14,256 15,153 14,761 11,722
9/30/92 14,448 15,333 14,944 11,755
10/31/92 14,213 15,129 14,690 11,797
11/30/92 14,217 15,132 14,687 11,814
12/31/92 14,448 15,373 14,933 11,805
1/31/93 14,743 15,668 15,254 11,864
2/28/93 15,055 15,942 15,598 11,905
3/31/93 15,107 16,009 15,655 11,947
4/30/93 15,209 16,121 15,758 11,980
5/31/93 15,212 16,142 15,763 11,997
6/30/93 15,499 16,434 16,113 12,013
7/31/93 15,636 16,528 16,233 12,013
8/31/93 15,942 16,817 16,607 12,047
9/30/93 15,996 16,863 16,657 12,072
10/31/93 16,067 16,925 16,733 12,121
11/30/93 15,848 16,781 16,521 12,130
12/31/93 15,911 16,872 16,592 12,130
1/31/94 16,117 17,100 16,842 12,163
2/28/94 15,754 16,802 16,472 12,205
3/31/94 15,280 16,387 16,040 12,246
4/30/94 15,146 16,256 15,861 12,263
5/31/94 15,103 16,254 15,811 12,271
6/30/94 15,004 16,219 15,758 12,313
7/31/94 15,327 16,541 16,038 12,346
8/31/94 15,319 16,561 16,041 12,396
9/30/94 15,035 16,318 15,791 12,429
10/31/94 14,972 16,303 15,747 12,438
11/30/94 14,984 16,267 15,715 12,454
12/31/94 15,138 16,379 15,827 12,454
1/31/95 15,435 16,704 16,098 12,504
2/28/95 15,771 17,101 16,463 12,554
3/31/95 15,878 17,206 16,575 12,596
4/30/95 16,121 17,446 16,800 12,637
5/31/95 16,812 18,122 17,504 12,662
6/30/95 16,940 18,254 17,623 12,687
7/31/95 16,815 18,214 17,544 12,687
8/31/95 17,044 18,434 17,765 12,720
9/30/95 17,195 18,613 17,944 12,745
10/31/95 17,446 18,855 18,197 12,787
11/30/95 17,719 19,138 18,480 12,779
12/31/95 17,987 19,406 18,755 12,770
1/31/96 18,081 19,534 18,843 12,845
2/28/96 17,663 19,194 18,453 12,887
3/31/96 17,470 19,060 18,302 12,953
4/30/96 17,358 18,953 18,164 13,003
5/31/96 17,328 18,915 18,128 13,028
6/30/96 17,550 19,168 18,340 13,037
7/31/96 17,585 19,220 18,377 13,062
8/31/96 17,490 19,187 18,333 13,087
9/30/96 17,822 19,521 18,657 13,128
10/31/96 18,242 19,955 19,066 13,170
11/30/96 18,598 20,296 19,419 13,195
12/31/96 18,385 20,107 19,211 13,195
1/31/97 18,442 20,169 19,245 13,236
2/28/97 18,498 20,220 19,301 13,278
3/31/97 18,225 19,995 19,064 13,311
4/30/97 18,460 20,295 19,325 13,328
5/31/97 18,629 20,488 19,489 13,319
6/30/97 18,905 20,732 19,727 13,336
7/31/97 19,453 21,292 20,305 13,353
8/31/97 19,237 21,111 20,078 13,378
9/30/97 19,541 21,423 20,381 13,411
10/31/97 19,710 21,734 20,644 13,444
11/30/97 19,788 21,834 20,726 13,436
12/31/97 19,921 22,054 20,931 13,419
1/31/98 20,210 22,337 21,201 13,444
2/28/98 20,219 22,319 21,163 13,469
3/31/98 20,321 22,395 21,227 13,494
4/30/98 20,425 22,511 21,322 13,519
5/31/98 20,600 22,725 21,533 13,544
6/30/98 20,800 22,918 21,712 13,561
7/31/98 20,809 22,966 21,721 13,577
8/31/98 20,915 23,341 22,018 13,594
9/30/98 21,505 23,887 22,509 13,611
10/31/98 21,369 23,760 22,282 13,644
As you compare performance, please note that the LB Income Fund's
performance reflects the maximum 4% sales charge. The performances of
the Lehman Aggregate Bond Index and the Lipper Median do not reflect any
such charges. If you were to purchase any of the individual bonds or
funds represented in these indexes, any charges you would pay would
reduce your total return as well.
Inset Box on Chart Reads:
LB Income Fund
Annualized Total Returns*
- ------------------------------------------------------------------------
Class A shares 1-Year 5-Year 10-Year
Net Asset Value 8.42% 5.87% 8.33%
Public Offering Price 4.07% 5.01% 7.88%
Since
Inception
Class B shares 1-Year 10/31/97
If Held (NAV) 7.65% 7.65%
If Redeemed (CDSC) 2.65% 2.65%
Institutional shares
Net Asset Value 8.69% 8.69%
*See accompanying notes to
Portfolio Management Reviews.
This page is part of the annual report.
LB Municipal Bond Fund
[GRAPHIC OMITTED: PHOTO OF JANET I. GRANGAARD]
Janet I. Grangaard, an assistant vice president of Lutheran Brotherhood,
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 Lutheran Brotherhood since 1988.
Municipal bonds, like most other areas of the bond market, traded in a
narrow range from November 1997 through April 1998, then rallied from
May through early October as interest rates fell. Declining interest
rates caused a swell in municipal bond supply while, simultaneously,
world events caused a flight to the safety and liquidity of U.S.
Treasuries. These influences, combined with a reduced supply of
Treasuries as a result of the federal budget surplus, caused Treasuries
to outperform municipals during the period.
By emphasizing quality issues representing good value, we helped the LB
Municipal Bond Fund perform favorably against its market benchmark and
outperform other funds in its class. For the 12 months ended October 31,
1998, the LB Municipal Bond Fund earned a total return (based on Class A
Share NAV) of 8.12%. That compares to a return of 8.02% for the Lehman
Municipal Bond Index and an average return of 7.12% for municipal bond
funds tracked by Lipper Analytical Services.
% of
Top 10 States Portfolio
- -----------------------------
California 10.2%
Texas 9.2%
Colorado 5.8%
Washington 5.6%
Ohio 5.1%
Minnesota 4.8%
New York 4.5%
New Jersey 3.2%
Missouri 3.1%
Pennsylvania 2.9%
These holdings represent 54.4% of the
Fund's total investment portfolio.
[GRAPHIC PIE CHART OMITTED]
PORTFOLIO COMPOSITION
(% of portfolio)
Escrow/prerefunded 30.10%
General Obligation 15.30%
Health Care 10.40%
Electric Revenue 9.90%
Water & Sewer 6.50%
Lease Revenue 5.60%
Housing Finance 4.70%
Special Tax Revenue 4.70%
Airport Revenue 3.50%
Transportation 2.90%
Pollution Control 2.80%
Education Revenue 2.60%
Industrial Revenue 0.50%
Miscellaneous 0.40%
Resource/Environment 0.10%
The Fund's portfolio composition and top holdings represent
all share classes.
Boosting Price Gains
and Income
As interest rates fell, the Fund continued to benefit from the "advance
refunding" of many of its municipal bond holdings. In an advanced
refunding, the credit quality of the issue being refinanced assumes the
quality of the underlying U.S. Treasury bonds held in escrow. As a
result, the price of the "prerefunded" issue generally rises to reflect
the higher quality of the credit. Therefore, when holdings in the Fund
are prerefunded, this price appreciation improves the Fund's returns.
We further enhanced returns by adding other issues with strong credit
quality. These holdings performed well, spurred on by increased demand
from investors who were shunning risk. We also looked for good buying
opportunities as the spreads between yields for issues from different
states and market sectors changed. Among these opportunities were issues
related to housing finance, whose yields had become more attractive as
lower interest rates increased prepayments of home mortgage loans. By
holding zero-coupon municipals and municipals that could not be called
in by their issuers, we further improved the Fund's return.
[GRAPHIC HORIZONTAL PIE CHART OMITTED]
Moody's Bond Quality Rating Distribution
Aaa 71.2%
Aa 17.2%
A 6.8%
Baa 4.5%
Ba 0.3%
B 0.0%
Caa 0.0%
Ca 0.0%
C 0.0%
D 0.0%
Non Rated 0.0%
Investment Objective:
To seek long-term high current income
exempt from federal income tax by
investing in municipal bonds.
Fund Facts
Inception Date: 12/3/76
Shareholder
Accounts: 21,265
Total Net Assets
(in millions): $613.0
Attractive Prices Should Sustain Demand
In October, at the peak of the bond rally, municipals were the cheapest
they've been relative to U.S. Treasuries since 1986. Even though
municipal bonds outperformed Treasuries in the final weeks of October,
their prices remain quite attractive on a relative basis. During 1999 we
may see state and local governments issue more municipal bonds to raise
the funds needed to prepare their computer systems for the year 2000.
Yet, this possible increase in bond supply could be offset by a reduced
number of prerefundings. In the meantime, the strong value that
municipals offer should help sustain investor demand.
If interest rates continue to fall, we may find new investment
opportunities as the spreads between yields for municipals with
different maturities widen and narrow. We will also keep a close watch
on changing yield spreads for municipals of different credit quality
ratings, looking for opportunities that might otherwise be overlooked.
[GRAPHIC WORM CHART OMITTED:
Performance Through October 31, 1998
Growth of a $10,000 Investment
Class A shares (since 10/31/88)]
Lipper Average
Lehman Muni. Gen. Municipal
LBMBF Bond Index Debt Funds CPI Index
Month End Total Total Total Total
Date Value Value Value Value
- -----------------------------------------------------------------
10/31/88 $10,000 $10,000 $10,000 $10,000
11/30/88 9,516 9,908 9,908 10,008
12/31/88 9,658 10,009 10,058 10,025
1/31/89 9,799 10,216 10,210 10,075
2/28/89 9,738 10,100 10,126 10,116
3/31/89 9,737 10,076 10,120 10,175
4/30/89 9,979 10,314 10,365 10,241
5/31/89 10,160 10,529 10,557 10,300
6/30/89 10,258 10,672 10,695 10,324
7/31/89 10,380 10,817 10,805 10,349
8/31/89 10,279 10,711 10,689 10,366
9/30/89 10,228 10,679 10,654 10,399
10/31/89 10,365 10,809 10,783 10,449
11/30/89 10,541 10,999 10,952 10,474
12/31/89 10,629 11,089 11,027 10,491
1/31/90 10,487 11,037 10,909 10,599
2/28/90 10,563 11,135 11,017 10,649
3/31/90 10,574 11,138 11,012 10,707
4/30/90 10,455 11,058 10,871 10,724
5/31/90 10,703 11,299 11,154 10,749
6/30/90 10,834 11,398 11,260 10,807
7/31/90 11,003 11,566 11,446 10,849
8/31/90 10,772 11,398 11,197 10,948
9/30/90 10,809 11,405 11,213 11,040
10/31/90 10,980 11,612 11,375 11,106
11/30/90 11,234 11,845 11,641 11,131
12/31/90 11,326 11,892 11,691 11,131
1/31/91 11,487 12,052 11,834 11,198
2/28/91 11,551 12,157 11,903 11,215
3/31/91 11,564 12,161 11,927 11,231
4/30/91 11,729 12,323 12,101 11,248
5/31/91 11,809 12,433 12,210 11,281
6/30/91 11,763 12,420 12,172 11,314
7/31/91 11,944 12,572 12,347 11,331
8/31/91 12,083 12,738 12,505 11,364
9/30/91 12,295 12,903 12,667 11,414
10/31/91 12,391 13,020 12,779 11,431
11/30/91 12,399 13,056 12,797 11,464
12/31/91 12,704 13,337 13,099 11,473
1/31/92 12,710 13,367 13,090 11,489
2/28/92 12,686 13,371 13,108 11,531
3/31/92 12,685 13,377 13,114 11,589
4/30/92 12,829 13,496 13,234 11,606
5/31/92 13,005 13,655 13,420 11,622
6/30/92 13,228 13,885 13,664 11,664
7/31/92 13,686 14,301 14,148 11,689
8/31/92 13,442 14,161 13,921 11,722
9/30/92 13,480 14,253 13,977 11,755
10/31/92 13,329 14,113 13,725 11,797
11/30/92 13,637 14,366 14,075 11,814
12/31/92 13,841 14,512 14,248 11,805
1/31/93 13,975 14,681 14,409 11,864
2/28/93 14,488 15,212 14,974 11,905
3/31/93 14,392 15,051 14,799 11,947
4/30/93 14,528 15,203 14,959 11,980
5/31/93 14,599 15,288 15,044 11,997
6/30/93 14,871 15,543 15,303 12,013
7/31/93 14,875 15,564 15,303 12,013
8/31/93 15,201 15,887 15,643 12,047
9/30/93 15,375 16,068 15,827 12,072
10/31/93 15,474 16,099 15,859 12,121
11/30/93 15,299 15,957 15,692 12,130
12/31/93 15,636 16,294 16,005 12,130
1/31/94 15,809 16,480 16,189 12,163
2/28/94 15,362 16,053 15,758 12,205
3/31/94 14,645 15,400 15,069 12,246
4/30/94 14,713 15,530 15,124 12,263
5/31/94 14,853 15,666 15,260 12,271
6/30/94 14,740 15,570 15,161 12,313
7/31/94 15,009 15,855 15,429 12,346
8/31/94 15,061 15,910 15,468 12,396
9/30/94 14,856 15,677 15,217 12,429
10/31/94 14,557 15,398 14,928 12,438
11/30/94 14,278 15,119 14,619 12,454
12/31/94 14,608 15,451 14,976 12,454
1/31/95 15,053 15,893 15,420 12,504
2/28/95 15,538 16,356 15,878 12,554
3/31/95 15,704 16,544 16,021 12,596
4/30/95 15,718 16,564 16,020 12,637
5/31/95 16,247 17,092 16,519 12,662
6/30/95 16,032 16,944 16,339 12,687
7/31/95 16,144 17,104 16,444 12,687
8/31/95 16,347 17,322 16,625 12,720
9/30/95 16,473 17,431 16,726 12,745
10/31/95 16,735 17,684 16,982 12,787
11/30/95 17,077 17,977 17,308 12,779
12/31/95 17,264 18,150 17,500 12,770
1/31/96 17,392 18,288 17,583 12,845
2/28/96 17,244 18,163 17,444 12,887
3/31/96 16,956 17,931 17,166 12,953
4/30/96 16,867 17,881 17,089 13,003
5/31/96 16,856 17,873 17,092 13,028
6/30/96 17,030 18,068 17,253 13,037
7/31/96 17,183 18,233 17,408 13,062
8/31/96 17,174 18,229 17,394 13,087
9/30/96 17,431 18,484 17,643 13,128
10/31/96 17,628 18,693 17,834 13,170
11/30/96 17,969 19,035 18,148 13,195
12/31/96 17,858 18,955 18,068 13,195
1/31/97 17,891 18,991 18,070 13,236
2/28/97 18,049 19,166 18,227 13,278
3/31/97 17,811 18,911 17,990 13,311
4/30/97 17,928 19,070 18,137 13,328
5/31/97 18,194 19,356 18,397 13,319
6/30/97 18,375 19,563 18,595 13,336
7/31/97 18,919 20,105 19,155 13,353
8/31/97 18,697 19,916 18,927 13,378
9/30/97 18,989 20,153 19,156 13,411
10/31/97 19,088 20,282 19,273 13,444
11/30/97 19,209 20,402 19,381 13,436
12/31/97 19,525 20,699 19,687 13,419
1/31/98 19,734 20,913 19,870 13,444
2/28/98 19,725 20,919 19,858 13,469
3/31/98 19,716 20,938 19,862 13,494
4/30/98 19,619 20,844 19,735 13,519
5/31/98 19,943 21,173 20,061 13,544
6/30/98 20,023 21,255 20,127 13,561
7/31/98 20,059 21,309 20,155 13,577
8/31/98 20,386 21,639 20,468 13,594
9/30/98 20,670 21,909 20,713 13,611
10/31/98 20,638 21,909 20,635 13,644
As you compare performance, please note that the LB Municipal Bond
Fund's performance reflects the maximum 4% sales charge. The
performances of the Lehman Municipal Bond Index and the Lipper Median do
not reflect any such charges. If you were to purchase any of the
individual bonds or funds represented in these indexes, any charges you
would pay would reduce your total return as well.
Inset Box on Chart Reads:
LB Municipal Bond Fund
Annualized Total Returns*
- ------------------------------------------------------------------------
Class A shares 1-Year 5-Year 10-Year
Net Asset Value 8.12% 5.92% 7.95%
Public Offering Price 3.78% 5.05% 7.51%
Since
Inception
Class B shares 1-Year 10/31/97
If Held (NAV) 7.23% 7.23%
If Redeemed (CDSC) 2.23% 2.23%
Institutional shares
Net Asset Value 8.39% 8.39%
*See accompanying notes to
Portfolio Management Reviews.
This page is part of the annual report.
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 Lutheran
Brotherhood since 1969.
In the 12 months ended October 31, 1998, money market yields fell by
about 0.30%. This was due largely to increased economic concerns in the
second half of the reporting period that caused the Federal Reserve to
cut short-term interest rates. By managing the maturities of investments
in the LB Money Market Fund to make the most of yield fluctuations that
occurred during this time, and taking advantage of yield opportunities
available in certain instruments, we helped the Fund earn a total return
of 4.83% for the period.
Seizing Yield Opportunities
When the period began, money market funds in the IBC Donoghue's Index
had an average yield of 5.03%. As corporations issued large amounts of
short-term debt in the final months of 1997, money market yields moved
higher, driving the yield for the Donoghue Index to 5.23% in the first
weeks of 1998. Later in the year, as foreign economic woes increased the
likelihood of domestic interest rate cuts, money market yields moved
lower. At the end of the period, following two 0.25% cuts in the
overnight federal funds rate, the Index had an average yield of 4.72%.
[GRAPHIC PIE CHART OMITTED]
PORTFOLIO COMPOSITION
(% OF PORTFOLIO)
Commercial Paper 83.2%
Variable Rate Notes 13.1%
Bank Notes 2.0%
Certificates Of Deposit 1.3%
Bankers Acceptances 0.4%
The Fund's portfolio's composition and top
holdings represent all share classes.
During the first months of 1998, the spread in yields between shorter-
and longer-term issues narrowed, leading us to focus on shorter
maturities. This strategy allowed us to move quickly when yields
reversed course in the second quarter.
During this time we adjusted maturities in the LB Money Market Fund to
make the most of these fluctuations in yield. In the second quarter of
1998, the short-term money market yield curve flattened, taking away
much of the yield increase in the longer maturities. Additionally, the
Federal Reserve had been holding off on additional rate changes since
March of 1997, and relative strength of the U.S. economy suggested no
change in monetary policy in the near term.
% of
Top 10 Holdings Industry Portfolio
- --------------------------------------------------------------------------
Amoco Oil Co. U.S. Municipal 4.6%
Harvard University Education 4.6%
Ford Motor Credit Co. Finance-Automotive 4.4%
Chevron Corp. Industrial 4.4%
Petrofina SA Energy 4.0%
Associates Corp. of North America Finance-Consumer 3.9%
General Electric Capital Corp. Finance-Commercial 3.8%
Yale University Education 3.6%
Wachovia Bank, N.A. Banking-Domestic 3.5%
These holdings represent 36.8% of the Fund's total investment portfolio.
As investors looked for short-term interest rate cuts in the third
quarter, yields for longer-maturity money market instruments fell below
those of shorter-term instruments. In this "inverted yield" environment,
we kept Fund maturities on the short side and looked for opportunities
to increase yield from year-end changes in supply and demand. At the
close of the reporting period the Fund had a weighted average maturity
of 48 days, versus 58 days for the Index.
As in previous periods, we also increased the Fund's yield with taxable
municipal paper issued by state and local governments. These issues are
typically used to finance commercial projects and have credit
enhancements from major corporations and banks. In the first half of the
period, before the widespread deterioration of economies overseas, we
added yield through a small allocation of U.S. dollar-denominated
securities issued by top-quality banks and businesses in Europe.
Investment Objective:
To seek current income with stability of
principal by investing in high-quality,
short-term debt securities.**
Fund Facts
Inception Date: 2/1/79
Shareholder
Accounts: 57,429
Total Net Assets
(in millions): $540.6
Going Longer
As 1998 comes to a close, we expect more companies to raise cash to add
liquidity to their balance sheets by issuing short-term securities. This
increased supply should create new yield opportunities in issues that
mature in 1999. Adding longer maturities may also prove beneficial if
the Federal Reserve makes additional interest rate cuts in the new year.
Focused on Quality
As in the past, the Lutheran Brotherhood Money Market Fund continues to
focus on credit research and industry sector analysis, investing in very
high quality issues, while optimizing average maturity to take advantage
of yield trends in the market.
Performance as of 10/31/98
LB Money Market Fund
Annualized Total Returns*
- ------------------------------------------------------------------------
Class A shares 1-Year 5-Year 10-Year
Net Asset Value 4.82% 4.40% 4.92%
Since
Inception
Class B shares 1-Year 10/31/97
If Held (NAV) 4.82% 4.82%
Institutional shares
Net Asset Value 5.08% 5.08%
Footnotes
* Annualized total returns represent past performance and reflect
changes in share prices, the reinvestment of all dividends and
capital gains, and the effects of compounding. Since performance
varies, annualized total returns, which assume a steady rate of
growth, differ from the Fund's actual total return for the years
indicated. Class A POP (public offering price) returns have been
adjusted for the maximum 4% sales charge. NAV (net asset value)
returns do not include sales charges. Class B maximum CDSC returns
have been adjusted for the maximum 5% contingent deferred sales
charge. NAV (net asset value) returns do not include sales charges.
There is an asset based sales charge of 0.75% annually for Class B
shares. Institutional (no-load) shares, which are available to
qualifying Lutheran institutions, Lutheran church organizations, and
certain other institutional investors, do not impose a sales charge.
The value of an investment fluctuates so that shares, when redeemed,
may be worth more or less than the original investment.
Lutheran Brotherhood's Opportunity Growth Fund, World Growth Fund,
Mid Cap Growth Fund, LB Fund, High Yield Fund, Income Fund,
Municipal Bond Fund, and Money Market Fund are subject to a partial
voluntary waiver of advisory fees by the funds' investment advisor,
which has the effect of improving the funds' performances. The
waiver of fees may be discontinued at any time.
** An investment in the LB Money Market Fund is not insured or
guaranteed by the Federal Desposit Insurance Corporation or any
other government agency. 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.
AssetMatch -- A program for personalized investment
Your financial goals are as unique as you are. And because of this,
it's essential to design investment strategies that are specific
to your individual circumstances.
Whether you're developing a new strategy or revisiting an existing one,
proper planning is key.
- --------------------------
That's where Lutheran
Brotherhood's AssetMatch
program comes in.
- --------------------------
Your LBSC registered representative is trained in portfolio strategy and
guides you through the program:
[BULLET] Collecting information on
your investment profile
[BULLET] Exploring various asset mixes and their historical risk and
return characteristics
[BULLET] Identifying an optimal mix of investments for your
circumstances
You can rely on the knowledge and experience of your LBSC registered
representative. He or she can provide solid footing for your
personalized investment strategy.
Based on Proven Principles
AssetMatch is based on the same proven principles that have guided
successful investors for decades: diversification and asset allocation.
Diversification is the spreading of risk by including a variety of
securities (e.g., small-cap stocks, international stocks, high-yield
bonds, etc.) in your portfolio.
Why Asset Allocation?
Asset allocation is the process of choosing how much to invest among
different asset classes (e.g., stocks, bonds and money market
instruments). Studies have shown that portfolio performance depends
largely on how you allocate your assets.
More than 90% of an investment portfolio's performance is due to asset-
class selection, while individual security selection and timing of
purchase account for only about 6% (Financial Analysts Journal, May/June
1991).
With such a large part of performance hinging on asset-class selection,
it's critical to have help from your LBSC registered representative, who
is trained in asset allocation strategies.
Jumpstart Your Strategy
The first step in the AssetMatch program is to assess your needs.
Completing an AssetMatch questionnaire helps your LBSC registered
representative gauge the following:
[BULLET] Your risk tolerance
[BULLET] Your investment preferences
[BULLET] Your time horizon
[BULLET] Your liquidity needs
The questionnaire is short, yet comprehensive, and you can complete it
on your own or with the help of your LBSC registered representative.
Once completed, forward your confidential questionnaire to your LBSC
registered representative for analysis. He or she enters your answers
into the AssetMatch computer program and determines an optimal mix for
your situation. Your LBSC registered representative can then review
your AssetMatch results and discuss whether further analysis
or adjustments to your strategy are necessary.
- --------------------------------
Get started today
To obtain an AssetMatch
questionnaire, call your LBSC
registered representative, or
call LBSC at 1-800-990-6290.
- --------------------------------
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 Mid
Cap 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, 1998, the results 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 our audits 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 estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities at October 31, 1998 by correspondence with the custodian
and brokers and the application of alternative auditing procedures
where confirmation from brokers were not received, provide a
reasonable basis for the opinion expressed above.
[GRAPHIC OMITTED: PRICEWATERHOUSECOOPERS, LLP LOGO]
December 11, 1998
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
Portfolio of Investments
October 31, 1998
Shares Value
-------------- --------------
<S> <C> <C>
COMMON STOCKS - 96.0% (a)
Aerospace & Defense - 2.3%
49,110 Aar Corp. $ 1,135,669
30,000 Avondale Industries, Inc. 781,875(b)
41,800 Orbital Sciences Corp. 1,379,400(b)
18,200 Precision Castparts Corp. 800,800(c)
22,000 Triumph Group, Inc. 712,250(b)
------------
4,809,994
------------
Airlines - 1.0%
12,300 Alaska Air Group, Inc. 442,031(b)
31,000 COMAIR Holdings, Inc. 1,019,125
38,400 Mesaba Holdings, Inc. 700,800(b)
------------
2,161,956
------------
Automotive - 2.1%
10,900 Central Parking Corp. 457,119
12,000 Dura Automotive Systems, Inc. 286,500(b)
62,800 Gentex Corp. 922,375(b,c)
27,600 Group 1 Automotive, Inc. 472,650(b)
34,200 O'Reilly Automotive, Inc. 1,338,075(b)
46,800 Tower Automotive, Inc. 1,041,300(b)
------------
4,518,019
------------
Bank & Finance - 7.1%
21,500 Affiliated Managers Group, Inc. 478,375(b)
74,400 Americredit Corp. 995,100(b)
37,000 Amerin Corp. 790,875(b)
30,600 City National Corp. 1,046,138
15,500 CMAC Investment Corp. 649,063
15,375 Commerce Bankcorp, Inc. 624,609
43,500 Community First Bank
Shares, Inc. 864,563
16,500 Executive Risk, Inc. 783,750
20,300 E.W. Blanch Holdings, Inc. 790,431
22,100 Fremont General Corp. 1,091,188
21,700 HealthCare Financial
Partners, Inc. 664,563(b)
25,100 Imperial Bancorp 348,263(b)
55,100 Imperial Credit Commercial
Mortgage Investment Corp. 461,463
37,280 Imperial Credit Industries 246,980(b)
36,800 Legg Mason, Inc. 977,500
46,300 North Fork Bancorporation, Inc. 920,213
31,800 Protective Life Corp. 1,178,588
43,900 Silicon Valley Bancshares 899,950(b)
24,400 Webster Financial Corp. 602,375
12,700 Zions Bancorporation 673,894
------------
15,087,881
------------
Biotechnology - 1.9%
19,700 Affymetrix, Inc. 482,650(b)
12,100 Biogen, Inc. 840,950(b)
36,400 Covance, Inc. 1,014,650(b)
11,100 Medco Research, Inc. 201,188(b)
69,900 NBTY, Inc. 559,200(b)
41,565 Serologicals Corp. 940,408(b)
------------
4,039,046
------------
Building & Construction - 1.6%
53,800 American Homestar Corp. 880,975(b)
11,600 Dycom Industries, Inc. 406,725(b)
31,796 Fairfield Communities, Inc. 311,998(b)
31,700 Global Industries, Ltd. 305,113(b)
28,200 Insituform Technologies, Inc. 340,163(b)
31,400 NCI Building Systems, Inc. 679,025(b)
14,000 Simpson Manufacturing Co., Inc. 458,500(b)
------------
3,382,499
------------
Business Services - 9.5%
23,800 ABR Information Services, Inc. 449,225(b)
1,100 Billing Concepts Corp. 15,538(b)
24,000 Carriage Services, Inc. 561,000(b)
47,250 Concord EFS, Inc. 1,346,625(b)
15,500 Consolidated Graphics, Inc. 735,281(b)
17,200 Cort Business Services Corp. 337,550(b)
10,600 Fastenal Co. 382,925
14,700 G & K Services, Inc. 672,525
33,400 Gartner Group, Inc. 663,825(b)
44,800 Innovative Valve
Technologies, Inc. 84,000(b)
24,000 Knoll, Inc. 648,000(b)
4,500 Lason, Inc. 246,375(b)
32,800 Merrill Corp. 549,400
42,000 META Group, Inc. 1,008,000(b)
51,400 Metamor Worldwide, Inc. 1,320,338(b)
62,500 Modis Professional Services, Inc. 1,101,563(b)
30,360 National Computer Systems, Inc. 850,080
36,300 NCO Group, Inc. 1,143,450(b)
56,725 NOVA Corp. 1,637,934(b)
61,700 Paging Network, Inc. 339,350(b)
16,500 Pre-Paid Legal Services, Inc. 394,969(b)
80,700 Professional Staff plc 786,825(b)
25,600 Rent-Way, Inc. 604,800(b)
48,800 Romac International, Inc. 854,000(b)
27,200 Service Experts, Inc. 821,100(b)
12,600 StaffMark, Inc. 221,288(b)
14,900 Strayer Education, Inc. 506,600
32,600 Superior Services, Inc. 684,600(b)
40,000 Tetra Tech, Inc. 812,500(b)
23,000 Waddell & Reed Financial, Inc. 481,563
------------
20,261,229
------------
Chemicals - 0.5%
47,000 Sybron Corp. 1,163,250(b)
------------
Computer Equipment - 1.7%
6,600 Lexmark International
Group, Inc. 461,588(b)
18,000 Pinnacle Systems, Inc. 612,000(b)
53,800 Security Dynamics
Technologies, Inc. 551,450(b)
29,900 Symbol Technologies, Inc. 1,338,025
52,800 Technology Solutions Co. 633,600(b)
------------
3,596,663
------------
Computer Software - 14.5%
24,400 Affiliated Computer Services 902,800(b)
25,300 Analysis International Corp. 444,331
46,600 AXENT Technologies, Inc. 1,170,825(b)
19,500 Bisys (The) Group, Inc. 853,125(b)
28,300 Cadence Design Systems, Inc. 604,913(b)
19,000 Cambridge Technology
Partners, Inc. 420,375(b)
1,000 CIBER, Inc. 19,625(b)
21,100 Citrix Systems, Inc. 1,495,463(b)
29,900 Cognos, Inc. 599,869(b)
45,800 Computer Management Sciences 847,300(b)
36,500 Cotelligent Group, Inc. 688,938(b)
41,600 Datastream Systems, Inc. 418,600(b)
17,200 Documentum, Inc. 584,800(b)
20,200 DST Systems, Inc. 1,010,000(b)
23,600 Electronic Arts, Inc. 970,550(b)
18,000 Engineering Animation, Inc. 788,625(b)
41,100 E*TRADE Group, Inc. 739,800(b)
26,000 HBO & Co. 682,500
39,135 Hyperion Solutions Corp. 1,174,050(b)
13,900 IDX Systems Corp. 589,013(b)
11,000 International Network Services 467,500(b)
12,900 Intuit, Inc. 651,450(b)
28,350 JDA Software Group, Inc. 269,325(b)
24,000 Keane, Inc. 798,000(b)
16,400 Legato Systems, Inc. 641,650(b)
20,400 MAPICS, Inc. 385,050(b)
27,100 Mastech Corp. 636,850(b)
5,800 Mercury Interactive Corp. 240,700(b)
27,700 National Data Corp. 938,338
29,000 National Instruments Corp. 793,875(b)
19,500 Network Associates, Inc. 828,750(b)
22,300 Platinum Technology, Inc. 366,556(b)
23,000 QRS Corp. 874,000(b)
40,700 Saville Systems Ireland plc 686,813(b)
15,870 Sterling Commerce, Inc. 559,418(b)
97,400 Summit Design, Inc. 815,725(b)
36,000 Sykes Enterprises, Inc. 706,500(b)
29,500 Symantec Corp. 472,000(b)
20,000 Synopsys, Inc. 905,000(b)
6,600 Systems & Computer
Technology Corp. 94,050(b)
24,700 Transaction Systems Architects 891,516(b)
20,500 Veritas Software Corp 1,027,563(b)
19,100 Viasoft, Inc. 116,988(b)
25,400 Visio Corp. 676,275(b)
31,500 Zebra Technologies Corp. 1,031,625(b)
------------
30,881,019
------------
Cosmetics - 0.1%
33,700 French Fragrances, Inc. 235,900(b)
------------
Distribution Services - 2.8%
14,400 AmeriSource Health Corp. 755,100(b)
4,900 Aviation Sales Co. 162,925(b)
2,850 Cardinal Health, Inc. 269,503
33,280 Central Garden & Pet Co. 657,280(b)
43,200 MSC Industrial Direct Co., Inc.,
Class A 918,000(b)
32,700 Richfood Holdings, Inc. 580,425
15,400 Tech Data Corp. 606,375(b)
22,300 U.S. Foodservice Co. 1,059,250(b)
52,300 Watsco, Inc. 885,831
------------
5,894,689
------------
Education - 1.4%
27,960 Apollo Group, Inc., Class A 898,215(b)
22,600 ITT Educational Services, Inc. 670,938(b)
31,300 Learning Tree International, Inc. 281,700(b)
36,000 Sylvan Learning Systems, Inc. 1,111,500(b)
------------
2,962,353
------------
Electrical Equipment - 0.1%
7,700 Special Devices, Inc. 234,850(b)
------------
Electronic Components - 4.2%
31,950 Burr-Brown Corp. 593,072(b)
20,800 Cybex Computer Products Corp. 660,400(b)
22,800 Dallas Semiconductor Corp. 843,600
24,300 Etec Systems, Inc. 823,163(b)
23,100 Lattice Semiconductor Corp. 785,400(b)
12,000 Maxim Integrated Products, Inc. 428,250(b)
16,700 Micrel, Inc. 549,013(b)
27,000 Microchip Technology, Inc. 730,688(b)
15,100 Plexus Corp. 375,613(b)
7,100 PMC-Sierra, Inc. 318,613(b)
12,100 QLogic Corp. 1,117,738(b)
31,600 Sanmina Corp. 1,295,600(b)
12,800 Vitesse Semiconductor Corp. 412,800(b)
------------
8,933,950
------------
Electronic Systems - 1.8%
18,500 Black Box Corp. 617,438(b)
18,600 International Manufacturing
Services, Inc. 95,325(b)
18,700 Novellus Systems, Inc. 725,794(b)
51,000 Sawtek, Inc. 1,029,563(b)
18,600 Teradyne, Inc. 604,500(b,c)
1,800 Thermo Optek Corp. 15,863(b)
6,100 Tollgrade Communications, Inc. 122,000(b)
14,300 Uniphase Corp. 707,850(b)
------------
3,918,333
------------
Energy Services - 1.2%
27,400 BJ Services Co. 559,988(b)
8,300 Gulf Island Fabrication, Inc. 119,313(b)
41,400 Oceaneering International, Inc. 595,125(b)
24,100 R&B Falcon Corp. 326,856(b)
16,800 Smith International, Inc. 603,750(b)
13,500 Weatherford International, Inc. 367,031(b)
------------
2,572,063
------------
Entertainment &
Leisure - 2.4%
26,600 Brinker International, Inc. 643,388(b)
38,200 Imax Corp. 978,875(b)
36,200 J & J Snack Foods Corp. 814,500(b)
18,660 Promus Hotel Corp. 594,788(b)
18,300 SFX Entertainment, Inc. 578,738(b)
13,500 Sonic Corp. 256,500(b)
29,400 Steinway Musical
Instruments, Inc. 648,638(b)
61,450 Sunterra Corp. 583,775(b)
------------
5,099,202
------------
Exploration &
Production - 0.5%
21,300 Noble Affiliates, Inc. 697,575
45,160 Swift Energy Co. 412,085(b)
------------
1,109,660
------------
Food Processing - 0.7%
22,700 Earthgrains Company 681,000
31,600 Smithfield Foods, Inc. 620,150(b)
12,600 Twinlab Corp. 279,563(b)
------------
1,580,713
------------
Healthcare Services - 2.4%
23,900 Access Health, Inc. 857,413(b)
38,800 Concentra Managed Care, Inc. 397,700(b)
13,100 Healthcare Recoveries, Inc. 132,638(b)
20,400 Henry Schein, Inc. 789,225(b)
34,800 Inhale Therapeutic Systems 913,500(b)
29,800 Novoste Corp. 521,500(b)
39,800 Orthodontic Centers of
America, Inc. 753,713(b)
34,900 Total Renal Care Holdings, Inc. 855,050(b)
------------
5,220,739
------------
Hospital Supplies &
Management - 6.9%
67,800 ADAC Labs, Inc. 2,008,575(b)
33,400 American Oncology
Resources, Inc. 444,638(b)
36,900 Cytyc Corp. 618,075(b)
24,100 DENTSPLY International, Inc. 620,575
28,900 First Health Group Corp. 666,506(b)
31,500 Genesis Health Ventures, Inc. 425,250(b)
21,000 Integrated Health Services, Inc. 339,938
35,000 Lincare Holdings, Inc. 1,397,813(b)
54,500 Mentor Corp. 926,500
23,000 Omnicare, Inc. 794,938
7,400 Patterson Dental Co. 305,250(b)
23,200 Pediatrix Medical Group, Inc. 1,081,700(b)
61,600 PSS World Medical, Inc. 1,362,900(b)
18,600 Quorum Health Group, Inc. 269,700(b)
29,700 Renal Care Group, Inc. 865,013(b)
27,000 STERIS Corp. 621,000(b)
14,900 Trex Medical Corp. 182,525(b)
22,000 Universal Health Services, Inc. 1,128,875(b)
14,300 Veterinary Centers of
America, Inc. 253,825(b)
9,800 VISX, Inc. 491,225(b)
------------
14,804,821
------------
Information Processing - 1.2%
10,100 Catalina Marketing Corp. 481,644(b)
30,700 Paymentech, Inc. 472,013(b)
14,200 SCI Systems, Inc. 560,900(b)
29,900 SunGard Data Systems, Inc. 1,009,125(b)
------------
2,523,682
------------
Machinery - 0.3%
16,700 Applied Industrial
Technologies, Inc. 221,275
29,500 JLG Industries, Inc. 488,594
------------
709,869
------------
Media &
Communications - 5.7%
30,300 ACNielsen Corp. 810,525(b)
26,300 Century Communications Corp.,
Class A 581,888(b)
30,200 Chancellor Media Corp. 1,158,925(b)
41,700 CKS Group, Inc. 792,300(b)
5,800 Cox Radio, Inc., Class A 217,138(b)
20,100 Emmis Communications Corp.,
Class A 658,275(b)
25,000 Harte-Hanks, Inc. 607,813
13,900 Heftel Broadcasting Corp.,
Class A 571,638(b)
15,900 Jacor Communications, Inc. 874,500(b)
38,100 Level One Communications, Inc. 1,002,506(b)
9,700 Media General, Inc. 434,075
42,925 Outdoor Systems, Inc. 947,033(b)
42,000 Startec Global
Communications Corp. 399,000(b)
27,400 TCA Cable TV, Inc. 758,638
28,800 United Video Satellite Group, Inc.,
Class A 457,200(b)
15,700 Univision Communications, Inc.,
Class A 463,150(b)
13,900 Valassis Communications, Inc. 554,263(b)
8,400 World Color Press, Inc. 255,150(b)
9,800 Young Broadcasting Corp.,
Class A 309,313(b)
46,300 Zomax Optical Media, Inc. 274,906(b)
------------
12,128,236
------------
Mining & Metals - 0.7%
80,600 Cambior, Inc. 403,000
41,400 RTI International Metals, Inc. 615,825(b)
33,600 Steel Dynamics, Inc. 457,800(b)
------------
1,476,625
------------
Miscellaneous Consumer
Products - 2.8%
32,800 Blyth Industries, Inc. 906,100(b)
23,390 Equity Corporation International 580,364(b)
22,500 Fossil, Inc. 412,031(b)
30,290 HA LO Industries, Inc. 855,693(b)
34,200 Jones Apparel Group, Inc. 589,950(b)
40,200 Nautica Enterprises, Inc. 831,638(b)
13,600 Pillowtex Corp. 442,000
19,500 Quiksilver, Inc. 403,406(b)
30,800 Tefron, Ltd. 271,425(b)
28,800 The North Face, Inc. 343,800(b)
21,600 Wesley Jessen VisionCare, Inc. 386,100(b)
------------
6,022,507
------------
Office Automation - 0.2%
40,000 Transition Systems, Inc. 417,500(b)
------------
Pharmaceuticals - 2.8%
18,500 Barr Laboratories, Inc. 632,469(b)
9,800 Express Scripts, Inc., Class A 957,338(b)
10,800 IDEXX Laboratories, Inc. 246,375(b)
600 K-V Pharmaceutical Co.,
Class A 13,575(b)
10,200 Miravant Medical Technologies 127,500(b)
29,500 PAREXEL International Corp. 650,844(b)
93,000 PharMerica, Inc. 313,875(b)
10,700 Sofamor Danek Group, Inc. 1,087,388(b)
45,300 Theragenics Corp. 914,494(b)
19,600 Watson Pharmaceuticals, Inc. 1,090,250(b)
------------
6,034,108
------------
Pollution Control - 0.5%
53,400 Allied Waste Industries, Inc. 1,154,775(b)
------------
Real Estate Investment
Trust - 0.5%
29,170 Apartment Investment &
Management Co., Class A 1,019,127
------------
Restaurants - 1.3%
27,900 Applebee's International, Inc. 568,463
16,900 CKE Restaurants, Inc. 444,681
37,300 Dave & Busters, Inc. 699,375(b)
6,300 Logan's Roadhouse, Inc. 110,250(b)
27,600 Outback Steakhouse, Inc. 955,650(b)
------------
2,778,419
------------
Retail - 7.3%
23,100 Barnes and Noble, Inc. 753,638(b)
30,600 Bed, Bath & Beyond, Inc. 843,413(b)
32,800 Borders Group, Inc. 832,300(b)
13,600 CDW Computer Centers, Inc. 1,019,150(b)
25,400 Day Runner, Inc. 508,000(b)
24,150 Dollar Tree Stores, Inc. 931,284(b)
29,600 Family Dollar Stores, Inc. 536,500
19,610 Fred Meyer, Inc. 1,045,458(b)
30,100 General Nutrition Companies 438,331(b)
19,200 Guitar Center, Inc. 328,800(b)
38,700 Insight Enterprise, Inc. 1,122,300(b)
17,300 Kenneth Cole Productions, Inc.,
Class A 291,938(b)
26,300 Lands' End, Inc. 448,744(b)
2,200 Linens 'N Things, Inc. 68,063(b)
26,100 Men's (The) Wearhouse, Inc. 632,925(b)
33,200 Neiman Marcus Group, Inc. 734,550(b)
24,300 Office Depot, Inc. 607,500(b)
25,950 Pacific Sunwear of California 561,169(b)
32,610 Renters Choice, Inc. 809,136(b)
24,000 Ross Stores, Inc. 780,000
12,400 SLI, Inc. 207,700(b)
50,600 Stein Mart, Inc. 398,475(b)
13,200 The Buckle, Inc. 239,250(b)
11,300 Whole Foods Market, Inc. 452,706(b)
34,500 Williams-Sonoma, Inc. 940,125(b)
------------
15,531,455
------------
Telecommunications
Equipment - 3.1%
30,600 Aspect Telecommunications
Corp. 462,825(b)
28,200 Dialogic Corp. 634,500(b)
28,200 Gilat Satellite Networks, Ltd. 1,311,300(b)
22,600 Inter-Tel, Inc. 408,213
16,500 Omnipoint Corp. 152,625(b)
15,100 Pacific Gateway Exchange, Inc. 436,013(b)
29,600 Premisys Communications, Inc. 312,650(b)
43,000 Proxim, Inc. 642,313(b)
37,800 Tekelec Co. 678,038(b)
27,500 Transaction Network
Services, Inc. 752,813(b)
27,900 USA Networks, Inc. 627,750(b)
------------
6,419,040
------------
Telephone Services - 0.6%
14,800 Comverse Technology, Inc. 680,800(b)
21,200 InterVoice, Inc. 604,200(b)
------------
1,285,000
------------
Transportation
Services - 2.3%
44,500 BE Aerospace, Inc. 956,750(b)
23,600 Budget Group, Inc., Class A 423,325(b)
31,300 Coach USA, Inc. 839,231(b)
23,440 Expeditors International of
Washington 794,030
48,300 Swift Transportation Co., Inc. 1,067,093(b)
30,800 USFreightways Corp. 771,925
------------
4,852,354
------------
Total Common Stocks
(cost $229,876,560) 204,821,526
------------
Principal
Amount
- ------------
SHORT-TERM
SECURITIES - 4.0% (a)
Commercial Paper
8,600,000 New Center Asset Trust,
5.72%, Due 11/2/1998
(at amortized cost) 8,598,634
------------
Total Investments
(cost $238,475,194) $213,420,160(d)
============
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) Includes stock rights that automatically traded with the stock and
had no separate value at October 31, 1998.
(d) At October 31, 1998, the aggregate cost of securities for federal
tax purposes was $238,549,472 and the net unrealized depreciation
of investments based on that cost was $25,129,312 which is
comprised of $15,116,070 aggregate gross unrealized appreciation
and $40,245,382 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
Portfolio of Investments
October 31, 1998
Shares Value
- -------------- --------------
<S> <C> <C>
COMMON STOCKS - 94.8% (a)
Aerospace - 0.6%
4,030 BE Aerospace, Inc. $ 86,645(b)
3,000 Sunstrand Corp. 140,812
------------
227,457
------------
Airlines - 1.3%
2,980 ASA Holdings, Inc. 106,907
6,100 COMAIR Holdings Inc. 200,537
3,280 Expeditors International of
Washington, Inc. 111,110
4,630 Southwest Airlines Co. 98,098
------------
516,652
------------
Appliances &
Furnishings - 0.5%
3,900 Maytag Corp. 192,806
------------
Automotive - 1.4%
6,250 AutoZone, Inc. 164,453(b)
2,420 Borg-Warner Automotive, Inc. 113,437
3,600 Dana Corp. 150,525
4,890 Tower Automotive, Inc. 108,802(b)
------------
537,217
------------
Bank & Finance - 9.5%
2,760 AMBAC Financial Group, Inc. 160,598
4,515 Charter One Financial, Inc. 123,880
2,500 Chase Manhattan Corp. 142,031
2,533 Citigroup, Inc. 119,209
4,850 City National Corp. 165,809
2,790 Crestar Financial Corp. 183,791
2,640 Donaldson, Lufkin &
Jenrette, Inc. 94,380
4,900 EVEREN Capital Corp. 99,838
3,420 Finova Group, Inc. 166,725
3,650 First American Corp. 150,562
1,760 First Union Corp. 102,080
3,920 Franklin Resources, Inc. 148,225
1,770 Golden West Financial Corp. 160,517
1,180 MGIC Investment Corp. 46,020
2,150 Morgan Stanley Dean
Witter & Co. 139,213
4,090 Mutual Risk Management, Ltd. 138,293
2,600 Northern Trust Corp. 191,750
2,880 PaineWebber Group, Inc. 96,300
1,420 PMI Group 71,621
2,890 Provident Companies, Inc. 83,991
1,800 Providian Financial Corp. 142,875
1,980 State Street Corp. 123,502
4,315 Summit Bancorp 163,700
2,920 SunAmerica, Inc. 205,860
5,040 TCF Financial Corp. 118,755
3,640 Travelers Property
Casualty Corp., Class A 111,702
2,750 Union Planters Corp. 127,703
3,190 Zions Bancorporation 169,269
------------
3,748,199
------------
Broadcasting - 2.3%
5,320 Chancellor Media Corp. 204,155(b)
4,960 Clear Channel
Communications, Inc. 225,990(b)
4,300 Comcast Corp., Class A 212,312
3,800 Jacor Communications, Inc. 209,000(b)
4,800 Sinclair Broadcast Group, Inc.,
Class A 62,400(b)
------------
913,857
------------
Building Products &
Materials - 0.4%
1,510 Fastenal Co. 54,549
4,780 Leggett & Platt, Inc. 111,732
------------
166,281
------------
Chemicals - 0.4%
4,890 Crompton & Knowles Corp. 78,546
5,210 Wellman, Inc. 65,451
------------
143,997
------------
Computer Software - 11.1%
3,000 America Online, Inc. 381,187
3,980 American Power
Conversion Corp. 168,901(b)
4,600 At Home Corporation,
Series A 203,550(b)
2,780 Autodesk, Inc. 86,701
3,900 AXENT Technologies, Inc. 97,987(b)
3,950 BMC Software, Inc. 189,847(b)
4,790 Cadence Design Systems, Inc. 102,386(b)
1,680 Cerner Corp. 37,590(b)
2,950 Citrix Systems, Inc. 209,081(b)
3,200 CNet, Inc. 121,800(b)
4,790 Compuware Corp. 259,558(b)
3,070 Documentum, Inc. 104,380(b)
6,690 HBO & Co. 175,612
4,480 HNC Software, Inc. 150,640(b)
2,260 J.D. Edwards & Company 74,015(b)
3,500 Keane, Inc. 116,375(b)
6,700 Macromedia, Inc. 134,000(b)
1,300 Microsoft Corp. 137,638(b)
6,110 Netscape Communications Corp. 130,983(b)
2,160 Network Associates, Inc. 91,800(b)
4,610 Oracle Corp. 136,283(b)
5,240 Parametric Technology Corp. 87,115(b)
1,780 PeopleSoft, Inc. 37,714(b)
10,260 Platinum Technology, Inc. 168,649(b)
7,500 Rational Software Corp. 167,812(b)
5,020 Saville Systems Ireland plc ADR 84,712(b)
2,800 Shared Medical Systems Corp. 139,650
3,850 Sterling Commerce, Inc. 135,713(b)
8,080 SunGard Data Systems, Inc. 272,700(b)
1,930 Symantec Corp. 30,880(b)
3,260 Synopsys, Inc. 147,515(b)
------------
4,382,774
------------
Computers &
Office Equipment - 5.2%
6,200 3Com Corp. 223,587(b)
3,710 CHS Electronics, Inc. 36,173(b)
2,400 Cisco Systems, Inc. 151,200(b)
5,780 Compaq Computer Corp. 182,792
1,100 Dell Computer Corp. 72,050(b)
2,600 EMC Corp. 167,375(b)
3,270 Gateway 2000, Inc. 182,507(b)
7,720 Herman Miller, Inc. 170,323
2,720 Hon Industries, Inc. 57,630
1,120 Lexmark International
Group, Inc., Class A 78,330(b)
1,560 Network Appliance, Inc. 85,410(b)
5,440 Seagate Technology, Inc. 143,480(b)
4,400 Sun Microsystems, Inc. 256,300(b)
5,400 Systems & Computer
Technology Corp. 76,950(b)
3,930 Tech Data Corp. 154,744(b)
1,700 Verio, Inc. 23,587(b)
------------
2,062,438
------------
Conglomerates - 0.6%
3,600 ITT Industries, Inc. 128,700
1,810 Tyco International, Ltd. 112,107
------------
240,807
------------
Construction &
Home Building - 0.4%
4,600 Centex Corp. 154,100
------------
Containers &
Packaging - 0.4%
5,030 Owens-Illinois, Inc. 153,729(b)
------------
Drugs & Health Care - 9.9%
2,770 Alza Corp. 132,614(b)
2,500 Amgen, Inc. 196,406
950 Biogen, Inc. 66,025(b)
3,470 Biomet, Inc. 117,763
1,200 Bristol-Myers Squibb Co. 132,675
840 Cardinal Health, Inc. 79,433
3,100 Centocor, Inc. 137,950(b)
6,800 Chiron Corp. 153,000(b)
3,840 Elan Corp. plc, ADR 269,040(b)
2,820 Forest Laboratories, Inc. 117,911(b)
4,000 Genzyme Corp. 168,250(b)
3,450 Gilead Sciences, Inc. 97,894(b)
600 Guidant Corporation 45,900
2,400 Haemonetics Corp. 51,750(b)
3,900 HCR Manor Care, Inc. 126,750(b)
7,540 Luxottica Group S.P.A. ADR 67,860
3,200 McKesson Corp. 246,400
1,300 Merck & Co., Inc. 175,825
6,240 Mylan Laboratories, Inc. 214,890
9,300 Natrol, Inc. 106,950(b)
5,080 Pharmaceutical Product
Development, Inc. 137,160(b)
9,000 Rexall Sundown, Inc. 161,437(b)
6,300 Rite Aid Corp. 250,031
1,980 Sofamor Danek Group, Inc. 201,218(b)
5,760 STERIS Corp. 132,480(b)
5,920 Watson Pharmaceuticals, Inc. 329,300(b)
------------
3,916,912
------------
Electric Utilities - 0.3%
2,680 AES (The) Corp. 109,713(b)
------------
Electrical Equipment - 1.0%
3,430 Applied Materials, Inc. 118,978(b)
2,790 KLA-Tencor Corp. 102,881(b)
1,610 Novellus Systems, Inc. 62,488(b)
2,400 Symbol Technologies, Inc. 107,400
------------
391,747
------------
Electronics - 5.6%
4,040 Altera Corp. 168,165(b)
3,400 AMP, Inc. 139,612
2,400 Jabil Circuit, Inc. 111,150(b)
3,700 Level One Communications, Inc. 97,356(b)
2,220 Linear Technology Corp. 132,367
3,980 Maxim Integrated Products, Inc. 142,036(b)
6,500 Mettler-Toledo Int'l Inc. 142,188(b)
3,740 Microchip Technology, Inc. 101,214(b)
5,070 Oak Industries, Inc. 137,207(b)
2,710 PMC-Sierra, Inc. 121,611(b)
3,400 SCI Systems, Inc. 134,300(b)
3,700 Solectron Corp. 211,825(b)
3,740 Uniphase Corp. 185,130(b)
2,300 Vitesse Semiconductor Corp. 74,175(b)
2,100 Waters Corp. 154,350(b)
3,610 Xilinx, Inc. 161,209(b)
------------
2,213,895
------------
Food & Beverage - 1.1%
2,700 Coca-Cola Enterprises, Inc. 97,369
9,040 Flowers Industries, Inc. 185,320
2,990 U.S. Foodservice 142,025(b)
------------
424,714
------------
Healthcare
Management - 4.4%
1,800 Express Scripts, Inc., Class A 175,838(b)
7,560 HEALTHSOUTH Corp. 91,665(b)
2,040 Henry Schein, Inc. 78,923(b)
4,100 Humana, Inc. 77,644(b)
4,400 Integrated Health Services, Inc. 71,225
6,900 Omnicare, Inc. 238,481
5,900 Orthodontic Centers of
America, Inc. 111,731(b)
5,150 Quintiles Transnational Corp. 233,038(b)
8,150 Total Renal Care Holdings, Inc. 199,675(b)
6,700 Trigon Healthcare, Inc. 251,250(b)
2,500 United Healthcare Corp. 107,500
1,300 Wellpoint Health Networks Inc. 95,712(b)
------------
1,732,682
------------
Hospital Management - 0.5%
6,890 Health Management
Associates, Inc., Class A 122,728(b)
3,300 Quorum Health Group, Inc. 47,850(b)
1,640 Tenet Healthcare Corporation 45,817(b)
------------
216,395
------------
Household Products - 1.0%
7,280 Dial Corp. 200,655
4,500 Newell Company 198,000
------------
398,655
------------
Insurance - 1.7%
2,900 AFLAC, Inc. 110,563
2,750 Allmerica Financial Corp. 137,500
4,650 Nationwide Financial Services,
Class A 192,975
4,425 Old Republic International Corp. 84,075
3,510 Protective Life Corp. Capital
Trust II 130,089
------------
655,202
------------
Leisure &
Entertainment - 1.1%
3,000 Carnival Corp. 97,125
2,170 Harley Davidson, Inc. 84,088(c)
7,700 Host Marriott Corp. 111,650(b)
1,370 Time Warner, Inc. 127,153
------------
420,016
------------
Machinery &
Equipment - 1.3%
2,960 Black & Decker Corp. 152,995
4,395 Crane Co. 126,631
2,910 Harsco Corp. 95,303
6,440 MSC Industrial Direct Co., Inc.,
Class A 136,850(b)
------------
511,779
------------
Media - 1.5%
2,200 Cox Communications, Inc.,
Class A 120,725(b)
10,945 Outdoor Systems, Inc. 241,474(b)
5,850 Tele-Communications, Inc.,
Liberty Media Group,
Series A 222,666(b)
------------
584,865
------------
Mining & Metals - 0.2%
4,040 Mueller Industries, Inc. 90,900(b)
------------
Miscellaneous - 0.7%
2,400 Standard & Poor's Depositary
Receipts Trust 264,150
------------
Natural Gas - 0.7%
5,000 Consolidated Natural Gas Co. 264,063
------------
Oil & Oil Service - 5.8%
3,700 Apache Corp. 104,756
5,060 BJ Services Co. 103,414(b)
7,000 CONOCO, Inc., Class A 174,125(b)
3,010 Cooper Cameron Corp. 104,598(b)
4,900 Devon Energy Corp. 165,988
5,250 Diamond Offshore Drilling, Inc. 161,109
11,160 ENSCO International, Inc. 149,963
12,140 Global Marine, Inc. 150,233(b)
9,100 Noble Drilling Corp. 156,406(b)
10,438 R&B Falcon Corp. 141,565(b)
2,352 Schlumberger Ltd. 123,480
3,410 Smith International, Inc. 122,547(b)
4,780 Sunoco, Inc. 164,014
3,330 Tosco Corp. 93,448
3,390 Transocean Offshore, Inc. 125,218
5,250 USX-Marathon Group 171,609
2,500 Weatherford International, Inc. 67,969(b)
------------
2,280,442
------------
Pollution Control - 0.8%
4,200 Allied Waste Industries, Inc. 90,825(b)
4,770 Waste Management, Inc. 215,246
------------
306,071
------------
Publishing & Printing - 0.4%
5,490 World Color Press, Inc. 166,759(b)
------------
Railroads - 0.2%
1,920 CSX Corp. 75,360
------------
Restaurants - 0.6%
4,660 Brinker International, Inc. 112,714(b)
3,200 Papa John's International, Inc. 121,500(b)
------------
234,214
------------
Retail - 8.6%
3,900 Albertson's, Inc. 216,694
6,180 Bed, Bath & Beyond, Inc. 170,336(b)
6,250 Borders Group, Inc. 158,594(b)
4,000 Circuit City Stores, Inc. 144,750
3,700 Costco Companies, Inc. 209,975(b)
3,600 CVS Corp. 164,475
4,720 Dollar Tree Stores, Inc. 182,015(b)
6,920 Eagle Hardware & Garden, Inc. 160,890(b)
1,900 Ethan Allen Interiors, Inc. 65,313
4,120 Fred Meyer, Inc. 219,648(b)
3,800 General Nutrition Companies 55,338(b)
5,300 Kohl's Corp. 253,406(b)
5,835 Men's (The) Wearhouse, Inc. 141,499(b)
9,530 Office Depot, Inc. 238,250(b)
7,460 OfficeMax, Inc. 68,073(b)
3,670 Ross Stores, Inc. 119,275
4,400 Safeway, Inc. 210,375(b)
5,130 Saks, Inc. 116,708(b)
9,780 Staples, Inc. 319,073(b)
9,900 TJX Companies, Inc. 187,481
------------
3,402,168
------------
Services - 7.1%
7,000 Acxiom Corp. 175,875(b)
6,120 Apollo Group, Inc., Class A 196,605(b)
2,730 Cambridge Technology
Partners, Inc. 60,401(b)
2,600 Covance, Inc. 72,475(b)
1,800 DST Systems, Inc. 90,000(b)
4,880 Equifax, Inc. 188,795
6,400 Fiserv, Inc. 297,600(b)
8,700 Getty Images, Inc. 107,119(b)
6,200 IDEXX Laboratories, Inc. 141,438(b)
1,630 Interpublic Group of Cos., Inc. 95,355
5,200 ITT Educational Services, Inc. 154,375(b)
11,200 Modis Professional Services, Inc. 197,400(b)
3,570 Omnicom Group, Inc. 176,492
4,980 Paychex, Inc. 247,755
4,800 Renters Choice, Inc. 119,100(b)
2,330 Robert Half International, Inc. 93,491(b)
4,800 Service Corp. International 171,000
3,550 Stewart Enterprises, Inc.,
Class A 81,872
4,440 Sylvan Learning Systems, Inc. 137,085(b)
------------
2,804,233
------------
Telecommunications
Equipment - 2.2%
3,500 Ascend Communications, Inc. 168,875(b)
3,590 Aspect Telecommunications Corp. 54,299(b)
2,600 Bisys (The) Group, Inc. 113,750(b)
1,800 CIENA Corp. 30,938(b)
1,300 Level 3 Communications
Holdings Corp. 55,900(b)
1,500 Lucent Technologies, Inc. 120,281
1,000 Nokia Corp., ADR 93,063
2,160 Tellabs, Inc. 118,800(b)
9,000 Terayon Communication
Systems, Inc. 108,000(b)
------------
863,906
------------
Telephone &
Telecommunications - 2.8%
2,390 Century Telephone Enterprises 135,782
4,550 Cincinnati Bell, Inc. 118,016
3,100 MCI Worldcom, Inc. 171,275(b)
4,500 MGC Communications, Inc. 45,000(b)
2,800 Pacific Gateway Exchange, Inc. 80,850(b)
7,100 Qwest Communications
International, Inc. 277,788(b)
2,000 Telecomunicacoes Brasileiras
S.A. ADR 151,875(b)
6,300 US LEC Corp., Class A 82,294(b)
3,840 Western Wireless Corp., Class A 77,760(b)
------------
1,140,640
------------
Textiles & Apparel - 0.9%
5,500 Jones Apparel Group, Inc. 94,875(b)
3,500 Tommy Hilfiger Corp. 162,531(b)
4,270 Warnaco Group, Inc., Class A 109,152
------------
366,558
------------
Trucking - 0.3%
3,940 USFreightways Corp. 98,746
------------
Total Common Stocks
(cost $39,318,896) 37,375,099
------------
Principal
Amount
- ------------
SHORT-TERM
SECURITIES - 5.2% (a)
U.S. Government Agency
$2,050,000 Federal Home Loan Mortgage,
Discount Notes,
5.42%, Due 11/2/1998
(at amortized cost) 2,049,691
------------
Total Investments
(cost $41,368,587) $39,424,790(d)
============
NOTES TO PORTFOLIO OF INVESTMENTS:
- ----------------------------------
(A) The categories of investments are shown as a percentage of total
investments of the Lutheran Brotherhood Mid Cap Growth Fund.
(b) Currently non-income producing.
(c) Includes stock rights that automatically traded with the stock
and had no separate value at October 31, 1998.
(d) At October 31, 1998, the aggregate cost of securities for
federal income tax purposes was $41,683,812 and the net unrealized
depreciation of investments based on that cost was $2,259,022
which is comprised of $2,575,060 aggregate gross unrealized
appreciation and $4,834,082 aggregate gross unrealized depreciation.
(e) Miscellaneous Footnotes:
(ADR) - American Depository Receipts
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
Portfolio of Investments
October 31, 1998
Shares Value
- -------------- --------------
<S> <C> <C>
ARGENTINA - 0.8% (a)
COMMON STOCKS
2,353 Banco de Galicia y Buenos
Aires 'B' ADR (USD) $ 40,148
2,600 Banco Frances del Rio de la
Plata ADR (USD) 54,275
19,286 Perez Compac 'B' 95,304
6,060 Telefonica de Argentina
ADR (USD) 'B' 200,359
11,507 YPF Sociedad Anonima
ADR (USD) 'D' 332,984
------------
Total Argentina 723,070
------------
AUSTRALIA - 2.3% (a)
COMMON STOCKS
8,000 AMP Ltd. 95,233(b)
18,063 Australia Gas & Light Co. 130,012
7,000 Brambles Industries Ltd. 153,629
12,501 Broken Hill Proprietary Co. 106,335
36,529 Colonial Ltd. 119,764
14,918 Commonwealth Bank of
Australia 185,583
47,000 Goodman Fielder Ltd. 62,114
45,000 John Fairfax Holdings 78,807
4,331 Lend Lease Corp. 95,613
6,450 National Australia Bank 85,524
27,076 News Corp. Ltd. 185,096
17,000 Publishing & Broadcasting Ltd. 67,517
61,086 Telstra Corporation Ltd. 242,610
25,542 Westpac Banking Corp. 155,439
15,500 Woodside Petroleum Ltd. 81,967
------------
1,845,243
------------
PREFERRED STOCKS
22,816 News Corp. Ltd 137,280
------------
Total Australia 1,982,523
------------
BELGIUM - 1.8% (a)
COMMON STOCKS
821 Credit Communal de Bela (Dexia) 133,271
1,470 Fortis AG 422,211
12,890 KBC Bancassurance Holdings 899,171
25 UCB 145,913
------------
Total Belgium 1,600,566
------------
BRAZIL - 1.3% (a)
COMMON STOCKS
470 Brazil Fund Inc. (USD) 6,462
2,950 Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar ADR (USD) 47,569
611 Companhia Energetica Brasilia
ADR (USD) 11,762
7,132 Companhia Energetica Minas
Gerais ADR (USD) 137,291
11,883 Telecomunicacoes Brasileiras
ADR (USD) 902,365
4,000 Unibanco - Uniao de Bancos
Brasileiros SA (GDR) 70,000
------------
Total Brazil 1,175,449
------------
CANADA - 0.2% (a)
COMMON STOCKS
4,980 Alcan Aluminum 125,065
1,870 Royal Bank of Canada 86,168
------------
Total Canada 211,233
------------
CHILE - 0.04% (a)
COMMON STOCKS
1,950 Chilectra ADR (USD) 35,588
------------
CHINA - 0.2% (a)
COMMON STOCKS
11,400 Huaneng Power International
'N' ADR (USD) 156,750(b)
------------
CZECH REPUBLIC - 0.04% (a)
COMMON STOCKS
2,500 SPT Telecom 37,772
------------
DENMARK - 0.4% (a)
COMMON STOCKS
1,320 Den Danske Bank 179,200
570 Tele Danmark 'B' 62,086
930 Unidanmark 'A' 70,880
------------
Total Denmark 312,166
------------
FINLAND - 0.6% (a)
COMMON STOCKS
6,050 Nokia Oyj 'A' 550,600
------------
FRANCE - 10.6% (a)
COMMON STOCKS
3,230 Alcatel Alsthom 359,864
5,340 AXA 603,596
320 Canal Plus 77,640
557 Carrefour 369,736
2,930 Cie de St. Gobain 433,496
3,238 Credit Commercial de France 227,410
457 Credit Local de France 67,367
690 Credit Local de France -
Dexia France 101,713
190 Dexia France 28,008
6,480 Euex Cie Generale 1,480,070
1,320 Groupe Danone 349,013
630 Groupe GTM Entrepose 68,263
1,321 Lafarge Coppee SA 135,051
1,740 Lapeyre 153,458
649 Legrand 165,407
331 L'Oreal 189,155
503 Pathe SA 96,057
5,065 Pinault-Printemps-Redoute SA 847,828
760 Primagaz (Cie Des Gaz Petrole) 68,396
3,993 Sanofi 625,265
7,112 Schneider SA 422,170
1,736 Societe Generale 229,659
2,780 Societe Nationale Elf Aquitaine 321,737
3,334 Sodexho Alliance SA 647,489
2,620 Television Francaise 432,902
7,443 Total 'B' 858,720
------------
Total France 9,359,470
------------
GERMANY - 7.6% (a)
COMMON STOCKS
1,630 Allianz AG Holdings 558,913
7,788 Bayer AG 316,410
10,293 Bayerische Vereinsbank AG 817,102
100 Buderas AG 41,594
7,423 Deutsche Bank AG 461,557
12,425 Deutsche Telekom 338,434
9,985 Dresdner Bank AG 388,791
4,768 Dresdner Bank AG Warrants
Expiring 4/30/2002 67,354(b)
12,202 Gehe AG 917,084
2,640 Hoechst AG 110,286
200 Hornbach Baumarkt AG 8,693
7,360 Mannesmann AG 724,226
1,470 Rhoen Klinikum AG 146,423
1,200 Sap AG 503,471
3,181 Siemens AG 191,263
9,190 Veba AG 513,175
1,920 Volkswagon AG 144,304
------------
6,249,080
------------
PREFERRED STOCKS
610 Fielmann AG 27,434
410 Fresenius AG 70,293
1,150 Hornbach Holdings AG 86,640
600 Sap AG 292,303
------------
476,670
------------
Total Germany 6,725,750
------------
HONG KONG - 1.3% (a)
COMMON STOCKS
9,000 Cheung Kong Holdings 61,588
10,000 Hang Seng Bank 86,507
34,000 Henderson Land Development 167,256
72,000 Hong Kong Telecommunications 144,093
82,000 Hutchison Whampoa 587,605
9,000 Sun Hung Kai Properties 62,750
------------
Total Hong Kong 1,109,799
------------
INDIA - 0.1% (a)
COMMON STOCKS
7,000 Mahanagar Telephone
Nigam Ltd. (GDR) 76,825
------------
IRELAND - 0.02% (a)
COMMON STOCKS
1,510 CBT Group plc ADR (USD) 18,026(b)
------------
ITALY - 5.3% (a)
COMMON STOCKS
10,760 Assicurazioni Generali SpA 385,235
22,000 Banca Commerciale Italiana 135,928
172,000 Banca Di Roma 300,034(b)
88,458 Ente Nazionale Idrocarburi 526,038
30,010 IMI SpA 461,256
3,278 Industrie Natuzzi SpA
ADR (USD) 59,619
61,000 Istituto Nazionale Delle
Assicurazioni 167,982
22,000 Italgas (Societa Italiana Il
Gas) SpA 100,704
9,589 Mediolanum 238,621
5,000 Rinascente 48,184
112,896 Telecom Italia Mobile SpA 655,183
145,983 Telecom Italia SpA 1,055,106
98,302 Unicredito Italiano SpA 527,619
------------
Total Italy 4,661,509
------------
JAPAN - 15.7% (a)
COMMON STOCKS
1,310 Advantest Corp. 82,591
8,000 Alps Electric Co. 110,070
17,000 Amada Co. Ltd. 101,638
37,000 Canon, Inc. 699,821
10,000 Citizen Watch Co. 55,241
15,000 Dai Nippon Screen
Manufacturing Co. Ltd. 32,810
3,000 Daifuku Co. Ltd. 12,661
16,000 Daiichi Pharmaceutical 266,941
23,000 Daiwa House Industry Co. 259,436
39 DDI Corp. 113,742
36,000 Denso Corp. 677,818
63 East Japan Railway 373,417
4,200 Fanuc Co. Ltd. 126,094
8,000 Fujitsu 85,092
37,000 Hitachi 188,205
3,000 Honda Motor Co. Ltd. 90,067
7,000 Inax 34,646
9,000 Ito-Yokado Co. 524,961
20,000 Kao Corp. 404,872
10,000 Kokuyo Co. Ltd. 132,956
20,000 Komatsu Ltd. 108,080
10,000 Komori Corp. 183,565
24,000 Kuraray Co. 255,893
10,000 Kyocera Corp. 441,757
13,000 Makita Corp. 137,382
27,000 Marui Co. Ltd. 470,149
38,000 Matsushita Electric Industrial Co. 557,711
25,000 Mitsubishi Corp. 132,313
118,000 Mitsubishi Heavy Industries Ltd. 455,481
56,000 Mitsui Fudosan 371,796
12,000 Murata Manufacturing 404,529
61,000 NEC Corp. 451,561
33 Nippon Telegraph &
Telecom Corp. 258,157
41,000 Nomura Securities Co. Ltd. 309,487
7,000 Pioneer Electronic Corp. 115,286
2,000 Sangetsu Co. Ltd. 24,704
27,000 Sankyo Co. 609,110
31,000 Sekisui Chemical Co. Ltd. 168,854
23,000 Sekisui House 229,053
3,100 Seven-Eleven Japan Co. Ltd. 235,598
21,350 Shinetsu Chemical Co. Ltd. 424,876
13,000 Shiseido Co. 142,289
9,700 Sony Corp. 615,715
46,000 Sumitomo Corp. 220,175
57,000 Sumitomo Electric Industries, Ltd. 630,726
10,000 Sumitomo Forestry Co. Ltd. 68,022
9,000 TDK Corp. 592,898
11,000 Tokio Marine & Fire
Insurance Co. 125,021
5,300 Tokyo Electronics 172,302
8,000 Tokyo Steel Manufacturing 36,370
20,000 Toppan Printing 205,009
12,000 Uny Co. 195,574
3,150 Yurtec Corp. 16,347
------------
Total Japan 13,738,869
------------
LUXEMBOURG - 0.1% (a)
COMMON STOCKS
400 Societe Europeenne des
Satellites 66,101(b)
------------
MEXICO - 1.2% (a)
COMMON STOCKS
15,620 Cementos de Mexico
ADR (USD) 73,219
13,267 Cemex 'B' 36,488
398 Cemex SA de C.V. ADR (USD) 945
1,099 Cifra SA de CV 14,905
21,091 Gruma 'B' 50,078(b)
3,620 Gruma SA ADR (USD) 36,200
36,760 Grupo Industrial Maseca 'B' 25,457
4,040 Grupo Televisa GDR (USD) 109,585(b)
30,799 Kimberly-Clark Mexico 'A' 89,582
5,980 Panamerican Beverages 'A'
ADR (USD) 121,095
8,920 Telefonos de Mexico 'L' ADR
(USD) 471,088
4,800 TV Azteca SA ADR (USD) 42,000
------------
Total Mexico 1,070,642
------------
NETHERLANDS - 11.5% (a)
COMMON STOCKS
20,566 ABN Amro Holdings NV 385,244
2,188 Akzo Nobel NV 85,016
9,680 ASM Lithography Holdings NV 245,568(b)
28,000 CLP Holdings Ltd. 157,263
7,399 CSM 364,317
46,974 Elsevier 661,198
10,020 Fortis Amev NV 650,500
2,408 Gucci Group NV (USD) 91,805
25,075 ING Groep NV 1,213,187
18,951 Koninklijke Ahold NV 629,857
7,470 Koninklijke Numico NV 293,851
2,922 Koninklijke KPN NV 113,536
5,140 Phillips Electronics NV 273,444
8,150 Polygram NV 480,246
28,300 Royal Dutch Petroleum Co. 1,366,191
2,620 ST Microelectronics 160,334
1,942 TNT Post Group NV 51,968
12,230 Unilever NV 907,211
10,454 Wolters Kluwer 2,025,394
------------
Total Netherlands 10,156,130
------------
NEW ZEALAND - 0.1% (a)
COMMON STOCKS
14,000 Telecom Corporation of
New Zealand Ltd. 27,282
23,000 Telecom Corp. of New Zealand 94,392
------------
Total New Zealand 121,674
------------
NORWAY - 1.5% (a)
COMMON STOCKS
1,200 Bergesen ASA 'A' 16,623
14,180 Norsk Hydro 616,229
37,140 Orkla ASA 627,953
1,460 Saga Petroleum ASA 18,440
------------
Total Norway 1,279,245
------------
PORTUGAL - 0.5% (a)
COMMON STOCKS
9,726 Jeronimo Martins 421,289
------------
RUSSIA - 0.05% (a)
COMMON STOCKS
3,470 Gazprom ADR (USD) 32,358
550 Lukoil Co. ADR (USD) 8,937
------------
Total Russia 41,295
------------
SINGAPORE - 0.2% (a)
COMMON STOCKS
7,325 Singapore Press Holdings 63,461
41,000 Singapore Telecommunications 70,790
------------
Total Singapore 134,251
------------
SOUTH KOREA - 0.1% (a)
COMMON STOCKS
15,643 Korea Equity Fund Inc. (USD) 130,032
------------
SPAIN - 3.0% (a)
COMMON STOCKS
9,088 Argentaria Corp. Bancaria
de Espana 197,748
9,450 Banco Bilboa Vizcaya, SA 127,467(b)
22,915 Banco Santander SA 419,712
14,340 Endesa SA 361,401
2,839 Gas Natural SDG, SA 244,477
16,100 Iberdrola SA 260,028
3,894 Repsol 195,446
17,861 Telefonica de Espana SA 806,446
------------
Total Spain 2,612,725
------------
SWEDEN - 3.3% (a)
COMMON STOCKS
17,340 ABB AB 'A' 183,263
43,996 Astra AB 'B' 690,432
9,010 Atlas Copco AB 'B' 209,495
25,400 Electrolux AB 382,334
2,460 Esselte 'B' 35,926
2,010 Granges AB 26,264
10,510 Hennes & Mauritz AB 740,520
81,011 Nordbanken Holding AB 485,692
660 Sandvik 'A' 13,570
7,570 Sandvik 'B' 155,648
1,370 Sifo Group AB 'B' 5,265(b)
------------
Total Sweden 2,928,409
------------
SWITZERLAND - 7.4% (a)
COMMON STOCKS
286 ABB AG 342,280
1,254 Adecco SA 499,638
2,570 Credit Suisse Group 394,896
895 Nestle SA 1,901,867
714 Novartis AG 1,285,442
86 Roche Holdings AG 1,002,582
393 Swisscom AG 133,097(b)
3,380 UBS AG 926,489
------------
Total Switzerland 6,486,291
------------
UNITED KINGDOM - 17.7% (a)
COMMON STOCKS
28,000 Abbey National 544,555
101,000 ASDA Group 272,160
29,117 BG plc 190,790
28,000 British Petroleum 410,994
64,100 Cable & Wireless 718,804
44,400 Cadbury Schweppes 679,957
72,400 Caradon plc 150,004
21,000 Centrica plc 40,771(b)
52,000 Compass Group plc 526,546
26,000 David S. Smith Holdings 54,830
21,000 Electrocomponents 138,482
10,000 GKN plc 121,510
48,500 Glaxo Wellcome 1,506,597
5,000 Heywood Williams Group 15,775
11,000 John Laing 'A' 55,140
138,000 Kingfisher 1,211,440
136,000 National Westminster Bank 2,296,717
23,000 Rank Group plc 94,698
111,000 Reed International plc 939,121
33,800 Rio Tinto 410,423
22,000 Rolls Royce 81,191
57,000 Safeway plc 286,202
186,000 Shell Transport & Trading Co. 1,123,822
166,200 SmithKline Beecham plc 2,077,921
156,000 Tesco 439,948
130,000 Tomkins 601,611
9,000 Unilever plc 90,380
48,500 United News & Media 536,563
------------
Total United Kingdom 15,616,952
------------
Principal
Amount
- ------------
SHORT-TERM
SECURITIES - 5.1% (a)
Commercial Paper
$1,000,000 USAA Capital Corp., 5.20%,
Due 11/3/1998 $ 999,711
3,500,000 New Center Asset Trust, 5.72%,
Due 11/2/1998 3,499,444
------------
Total Short-Term Securities
(at amortized cost) 4,499,155
------------
Total Investments $ 88,040,156(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
----------- ----------- --------------
<S> <C> <C> <C>
Common Stocks &
Warrants $72,131,035 $82,927,051 94.2%
Preferred Stocks 549,605 613,950 0.7%
Short-Term 4,499,155 4,499,155 5.1%
----------- ----------- ------
Total Investments $77,179,795 $88,040,156 100.0%
=========== =========== ======
(d) At October 31, 1998, the aggregate cost of securities for federal
income tax purposes was $78,151,806 and the net unrealized
appreciation of investments based on that cost was $9,888,350
which is comprised of $16,635,032 aggregate gross unrealized
appreciation and $6,746,682 aggregate gross unrealized
depreciation.
(e) Miscellaneous Footnotes:
(ADR) - American Depository Receipts
(GDR) - Global Depository Receipts
(USD) - Denominated in U.S. Dollars
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD FUND
Portfolio of Investments
October 31, 1998
Shares Value
- -------------- --------------
<S> <C> <C>
COMMON STOCKS - 97.5% (a)
Aerospace - 1.0%
130,000 United Technologies Corp. $ 12,382,500
--------------
Airlines - 1.0%
548,825 Southwest Airlines Co. 11,628,230
--------------
Bank & Finance - 16.4%
136,700 American Express Co. 12,080,862
278,625 American International
Group, Inc. 23,752,781
169,700 Associates First Capital Corp.,
Class A 11,963,850
387,800 Bank of New York Co., Inc. 12,239,938
405,000 BankAmerica Corp. 23,262,187
219,000 Chase Manhattan Corp. 12,441,938
273,500 Citigroup, Inc. 12,871,594
226,300 Federal Home Loan
Mortgage Corp. 13,012,250
168,800 Federal National Mortgage
Association 11,953,150
558,375 MBNA Corp. 12,737,930
221,700 Merrill Lynch & Co., Inc. 13,135,725
297,300 MGIC Investment Corp. 11,594,700
652,000 U.S. Bancorp 23,798,000
--------------
194,844,905
--------------
Chemicals - 4.1%
344,600 Air Products & Chemicals, Inc. 13,008,650
196,700 E.I. du Pont de Nemours and Co. 11,310,250
304,200 Monsanto Co. 12,358,125
291,100 Praxair, Inc. 11,716,775
--------------
48,393,800
--------------
Computer Software - 3.0%
216,000 Microsoft Corp. 22,869,000(b)
420,800 Oracle Corp. 12,439,900(b)
--------------
35,308,900
--------------
Computers &
Office Equipment - 7.1%
374,900 Cisco Systems, Inc. 23,618,700(b)
389,400 Compaq Computer Corp. 12,314,775
188,000 Dell Computer Corp. 12,314,000(b)
203,100 Hewlett Packard Co. 12,224,081
78,900 International Business
Machines 11,711,719
117,000 Xerox Corp. 11,414,812
--------------
83,598,087
--------------
Conglomerates - 5.0%
611,400 AlliedSignal, Inc. 23,806,388
733,300 Dover Corp. 23,282,275
195,000 Tyco International Ltd. 12,077,813
--------------
59,166,476
--------------
Drugs & Health Care - 11.5%
248,700 Abbott Laboratories 11,673,356
238,200 American Home
Products Corp. 11,612,250
290,000 Becton, Dickinson & Co. 12,216,250
105,300 Bristol-Myers Squibb Co. 11,642,231
148,200 Eli Lilly & Co. 11,994,938
139,600 Johnson & Johnson 11,377,400
174,000 Medtronic, Inc. 11,310,000
86,400 Merck & Co., Inc. 11,685,600
180,100 Pfizer, Inc. 19,326,981
113,000 Schering-Plough Corp. 11,624,875
147,700 Warner-Lambert Co. 11,575,987
--------------
136,039,868
--------------
Electric Utilities - 1.8%
163,300 FPL Group, Inc. 10,216,456
397,500 Southern Co. 11,204,531
--------------
21,420,987
--------------
Electrical Equipment - 3.0%
266,400 General Electric Co. 23,310,000
148,300 Honeywell, Inc. 11,845,463
--------------
35,155,463
--------------
Electronics - 2.0%
260,900 Intel Corp. 23,269,019
--------------
Food & Beverage - 5.8%
335,000 Coca-Cola Co. 22,654,375
665,100 PepsiCo, Inc. 22,447,125
403,800 Sara Lee Corp. 24,101,812
--------------
69,203,312
--------------
Household Products - 4.9%
128,900 Colgate Palmolive Co. 11,391,537
506,200 Gillette Co. 22,747,363
266,000 Procter & Gamble Co. 23,640,750
--------------
57,779,650
--------------
Leisure &
Entertainment - 3.9%
376,500 Carnival Corp. 12,189,187
429,500 Disney (Walt) Co. 11,569,656
309,900 Mattel, Inc. 11,117,663
127,400 Time Warner, Inc. 11,824,313
--------------
46,700,819
--------------
Mining & Metals - 1.0%
153,400 Aluminum Co. of America 12,156,950
--------------
Oil & Oil Service - 9.7%
143,900 Chevron Corp. 11,727,850
325,800 Exxon Corp. 23,213,250
623,000 Halliburton Co. 22,389,062
154,700 Mobil Corp. 11,708,856
478,900 Royal Dutch Petroleum Co. 23,585,825
220,100 Schlumberger Ltd. 11,555,250
314,400 USX-Marathon Group 10,276,950
--------------
114,457,043
--------------
Restaurants - 1.0%
174,200 McDonald's Corp. 11,649,625
--------------
Retail - 5.1%
254,400 CVS Corp. 11,622,900
209,500 Gap, Inc. 12,596,187
222,000 Kroger Co. 12,321,000(b)
245,300 Safeway, Inc. 11,728,406(b)
180,100 Wal-Mart Stores, Inc. 12,426,900
--------------
60,695,393
--------------
Services - 1.0%
241,000 Omnicom Group, Inc. 11,914,438
--------------
Telecommunications
Equipment - 1.9%
137,848 Lucent Technologies, Inc. 11,053,686
213,400 Tellabs, Inc. 11,737,000(b)
--------------
22,790,686
--------------
Telephone &
Telecommunications - 7.3%
437,500 Ameritech Corp. 23,597,656
184,518 AT&T Corp. 11,486,246
522,000 MCI Worldcom, Inc. 28,840,500(b)
499,200 SBC Communications, Inc. 23,119,200(b)
--------------
87,043,602
--------------
Total Common Stock
(Cost $918,535,772) 1,155,599,753
--------------
Principal
Amount
- ------------
SHORT-TERM
SECURITIES - 2.5% (a)
Commercial Paper
$29,208,000 Merck and Co. Inc.,
5.6%, Due 11/2/1998
(at amortized cost) 29,203,457
--------------
Total Investments
(Cost $947,739,229) $1,184,803,210
==============
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, 1998, the aggregate cost of securities for federal
income tax purposes was $949,685,235 and the net unrealized
appreciation of investments based on that cost was $235,117,975
which is comprised of $252,723,869 aggregate gross unrealized
appreciation and $17,605,894 aggregate gross unrealized
depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
LUTHERAN BROTHERHOOD HIGH YIELD FUND
Portfolio of Investments
October 31, 1998
<TABLE>
<CAPTION>
Principal
Maturity
Amount
Rate Date Value
- --------------
- -------- --------- -------------
CORPORATE BONDS - 82.2% (a)
Aerospace - 0.8%
<S> <C>
<C> <C> <C>
$ 2,000,000 BE Aerospace, Inc., Sr. Subordinated Notes
8.0% 3/1/2008 $ 1,880,000
2,400,000 Sabreliner Corp., Sr. Notes
11.0% 6/15/2008 2,010,000
2,400,000 Sequa Corp., Sr. Subordinated Notes
9.375% 12/15/2003 2,448,000
- ------------
6,338,000
- ------------
Airlines - 1.6%
6,000,000 Continental Airlines, Inc., Sr. Notes
9.5% 12/15/2001 6,270,000
2,000,000 Northwest Airlines, Inc., Notes
8.375% 3/15/2004 2,038,644
3,000,000 Northwest Airlines, Inc., Sr. Notes
7.625% 3/15/2005 2,895,000
2,000,000 U.S. Air, Inc., Sr. Secured Equipment Trust, Series 1993-A-3
10.375% 3/1/2013 2,153,068
- ------------
13,356,712
- ------------
Bank & Finance - 6.2%
2,450,000 Chevy Chase Savings Bank, Subordinated Debentures
9.25% 12/1/2005 2,339,750
4,000,000 Dollar Financial Group, Inc., Sr. Notes, Series A
10.875% 11/15/2003 3,830,000
3,200,000 Emergent Group, Inc., Sr. Notes, Series B
10.75% 9/15/2004 1,616,000
2,800,000 FC CBO II, Ltd., Subordinated Debentures, Class C
11.05% 9/9/2010 2,737,000
7,200,000 GS Escrow Corp., Sr. Notes
7.125% 8/1/2005 6,811,538
2,598,000 HomeSide, Inc., Sr. Secured Second Priority Bonds, Series B
11.25% 5/15/2003 3,052,650
5,600,000 Mego Mortgage Corp., Sr. Subordinated Notes
12.5% 12/1/2001 4,676,000
2,750,000 Metris Companies Inc., Sr. Notes
10.0% 11/1/2004 2,571,250
5,000,000 SIG Capital Trust I, Bond
9.5% 8/15/2027 3,800,000
5,680,000 Trizec Finance Ltd., Sr. Notes
10.875% 10/15/2005 6,319,000
4,000,000 United Companies Financial Corp., Subordinated Notes
8.375% 7/1/2005 2,399,072
2,000,000 Veritas Capital Trust, Trust Preferred Securities
10.0% 1/1/2028 1,880,000
3,380,000 Veritas Holdings GMBH, Sr. Notes
9.625% 12/15/2003 3,211,000
5,000,000 Williams Scotsman, Inc., Sr. Notes
9.875% 6/1/2007 5,075,000
500,000 Wilshire Financial Services Group, Inc., Notes, Series B
13.0% 8/15/2004 202,500
3,500,000 Wilshire Financial Services Group, Inc., Notes
13.0% 1/1/2004 1,417,500
- --------------
51,938,260
- --------------
Broadcasting - 11.8%
4,200,000 Adelphia Communications Corp., Sr. Debentures
11.875% 9/15/2004 4,494,000
1,130,285 American Telecasting, Inc., Sr. Discount Notes
Zero Coupon 6/15/2004 276,915
1,977,586 American Telecasting, Inc., Sr. Discount Notes, Series B
Zero Coupon 8/15/2005 444,957
2,400,000 Australis Holdings Pty Ltd., Sr. Discount Notes
Zero Coupon 11/1/2002 174,000
12,155,970 Australis Media Ltd., Sr. Discount Notes
Zero Coupon 5/15/2003 455,849
2,400,000 Chancellor Media Corp., Sr. Subordinated Notes, Series B
8.125% 12/15/2007 2,268,000
1,600,000 Chancellor Media Corp., Sr. Subordinated Notes
9.0% 10/1/2008 1,616,000
1,650,000 Classic Cable, Inc., Sr. Subordinated Notes
9.875% 8/1/2008 1,650,000
3,200,000 Classic Communications, Inc., Units
Zero Coupon 8/1/2009 1,616,000
4,000,000 CS Wireless Systems, Inc., Sr. Discount Notes, Series B
Zero Coupon 3/1/2006 820,000
2,000,000 CSC Holdings, Inc., Sr. Notes 7.875%
12/15/2007 2,037,500
2,000,000 Cumulus Media, Inc., Sr. Subordinated Notes
10.375% 7/1/2008 2,050,000
4,000,000 Diamond Cable Communications plc, Sr. Discount Notes
Zero Coupon 12/15/2005 3,020,000
1,150,000 Diamond Cable Co., Sr. Discount Notes
Zero Coupon 9/30/2004 1,069,500
800,000 Echostar Communications Corp., Sr. Discount Notes
Zero Coupon 6/1/2004 785,000
1,600,000 Echostar DBS Corp., Sr. Secured Notes
12.5% 7/1/2002 1,668,000
3,200,000 EchoStar Satellite Broadcasting Corp.,
Sr. Secured Discount Notes
Zero Coupon 3/15/2004 2,800,000
4,300,000 Falcon Holding Group, L.P., Series B Debentures
Zero Coupon 4/15/2010 2,816,500
5,600,000 Grupo Televisa S.A., Sr. Notes
11.875% 5/15/2006 5,544,000
2,000,000 Grupo Televisa S.A., Sr. Notes, Series A
11.375% 5/15/2003 1,965,000
9,200,000 Intermedia Capital Partners, Sr. Notes
11.25% 8/1/2006 10,120,000
4,600,000 International CableTel, Inc., Sr. Notes, Series A
Zero Coupon 4/15/2005 4,025,000
4,700,000 Jacor Communications, Inc., Convertible
Liquid Yield Option Notes
Zero Coupon 2/9/2018 1,927,000
2,800,000 Jones Intercable, Inc., Sr. Notes
9.625% 3/15/2002 3,038,000
2,300,000 Marcus Cable Operating Co., Sr. Subordinated
Guaranteed Discount Notes
Zero Coupon 8/1/2004 2,277,000
2,800,000 NTL, Inc., Sr. Notes, Series B
10.0% 2/15/2007 2,702,000
4,000,000 Olympus Communications, L.P., Sr. Notes
10.625% 11/15/2006 4,300,000
5,500,000 Renaissance Media Group LLC, Sr. Discount Notes
Zero Coupon 4/15/2008 3,561,250
5,200,000 Rogers Cablesystems Ltd., Sr. Secured Second Priority Notes
9.625% 8/1/2002 5,577,000
2,000,000 Rogers Cantel Inc., Debentures
9.375% 6/1/2008 2,010,000
735,528 Scott Cable Communications, Jr. Subordinated Notes,
Payment-In-Kind
16.0% 7/18/2002 371,442
3,684,000 SFX Broadcasting, Inc., Sr. Subordinated Notes, Series B
10.75% 5/15/2006 3,886,620
4,000,000 Sinclair Broadcast Group, Sr. Subordinated Notes
9.0% 7/15/2007 3,840,000
3,500,000 Supercanal Holding S.A
11.5% 5/15/2005 1,680,000
2,900,000 UIH Australia/Pacific, Inc., Sr. Discount Notes, Series B
Zero Coupon 5/15/2006 1,370,250
1,500,000 UIH Australia/Pacific, Inc., Sr. Discount Notes, Series D
Zero Coupon 5/15/2006 708,750
8,000,000 United International Holdings, Inc., Sr. Notes, Series B
Zero Coupon 2/15/2008 3,800,000
3,100,000 Wireless One, Inc., Sr. Notes
13.0% 10/15/2003 527,000
5,250,000 Young Broadcasting Corp., Sr. Subordinated Notes
11.75% 11/15/2004 5,512,500
- --------------
98,805,033
- --------------
Building Products & Materials - 1.9%
2,800,000 American Standard Cos., Inc., Notes
7.375% 4/15/2005 2,805,947
4,400,000 American Standard Cos., Inc., Sr. Notes
7.375% 2/1/2008 4,345,000
3,500,000 Atrium Companies, Inc., Sr. Subordinated Notes
10.5% 11/15/2006 3,552,500
4,000,000 CEMEX S.A. de C.V., Notes
12.75% 7/15/2006 4,170,000
1,200,000 Nortek, Inc., Sr. Notes
8.875% 8/1/2008 1,164,000
- --------------
16,037,447
- --------------
Computers & Office Equipment - 2.0%
3,500,000 Dictaphone Corp., Sr. Subordinated Notes
11.75% 8/1/2005 3,211,250
800,000 MCMS, Inc., Sr. Subordinated Notes, Series B
9.75% 3/1/2008 524,000
2,000,000 MCMS, Inc., Subordinated Notes, Series B (Variable rate)
Zero Coupon 3/1/2008 1,310,000
3,200,000 Samsung Electronics America, Notes
9.75% 5/1/2003 2,664,000
2,400,000 Unisys Corp., Sr. Notes
12.0% 4/15/2003 2,679,000
4,000,000 Unisys Corp., Sr. Notes
11.75% 10/15/2004 4,515,000
2,200,000 Zilog, Inc., Sr. Secured Notes, Series B
9.5% 3/1/2005 1,606,000
- --------------
16,509,250
- --------------
Conglomerates - 0.3%
2,750,000 Eagle-Picher, Inc., Sr. Subordinated Notes
9.375% 3/1/2008 2,461,250
- --------------
Construction & Home Building - 1.2%
6,400,000 Peters (J.M.) Co., Inc., Sr. Notes
12.75% 5/1/2002 6,448,000
3,600,000 The Fortress Group, Inc., Sr. Notes
13.75% 5/15/2003 3,735,000
- --------------
10,183,000
- --------------
Containers & Packaging - 2.4%
2,000,000 Ball Corp., Sr. Subordinated Notes
8.25% 8/1/2008 2,082,500
4,000,000 DIMAC Corp., Sr. Subordinated Notes
12.5% 10/1/2008 3,890,000
2,000,000 Fonda Group, Inc., Sr. Subordinated Notes, Series B
9.5% 3/1/2007 1,650,000
2,400,000 Graham Packaging Co., Sr. Subordinated Notes (Variable rate)
Zero Coupon 1/15/2008 2,244,000
3,350,000 Radnor Holdings Corp., Sr. Notes
10.0% 12/1/2003 3,266,250
3,000,000 SF Holdings Group, Inc., Sr. Discount Notes, Series B
Zero Coupon 3/15/2008 1,095,000
2,191,000 Silgan Holdings, Inc., Subordinated Debentures
13.25% 7/15/2006 2,382,713
1,500,000 Vicap, S.A. de C.V., Sr. Guaranteed Notes
10.25% 5/15/2002 1,207,500
3,100,000 Vicap, S.A. de C.V., Sr. Guaranteed Notes
11.375% 5/15/2007 2,309,500
- --------------
20,127,463
- --------------
Cosmetics & Toiletries - 0.5%
1,200,000 Revlon Consumer Products Corp., Sr. Notes
8.125% 2/1/2006 1,167,000
3,000,000 Revlon Consumer Products Corp., Sr. Subordinated Notes
8.625% 2/1/2008 2,722,500
- --------------
3,889,500
- --------------
Drugs & Health Care - 1.4%
5,600,000 Dade International, Inc., Sr. Subordinated Notes, Series B
11.125% 5/1/2006 5,936,000
3,200,000 Global Health Sciences, Inc., Sr. Notes
11.0% 5/1/2008 2,672,000
1,200,000 ICN Pharmaceuticals, Inc., Sr. Notes
8.75% 11/15/2008 1,170,000
2,000,000 ICN Pharmaceuticals, Inc., Sr. Notes, Series B
9.25% 8/15/2005 1,970,000
- --------------
11,748,000
- --------------
Electric Utilities - 3.1%
1,600,000 AES Corp., Sr. Subordinated Notes
8.5% 11/1/2007 1,512,000
2,000,000 CMS Energy Corp., Sr. Notes
7.625% 11/15/2004 2,026,490
4,000,000 CMS Energy Corp., Sr. Unsecured Notes
8.125% 5/15/2002 4,128,424
2,800,000 CMS Energy Corp., Sr. Unsecured Notes
7.0% 1/15/2005 2,724,450
3,200,000 ESI Tractebel Acquisition Corp., Bonds
7.99% 12/30/2011 2,988,179
1,750,000 Midland Cogen Venture Fund II, Secured Lease
Obligation Bonds, Series A
11.75% 7/23/2005 2,063,488
3,550,000 Midland Cogen Venture Fund II, Subordinated
Secured Lease Obligation Bonds
13.25% 7/23/2006 4,438,270
1,600,000 Niagara Mohawk Power Corp., Sr. E Notes
7.375% 7/1/2003 1,641,758
2,400,000 Niagara Mohawk Power Corp., Sr. G Notes
7.75% 10/1/2008 2,521,606
2,400,000 Niagara Mohawk Power Corp., Sr. H Discount Notes
Zero Coupon 7/1/2010 1,762,838
- --------------
25,807,503
- --------------
Electrical Equipment - 1.4%
5,000,000 Fisher Scientific International Inc., Sr. Subordinated Notes
9.0% 2/1/2008 4,837,500
2,000,000 Jordan Telecommunication Products, Sr. Notes, Series B
9.875% 8/1/2007 1,850,000
2,000,000 Protection One Alarm Monitoring, Inc.,
Convertible Sr. Subordinated Notes
6.75% 9/15/2003 2,335,000
2,080,000 Protection One Alarm Monitoring, Inc.,
Sr. Subordinated Discount Notes
13.625% 6/30/2005 2,381,600
- --------------
11,404,100
- --------------
Food & Beverage - 2.5%
3,200,000 Ameriserve Food Distribution, Inc., Sr. Notes
8.875% 10/15/2006 2,728,000
1,600,000 Compania De Alimentos Fargo, Sr. Notes
13.25% 8/1/2008 954,000
2,800,000 Cott Corp., Sr. Notes
8.5% 5/1/2007 2,625,000
4,000,000 Grupo Azucarero Mexico S.A. DE C, Sr. Notes
11.5% 1/15/2005 1,130,000
4,700,000 Imperial Holly Corp., Sr. Subordinated Notes
9.75% 12/15/2007 4,476,750
3,200,000 Packaged Ice, Inc., Sr. Notes, Series B
9.75% 2/1/2005 2,928,000
4,000,000 Smithfield Foods, Inc., Sr. Subordinated Notes
7.625% 2/15/2008 3,910,000
2,000,000 Southern Foods Group, L.P., Sr. Subordinated Notes
9.875% 9/1/2007 2,045,000
- --------------
20,796,750
- --------------
Hospital Management - 2.9%
3,500,000 Health Insurance Plan, Bonds, Series C
11.25% 7/1/2010 3,737,160
5,000,000 Insight Health Services Corp., Sr. Subordinated Notes
9.625% 6/15/2008 4,575,000
2,800,000 Integrated Health Services, Inc., Convertible Sr.
Subordinated Debentures
5.75% 1/1/2001 2,425,500
2,000,000 Integrated Health Services, Inc., Sr. Subordinated Notes,
Series A
9.25% 1/15/2008 1,830,000
4,000,000 MedPartners, Inc., Sr. Notes
7.375% 10/1/2006 3,220,000
3,000,000 MedPartners, Inc., Sr. Subordinated Notes
6.875% 9/1/2000 2,535,000
2,800,000 PhyMatrix Corp., Convertible Subordinated Debentures
6.75% 6/15/2003 1,179,500
2,000,000 Tenet Healthcare Corp., Sr. Notes
7.625% 6/1/2008 1,973,346
3,000,000 Tenet Healthcare Corp., Sr. Subordinated Notes
8.125% 12/1/2008 3,060,000
- --------------
24,535,506
- --------------
Household Products - 1.5%
2,300,000 AM Holdings, Inc., Sr. Discount Notes
Zero Coupon 7/1/2009 885,500
5,200,000 BPC Holding Corp., Sr. Secured Notes, Series B
12.5% 6/15/2006 5,213,000
2,000,000 Moll Industries, Inc., Sr. Subordinated Notes
10.5% 7/1/2008 1,880,000
4,000,000 Simmons Co., Sr. Subordinated Notes
10.75% 4/15/2006 4,180,000
- --------------
12,158,500
- --------------
Leisure & Entertainment - 2.9%
4,777,000 AMF Bowling Worldwide, Inc., Sr. Subordinated
Discount Notes, Series B
Zero Coupon 3/15/2006 2,412,385
4,000,000 CapStar Hotel Company, Convertible Subordinated Notes
4.75% 10/15/2004 2,815,000
2,000,000 Discovery Zone, Inc., Sr. Notes
13.5% 8/1/2002 1,170,000
500,000 Discovery Zone, Inc., Units
13.5% 5/1/2002 502,500
2,800,000 HMH Properties, Inc., Sr. Notes, Series A
7.875% 8/1/2005 2,751,000
1,600,000 HMH Properties, Inc., Sr. Notes, Series B
7.875% 8/1/2008 1,556,000
2,000,000 Imax Corp., Sr. Notes
10.0% 3/1/2001 2,070,000
3,600,000 Lodgenet Entertainment Corp., Sr. Notes
10.25% 12/15/2006 3,528,000
3,000,000 Production Resource Group LLC, Sr. Subordinated Notes
11.5% 1/15/2008 2,805,000
3,200,000 Signature Resorts, Inc., Sr. Subordinated Notes
9.75% 10/1/2007 2,480,000
2,000,000 Silverleaf Resorts, Inc., Sr. Subordinated Notes
10.5% 4/1/2008 1,710,000
- --------------
23,799,885
- --------------
Machinery & Equipment - 1.6%
4,000,000 Anthony Crane Rentals, Sr. Discount Notes
Zero Coupon 8/1/2009 1,750,000
1,600,000 Motors & Gears, Inc., Sr. Discount Notes
10.75% 11/15/2006 1,560,000
4,800,000 Navistar Financial Corp., Sr. Subordinated Notes, Series B
9.0% 6/1/2002 4,920,000
3,600,000 Navistar International Corp., Sr. Notes, Series B
7.0% 2/1/2003 3,528,000
2,000,000 Scotsman Group, Inc., Sr. Subordinated Notes
8.625% 12/15/2007 1,990,000
- --------------
13,748,000
- --------------
Mining & Metals - 1.4%
4,265,000 AK Steel Corp., Sr. Notes
10.75% 4/1/2004 4,483,581
3,150,000 Altos Hornos de Mexico, Bonds, Series B
11.875% 4/30/2004 1,594,688
5,465,000 UCAR Global Enterprises, Inc., Sr. Subordinated
Notes, Series B
12.0% 1/15/2005 5,546,975
- --------------
11,625,244
- --------------
Oil & Gas - 3.9%
4,000,000 Abraxas Petroleum Corp., Sr. Notes, Series B
11.5% 11/1/2004 3,100,000
3,800,000 Belden & Blake Corp., Sr. Subordinated Notes
9.875% 6/15/2007 3,021,000
2,000,000 Coho Energy, Inc., Sr. Subordinated Notes
8.875% 10/15/2007 1,872,500
3,000,000 Conproca S.A. de C.V., Sr. Secured Bonds
12.0% 6/16/2010 2,587,500
1,200,000 Cross Timbers Oil Company, Sr. Subordinated Notes, Series B
8.75% 11/1/2009 1,062,000
1,950,000 Dailey International Inc., Sr. B Notes
9.5% 2/15/2008 887,250
4,000,000 Gulf Canada Resources Ltd., Sr. Subordinated Debentures
9.625% 7/1/2005 4,100,000
6,000,000 National Energy Group, Inc., Sr. Notes, Series C
10.75% 11/1/2006 2,430,000
3,500,000 Northern Offshore ASA, Sr. Notes
10.0% 5/15/2005 2,292,500
2,400,000 Pride International, Inc., Convertible
Subordinated Debentures
Zero Coupon 4/24/2018 618,000
3,400,000 Pride Petroleum Services, Inc., Sr. Notes
9.375% 5/1/2007 3,111,000
3,000,000 RAM Energy, Inc., Sr. Notes
11.5% 2/15/2008 2,475,000
2,800,000 Snyder Oil Corp., Sr. Subordinated Notes
8.75% 6/15/2007 2,702,000
500,000 Trico Marine Services, Inc., Sr. Notes
8.5% 8/1/2005 417,500
2,350,000 Trico Marine Services, Inc., Sr. Unsecured F Notes
8.5% 8/1/2005 1,962,250
- --------------
32,638,500
- --------------
Paper & Forest Products - 1.7%
2,400,000 APP Finance (II) Mauritius Ltd., Guaranteed Preferred
Securities, Series B
12.0% 2/15/2004 1,374,000
2,000,000 FSW International Finance Co. B.V., Guaranteed Secured Notes
12.5% 11/1/2006 395,000(c) 1,200,000 Indah Kiat
Finance Mauritius, Guaranteed Sr. Notes 10.0%
7/1/2007 648,000
5,200,000 Malette, Inc., Sr. Secured Notes
12.25% 7/15/2004 5,486,000
2,400,000 Pindo Deli Finance Mauritius, Sr. Notes
10.25% 10/1/2002 1,278,000
4,400,000 S.D. Warren Co. Sr. Subordinated Notes
12.0% 12/15/2004 4,774,000
- --------------
13,955,000
- --------------
Pollution Control - 0.4%
3,000,000 Norcal Waste Systems, Inc., Sr. Notes, Series B
13.25% 11/15/2005 3,285,000
- --------------
Publishing & Printing - 1.5%
3,000,000 K-III Communications Corp., Sr. Notes
10.25% 6/1/2004 3,187,500
5,500,000 MDC Communications Corp., Sr. Subordinated Notes
10.5% 12/1/2006 5,445,000
4,150,000 Sullivan Graphics, Inc., Sr. Subordinated Notes
12.75% 8/1/2005 4,087,750
- --------------
12,720,250
- --------------
Retail - 1.3%
2,000,000 County Seat Stores, Inc., Units
12.75% 11/1/2004 1,610,000
2,250,000 F & M Distributors, Inc., Sr. Subordinated Notes
11.5% 4/15/2003 28,125(c)
3,600,000 Hollywood Entertainment Corp., Sr. Subordinated Notes,
Series B 10.625% 8/15/2004 3,402,000
4,000,000 Lifestyle Furnishings International Ltd., Sr. Subordinated
Notes 10.875% 8/1/2006 4,270,000
2,000,000 TravelCenters of America, Inc., Sr. Subordinated Notes
10.25% 4/1/2007 1,955,000
- --------------
11,265,125
- --------------
Retail - Food - 2.1%
3,100,000 Carr Gottstein Foods, Sr. Subordinated Notes
12.0% 11/15/2005 3,545,625
3,400,000 Fleming Companies, Inc., Sr. Subordinated Notes, Series B
10.625% 7/31/2007 3,128,000
5,500,000 Jitney-Jungle Stores of America, Sr. Notes
12.0% 3/1/2006 5,967,500
5,000,000 Smith's Food & Drug Centers, Pass Through Certificates
8.64% 7/2/2012 5,225,000
- --------------
17,866,125
- --------------
Services - 0.8%
1,250,000 Interim Services Inc., Convertible Subordinated Notes
4.5% 6/1/2005 1,067,188
5,900,000 KinderCare Learning Centers, Inc., Sr. Subordinated Notes
9.5% 2/15/2009 5,708,250
- --------------
6,775,438
- --------------
Telecommunications - 18.9%
7,200,000 Allegiance Telecom, Inc., Sr. Discount Notes, Series B
Zero Coupon 2/15/2008 2,988,000
3,500,000 American Mobile Satellite Corp., Sr. Notes, Series B
12.25% 4/1/2008 1,627,500
2,000,000 Birch Telecom, Inc., Units
14.0% 6/15/2008 1,750,000
2,200,000 Call-Net Enterprises, Inc., Sr. Discount Notes
Zero Coupon 12/1/2004 2,057,000
3,100,000 CenCall Communications Corp., Sr. Redeemable Discount Notes
Zero Coupon 1/15/2004 2,914,000
4,000,000 Clearnet Communications, Inc., Sr. Discount Notes
Zero Coupon 12/15/2005 3,200,000
3,600,000 Comcast Cellular Holdings, Inc., Sr. Notes
9.5% 5/1/2007 3,726,000
4,000,000 Dobson Wireline Company, Sr. Notes
12.25% 6/15/2008 3,630,000
2,500,000 Dolphin Telecom plc, Sr. Discount Notes
Zero Coupon 6/1/2008 806,250
3,200,000 Esprit Telecom Group, plc, Sr. Notes
11.5% 12/15/2007 2,880,000
2,650,000 Exodus Communications, Inc., Sr. Notes
11.25% 7/1/2008 2,378,375
3,200,000 E.Spire Communications, Sr. Notes
13.75% 7/15/2007 3,248,000
3,800,000 GST Equipment Funding, Inc., Sr. Secured Notes
13.25% 5/1/2007 3,762,000
4,000,000 GST Telecommunications Inc., Sr. Discount Notes
Zero Coupon 5/1/2008 1,740,000
1,060,000 GST Telecommunications, Inc., Sr. Subordinated Notes
Zero Coupon 12/15/2005 795,000
2,750,000 Hermes Europe Railtel B.V., Sr. Notes
11.5% 8/15/2007 2,860,000
2,000,000 HighwayMaster Communications, Inc., Sr. Notes
13.75% 9/15/2005 610,000
1,200,000 Hyperion Telecommunications, Inc., Sr. Secured Notes
12.25% 9/1/2004 1,182,000
3,400,000 Hyperion Telecommunications, Sr. Discount Notes, Series B
Zero Coupon 4/15/2003 2,312,000
2,800,000 ICO Global Communications, Units
15.0% 8/1/2005 1,750,000
2,300,000 IDT Corp., Sr. Notes
8.75% 2/15/2006 1,943,500
3,500,000 IntelCom Group (U.S.A.), Inc., Sr. Discount Notes
Zero Coupon 5/1/2006 2,362,500
3,100,000 Intermedia Communications Inc., Sr. Notes, Series B
8.5% 1/15/2008 2,945,000
1,200,000 Intermedia Communications, Inc., Sr. Notes
8.6% 6/1/2008 1,143,000
2,800,000 Ionica plc, Sr. Notes
13.5% 8/15/2006 994,000
800,000 Iridium LLC, Sr. C Notes
11.25% 7/15/2005 612,000
2,800,000 Iridium LLC/Capital Corp., Sr. Notes, Series A
13.0% 7/15/2005 2,324,000
3,150,000 Iridium LLC/Capital Corp., Sr. Notes, Series B
14.0% 7/15/2005 2,693,250
2,800,000 Level 3 Communications, Inc., Sr. Notes
9.125% 5/1/2008 2,646,000
7,200,000 McCaw International Ltd., Sr. Discount Notes
Zero Coupon 4/15/2007 3,204,000
2,000,000 MetroNet Communications Corp.,Sr. Discount Notes
Zero Coupon 6/15/2008 1,105,000
4,500,000 MGC Communications, Inc., Sr. Notes, Series B
13.0% 10/1/2004 3,172,500
5,200,000 Microcell Telecommunications, Inc., Sr. Discount Notes
Zero Coupon 6/1/2006 3,354,000
8,500,000 Millicom International Cellular, Sr. Discount Notes
Zero Coupon 6/1/2006 5,142,500
4,000,000 MJD Communications Inc., Notes
FLT 5/1/2008 3,820,000
4,000,000 Mobile Telecommunications Technology, Sr. Notes
13.5% 2/15/2002 4,370,000
3,000,000 Netia Holdings B.V., Sr. Discount B Notes
Zero Coupon 11/1/2007 1,537,500
1,550,000 Nextel Communications, Inc., Sr. Discount Notes
9.95% 2/15/2008 844,750
3,100,000 Nextel Communications, Inc., Sr. Discount Notes
Zero Coupon 9/15/2007 1,829,000
2,000,000 Nextel Communications, Inc., Sr. Discount Notes
Zero Coupon 10/31/2007 1,120,000
3,200,000 NEXTLINK Communications LLC, Sr. Discount Notes
12.5% 4/15/2006 3,376,000
1,600,000 NEXTLINK Communications, Inc., Sr. Notes
9.625% 10/1/2007 1,488,000
1,600,000 Northeast Optic Network Inc., Sr. Notes
12.75% 8/15/2008 1,416,000
4,400,000 Onepoint Communications Corp., Units
14.5% 6/1/2008 2,002,000
11,000,000 Orion Network Systems, Inc., Sr. Notes
11.25% 1/15/2007 9,955,000
4,800,000 PageMart Nationwide, Inc., Sr. Discount Exchange Notes
Zero Coupon 2/1/2005 4,152,000
2,800,000 Pagemart Wireless, Inc., Sr. Discount Notes
Zero Coupon 2/1/2008 1,470,000
2,800,000 Pathnet, Inc., Sr. Notes
12.25% 4/15/2008 2,044,000
2,800,000 Phonetel Technologies, Inc., Sr. Notes
12.0% 12/15/2006 630,000
3,000,000 Poland Telecom Finance BV, Sr. B Notes
14.0% 12/1/2007 2,865,000
1,200,000 Price Communication Cellular, Sr. Notes (Payment-In-Kind)
11.25% 8/15/2008 1,038,000
1,950,000 Price Communications Wireless, Sr Subordinated Notes
11.75% 7/15/2007 1,979,250
3,600,000 Primus Telecommunications Group, Inc., Sr. Notes
11.75% 8/1/2004 3,348,000
4,445,000 RSL Communications Ltd., Units
12.25% 11/15/2006 4,522,788
2,800,000 Splitrock Services Inc., Units
11.75% 7/15/2008 2,534,000
2,000,000 Startec Global Communications, Units
12.0% 5/15/2008 1,430,000
1,600,000 Telegroup, Inc., Sr. Discount Notes
Zero Coupon 11/1/2004 968,000
4,000,000 Teletrac, Inc. Sr. B Notes
14.0% 8/1/2007 2,380,000
3,200,000 Teligent, Inc., Sr. Discount Notes, Series B
Zero Coupon 3/1/2008 1,424,000
3,200,000 Teligent, Inc., Sr. Notes
11.5% 12/1/2007 2,672,000
6,000,000 UNIFI Communications, Inc., Sr. Notes
14.0% 3/1/2004 570,000
3,100,000 USA Mobile Communications, Inc., Sr. Notes
14.0% 11/1/2004 3,193,000
4,000,000 USN Communications, Inc., Sr. Discount Notes, Series B
Zero Coupon 8/15/2004 1,620,000
3,000,000 VIALOG Corp., Sr. Notes
12.75% 11/15/2001 2,415,000
2,800,000 Wam!Net, Inc., Sr. Discount Notes, Series B
Zero Coupon 3/1/2005 1,330,000
1,700,000 WinStar Communications, Inc., Sr. Discount Notes
Zero Coupon 10/15/2005 1,198,500
2,000,000 WinStar Communications, Inc., Unsecured Sr. Notes
Zero Coupon 10/15/2005 2,130,000
- --------------
157,529,163
- --------------
Textiles & Apparel - 2.3%
2,500,000 Brazos Sportswear, Inc., Sr. Notes
10.5% 7/1/2007 962,500
3,950,000 CMI Industries, Inc., Sr. Subordinated Notes
9.5% 10/1/2003 3,821,625
5,890,000 Dan River, Inc., Sr. Subordinated Notes
10.125% 12/15/2003 5,993,075
2,800,000 Dyersburg Corp., Sr. Subordinated Notes
9.75% 9/1/2007 2,030,000
2,750,000 Galey & Lord, Inc., Sr. Subordinated Notes
9.125% 3/1/2008 2,461,250
1,200,000 Norton McNaughton, Inc., Sr. Notes
12.5% 6/1/2005 1,056,000
3,000,000 WestPoint Stevens, Inc., Sr. Notes
7.875% 6/15/2008 3,060,000
- --------------
19,384,450
- --------------
Transportation - 1.9%
4,700,000 Allied Holdings, Inc., Sr. Notes, Series B
8.625% 10/1/2007 4,641,250
2,800,000 Cenargo International plc, First Mortgage
9.75% 6/15/2008 2,443,000
3,600,000 Equimar Shipholdings Ltd., First Priority Mtg
9.875% 7/1/2007 2,790,000
2,800,000 PanOceanic Bulk Carriers, Ltd., 1st Preferred
Ship Mortgage Notes
12.0% 12/15/2007 1,778,000
2,000,000 Transportacion Maritima Mexica, Notes
8.5% 10/15/2000 1,665,000
4,000,000 Windsor Petroleum, Notes
7.84% 1/15/2021 2,870,000
- --------------
16,187,250
- --------------
Total Corporate Bonds (cost $788,771,634)
686,875,704
- --------------
FOREIGN GOVERNMENT BONDS - 0.2% (a,e)
2,000,000 Korea (Republic of), Notes (cost $1,985,382)
8.75% 4/15/2003 1,896,112
- --------------
Shares
- -------------
PREFERRED STOCKS - 9.2% (a)
Convertible - 2.1%
24,000 AES Trust II, Convertible Preferred Stock
1,074,000
40,000 CalEnergy Capital Trust III, Convertible Preferred Stock
1,670,000
46,000 Chesapeake Energy Corp., Convertible Preferred Stock
862,500
40,000 Echostar Communications Corp., Convertible Preferred Stock,
Series C 2,420,000
53,000 Granite Broadcasting Corp., Convertible Preferred Stock
1,537,000
60,000 Host Marriott Financial Trust, Convertible Preferred Stock
2,550,000
30,000 Intermedia Communication, Convertible Preferred Stock
615,000
40,000 Owens - Illinois, Inc., Convertible Preferred Stock
1,605,000
29,500 Sinclair Broadcast Group, Inc., Convertible Preferred Stock
1,172,625
33,500 TIMET Capital Trust I, Convertible Preferred Stock
829,125
58,500 Treev, Inc., Convertible Preferred Stock, Series A
453,375
40,000 TWR Automotive Capital Trust, Convertible Preferred Stock
1,775,000
60,000 USX Corp. (Marathon Group), Convertible Preferred Stock
937,500
- --------------
17,501,125
- --------------
Non-Convertible - 7.1%
16,000 Century Maintenance Supply, Inc., Payment-In-Kind, Preferred
Stock 1,588,000
65,000 Chevy Chase Capital Corp., Noncumulative Exchangeable
Preferred Stock, Series A 3,266,250
20,000 Cluett American Corp., Preferred Stock
1,760,000
42,066 Communications & Power Industries, Inc., Preferred Stock,
Series B 4,579,936
45,420 CSC Holdings, Inc., Payment-In-Kind, Preferred Stock
5,007,555
20,568 CSC Holdings, Inc., Preferred Stock
2,211,060
827 Cumulus Media Inc., Preferred Stock, Series A
855,945
1,574 Echostar Communications Corp., Payment-in-Kind, Series B
Preferred 1,479,560
276,736 Harvard Industries, Inc., Exchangeable Payment-In-Kind
Preferred Stock 34,592
1,000 Hyperion Telecommunications, Inc., Payment-In-Kind Preferred
Stock, Series B 600,000
4,887 ICG Holdings, Inc., Preferred Stock
4,581,563
2,291 Intermedia Communications, Inc., Preferred Stock
2,359,730
2,327 IXC Communications, Inc., Preferred Stock
2,373,540
1,200 J Crew Group, Preferred Stock
864,000
40,551 Nebco Evans Holdings Co., Payment-In-Kind, Preferred Stock
2,037,688
3,119 Nextel Communications, Inc., Payment-In-Kind Preferred Stock
2,541,985
65,486 NEXTLINK Communications, Inc., Payment-In-Kind Preferred
Stock 3,323,415
4,281 Paxson Communications Corp., Payment-In-Kind Preferred Stock
3,938,520
160,000 Petroleum Heat & Power, Inc. Preferred Stock
3,400,000
27,500 Primedia, Inc., Exchangeable Preferred Stock
2,481,875
17,000 Primedia, Inc., Preferred Stock
1,576,750
36,500 Primedia, Inc., Preferred Stock, Series D
3,595,250
122,500 River Bank Asset, Inc., Preferred Stock, Series A
2,159,063
15,822 SFX Broadcasting, Inc., Payment-In-Kind Preferred Stock
1,878,863
800 WinStar Communications, Inc., Payment-In-Kind Preferred
Stock 544,000
- --------------
59,039,140
- --------------
Total Preferred Stocks (cost $93,430,942)
76,540,265
- --------------
COMMON STOCKS & STOCK WARRANTS - 2.0% (a,b)
7,200 Allegiance Telecom, Inc., Common Stock
7,200
3,500 American Mobile Satellite Corp., Stock Warrants
16,923
2,400 American Telecasting, Inc., Stock Warrants
1,200
26,000 American Telecasting, Inc., Stock Warrants
13,000
125,000 Arch Communications Group, Common Stock
195,313
2,400 Australis Holdings Pty Ltd., Stock Warrants
0(d)
10,920 Australis Media Ltd., Stock Warrants
0(d)
23,925 Clearnet Communications, Inc., Stock Warrants
71,775
1,890 Communications & Power Industries, Inc., Common Stock
284,445
13,009 Consolidated Hydro, Inc., Stock Warrants, Class B
1,626(d)
8,444 Consolidated Hydro, Inc., Stock Warrants, Class C
2,111(d)
2,233 CS Wireless Systems, Inc., Common Stock
2(d)
2,000 Discovery Zone, Inc., Stock Warrants
20(d)
11,700 E.Spire Communications, Stock Warrants
975,451
112,013 Gaylord Container Corp., Class A Common Stock
336,039
154,623 Gaylord Container Corp., Stock Warrants
483,197
2,000 HighwayMaster Communications, Inc., Stock Warrants
2,250
9,200 Hyperion Telecommunications, Stock Warrants
492,163
60,000 IntelCom Group Communications, Inc., Common Stock
1,241,250
50,335 IntelCom Group (U.S.A.), Inc., Stock Warrants
750,968
4,100 Intermedia Communications of Florida, Stock Warrants
225,090
1,653 Intermedia Communications, Inc., Common Stock
30,581
10,200 Ionica plc, Stock Warrants
102
2,000 Iridium World Communications, Stock Warrants
320,000
35,000 Magellan Health Services, Common Stock
317,188
7,100 McCaw International Ltd., Stock Warrants
10,650
80,000 MCI Worldcom, Inc., Common Stock
4,420,000
3,150 MGC Communications, Inc., Stock Warrants
137,750
27,200 Microcell Telecommunications, Inc., Stock Warrants
302,736
1,500 NEXTEL Communications, Stock Warrants
0
3,086 NEXTEL Communications, Stock Warrants
0
26,250 PageMart Nationwide, Inc., Common Stock
144,375
112,000 Pagemart Wireless, Inc., Class A Common Stock
616,000
2,800 Pathnet, Inc., Stock Warrants
28,000
3,000 Poland Telecom Finance BV, Stock Warrants
168,000
80,000 Powertel, Inc., Common Stock
1,190,000
3,200 Primus Telecommunications Group, Inc., Stock Warrants
16,000
19,360 Protection One Alarm Monitoring, Stock Warrants
193,600
6,000 RSL Communications Ltd., Stock Warrants
432,000
6,000 SF Holdings Group, Inc., Common Stock
12,000
4,000 Teletrac Holdings, Inc., Stock Warrants
2,000
12,479 Treev Inc., Common Stock
6,629
4,600 UIH Australia/Pacific, Inc., Stock Warrants
13,800
6,000 UNIFI Communications, Inc., Stock Warrants
1,650(d)
87,000 United International Holdings, Inc., Class A Common Stock
1,131,000
20,100 United International Holdings, Inc., Stock Warrants
60,300
44,000 USN Communications, Inc., Stock Warrants
27,720
1,600 Vialog Corp., Stock Warrants
20,800
95,000 Viatel, Inc., Common Stock
1,270,625
8,400 Wam!Net, Inc., Stock Warrants
67,200
26,181 Wherehouse Entertainment, Inc., Class A Stock Warrants
235,629
4,545 Wherehouse Entertainment, Inc., Class B Stock Warrants
18,180
4,545 Wherehouse Entertainment, Inc., Class C Stock Warrants
9,090
13,800 Wireless One, Inc., Stock Warrants
138
- --------------
Total Common Stocks & Stock Warrants (cost $16,925,624)
16,303,766
- --------------
Principal
Amount
------------
SHORT-TERM SECURITIES - 6.4% (a)
Commercial Paper
$ 5,000,000 American General Finance Corp.
5.22% 11/5/1998 $ 4,997,100
1,864,000 Associates Financial Servies Corp. Puerto Rico
5.1% 11/3/1998 1,863,472
5,000,000 Commercial Credit Corp.
5.25% 11/2/1998 4,999,271
5,000,000 Household Finance Corp.
5.1% 11/2/1998 4,999,292
5,000,000 Preferred Receivable Funding
5.18% 11/4/1998 4,997,842
31,450,000 Wal-Mart Stores Inc.
5.5% 11/2/1998 31,445,195
- --------------
Total Short-Term Securities (at amortized cost)
53,302,172
- --------------
Total Investments (cost $954,415,754)
$834,918,019(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, 1998, 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, 1998:
Aquisition
Security
Date Cost
- --------------------------------------------------------------------------
- ------------ ------------
<S>
<C> <C>
Australis Holdings Pty Ltd., Stock Warrants
3/27/1997 $ 0
Australis Media Ltd., Stock Warrants
1/2/1997 0
Consolidated Hydro, Inc., Stock Warrants, Class B
11/18/1997 2,440,822
Consolidated Hydro, Inc., Stock Warrants, Class C
11/18/1997 0
CS Wireless Systems, Inc., Common Stock
12/11/1996 15,070
Discovery Zone, Inc., Stock Warrants
3/12/1998 222,660
UNIFI Communications, Inc., Stock Warrants
8/13/1997 123,449
(e) Denominated in U.S. dollars.
(f) At October 31, 1998, the aggregate cost of securities for federal tax
purposes was $955,171,115 and the net unrealized depreciation
of investments based on that cost was $120,253,096 which is comprised
of $17,542,949 aggregate gross unrealized appreciation and $137,796,045
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, 1998
Principal
Maturity
Amount
Rate Date Value
------------
- -------- ----------- -----------
<S> <C>
<C> <C> <C>
CORPORATE BONDS - 51.2% (a)
Aerospace - 0.3%
$2,000,000 Raytheon Co., Notes
6.75% 8/15/2007 $2,123,698
- ------------
Automotive - 0.9%
2,000,000 Ford Motor Co., Notes
6.125% 4/2/82003 2,038,008
5,000,000 Ford Motor Credit Co., Notes
6.375% 10/6/2000 5,100,900
- ------------
7,138,908
- ------------
Bank & Finance - 13.7%
7,000,000 Associates Corp. of North America, Sr. Notes
9.125% 4/1/2000 7,342,377
3,500,000 Banc One Corp., Subordinated Debentures
8.0% 4/29/2027 3,976,651
3,000,000 Chase Manhattan Corp., Subordinated Notes
10.375% 3/15/1999 3,052,311
3,500,000 Chase Manhattan Corp., Subordinated Notes
9.375% 7/1/2001 3,851,586
7,000,000 Chemical New York Corp., Debentures
9.75% 6/15/1999 7,175,203
3,000,000 Chubb Corp., Debentures
6.6% 8/15/2018 3,045,549
4,000,000 Chubb Corp., Notes
6.15% 8/15/2005 4,144,040
13,000,000 Equitable Life Assurance Society of the United States,
Surplus Notes
6.95% 12/1/2005 13,845,780
2,500,000 First Union Corp., Subordinated Notes
6.875% 9/15/2005 2,668,380
11,000,000 General Electric Capital Corp., Debentures
8.85% 4/1/2005 13,104,806
1,500,000 GS Escrow Corp., Sr. Notes
6.75% 8/1/2001 1,469,127
4,000,000 Mellon Capital II, Capital Securities
7.995% 1/15/2027 4,294,448
7,000,000 Metropolitan Life Insurance Co., Surplus Notes
7.7% 11/1/2015 7,270,053
9,000,000 New York Life Insurance Co., Surplus Notes
6.4% 12/15/2003 9,381,438
7,000,000 Prudential Insurance Co. of America, Capital Notes
6.875% 4/15/2003 7,271,558
3,000,000 Prudential Insurance Co., Surplus Notes
8.3% 7/1/2025 3,311,790
5,000,000 Societe Generale Real Estate Investment Trust,
LIBOR Bonds, Series A
7.64% 12/29/2049 4,248,835
4,500,000 Wells Fargo Capital, Capital Trust Preferred Securities
7.73% 12/1/2026 4,757,189
- ------------
104,211,121
- ------------
Broadcasting - 2.5%
1,000,000 Chancellor Media Corp., Sr. Subordinated Notes
8.125% 12/15/2007 945,000
200,000 Clear Channel Communications, Convertible Sr. Notes
2.625% 4/1/2003 191,750
2,000,000 Clear Channel Communications, Sr. Notes
6.625% 6/15/2008 1,948,776
2,600,000 CSC Holdings, Inc., Sr. Notes
7.25% 7/15/2008 2,551,250
4,000,000 Rogers Cablesystems, Inc., Sr. Secured Second Priority Notes
9.625% 8/1/2002 4,290,000
5,000,000 TCI Communications, Inc., Sr. Notes
10.125% 8/1/2001 5,608,735
3,000,000 Westinghouse Electric Corp., Notes
8.875% 6/1/2001 3,183,375
- ------------
18,718,886
- ------------
Computers & Office Equipment - 0.04%
600,000 Xerox Corp., Convertible Subordinated Notes
0.57% 4/21/2018 342,000
- ------------
Conglomerates - 0.6%
4,500,000 Dover Corp., Debentures
6.65% 6/1/2028 4,628,705
- ------------
Construction & Home Building - 0.3%
2,000,000 American Standard Co., Inc., Notes
7.375% 4/15/2005 2,004,248
- ------------
Containers & Packaging - 0.4%
3,000,000 Owens-Illinois, Inc., Sr. Notes
7.85% 5/15/2004 3,124,143
- ------------
Drugs & Health Care - 2.4%
4,000,000 Allegiance Corp., Debentures
7.8% 10/15/2016 4,475,856
600,000 Athena Neurosciences, Inc., Convertible Bonds
4.75% 11/15/2004 729,000
400,000 Athena Neurosciences, Inc., Convertible Notes
4.75% 11/15/2004 486,000
4,000,000 Becton, Dickinson, & Co., Debentures
6.7% 8/1/2028 4,149,024
4,000,000 Bristol Myers Squibb Co., Debentures
7.15% 6/15/2023 4,479,844
3,000,000 Merck & Co., Inc., Debentures
6.3% 1/1/2026 3,078,816
1,250,000 Roche Holdings, Inc., Convertible Notes
Zero Coupon 4/20/2010 786,719
400,000 Swiss Life Finance, Ltd., Convertible Notes (Glaxo Wellcome)
2.0% 5/20/2003 440,000
- ------------
18,625,259
- ------------
Electric Utilities - 7.4%
1,500,000 AES Corp., Sr. Subordinated Notes
10.25% 7/15/2006 1,537,500
2,000,000 Calpine Corp., Sr. Notes
7.875% 4/1/2008 1,970,000
5,832,000 Cleveland Electric Illumination Co., First Mortgage Bonds
7.625% 8/1/2002 6,100,698
4,000,000 CMS Energy Corp., Sr. Unsecured Notes
8.125% 5/15/2002 4,128,424
6,500,000 Commonwealth Edison Co., Notes
7.625% 1/15/2007 7,112,320
4,000,000 Connecticut Light & Power Co., First Refunding
Mortgage Bonds, Series 97C
7.75% 6/1/2002 4,189,172
4,000,000 Consolidated Edison Co. NY, Inc., Debentures
6.45% 12/1/2007 4,283,012
1,500,000 El Paso Electric Co., First Mortgage Bonds, Series D
8.9% 2/1/2006 1,642,500
7,000,000 Empresa Electrica Pehuienche S.A., Notes
7.3% 5/1/2003 6,409,207
2,000,000 Korea Electric Power Corp., Debentures
6.75% 8/1/2027 1,554,564
5,000,000 Niagara Mohawk Power Corp., Sr. C Notes
7.125% 7/1/2001 5,091,605
4,000,000 NRG Energy, Inc., Sr. Notes
7.5% 6/15/2007 4,118,036
7,000,000 Texas Utilities Electric Company, Debentures
7.17% 8/1/2007 7,535,976
- ------------
55,673,014
- ------------
Electronics - 0.7%
5,000,000 Sony Corp., Notes
6.125% 3/4/2003 5,107,165
- ------------
Food & Beverage - 1.1%
4,500,000 Archer Daniels Midland Co., Bonds
6.75% 12/15/2027 4,647,839
4,000,000 ConAgra, Inc., Sr. Notes
5.5% 10/15/2002 3,976,372
- ------------
8,624,211
- ------------
Hospital Management - 0.4%
3,000,000 Tenet Healthcare Corp., Sr. Notes
7.875% 1/15/2003 3,043,653
- ------------
Household Products - 2.0%
2,500,000 Playtex Products Inc., Unsecured Sr. Notes
8.875% 7/15/2004 2,568,750
10,000,000 Procter & Gamble, Guaranteed ESOP Debentures
9.36% 1/1/2021 12,996,570
- ------------
15,565,320
- ------------
Leisure & Entertainment - 0.9%
5,500,000 Time Warner, Inc., Debentures
9.125% 1/15/2013 6,682,500
- ------------
Media - 0.1%
1,000,000 Chancellor Media Corp., Sr. Subordinated Notes
9.0% 10/1/2008 1,010,000
- ------------
Natural Gas - 1.1%
8,000,000 Columbia Gas Systems, Inc., Series A Notes
6.39% 11/28/2000 8,194,296
- ------------
Oil Service - 0.1%
350,000 Diamond Offshore Drilling, Inc., Convertible Subordinated
Notes 3.75% 2/15/2007 351,313
500,000 Swiss Life Finance Ltd., Convertible Bonds
(Royal Dutch Petroleum Co.)
2.0% 5/20/2005 496,250
- ------------
847,563
- ------------
Oil & Gas - 2.6%
4,500,000 Gulf Canada Resources Ltd., Sr. Subordinated Debentures
9.625% 7/1/2005 4,612,500
3,140,917 Mobil Oil Corp., ESOP Sinking Fund Debentures
9.17% 2/29/2000 3,235,433
2,000,000 Newfield Exploration Co., Sr. Notes, Series B
7.45% 10/15/2007 1,981,776
2,000,000 Ocean Energy, Inc., Sr. Subordinated Notes
8.375% 7/1/2008 1,910,000
3,000,000 Oryx Energy Co., Notes
8.375% 7/15/2004 3,246,060
5,000,000 Triton Energy Ltd., Sr. Notes
8.75% 4/15/2002 4,450,000
- ------------
19,435,769
- ------------
Paper & Forest Products - 0.3%
2,500,000 Willamette Industries, Inc.
6.45% 2/1/2005 2,549,985
- ------------
Publishing & Printing - 0.1%
1,000,000 PRIMEDIA Inc., Sr. Notes
7.625% 4/1/2008 980,000
- ------------
Railroads - 0.4%
3,000,000 Norfolk Southern Corp., Notes
6.95% 5/1/2002 3,151,764
- ------------
Retail - 4.7%
550,000 Costco Companies, Inc., Convertible Subordinated Notes
Zero Coupon 8/19/2017 388,438
600,000 Costco Companies, Inc., Subordinated Notes
Zero Coupon 8/19/2007 423,750
9,000,000 Dayton Hudson Corp., Notes
6.4% 2/15/2003 9,280,323
4,000,000 Dillards, Inc., Notes
6.43% 8/1/2004 4,036,996
4,000,000 Federated Department Stores, Sr. Notes
8.5% 6/15/2003 4,395,444
200,000 Home Depot, Inc., Convertible Subordinated Notes
3.25% 10/1/2001 375,250
1,500,000 Nordstrom, Inc.
6.95% 3/15/2028 1,538,216
4,000,000 Penney (J.C.) Co., Inc., Notes
6.95% 4/1/2000 4,078,208
1,000,000 Rite Aid Corp., Capital Notes
5.25% 9/15/2002 1,267,500
10,000,000 Sears Roebuck Acceptance Corp., Medium Term Notes, Series II
6.86% 7/3/2001 10,411,140
- ------------
36,195,265
- ------------
Retail - Food - 0.8%
2,500,000 Fred Meyer, Inc., Notes
7.375% 3/1/2005 2,637,603
3,000,000 Kroger Co. (The), Sr. Notes
8.15% 7/15/2006 3,353,151
- ------------
5,990,754
- ------------
Services - 2.0%
3,000,000 ARAMARK Services, Inc., Notes
7.0% 7/15/2006 3,054,306
500,000 Credit Suisse First Boston - NY, Convertible Medium Term Notes
(General Electric)
2.25% 5/5/2003 520,625
800,000 CUC International Inc., Convertible Subordinated Notes
3.0% 2/15/2002 657,000
4,500,000 LCI International, Inc., Sr. Notes
7.25% 6/15/2007 4,585,712
1,000,000 Waste Management, Inc., Convertible Subordinated Notes
4.0% 2/1/2002 1,162,500
5,000,000 Waste Management, Inc., Notes
6.625% 7/15/2002 5,182,975
- ------------
15,163,118
- ------------
Telecommunications - 2.4%
1,000,000 Bell Atlantic Financial Services Corp., Sr. Exchange Notes
5.75% 4/1/2003 1,028,125
7,000,000 Bell South Telecommunications, Bonds
6.375% 6/1/2028 7,166,719
3,000,000 Cable & Wireless Communications Corp., Notes
6.625% 3/6/2005 3,078,750
2,500,000 Qwest Communications International, Inc., Sr. Notes
7.5% 11/1/2008 2,514,000
4,000,000 WorldCom Inc., Sr. Notes
7.75% 4/1/2007 4,504,084
- ------------
18,291,678
- ------------
Telephone - 1.5%
2,500,000 GTE Corp., Debentures
6.36% 4/15/2006 2,625,210
4,500,000 U.S. West Capital Funding, Inc., Notes
6.25% 7/15/2005 4,718,538
4,000,000 WorldCom, Inc., Sr. Notes
6.4% 8/15/2005 4,163,440
- ------------
11,507,188
- ------------
Textiles & Apparel - 0.9%
7,000,000 Levi Strauss & Co., Notes
6.8% 11/1/2003 7,050,078
- ------------
Transportation - 0.6%
4,000,000 Federal Express Corp., Series 1998-1-A, Class B
6.72% 1/15/2022 4,244,580
- ------------
Total Corporate Bonds (cost $380,752,401)
390,224,869
- ------------
FOREIGN GOVERNMENT BONDS - 3.1% (a,b)
1,500,000 British Columbia, Notes
5.375% 10/29/2008 1,487,985
3,500,000 Korea Development Bank, Bonds
7.375% 9/17/2004 2,834,787
5,000,000 Korea Development Bank, Unsecured Bonds
6.625% 11/21/2003 4,047,620
3,000,000 Korea (Republic of), Bonds
8.875% 4/15/2008 2,733,597
5,500,000 Ontario (Province of) Canada, Sr. Bonds
7.375% 1/27/2003 6,046,590
5,000,000 Ontario (Province of) Canada, Sr. Notes
5.5% 10/1/2008 5,036,845
2,000,000 Philippines (Republic of), Bonds
8.875% 4/15/2008 1,815,000
- ------------
Total Foreign Government Bonds (cost $23,794,615)
24,002,424
- ------------
ASSET-BACKED SECURITIES - 8.0% (a)
8,000,000 AESOP Funding II L.L.C., Rental Car Notes,
Series 1997-1, Class A-2
6.4% 10/20/2003 8,262,686
2,095,374 Chase Manhattan Grantor Trust, Series 1996-B-A
6.61% 9/15/2002 2,127,234
5,000,000 CS First Boston Mortgage Security Corp., 1996-2 Class A4
6.62% 9/25/2009 5,079,825
5,000,000 CS First Boston Mortgage Security Corp., Series 1997-1-A3
6.91% 5/25/2007 5,033,025
10,000,000 Discover Card Master Trust I, Series 1996-3-A
6.05% 8/18/2008 10,311,143
13,000,000 Standard Credit Master Trust 1, Credit Card Participation
Certificates, Series 1995-9-A
6.55% 10/7/2007 13,749,909
15,000,000 World Financial Network Credit Card Master Trust, Series
1996-B 6.95% 4/15/2006 16,024,103
- ------------
Total Asset-Backed Securities (cost $57,942,007)
60,587,925
- ------------
MORTGAGE-BACKED SECURITIES - 6.6% (a)
9,266,457 Federal Home Loan Mortgage Corp., Participation Certificates
6.0% 3/1/2011 9,297,962
11,757,635 Federal Home Loan Mortgage Corp., Participation Certificates
6.0% 4/1/2011 11,797,611
7,831,408 Federal Home Loan Mortgage Corp., Participation Certificates
6.0% 7/1/2013 7,873,620
20,732,047 Government National Mortgage Association,
Modified Pass Through Certificates
6.5% 2/15/2027 21,001,356
- ------------
Total Mortgage-Backed Securities (cost $47,885,981)
49,970,549
- ------------
U.S. GOVERNMENT AGENCY - 4.2% (a)
1,000,000 Federal Home Loan Mortgage Corp., Notes
5.125% 10/15/2008 985,143
11,000,000 Federal National Mortgage Association, Notes
5.75% 2/15/2008 11,452,617
19,000,000 Federal National Mortgage Association, Notes
5.75% 4/15/2003 19,728,175
- ------------
Total U.S. Government Agency (cost $31,065,785)
32,165,935
- ------------
U.S. GOVERNMENT - 22.8% (a)
76,500,000 U.S. Treasury Bonds
7.5%-12.75% 2010-2022 101,898,955
500,000 U.S. Treasury Notes
6.125%-7.875% 2001-2006 71,598,002(c,d)
- ------------
Total U.S. Government (cost $171,964,521)
173,496,957
- ------------
Shares
- --------------
COMMON STOCKS - 0.1% (a)
5,000 CarrAmerica Realty Corp., Common Stock
112,500
5,000 Cresent Real Estate Equities, Common Stock
125,313
5,000 Federal National Mortgage Association, Common Stock
354,063
5,000 First Industrial Realty Trust, Inc., Common Stock
128,125
5,000 Simon Property Group, Inc., Common Stock
149,688
5,000 Spieker Properties, Inc., Common Stock
172,500
- ------------
Total Common Stocks (cost $1,076,949)
1,042,189
- ------------
PREFERRED STOCKS - 1.1% (a)
12,500 Conseco, Inc., Convertible Preferred Stock
536,719
7,000 CVS Corp., Convertible Preferred Stock
602,000
9,500 El Paso Energy Capital Trust I, Convertible Preferred Stock
460,750
11,000 Estee Lauder Company, Convertible Preferred Stock
701,250
8,500 Houston Industries, Inc., Convertible Preferred Stock
689,031
20,000 Lincoln National Corp., Convertible Preferred Stock
494,991
8,000 McKesson Financing Trust, Convertible Preferred Stock
852,000
15,000 MediaOne Group, Inc., Convertible Premium Income
Exchange Security
808,125
15,000 National Australia Banks, Convertible Preferred Stock
396,563
1,000 Newell Financial Trust I., Convertible Preferred Stock
53,875
27,000 Newell Financial Trust I., Convertible Preferred Stock
1,454,625
50,000 Philadelphia Consolidated Holding, Convertible Preferred
Stock 512,500
12,500 Prologis Trust, Series B, Convertible Preferred Stock
348,438
7,000 Unocal Capital Trust, Convertible Preferred Stock
360,500
- ------------
Total Preferred Stocks (cost $7,810,384)
8,271,367
- ------------
OPTIONS ON U.S. TREASURY BOND FUTURES - 0.01% (a)
U.S. Treasury Bond Futures, 100 call option contracts,
exercise price of $131, expires November 1998 (cost
$65,123) 51,563
- ------------
Principal
Maturity
Amount
Rate Date Value
------------
- -------- ----------- -----------
SHORT-TERM SECURITIES - 2.9% (a)
Commercial Paper (at amortized cost)
$ 22,300,000 Associates Corp. of North America
5.71% 11/2/1998 $ 22,296,463
- ------------
Total Investments (cost $744,654,229)
$762,110,241(e)
============
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) Denominated in U.S. dollars.
(c) At October 31, 1998, U.S. Treasury Notes valued at $939,750 were
held in escrow to cover open call options written as follows:
<CAPTION>
Number of Exercise
Expiration
Contracts Price
Date Value
---------------- --------------
- -------------- ------------
<S> <C> <C> <C>
<C>
US Treasury Bond Futures 200 $132
11/20/1998 $62,500
(d) At October 31, 1998, U.S. Treasury Notes valued at $469,875 were
pledged as initial margin deposit on the following financial
futures contracts:
<CAPTION>
Notional
Number of
Market Principal Unrealized
Type Contracts Expiration Position
Value Amount Loss
- ------- --------- ------------- --------
- ---------- ---------- -----------
<S> <C> <C> <C> <C>
<C> <C>
US Treasury Bond Futures 80 December 1998 Long
$9,625,000 $9,660,000 $ 35,000
Standard & Poor's 500 7 December 1998 Short
1,934,100 1,740,938 193,162
(e) At October 31, 1998, the aggregate cost of securities for federal
income tax purposes was $744,890,310 and the net unrealized
appreciation of investments based on that cost was $17,219,931
which is comprised of $23,267,826 aggregate gross unrealized
appreciation and $6,047,895 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, 1998
Principal
Maturity
Amount
Rate Date Value
------------
- -------- ----------- -----------
<S> <C>
<C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES - 99.1% (a)
Arizona - 1.4%
$1,700,000 Pima County, Arizona (Catalina Foothills Unified School
District #16), Unlimited Tax General Obligation Bonds,
Insured by MBIA
8.9% 7/1/2005 $2,181,406
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 1,100,710
2,500,000 Salt River Project, Arizona, Electric System, Revenue Bonds,
Series 1992-C
6.0% 1/1/2016 2,682,425
1,000,000 Sedona, Arizona Wastewater Municipal Property Corp.,
Excise Tax Revenue Bonds, Insured by MBIA
5.375% 7/1/2015 1,045,530
40,000 Tucson, Arizona General Obligation Bonds, Insured by FGIC
6.1% 7/1/2012 43,954(b)
1,460,000 Tucson, Arizona General Obligation Unlimited Bonds,
Insured by FGIC
6.1% 7/1/2012 1,585,940
- ------------
8,639,965
- ------------
Arkansas - 1.3%
1,340,000 Arkansas Development Finance Authority, Correctional Facilities
Construction Revenue Bonds, Insured by MBIA
7.125% 11/15/2010 1,460,761(b)
1,000,000 Arkansas Housing Development Agency, Single Family
Mortgage Bonds, Series A
8.375% 7/1/2010 1,273,850(b)
3,000,000 City of Jonesboro, Arkansas, Residential Housing and Health
Care
Facilities Board, Hospital Revenue Refunding and
Construction Bonds, (St. Bernards Regional Medical Center),
Series 1996-B, Insured by AMBAC
5.8% 7/1/2011 3,309,240
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 974,706
750,000 Sebastian County, Arkansas, Junior College, Unlimited General
Obligation Refunding and Improvement Bonds,
Insured by AMBAC
5.6% 4/1/2017 804,720
- ------------
7,823,277
- ------------
California - 10.2%
2,500,000 Alameda, California, Unified School District, Alameda County,
Crossover Refunding Bonds, Series A, Insured by AMBAC
6.1% 7/1/2013 2,728,200
3,450,000 Anaheim, California, Public Financing Authority,
Lease Revenue Bonds, (Anaheim Public Improvements Project),
1997 Series A, Insured by FSA
6.0% 9/1/2024 4,030,463
1,000,000 Anaheim, California, Public Financing Authority, Senior Lease
Revenue Bonds (Anaheim Public Improvement Project),
Series A, Insured by FSA
5.0% 9/1/2027 996,900
2,500,000 Bakersfield, California, Certificates of Participation
(Convention Center Expansion - Arena Project, 1997),
Insured by MBIA
5.8% 4/1/2017 2,751,750
3,000,000 California State Public Works Board, Department of Corrections,
Lease Revenue Bonds, State Prison, Series A
7.4% 9/1/2010 3,838,650
1,000,000 California State, Unlimited Tax General Obligation Bonds,
Veteran's Series AT
9.5% 2/1/2010 1,453,950
5,985,000 California State, Unlimited Tax General Obligation,
Insured by MBIA
6.0% 8/1/2016 6,737,973(b)
300,000 California State, Unlimited Tax General Obligation,
Insured by MBIA
6.0% 8/1/2016 332,487
2,000,000 California State, Various Purpose General Obligation Bonds,
Insured by AMBAC
6.3% 9/1/2010 2,373,740
1,400,000 Central Valley Financing Authority, California, Cogeneration
Project Revenue Bonds, (Carson Ice-Gen Project), Series
1993 6.0% 7/1/2009 1,506,960
3,135,000 County of Orange, California, 1996 Recovery Certificates of
Participation, Series A, Insured by MBIA
5.8% 7/1/2016 3,462,451
2,000,000 Metropolitan Water District of Southern California,
Unlimited Tax General Obligation Bonds, Series G
6.625% 3/1/2009 2,038,540(b)
4,975,000 Palmdale, California, Civic Authority Revenue Bonds
(Merged Redevelopment Project Areas), Series A
6.6% 9/1/2034 5,762,145(b)
1,000,000 Rio Linda, California, Union School District, Series 1992-A,
Insured by AMBAC
7.4% 8/1/2010 1,149,340(b)
2,815,000 Riverside County Transportation Commission, California,
Sales Tax Revenue Capital Appreciation Bonds,
Insured by MBIA
Zero Coupon 6/1/2004 2,269,650
500,000 Sacramento California Cogeneration Authority Project
Revenue Bonds
6.375% 7/1/2010 578,055(b)
500,000 Sacramento California Cogeneration Authority Project
Revenue Bonds
6.375% 7/1/2010 559,595
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 1,841,835
15,000,000 San Joaquin Hills Transportation Corridor Agency, California,
Sr. Lien Convertible Toll Revenue Bonds
Zero Coupon 1/1/2013 15,643,950(b)
1,500,000 State of California, General Obligation Bonds
7.0% 8/1/2006 1,800,255
- ------------
61,856,889
- ------------
Colorado - 5.8%
3,000,000 Colorado Housing Finance Authority, Single Family Program,
1998 Series D-2 Senior Revenue Bonds
6.35% 11/1/2029 3,279,210
1,000,000 Colorado Housing Finance Authority, Single Family Program,
Revenue Bonds
7.0% 11/1/2016 1,120,260
3,100,000 Colorado Springs, Colorado, Utilities System Refunding Bonds,
Series 1991-B
7.0% 11/15/2021 3,455,663(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 2,167,372(b)
1,195,000 Colorado Water Resources Power Development Authority,
Clean Water Revenue Bonds, Series A, Insured by FSA
6.25% 9/1/2013 1,291,723
3,350,000 Douglas County, Colorado, School District No. 1,
General Obligation Bonds
6.5% 12/15/2016 3,855,884(b)
150,000 Douglas County, Colorado, School District No. 1,
General Obligation Bonds
6.5% 12/15/2016 169,328
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 1,129,950
1,890,000 Goldsmith Metropolitan District, Colorado, Unlimited Tax
General Obligation Bonds, Insured by MBIA
Zero Coupon 6/1/2008 1,265,884
1,885,000 Goldsmith Metropolitan District, Colorado, Unlimited Tax
General Obligation Bonds, Insured by MBIA
Zero Coupon 12/1/2008 1,236,390
1,890,000 Goldsmith Metropolitan District, Colorado, Unlimited Tax
General Obligation Bonds, Insured by MBIA
Zero Coupon 6/1/2007 1,333,376
3,000,000 Larimer County, Colorado, School District No. R-1, Poudre
Valley
Unlimited Tax General Obligation Bonds, Insured by MBIA
7.0% 12/15/2016 3,843,630
635,000 Regional Transportation District, Colorado, Sales Tax
Revenue Bonds
6.25% 11/1/2012 691,915(b)
3,850,000 Regional Transportation District, Colorado, Sales
Tax Revenue Bonds
6.25% 11/1/2012 4,244,471(b)
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 3,955,450
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 2,061,200
- ------------
35,101,706
- ------------
Connecticut - 0.8%
4,000,000 Connecticut Special Tax Obligation, Transportation
Infrastructure
Revenue Bonds, Series B
6.5% 10/1/2010 4,751,440
- ------------
Florida - 2.4%
7,770,000 Broward County, Florida, Housing Finance Authority,
Home Mortgage Revenue Bonds, 1983 Series A
Zero Coupon 4/1/2014 1,641,179
3,500,000 Florida State Board of Education, Public Education Capital
Outlay,
General Obligation Bonds, Series B
5.875% 6/1/2020 3,784,830
3,200,000 Hillsborough County, Florida, Industrial Development Authority
(Weyerhaeuser Company, Inc.), Industrial Development
Revenue Bonds, Series 1983
9.25% 6/1/2008 3,228,896
1,705,000 Hillsborough County, Florida, Industrial Development Authority,
Florida (Tampa Electric Project), Pollution Control
Revenue Bonds, Series 1991
7.895% 8/1/2021 1,927,861
3,500,000 Jacksonville, Florida, Electric Authority (St. John's River
Power Project), Electric Revenue Refunding Bonds, Issue
2-13 5.375% 10/1/2016 3,669,820
- ------------
14,252,586
- ------------
Georgia - 2.9%
1,500,000 Brunswick, Georgia, Water & Sewer Revenue Refunding &
Improvement Bonds, Series A, Insured by MBIA
6.1% 10/1/2019 1,753,290
2,000,000 Brunswick, Georgia, Water & Sewer Revenue Refunding &
Improvement Bonds, Series 1992, Insured by MBIA
6.0% 10/1/2011 2,321,080
5,000,000 Cherokee County, Georgia, Water & Sewer Revenue Refunding &
Improvement Bonds, Insured by MBIA
5.5% 8/1/2018 5,409,500
2,000,000 Georgia State, Unlimited Tax General Obligation Bonds,
Series 1994-B
5.65% 3/1/2012 2,237,020
3,500,000 Georgia State, Unlimited Tax General Obligation Bonds,
Series 1994-D
5.0% 8/1/2012 3,692,395
1,000,000 Georgia State, Unlimited Tax General Obligation Bonds,
Series B 6.3% 3/1/2009 1,178,070
1,000,000 Georgia State, Unlimited Tax General Obligation Bonds,
Series B 6.3% 3/1/2010 1,184,670
- ------------
17,776,025
- ------------
Idaho - 1.3%
1,000,000 Idaho Falls, Idaho, General Obligation Electric Refunding
Bonds,
Series 1991, Insured by MBIA
Zero Coupon 4/1/2007 713,220
3,115,000 Idaho Falls, Idaho, General Obligation Electric Refunding
Bonds,
Series 1991, Insured by MBIA
Zero Coupon 4/1/2010 1,904,418
2,000,000 Idaho Falls, Idaho, General Obligation Electric Refunding
Bonds,
Series 1991, Insured by MBIA
Zero Coupon 4/1/2011 1,156,980
3,060,000 Idaho Housing & Finance Association, Single Family
Mortgage Bonds, Series 1998 F-2
5.35% 7/1/2018 3,085,367
750,000 Idaho State Building Authority, State Building Revenue Bonds,
Insured by MBIA
5.0% 9/1/2021 752,258
- ------------
7,612,243
- ------------
Illinois - 2.0%
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 1,056,910
2,500,000 Cook County, Illinois, Unlimited General Obligation Bonds,
Series A, Insured by MBIA
6.25% 11/15/2011 2,925,050
2,000,000 Illinois Health Facilities Authority Revenue Refunding Bonds,
Lutheran General Health, Insured by FSA
6.0% 4/1/2018 2,243,840
170,000 Illinois Health Facilities Authority (Community Provider Pooled
Loan Program), Revenue Bonds, Series 1988-B,
Insured by MBIA
7.9% 8/15/2003 193,656(b)
755,000 Illinois Health Facilities Authority (Community Provider Pooled
Loan Program), Revenue Bonds, Series 1988-B,
Insured by MBIA
7.9% 8/15/2003 765,434(b)
1,250,000 Illinois Housing Development Authority, Section 8 Elderly
Housing Refunding Revenue Bonds, Series 1998,
Insured by FSA
5.25% 1/1/2021 1,257,250
10,000,000 Metropolitan Pier & Expostion Authority, Illinois, McCormick
Place Expansion, Refunding Bonds, Series 1993-A,
Insured by FGIC
Zero Coupon 6/15/2018 3,745,500
- ------------
12,187,640
- ------------
Indiana - 0.6%
2,450,000 Indiana Municipal Power Agency, Power Supply System
Revenue Bonds, Series A, Insured by MBIA
5.5% 1/1/2023 2,498,069(b)
1,100,000 Indianapolis Airport Authority Refunding Revenue Bonds,
Series 1996-A, Insured by FGIC
5.6% 7/1/2015 1,170,807
- ------------
3,668,876
- ------------
Iowa - 0.4%
2,000,000 Iowa Finance Authority, Iowa State Revolving Fund
Revenue Bonds, Combined Series 1994
6.25% 5/1/2024 2,186,320
- ------------
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 9,046,960
1,255,000 Kansas City, Kansas, Utility System, Capital Appreciation
Refunding & Improvement Revenue Bonds,
Insured by AMBAC
Zero Coupon 3/1/2007 882,855(b)
920,000 Kansas City, Kansas, Utility System, Capital Appreciation
Refunding & Improvement Revenue Bonds,
Insured by AMBAC
Zero Coupon 3/1/2007 650,891
- ------------
10,580,706
- ------------
Kentucky - 0.7%
750,000 Kentucky Turnpike Authority, Economic Development Road
Revenue and Revenue Refunding Bonds, Series 1993,
Insured by AMBAC
5.5% 7/1/2009 826,260
5,345,000 Kentucky Turnpike Authority, Economic Development Road
Revenue Bonds, Insured by FGIC
Zero Coupon 1/1/2010 3,267,292
- ------------
4,093,552
- ------------
Louisiana - 1.2%
6,500,000 New Orleans, Louisiana, General Obligation Bonds, Series 1991,
Insured by AMBAC
Zero Coupon 9/1/2012 3,392,090
3,000,000 Orleans Parish School Board #87, Louisiana, Insured by MBIA
8.95% 2/1/2008 4,021,590(b)
- ------------
7,413,680
- ------------
Maine - 0.3%
1,225,000 Maine Health & Higher Education Facilities Authority
Revenue Bonds, Series 1994, Insured by FSA
7.0% 7/1/2024 1,432,344(b)
25,000 Maine Health & Higher Education Facilities Authority
Revenue Bonds, Series 1994, Insured by FSA
7.0% 7/1/2024 29,038
350,000 Regional Waste Systems, Inc., Maine, Solid Waste Resource
Recovery System Revenue Bonds, Series A-C
7.95% 7/1/2010 362,432
- ------------
1,823,814
- ------------
Maryland - 1.4%
2,000,000 Maryland Health & Higher Education Authority, Union Hospital
of Cecil County Revenue Bonds, Series 1992
6.7% 7/1/2022 2,234,720(b)
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 5,276,250
1,000,000 Prince George's County, Maryland, Dimensions Health Corp.,
Hospital Revenue Bonds, Series 1992
7.0% 7/1/2022 1,129,370(b)
- ------------
8,640,340
- ------------
Massachusetts - 1.8%
2,000,000 Commonwealth of Massachusetts, General Obligation
Refunding Bonds, Series B
6.5% 8/1/2008 2,369,780
2,500,000 Massachusetts Health & Education Facilities Authority,
Revenue Bonds, Daughters of Charity National Health System,
The Carney Hospital, Series D
6.1% 7/1/2014 2,757,700
1,500,000 Massachusetts Health & Education Facilities Authority,
Revenue Bonds, Series F
6.5% 7/1/2012 1,649,595
750,000 Massachusetts Industrial Finance Agency, Babson College Issue,
Series 1998A, Insured by MBIA
5.0% 10/1/2018 751,973
3,000,000 Plymouth County, Massachusetts, Correctional Facility
Certificates of Participation Bonds
7.0% 4/1/2012 3,330,030
- ------------
10,859,078
- ------------
Michigan - 2.7%
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
6.4% 8/1/2024 2,303,900
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 954,030
Michigan (continued)
2,460,000 Michigan Municipal Bond Authority, Government Loan Revenue
Refunding Bonds, Series A, Insured by FGIC
Zero Coupon 12/1/2005 1,862,712
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 112,611(b)
3,000,000 Michigan State Hospital Finance Authority, Revenue Refunding
Bonds, (Sisters of Mercy Health Corp.), Insured by MBIA
5.375% 8/15/2014 3,192,570
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 3,579,126
3,455,000 West Ottawa, Michigan, Public School District, Unlimited Tax
General Obligation Bonds, Insured by MBIA
Zero Coupon 5/1/2004 2,791,640
1,860,000 West Ottawa, Michigan, Public School District, Unlimited Tax
General Obligation Bonds, Insured by MBIA
Zero Coupon 5/1/2005 1,434,655
- ------------
16,231,244
- ------------
Minnesota - 4.8%
5,000,000 City of Rochester, Minnesota Health Care Facilities
Revenue Bonds (Mayo Foundation), Series 1998A
5.5% 11/15/2027 5,261,600
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 785,370
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 321,232(b)
7,685,000 Minneapolis, Minnesota, Community Development Agency,
Tax Increment Revenue Appreciation Bonds, Insured by MBIA
Zero Coupon 3/1/2009 4,968,045
5,000,000 Minnesota Agricultural and Economic Development Board,
Health Care System Revenue Bonds, Series 97A,
Fairview Hospital & Healthcare Services, Insured by MBIA
5.75% 11/15/2026 5,487,250
1,000,000 Minnesota Agricultural and Economic Development Board,
Healthcare System Revenue Bonds, Series 97A,
Fairview Hospital & Healthcare Services, Insured by MBIA
5.5% 11/15/2017 1,084,370
2,500,000 Minnesota Higher Education Facilities Authority, (Augsburg
College), Mortgage Revenue Bonds, Series Four-F1 Bonds
6.25% 5/1/2023 2,685,000
1,740,000 Stewartville, MN, Independent School District, Unlimited Tax
General Obligation Bonds, Series A
5.75% 2/1/2014 1,900,585(b)
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 3,797,675(b)
1,000,000 St. Louis Park, Minnesota, (Methodist Hospital), Hospital
Revenue Bonds, Series C, Insured by AMBAC
7.25% 7/1/2018 1,079,570(b)
1,400,000 St. Louis Park, Minnesota, (Methodist Hospital), Hospital
Revenue Bonds, Series C, Insured by AMBAC
7.25% 7/1/2015 1,510,208(b)
- ------------
28,880,905
- ------------
Missouri - 3.1%
3,000,000 City of St. Charles, Missouri Public Facilities Authority,
Leasehold Revenue Bonds, Series 1997A, Insured by MBIA
5.45% 2/1/2017 3,151,830
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 2,193,480
1,485,000 Missouri Housing Development Commission, Single Family
Mortgage Revenue Bonds (Home Ownership Loan Program),
Series C-1
6.55% 9/1/2028 1,642,054
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 2,091,000
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 2,893,191(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 811,688
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 3,196,235
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 1,639,485
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 1,060,550
- ------------
18,679,513
- ------------
Montana - 0.8%
775,000 Montana State Board of Investments, Payroll Tax Revenue Bonds,
Series 1996, Insured by MBIA
6.875% 6/1/2020 840,782(b)
1,240,000 Montana State Board of Investments, Payroll Tax Revenue Bonds,
Series 1996, Insured by MBIA
6.875% 6/1/2020 1,345,251(b)
2,385,000 Montana State Board of Investments, Payroll Tax Revenue Bonds,
Series 1996, Insured by MBIA
6.875% 6/1/2020 2,587,439(b)
- ------------
4,773,472
- ------------
Nebraska - 2.4%
1,000,000 Lancaster County, Nebraska, Hospital Authority No. 1,
Hospital Revenue Bonds (Bryan Memorial Hospital Project),
Series 1997-B, Insured by MBIA
5.375% 6/1/2022 1,037,960
5,000,000 Nebraska Investment Finance Authority, Single Family Housing
Revenue Bonds, 1998 Series F, Insured by GNMA
5.6% 9/1/2020 5,082,700
4,000,000 Nebraska Public Power District, Power Supply System
Revenue Bonds, Insured by MBIA
6.125% 1/1/2015 4,414,640(b)
3,455,000 Omaha Public Power District, Nebraska, Electric Revenue
Refunding Bonds, Series B
6.15% 2/1/2012 3,992,563
- ------------
14,527,863
- ------------
New Hampshire - 0.2%
1,100,000 New Hampshire Turnpike System, Residual Interest Bonds,
1991 Refunding, Series C, Insured by FGIC
9.59% 11/1/2017 1,497,155(c)
- ------------
New Jersey - 3.2%
1,250,000 East Orange, New Jersey, Unlimited Tax General Obligation
Bonds,
Insured by FSA
8.4% 8/1/2006 1,611,988
1,000,000 Mercer County, New Jersey, Improvement Authority,
Revenue Bonds, Series 1991
6.6% 11/1/2014 1,076,790(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 2,891,633
3,000,000 New Jersey Transit Corp., (Raymond Plaza East, Inc.),
Certificates of Participation, Insured by FSA
6.375% 10/1/2006 3,474,450
1,080,000 New Jersey Turnpike Authority, Turnpike Revenue Bonds,
1984 Series
10.375% 1/1/2003 1,248,448(b)
4,700,000 New Jersey Turnpike Authority, Turnpike Revenue Bonds,
Series C, Insured by AMBAC
6.5% 1/1/2016 5,757,641
2,195,000 West New York, New Jersey, Municipal Utility Authority,
Sewer Revenue Refunding Bonds, Insured by FGIC
Zero Coupon 12/15/2007 1,520,389
2,595,000 West New York, New Jersey, Municipal Utility Authority,
Sewer Revenue Refunding Bonds, Insured by FGIC
Zero Coupon 12/15/2009 1,622,576
- -----------
19,203,915
- ------------
New Mexico - 2.5%
3,315,000 City of Alamogordo, New Mexico Hospital Revenue Bonds,
(Gerald Champion Hospital Project), Series 1997
5.3% 1/1/2013 3,348,283
5,000,000 Farmington, New Mexico, Power Revenue Refunding Bonds,
Series 1983
9.875% 1/1/2013 6,501,050(b)
4,040,000 Farmington, New Mexico, Utility Systems Revenue Bonds,
Insured by AMBAC
9.875% 1/1/2008 5,419,377(b)
- ------------
15,268,710
- ------------
New York - 4.5%
2,500,000 Metropolitan Transportation Authority, New York, Commuter
Facilities Revenue Bonds, Series 1996-A, Insured by FGIC
6.1% 7/1/2026 2,880,150(b)
5,200,000 Metropolitan Transportation Authority, New York, Commuter
Facilities Revenue Bonds, Series A, Insured by MBIA
6.375% 7/1/2018 5,910,164(b)
3,000,000 Metropolitan Transportation Authority, New York, Transit
Facilities Revenue Bonds, Series O, Insured by MBIA
6.25% 7/1/2014 3,390,840(b)
4,225,000 Metropolitan Transportation Authority, New York, Transit
Facilities Service Contract Bonds, Series O
5.75% 7/1/2013 4,709,903
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 2,264,460
85,000 New York State Medical Care Facilities Finance Agency
(Ellis Hospital), Insured Mortgage Hospital Bonds, Series B,
Insured by FHA
8.0% 2/15/2008 87,019
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 3,196,622(b)
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 1,949,121
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 1,820,491
1,000,000 Triborough Bridge & Tunnel Authority, New York,
General Purpose Revenue Bonds, Series Q
6.75% 1/1/2009 1,195,300
- ------------
27,404,070
- ------------
North Carolina - 1.5%
2,500,000 Charlotte, North Carolina, Water and Sewer Unlimited Tax
General Obligation Bonds
5.6% 5/1/2021 2,793,900(b)
1,500,000 County of Pitt, North Carolina, Pitt County Memorial Hospital
Revenue Bonds, Series 1995
5.5% 12/1/2015 1,654,200(b)
4,000,000 North Carolina Municipal Power Agency #1, Catawba Electric
Revenue Refunding Bonds, Series 1992, Insured by MBIA
6.0% 1/1/2011 4,593,320
- ------------
9,041,420
- ------------
North Dakota - 1.0%
2,000,000 Mercer County, North Dakota, Pollution Control Revenue
Refunding Bonds, (Ottertail Power Co. Project)
6.9% 2/1/2019 2,142,620
2,000,000 North Dakota Municipal Bond Bank, State Revolving Fund
Program Bonds, Series 1995-A
6.3% 10/1/2015 2,198,840
1,340,000 North Dakota State Water Commission (Southwest Pipeline),
Revenue Bonds, Series A, Insured by AMBAC
5.75% 7/1/2027 1,435,113
- ------------
5,776,573
- ------------
Ohio - 5.1%
875,000 Akron Ohio Economic Development, Non-Tax Revenue Bonds,
Insured by MBIA
6.0% 12/1/2012 1,005,778
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 1,149,078(b)
2,500,000 Akron, Ohio, Certificates of Participation, Series 1996,
Akron Municipal Baseball Stadium Project
Zero Coupon 12/1/2016 2,315,900
2,620,000 Batavia Local School District, Ohio School Improvement
Refunding Bonds, Unlimited Tax General Obligation,
Insured by MBIA
5.625% 12/1/2022 2,894,576
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 4,470,047(b)
1,630,000 Cuyahoga County, Ohio, (Deaconess Hospital), Hospital
Revenue Bonds, Series C
7.45% 10/1/2018 1,791,941(b)
1,470,000 Lorain County, Ohio, (Humility of Mary Health System),
Hospital Revenue Bonds
7.125% 12/15/2006 1,611,635(b)
2,000,000 Ohio Higher Educational Facility Commission (Case Western
Reserve University Project), Series B
6.5% 10/1/2020 2,457,640
1,500,000 Ohio Higher Educational Facility Commission, Higher Educational
Revenue Bonds, (Ohio Dominican College 1994 Project)
6.625% 12/1/2014 1,632,015
5,000,000 Ohio State Air Quality Development Authority, Cleveland
Electric,
Pollution Control Revenue Bonds, Insured by FGIC
8.0% 12/1/2013 5,801,000
2,250,000 Ohio State Air Quality Development Authority, Columbus &
Southern Pollution Control Revenue Bonds, Insured by FGIC
6.375% 12/1/2020 2,474,775
1,000,000 Ohio State Turnpike Commission, Turnpike Revenue Bonds,
Series 1994A
5.75% 2/15/2024 1,101,240(b)
1,795,000 Trumbull County, Ohio, (Memorial Hospital), Hospital Revenue
Refunding & Improvement Bonds, Series 1991-B,
Insured by FGIC
6.9% 11/15/2012 2,047,592(b)
- ------------
30,753,217
- ------------
Oklahoma - 1.7%
5,220,000 Bass, Oklahoma, Memorial Baptist Hospital
8.35% 5/1/2009 6,555,119(b)
1,500,000 Oklahoma Municipal Power Authority, Electric Revenue
Refunding Bonds, Series B, Insured by MBIA
5.75% 1/1/2024 1,718,745
1,500,000 Oklahoma Municipal Power Authority, Power Supply System
Revenue Bonds, Series 1992-B, Insured by MBIA
5.875% 1/1/2012 1,709,445
- ------------
9,983,309
- ------------
Oregon - 0.9%
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 2,933,145
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 2,214,780
- ------------
5,147,925
- ------------
Pennsylvania - 2.9%
7,500,000 Allegheny County, Pennsylvania, Airport Revenue Refunding
Bonds, Series 1997B, Insured by MBIA
5.0% 1/1/2019 7,480,650
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 1,709,616
2,575,000 Allegheny County, Pennsylvania, Sanitary Authority,
Sewer Revenue Bonds, Series A, Insured by FGIC
Zero Coupon 6/1/2008 1,713,405
3,170,000 Millcreek Township, Pennsylvania, School District,
General Obligation Bonds, Insured by FGIC
Zero Coupon 8/15/2009 1,976,590
1,720,000 Monroeville, Pennsylvania, Hospital Authority, Forbes Health
System Revenue Bonds, Series 1992
7.0% 10/1/2003 1,613,893
3,000,000 Pennsylvania State, General Obligation Bonds, Second Series
of 1992, Insured by AMBAC
Zero Coupon 7/1/2006 2,198,550
1,000,000 York County Pennsylvania Solid Waste and Refuse Authority,
Refunding Revenue Bonds, Series 1997, County Guaranteed,
Insured by FGIC
5.5% 12/1/2012 1,100,100
- ------------
17,792,804
- ------------
Puerto Rico - 1.9%
4,000,000 Puerto Rico Commonwealth, Aqueduct & Sewer Revenue Bonds,
Series A
9.0% 7/1/2009 5,054,280(b)
3,000,000 Puerto Rico Commonwealth, Unlimited Tax General
Obligation Bonds
6.45% 7/1/2017 3,429,270(b)
3,000,000 Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series T
6.0% 7/1/2016 3,251,760
- ------------
11,735,310
- ------------
South Carolina - 1.6%
2,500,000 Hilton Head No. 1 Public Service District, SC Waterworks and
Sewer System Improvement Revenue Bonds, Series 1998,
Insured by FSA
5.0% 12/1/2023 2,496,350
2,000,000 Piedmont Municipal Power Agency, South Carolina, Electric
Revenue Refunding Bonds, Series 1991, Insured by FGIC
6.25% 1/1/2021 2,353,320
5,000,000 Piedmont Municipal Power Agency, South Carolina, Electric
Revenue Refunding Bonds, Insured by FGIC
5.0% 1/1/2022 4,972,500
- ------------
9,822,170
- ------------
Tennessee - 0.8%
1,750,000 Bristol, Tennessee, Health and Educational Facilities
Authority,
Bristol Memorial Hospital Revenue Bonds, Insured by FGIC
7.0% 9/1/2021 1,915,725(b)
1,000,000 City of Jackson, Tennessee, Hospital Revenue Bonds, Jackson-
Madison County General Hospital Project, Insured by AMBAC
5.0% 4/1/2018 991,370
2,000,000 Metropolitan Government of Nashville & Davidson County,
Tennessee, Electric System Revenue Bonds, Series 1998A
5.2% 5/15/2023 2,032,940
- ------------
4,940,035
- ------------
Texas - 9.2%
2,165,000 Arlington, Texas, Independent School District, Unlimited Tax
Refunding & Improvement Bonds, Series 1992,
Permanent School Fund Guarantee
Zero Coupon 2/15/2009 1,383,998
7,000,000 Austin, Texas, Utility System Refunding Revenue Bonds,
Series A, Insured by MBIA
Zero Coupon 11/15/2008 4,550,490
8,100,000 Austin, Texas, Utility System Refunding Revenue Bonds,
Series A, Insured by MBIA
Zero Coupon 11/15/2009 4,990,167
1,000,000 Austin, Texas, Utility System Revenue Refunding Bonds,
Insured by FGIC
6.0% 11/15/2013 1,154,230
1,575,000 Bexar County, Texas, Limited Tax General Obligation Bonds
5.0% 6/15/2015 1,598,830
1,000,000 Cass County, Texas, Industrial Development Corporation,
Pollution Control Revenue Refunding Bonds, International
Paper, Series 1997-B
5.35% 4/1/2012 1,032,860
1,390,000 City of Garland, Dallas County, Texas, Combination Tax and
Revenue Certificates of Obligation, Series 1996
5.25% 2/15/2016 1,417,425
1,310,000 City of Garland, Dallas County, Texas, Combination Tax and
Revenue Certificates of Obligation, Series 1996
5.25% 2/15/2015 1,339,396
2,000,000 Copperas Cove, Texas, Independent School District, Unlimited
Tax
General Obligation Bonds, Permanent School Fund Guarantee
6.9% 8/15/2014 2,307,680(b)
4,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding
Bonds Series 1994-A, Insured by MBIA
6.0% 11/1/2012 4,362,440
2,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding
Bonds, Insured by FGIC
7.375% 11/1/2010 2,340,380
1,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding
Bonds, Insured by FGIC
7.375% 11/1/2008 1,173,960
1,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding
Bonds, Insured by FGIC
7.375% 11/1/2009 1,170,190
2,285,000 Denton, Texas, Independent School District, Unlimited Tax
General
Obligation Refunding Bonds, Permanent School Fund
Guarantee 6.25% 2/15/2009 2,656,038
1,000,000 Georgetown, Texas, Higher Education Finance Corp., Higher
Education Revenue Bonds, Series 1994 (Southwestern
University Project)
6.3% 2/15/2014 1,069,150
2,250,000 Harris County, Texas, Toll Road Sr. Lien Bonds, Series A,
Insured by MBIA
6.375% 8/15/2024 2,565,248(b)
5,315,000 Lewisville, Texas, Independent School District, Capital
Appreciation
Refunding Bonds, Permanent School Fund Guarantee
Zero Coupon 8/15/2019 1,889,217
1,000,000 San Antonio, Texas, Airport Revenue Refunding Bonds,
Insured by AMBAC
7.375% 7/1/2011 1,151,310
1,845,000 San Antonio, Texas, Airport Revenue Refunding Bonds,
Insured by AMBAC
7.375% 7/1/2010 2,124,167
11,615,000 Southeastern Texas Housing Finance Corp., Single Family
Mortgage Revenue Bonds
Zero Coupon 9/1/2017 4,517,422(b)
4,315,000 Texas State, Veterans Land Board General Obligation Bonds
0.05% 7/1/2010 2,547,015
1,000,000 Texas Water Development Board, State Revolving Fund
Revenue Bond, Senior Lien, Series A
5.25% 7/15/2017 1,017,650
1,450,000 Travis County, Texas, Housing Finance Corporation, Single
Family Mortgage Revenue Refunding Bonds, Series 1994-A
6.75% 4/1/2014 1,570,423
440,000 Willis, Texas, Independent School District, Government
Obligation Bonds, Permanent School Fund Guarantee
6.5% 2/15/2016 470,536
3,210,000 Willis, Texas, Independent School District, Government
Obligation Bonds, Permanent School Fund Guarantee
6.5% 2/15/2016 3,485,033(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 1,417,085
- ------------
55,302,340
- ------------
Utah - 2.5%
5,000,000 Intermountain Power Agency, Utah, Power Supply Revenue Bonds,
Series B, Insured by MBIA
5.75% 7/1/2019 5,470,200
3,405,000 Timpanogos Special Service District, Utah County, Utah,
Sewer Revenue Bonds, Series 1996-A, Insured by AMBAC
6.1% 6/1/2019 3,881,462(b)
3,750,000 Utah Associated Municipal Power Systems, San Juan Project
Revenue Bonds, Series O, Insured by MBIA
6.25% 6/1/2014 4,237,988(b)
1,580,000 West Valley City, Utah, Municipal Building Authority,
Lease Refunding Bonds, Insured by MBIA
6.0% 1/15/2010 1,685,781
- ------------
15,275,431
- ------------
Virginia - 2.5%
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 3,227,310
4,300,000 Virginia Housing Development Authority, Commonwealth
Mortgage Bonds, 1994 Series H, Subseries H-2
6.5% 1/1/2014 4,634,755
5,000,000 Virginia State Housing Development Authority, Commonwealth
Mortgage Bonds, 1997 Subseries B-1
5.5% 1/1/2022 5,087,250
2,000,000 Virginia State, Unlimited Tax General Obligation Bonds
6.5% 6/1/2015 2,258,420(b)
- ------------
15,207,735
- ------------
Washington - 5.6%
1,395,000 Douglas County, Washington, Public Utility District #1,
Wells Hydroelectric Revenue Bonds, Series A
8.75% 9/1/2018 1,802,061(b)
1,655,000 Douglas County, Washington, Public Utility District #1,
Wells Hydroelectric Revenue Bonds, Series A
8.75% 9/1/2018 2,244,610
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 1,983,240
5,000,000 King County, Washington, Unlimited Tax General Obligation
Bonds, Series A
6.75% 12/1/2009 5,312,000(b)
1,500,000 Tacoma, Washington, Conservation System Project Revenue Bonds,
Tacoma Public Utilities Light Division
6.6% 1/1/2015 1,663,425
2,015,000 Tacoma, Washington, Utilities Refuse Revenue Bonds,
Insured by MBIA
6.625% 12/1/2011 2,205,841(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 3,279,030
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 2,187,380
2,000,000 Washington State, Unlimited Tax General Obligation Bonds
6.0% 6/1/2012 2,306,620
2,400,000 Washington State, Unlimited Tax General Obligation Bonds
6.7% 6/1/2016 2,581,320(b)
3,000,000 Washington State, Unlimited Tax General Obligation Bonds,
Series 93A
5.75% 10/1/2012 3,380,100
1,500,000 Washington State, Unlimited Tax General Obligation Bonds,
Series A
6.25% 2/1/2011 1,749,045
2,500,000 Washington State, Various Purpose General Obligation Bonds
6.25% 6/1/2010 2,945,775
- ------------
33,640,447
- ------------
Wisconsin - 1.0%
1,000,000 Southeast Wisconsin Professional Baseball Park District
Sales Tax
Revenue Bonds, Insured by MBIA
5.8% 12/15/2026 1,126,410(b)
4,315,000 State of Wisconsin, Clean Water Revenue Bonds, 1995 Series 1
5.8% 6/1/2015 4,746,932(b)
- ------------
5,873,342
- ------------
Wyoming - 0.4%
2,500,000 State of Wyoming, Farm Loan Board, Capital Facilities
Revenue Bonds, Series 1994
6.1% 4/1/2024 $ 2,677,715
- ------------
Total Long-Term Municipal Securities (cost $527,967,832)
598,704,757
- ------------
SHORT-TERM MUNICIPAL SECURITIES - 0.9% (a, c)
350,000 Berkeley County, South Carolina, (Amoco Chemical Co. Project),
Pollution Control Revenue Refunding Bonds, Series 1994
3.7% 11/2/98 350,000
1,500,000 Maricopa County, Arizona Pollution Control Corp., Pollution
Control Revenue Refunding Bonds, (Arizona Public Service Co.
Palo Verde Project), 1994 Series E
3.7% 11/2/98 1,500,000
100,000 Maricopa County, Arizona Pollution Control Corp., Pollution
Control Revenue Refunding Bonds, (Arizona Public Service Co.
Palo Verde Project), 1994 Series B
3.7% 11/2/98 100,000
800,000 Michigan Strategic Fund, Variable Rate Demand Pollution Control
Revenue Refunding Bonds, (Consumers Power Company Project),
Series 1988A
3.7% 11/2/98 800,000
500,000 Peninsula Ports Authority, Virginia, Variable Rates Notes
3.7% 11/2/98 500,000
2,100,000 Sublette County, Wyoming, Pollution Control Revenue Bonds,
(Exxon Project), Series 1984
3.7% 11/2/98 2,100,000
- ------------
Total Short-Term Municipal Securities (at amortized cost)
5,350,000
- ------------
Total Investments (cost $533,317,832)
$604,054,757(d)
============
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) At October 31, 1998, the aggregate cost of securities for federal
income tax purposes was $533,347,715 and the net unrealized
appreciation of investments based on that cost was $70,707,042 which
is comprised of $70,807,159 aggregate gross unrealized appreciation
and $100,117 aggregate gross unrealized depreciation.
(e) 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.
GNMA - Government National Mortgage Association
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, 1998
Principal
Maturity
Amount
Yield Date Value
- ----------------
- ------ ---------- ------------
<S> <C>
<C> <C> <C>
BANKER'S ACCEPTANCES - 0.4% (a)
$ 100,000 Citibank, N. A.
5.53% 12/31/1998 $ 99,092
597,550 Citibank, N. A.
5.50% 11/30/1998 594,927
231,099 Citibank, N. A.
5.52% 12/24/1998 229,244
160,448 Citibank, N. A.
5.50% 11/27/1998 159,817
282,175 Citibank, N. A.
5.68% 12/22/1998 279,936
408,174 Citibank, N. A.
5.68% 12/21/1998 405,000
355,126 Citibank, N. A.
5.52% 12/28/1998 352,062
156,758 Citibank, N. A.
5.55% 1/28/1999 154,670
- ------------
Total Banker's Acceptances
2,274,748
- ------------
BANK NOTES - 2.0% (a)
5,000,000 Wachovia Bank, N.A.
5.62% 12/2/1998 5,000,000
6,000,000 Wachovia Bank, N.A.
4.86% 4/26/1999 6,000,000
- ------------
Total Bank Notes
11,000,000
- ------------
COMMERCIAL PAPER - 83.2% (a)
Banking - Domestic - 1.8%
5,000,000 Norwest Corp.
5.24% 12/24/1998 4,961,796
5,000,000 Norwest Corp.
5.23% 12/21/1998 4,964,097
- ------------
9,925,893
- ------------
Consumer Products - 1.2%
3,900,000 Colgate-Palmolive Co.
5.29% 11/25/1998 3,885,960
2,690,000 Colgate-Palmolive Co.
5.46% 11/25/1998 2,680,585
- ------------
6,566,545
- ------------
Drugs & Health Care - 0.9%
5,000,000 Unilever Capital Corp.
5.25% 12/10/1998 4,971,833
- ------------
Education - 12.0%
5,000,000 Duke University
5.34% 11/18/1998 4,987,463
25,000,000 Harvard University
5.71% 11/2/1998 24,996,035
2,000,000 Leland Stanford Jr. University
5.62% 11/9/1998 1,997,564
3,000,000 Leland Stanford Jr. University
5.19% 1/28/1999 2,962,600
5,000,000 Leland Stanford Jr. University
5.60% 12/7/1998 4,973,025
5,000,000 Leland Stanford Jr. University
5.07% 4/12/1999 4,888,850
6,500,000 Yale University
5.62% 12/15/1998 6,456,147
4,500,000 Yale University
5.53% 12/11/1998 4,472,750
5,500,000 Yale University
5.64% 12/14/1998 5,463,737
3,245,000 Yale University
5.56% 12/8/1998 3,226,723
- ------------
64,424,894
- ------------
Electronics - 3.9%
6,000,000 Seibe plc
5.23% 2/16/1999 5,908,337
5,000,000 Seibe plc
5.30% 12/11/1998 4,970,833
5,000,000 Seibe plc
5.60% 11/4/1998 4,997,696
5,000,000 Seibe plc
5.03% 3/1/1999 4,917,667
- ------------
20,794,533
- ------------
Energy - 4.0%
5,000,000 American Petrofina Holding Co.
5.56% 2/26/1999 4,912,088
6,500,000 American Petrofina Holding Co.
5.59% 11/4/1998 6,497,010
5,000,000 Petrofina Delaware, Inc.
5.29% 3/12/1999 4,906,117
5,000,000 Petrofina Delaware, Inc.
5.61% 11/16/1998 4,988,500
- ------------
21,303,715
- ------------
Finance-Automotive - 5.9%
4,000,000 Ford Motor Credit - Puerto Rico
(Guaranteed Ford Motor Credit Co.)
5.18% 1/15/1999 3,957,500
2,100,000 Ford Motor Credit Co.
5.49% 12/4/1998 2,089,567
5,000,000 Ford Motor Credit Co.
5.23% 1/21/1999 4,942,175
8,000,000 Ford Motor Credit Co.
5.14% 1/27/1999 7,901,980
5,000,000 Ford Motor Credit Co.
5.59% 12/3/1998 4,975,600
2,000,000 General Motors Acceptance Corp
5.28% 12/30/1998 2,002,378
6,000,000 General Motors Acceptance Corp
5.07% 12/29/1998 5,951,473
- ------------
31,820,673
- ------------
Finance-Commercial - 8.2%
8,000,000 CIT Group Holdings, Inc.
5.32% 11/23/1998 7,974,187
6,000,000 CIT Group Holdings, Inc.
5.09% 3/1/1999 5,900,000
5,000,000 CIT Group Holdings, Inc.
5.22% 12/23/1998 4,962,733
630,000 General Electric Capital Corp.
5.53% 11/12/1998 628,945
5,000,000 General Electric Credit Capital Services of Puerto Rico, Inc.
(Guaranteed General Electric Capital Corp.)
5.35% 2/17/1999 4,921,550
5,000,000 General Electric Credit Capital Services of Puerto Rico, Inc.
(Guaranteed General Electric Capital Corp.)
5.16% 2/22/1999 4,920,743
5,000,000 General Electric Credit Capital Services of Puerto Rico, Inc.
(Guaranteed General Electric Capital Corp.)
5.48% 1/26/1999 4,935,858
5,000,000 General Electric Credit Capital Services of Puerto Rico, Inc.
(Guaranteed General Electric Capital Corp.)
5.62% 1/20/1999 4,939,000
5,000,000 Norwest Financial, Inc.
5.21% 3/5/1999 4,912,167
- ------------
44,095,183
- ------------
Finance-Consumer - 6.4%
5,000,000 American General Finance Corp.
5.60% 11/2/1998 4,999,236
6,000,000 Associates Corp. of North America
5.08% 2/12/1999 5,914,167
4,000,000 AVCO Financial Services, Inc.
5.53% 12/14/1998 3,974,009
6,000,000 AVCO Financial Services, Inc.
5.59% 12/14/1998 5,960,583
2,000,000 AVCO Financial Services, Inc.
5.51% 12/21/1998 1,984,944
3,000,000 AVCO Financial Services, Inc.
5.63% 12/2/1998 2,985,714
5,000,000 Household Finance Corp.
5.52% 12/7/1998 4,972,750
3,750,000 Household Finance Corp.
5.56% 2/16/1999 3,757,122
- ------------
34,548,525
- ------------
Finance-Structured - 13.3%
1,670,000 Asset Securitization Cooperative Corp.
5.33% 11/5/1998 1,669,017
5,000,000 Asset Securitization Cooperative Corp.
5.58% 11/13/1998 4,990,833
5,000,000 Ciesco L.P.
5.53% 11/10/1998 4,993,163
4,000,000 Corporate Asset Funding Co.
5.55% 11/20/1998 3,988,431
5,000,000 Corporate Asset Funding Co.
5.60% 11/25/1998 4,981,633
5,000,000 CXC, Inc.
5.59% 11/9/1998 4,993,889
5,000,000 Edison Asset Securitization, L.L.C.
5.66% 1/22/1999 4,937,247
5,061,000 Enterprise Funding Corp.
5.45% 12/22/1998 5,022,427
932,000 Enterprise Funding Corp.
5.58% 11/13/1998 930,285
3,004,000 Enterprise Funding Corp.
5.59% 11/16/1998 2,997,103
1,617,000 Enterprise Funding Corp.
5.25% 11/27/1998 1,610,927
5,440,000 Enterprise Funding Corp.
5.47% 12/15/1998 5,404,096
5,000,000 Preferred Receivables Funding
5.65% 11/25/1998 4,981,600
5,000,000 Preferred Receivables Funding
5.59% 11/20/1998 4,985,460
5,000,000 Triple-A One Funding Corp.
5.56% 11/9/1998 4,993,878
5,000,000 Triple-A One Funding Corp.
5.49% 11/23/1998 4,983,286
5,000,000 Triple-A One Funding Corp.
5.53% 11/23/1998 4,983,408
- ------------
71,446,683
- ------------
Financial Services - 0.9%
5,000,000 American Express Credit Corp.
5.38% 12/28/1998 4,958,042
- ------------
Food & Beverage - 0.9%
5,000,000 Cargill, Inc.
5.30% 3/19/1999 4,901,100
- ------------
Industrial - 4.4%
5,000,000 Chevron Transport Corp. (Guaranteed Chevron Corp.)
5.20% 2/22/1999 4,919,958
5,000,000 Chevron Transport Corp. (Guaranteed Chevron Corp.)
5.57% 12/21/1998 4,962,014
5,000,000 Chevron Transport Corp. (Guaranteed Chevron Corp.)
5.34% 2/19/1999 4,920,250
5,000,000 Chevron Transport Corp. (Guaranteed Chevron Corp.)
5.62% 11/20/1998 4,985,539
4,000,000 Chevron Transport Corp. (Guaranteed Chevron Corp.)
5.00% 3/22/1999 3,923,233
- ------------
23,710,994
- ------------
Insurance - 3.9%
5,000,000 A.I. Credit Corp.
5.64% 11/12/1998 4,991,613
5,000,000 A.I. Credit Corp.
5.62% 11/24/1998 4,982,526
5,000,000 Prudential Funding Corp.
4.95% 2/25/1999 4,921,700
6,000,000 USAA Capital Corp.
4.89% 3/23/1999 5,886,637
- ------------
20,782,476
- ------------
Petroleum - 0.7%
4,000,000 Koch Industries, Inc.
5.71% 11/2/1998 3,999,366
- ------------
Retail Department Stores - 0.9%
5,000,000 Penney (J.C.) Funding Corp.
5.59% 11/19/1998 4,986,250
- ------------
Services - 2.2%
5,000,000 Block Financial Corp.
5.52% 12/1/1998 4,977,292
4,000,000 Block Financial Corp.
5.38% 1/8/1999 3,959,956
2,663,000 Block Financial Corp.
5.51% 12/1/1998 2,650,906
- ------------
11,588,154
- ------------
Sovereign/Foreign Government - 1.3%
5,700,000 Sweden (Kingdom of)
5.42% 12/9/1998 5,667,751
1,100,000 Sweden (Kingdom of)
5.57% 12/9/1998 1,093,637
- ------------
6,761,388
- ------------
Telecommunications - 0.6%
3,000,000 Motorola Credit Corp.
5.53% 11/5/1998 2,998,173
- ------------
U.S. Municipal - 9.8%
5,000,000 California Pollution Control Finance Authority
(Guaranteed Shell Oil Co.)
5.61% 12/1/1998 5,000,000
8,400,000 City of New York Government Bonds, Fiscal 1995, Series B
(Guaranteed FGIC SPI)
5.75% 11/19/1998 8,400,000
5,000,000 City of Whiting, Indiana, Series 1995, Sewage &
Waste Disposal (Guaranteed Amoco Oil Co.)
5.61% 12/7/1998 5,000,000
5,000,000 City of Whiting, Indiana, Series 1995, Sewage &
Waste Disposal (Guaranteed Amoco Oil Co.)
5.20% 1/12/1999 5,000,000
10,000,000 Gulf Coast Waste Disposal Authority
(Guaranteed Amoco Oil Co.)
5.61% 11/10/1998 10,000,000
5,000,000 Gulf Coast Waste Disposal Authority
(Guaranteed Amoco Oil Co.)
5.59% 11/3/1998 5,000,000
7,000,000 Industrial Development Board of the Parish of
Calcasieu, Inc., Series 1996 (ABN AMRO Bank NV,
Direct Pay Letter of Credit)
5.45% 12/16/1998 7,000,000
7,250,000 Metrocrest Hospital Authority (Bank of New York Bank,
Direct Pay Letter of Credit)
5.65% 11/4/1998 7,246,631
- ------------
52,646,631
- ------------
Total Commercial Paper
447,231,051
- ------------
CERTIFICATES OF DEPOSIT - 1.3% (a)
Euro Dollar-Foreign
7,000,000 Canadian Imperial Bank of Commerce
5.64% 12/2/1998 6,999,900
- ------------
VARIABLE RATE NOTES - 13.1% (a,b)
12,000,000 Abbey National Treasury Service plc
5.07% 11/20/1998 11,993,184
1,500,000 Beneficial Corp.
5.70% 11/2/1998 1,500,238
8,000,000 Beneficial Corp.
5.63% 11/2/1998 8,000,000
8,000,000 Deutsche Bank, New York
5.28% 11/16/1998 7,995,647
10,000,000 First National Bank of Chicago
5.24% 11/2/1998 9,995,973
8,000,000 Illinois Student Assistance Commission (Bank of America,
Illinois Direct Pay Letter of Credit)
5.15% 11/6/1998 8,000,000
10,000,000 Illinois Student Assistance Commission
(SLMA Direct Pay Letter of Credit)
5.10% 11/6/1998 10,000,000
5,000,000 International Business Machines Corp.
5.15% 1/15/1999 4,995,879
8,000,000 Wachovia Bank, N.A.
5.26% 11/2/1998 7,999,017
- ------------
Total Variable Rate Notes
70,479,938
- ------------
Total Investments (at amortized cost)
$537,985,637(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, 1998
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $238,475,194)
$213,420,160
Cash
48,221
Receivable for investment securities sold
3,917,147
Dividend receivable
27,117
- ------------
Total assets
217,412,645
- ------------
LIABILITIES:
Payable for investment securities purchased
1,918,169
Accrued expenses
183,507
- ------------
Total liabilities
2,101,676
- ------------
NET ASSETS
$215,310,969
============
NET ASSETS CONSIST OF:
Paid-in capital
$261,615,028
Accumulated net investment loss
(6,595)
Accumulated net realized loss from sale of investments
(21,242,430)
Unrealized net depreciation of investments
(25,055,034)
- ------------
NET ASSETS
$215,310,969
============
Class A Shares:
Net asset value and redemption price per share
(based on net assets of $205,710,625 and 22,048,637
shares of beneficial interest outstanding)
$ 9.33
======
Maximum public offering price per share
(based on a net asset value per share of $9.33 divided by
0.96 for a 4% sales charge)
$ 9.72
======
Class B Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $4,183,718 and 451,549 shares of
beneficial interest outstanding)
$ 9.27
======
Institutional Class Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $5,416,626 and 579,186 shares of
beneficial interest outstanding)
$ 9.35
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $
940,494
Interest income
1,434,889
- ------------
Total income
2,375,383
- ------------
Expenses --
Investment advisory fee
1,819,274
Distribution and service plan fees:
Class A
647,470
Class B
24,017
Transfer agent services
1,282,211
Custodian fee
154,864
Administrative personnel and services
53,144
Printing and postage
307,474
Trust share registration costs
69,728
Auditing fees
6,403
Legal fees
15,917
Trustees' fees
8,570
Amortization of organization costs
1,917
Miscellaneous
7,321
- ------------
Total expenses before expense reimbursement
4,398,310
Expense reimbursement from investment advisor
(664,301)
- ------------
Net expenses
3,734,009
Net investment loss
(1,358,626)
- ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investment transactions
(20,419,949)
Net realized gain on closed or
expired option contracts written
146,828
- ------------
Net realized loss on investments
(20,273,121)
Net change in unrealized depreciation of investments
(53,310,343)
- ------------
Net loss on investments
(73,583,464)
- ------------
Net change in net assets resulting from operations
$(74,942,090)
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1998 and 1997
Year Year
Ended Ended
10/31/98 10/31/97
- ------------ ------------
<S> <C>
<C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss
$(1,358,626) $(1,653,212)
Net realized gain (loss) on investments
(20,273,121) 11,990,683
Net change in unrealized appreciation or
depreciation of investments
(53,310,343) 13,347,891
- ------------ ------------
Net change in net assets resulting from operations
(74,942,090) 23,685,362
- ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net realized gains:
Class A
(10,383,030) (29,849,878)
Class B
(18,018) --
Institutional Class
(116,629) --
- ------------ ------------
Total distributions
(10,517,677) (29,849,878)
- ------------ ------------
NET TRUST SHARE TRANSACTIONS:
Class A
(19,142,773) 48,247,150
Class B
5,010,935 25,000
Institutional Class
3,478,983 3,478,617
- ------------ ------------
Net change in net assets resulting from trust share transactions
(10,652,855) 51,750,767
- ------------ ------------
Net change in net assets
(96,112,622) 45,586,251
NET ASSETS:
Beginning of period
311,423,591 265,837,340
- ------------ ------------
End of period
$215,310,969 $311,423,591
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $41,368,587) $
39,424,790
Cash
81,591
Receivable for investment securities sold
881,860
Dividend receivable
111,199
Unamortized organization costs
19,668
- ------------
Total assets
40,519,108
- ------------
LIABILITIES:
Payable for investment securities purchased
1,474,265
Accrued expenses
68,102
- ------------
Total liabilities
1,542,367
- ------------
NET ASSETS $
38,976,741
============
NET ASSETS CONSIST OF:
Paid-in capital $
42,905,717
Accumulated net investment loss
(2,924)
Accumulated net realized loss from sale of investments
(1,982,255)
Unrealized net depreciation of investments
(1,943,797)
- ------------
NET ASSETS $
38,976,741
============
Class A Shares:
Net asset value and redemption price per share
(based on net assets of $31,894,969 and 3,469,813
shares of beneficial interest outstanding) $
9.19
======
Maximum public offering price per share
(based on a net asset value per share of $9.19
divided by 0.96 for a 4% sales charge) $
9.57
======
Class B Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $6,400,722 and 701,627 shares of
beneficial interest outstanding) $
9.12
======
Institutional Class Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $681,050 and 73,952 shares of beneficial
interest outstanding) $
9.21
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $
993,336
Interest income
136,799
- ------------
Total income
1,130,135
- ------------
Expenses --
Investment advisory fee
203,949
Distribution and service plan fees:
Class A
62,599
Class B
33,999
Transfer agent services
238,905
Custodian fee
36,830
Administrative personnel and services
5,827
Printing and postage
60,142
Trust share registration costs
85,208
Auditing fees
2,010
Legal fees
1,023
Trustees' fees
5,882
Amortization of organization costs
5,497
Miscellaneous
2,680
- ------------
Total expenses
744,551
Expense reimbursement from investment advisor
(152,651)
- ------------
Net expenses
591,900
- ------------
Net investment income
538,235
- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions
(2,136,064)
Net realized loss on closed futures contracts
(102,920)
- ------------
Net realized loss on investments
(2,238,984)
Net change in unrealized depreciation of investments
(1,836,091)
- ------------
Net loss on investments
(4,075,075)
- ------------
Net change in net assets resulting from operations $
(3,536,840)
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1998 and 1997
For the period from
Year May 30, 1997
Ended (effective date) to
10/31/98 10/31/97
- ------------ ------------
<S> <C>
<C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $
538,235 $ (26,047)
Net realized gain (loss) on investments
(2,238,984) 411,643
Net change in unrealized appreciation or
depreciation of investments
(1,836,091) (107,706)
- ------------ ------------
Net change in net assets resulting from operations
(3,536,840) 277,890
- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A
(593,837) --
Class B
(20,517) --
Institutional Class
(23,816) --
Net realized gains:
Class A
(395,237) --
Class B
(13,872) --
Institutional Class
(15,767) --
- ------------ ------------
Total distributions
(1,063,046) --
- ------------ ------------
NET TRUST SHARE TRANSACTIONS:
Class A
21,626,287 13,766,372
Class B
7,121,404 25,000
Institutional Class
226,296 533,378
- ------------ ------------
Net increase in net assets from
trust share transactions
28,973,987 14,324,750
- ------------ ------------
Net increase in net assets
24,374,101 14,602,640
NET ASSETS:
Beginning of period
14,602,640 --
- ------------ ------------
End of period $
38,976,741 $ 14,602,640
============ ============
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, 1998
<S> <C>
ASSETS:
Investments in securities, at value (cost, $77,179,795) $
88,040,156
Cash (including foreign currency holdings of $811,624)
837,396
Receivable for investment securities sold
409,206
Dividend receivable
210,110
Unamortized organization costs
18,696
- ------------
Total assets
89,515,564
- ------------
LIABILITIES:
Payable for investment securities purchased
2,503,892
Unrealized depreciation of
foreign currency contracts held
2,577
Accrued expenses
76,192
- ------------
Total liabilities
2,582,661
- ------------
NET ASSETS $
86,932,903
============
NET ASSETS CONSIST OF:
Paid-in capital $
76,921,837
Undistributed net investment income
627,526
Accumulated net realized loss from sale of investments
and foreign currency transactions
(1,482,979)
Unrealized net appreciation of investments and
on translation of assets and liabilities in
foreign currencies
10,866,520
- ------------
NET ASSETS $
86,932,903
============
Class A Shares:
Net asset value and redemption price per share
(based on net assets of $73,053,069 and 6,902,881 shares
of beneficial interest outstanding)
$10.58
======
Maximum public offering price per share
(based on a net asset value per share of $10.58
divided by 0.96 for a 4% sales charge)
$11.02
======
Class B Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $3,523,595 and 335,352 shares of
beneficial interest outstanding)
$10.51
======
Institutional Class Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $10,356,239 and 975,696 shares of
beneficial interest outstanding)
$10.61
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income (net of foreign taxes of $184,904)
$1,425,368
Interest income
175,113
- ------------
Total income
1,600,481
- ------------
Expenses --
Investment advisory fee
834,624
Distribution and service plan fees:
Class A
181,764
Class B
17,731
Transfer agent services
421,984
Custodian fee
88,349
Administrative personnel and services
16,693
Printing and postage
101,429
Trust share registration costs
64,153
Auditing fees
2,051
Legal fees
4,440
Trustees' fees
5,897
Amortization of organization costs
10,220
Miscellaneous
3,721
- ------------
Total expenses before expense reimbursement
1,753,056
Expense reimbursement from investment advisor
(208,656)
- ------------
Net expenses
1,544,400
Net investment income
56,081
- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized loss on investment transactions
(734,820)
Net realized gain on foreign currency transactions
11,800
- ------------
Net realized loss on investments and
foreign currency transactions
(723,020)
Net change in unrealized appreciation of investments
5,622,100
Net change in unrealized depreciation on translation
of assets and liabilities in foreign currencies
1,653
- ------------
Net change in unrealized appreciation of
investments and on translation of assets and
liabilities in foreign currencies
5,623,753
- ------------
Net gain on investments and foreign currency
4,900,733
- ------------
Net increase in net assets resulting from operations $
4,956,814
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1998 and 1997
Year Year
Ended Ended
10/31/98 10/31/97
- ------------ ------------
<S>
<C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $
56,081 $ 118,799
Net realized gain (loss) on investments and
foreign currency transactions
(723,020) 1,182,206
Net change in unrealized appreciation or
depreciation of investments and on translation of
assets and liabilities in foreign currencies
5,623,753 2,471,475
- ------------ ------------
Net increase in net assets resulting from operations
4,956,814 3,772,480
- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A
(277,425) (257,604)
Class B
(1,167) --
Institutional Class
(30,222) --
Net realized gains:
Class A
(946,412) (247,812)
Class B
(3,960) --
Institutional Class
(102,770) --
- ------------ ------------
Total distributions
(1,361,956) (505,416)
- ------------ ------------
NET TRUST SHARE TRANSACTIONS:
Class A
1,779,490 11,601,520
Class B
3,598,446 25,000
Institutional Class
2,827,874 7,302,027
- ------------ ------------
Net increase in net assets from trust share transactions
8,205,810 18,928,547
- ------------ ------------
Net increase in net assets
11,800,668 22,195,611
NET ASSETS:
Beginning of period
75,132,235 52,936,624
- ------------ ------------
End of period (including undistributed net investment income
of $627,526 and $304,487, respectively) $
86,932,903 $ 75,132,235
============ ============
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, 1998
<S> <C>
ASSETS:
Investments in securities, at value (cost, $947,739,229)
$1,184,803,210
Cash
81,959
Receivable for investment securities sold
47,847,524
Dividend receivable
1,261,413
- --------------
Total assets
1,233,994,106
- --------------
LIABILITIES:
Payable for investment securities purchased
59,448,923
Accrued expenses
394,568
- --------------
Total liabilities
59,843,491
- --------------
NET ASSETS
$1,174,150,615
- --------------
NET ASSETS CONSIST OF:
Paid-in capital $
806,533,994
Undistributed net investment income
982,245
Accumulated net realized gain from sale of investments
129,570,395
Unrealized net appreciation of investments
237,063,981
- --------------
NET ASSETS
$1,174,150,615
- --------------
Class A Shares:
Net asset value and redemption price per share
(based on net assets of $1,120,515,790 and 40,103,110
shares of beneficial interest outstanding)
$27.94
======
Maximum public offering price per share
(based on a net asset value per share of $27.94
divided by 0.96 for a 4% sales charge)
$29.10
======
Class B Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $24,962,594 and 896,953 shares of
beneficial interest outstanding)
$27.83
======
Institutional Class Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $28,672,231 and 1,025,714 shares
of beneficial interest outstanding)
$27.95
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $
13,760,542
Interest income
1,301,985
- ------------
Total income
15,062,527
- ------------
Expenses --
Investment advisory fee
6,971,792
Distribution and service plan fees:
Class A
2,743,182
Class B
122,187
Transfer agent services
2,173,882
Custodian fee
198,187
Administrative personnel and services
226,247
Printing and postage
515,342
Trust share registration costs
128,872
Auditing fees
21,674
Legal fees
59,577
Trustees' fees
17,384
Miscellaneous
18,630
- ------------
Total expenses before expense reimbursement
13,196,956
Expense reimbursement from investment advisor
(3,393,704)
- ------------
Net expenses
9,803,252
- ------------
Net investment income
5,259,275
- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions
138,893,681
Net change in unrealized appreciation of investments
4,580,680
- ------------
Net gain on investments
143,474,361
- ------------
Net increase in net assets resulting from operations
$148,733,636
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1998 and 1997
Year Year
Ended Ended
10/31/98 10/31/97
- ------------ ------------
<S> <C>
<C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $
5,259,275 $ 6,855,260
Net realized gain on investments
138,893,681 99,986,085
Net change in unrealized appreciation or
depreciation of investments
4,580,680 101,725,926
- -------------- ------------
Net increase in net assets resulting from operations
148,733,636 208,567,271
- -------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A
(4,518,250) (7,140,586)
Class B
(964) --
Institutional Class
(138,214) --
Net realized gains:
Class A
(94,543,249) (58,599,470)
Class B
(156,376) --
Institutional Class
(1,494,748) --
- -------------- ------------
Total distributions
(100,851,801) (65,740,056)
- -------------- ------------
NET TRUST SHARE TRANSACTIONS:
Class A
97,627,202 63,484,688
Class B
24,995,614 25,000
Class Y
13,839,394 14,627,549
- -------------- ------------
Net increase in net assets from trust share transactions
136,462,210 78,137,237
- -------------- ------------
Net increase in net assets
184,344,045 220,964,452
NET ASSETS:
Beginning of period
989,806,570 768,842,118
- -------------- ------------
End of period (including undistributed net investment
income of $982,245 and $380,398, respectively)
$1,174,150,615 $989,806,570
============== ============
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, 1998
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $954,415,754)
$834,918,019
Cash
59,865
Receivable for investment securities sold
1,402,875
Interest and dividend receivable
21,444,927
- ------------
Total assets
857,825,686
- ------------
LIABILITIES:
Payable for investment securities purchased
1,110,034
Accrued expenses
291,277
- ------------
Total liabilities
1,401,311
- ------------
NET ASSETS
$856,424,375
============
NET ASSETS CONSIST OF:
Paid-in capital
$973,146,609
Undistributed net investment income
3,530,861
Accumulated net realized loss from sale of investments
(755,360)
Unrealized net depreciation of investments
(119,497,735)
- ------------
NET ASSETS
$856,424,375
============
Class A Shares:
Net asset value and redemption price per share
(based on net assets of $784,804,519 and 97,000,036 shares of
beneficial interest outstanding)
$ 8.09
======
Maximum public offering price per share
(based on a net asset value per share of $8.09
divided by 0.96 for a 4% sales charge)
$ 8.43
======
Class B Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $19,275,435 and 2,384,485 shares
of beneficial interest outstanding)
$ 8.08
======
Institutional Class Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $52,344,421 and 6,466,611 shares
of beneficial interest outstanding)
$ 8.09
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $
84,042,015
Dividend income
8,585,940
- ------------
Total income
92,627,955
- ------------
Expenses --
Investment advisory fee
5,720,730
Distribution and service plan fees:
Class A
2,114,739
Class B
103,778
Transfer agent services
1,425,789
Custodian fee
196,467
Administrative personnel and services
182,358
Printing and postage
343,521
Trust share registration costs
125,567
Auditing fees
18,455
Legal fees
49,441
Trustees' fees
16,588
Miscellaneous
18,998
- ------------
Total expenses before expense reimbursement
10,316,431
Expense reimbursement from investment advisor
(2,735,365)
- ------------
Net expenses
7,581,066
- ------------
Net investment income
85,046,889
- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions
2,027,575
Net change in unrealized depreciation of investments
(139,239,192)
- ------------
Net loss on investments
(137,211,617)
- ------------
Net change in net assets resulting from operations
$(52,164,728)
- ------------
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1998 and 1997
Year Year
Ended Ended
10/31/98 10/31/97
- ------------ ------------
<S> <C>
<C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $
85,046,889 $ 70,796,335
Net realized gain on investment transactions
2,027,575 16,963,856
Net change in unrealized appreciation or depreciation of investments
(139,239,192) 17,585,438
- ------------ ------------
Net change in net assets resulting from operations
(52,164,728) 105,345,629
- ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS:
Net investment income:
Class A
(78,057,192) (71,372,708)
Class B
(937,490) --
Institutional Class
(5,260,080) --
Net realized gains:
Class A
(15,571,878) (2,451,356)
Class B
(30,431) --
Institutional Class
(988,918) --
- ------------ ------------
Total distributions
(100,845,989) (73,824,064)
- ------------ ------------
NET TRUST SHARE TRANSACTIONS:
Class A
113,623,772 77,340,401
Class B
22,079,012 25,000
Class Y
10,782,605 50,915,801
- ------------ ------------
Net increase in net assets from trust share transactions
146,485,389 128,281,202
- ------------ ------------
Net change in net assets
(6,525,328) 159,802,767
NET ASSETS:
Beginning of period
862,949,703 703,146,936
- ------------ ------------
End of period (including undistributed net investment
income of $3,530,861 and $2,736,361, respectively)
$856,424,375 $862,949,703
============ ============
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, 1998
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $744,654,229)
$762,110,241
Cash
64,995
Receivable for investment securities sold
18,433
Interest and dividend receivable
13,270,529
- ------------
Total assets
775,464,198
- ------------
LIABILITIES:
Open options written, at value
(premium received $85,380)
62,500
Payable for investment securities purchased
2,496,634
Accrued expenses
203,512
Payable for variation margin on open futures contracts
84,745
- ------------
Total liabilities
2,847,391
- ------------
NET ASSETS
$772,616,807
============
NET ASSETS CONSIST OF:
Paid-in capital
$791,107,301
Undistributed net investment income
1,093,014
Accumulated net realized loss from sale of investments
(36,834,238)
Unrealized net appreciation of investments
17,250,730
- ------------
NET ASSETS
$772,616,807
============
Class A Shares:
Net asset value and redemption price per share
(based on net assets of $739,072,290 and 84,223,981
shares of beneficial interest outstanding)
$ 8.78
======
Maximum public offering price per share (based on a net asset
value per share of $8.78 divided by 0.96 for a 4% sales charge)
$ 9.15
======
Class B Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $6,905,437 and 788,517 shares
of beneficial interest outstanding)
$ 8.76
======
Institutional Class Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $26,639,080 and 3,036,799 shares
of beneficial interest outstanding)
$ 8.77
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $
52,808,292
Dividend income
639,324
- ------------
Total income
53,447,616
- ------------
Expenses --
Investment advisory fee
4,538,239
Distribution and service plan fees:
Class A
1,855,231
Class B
31,519
Transfer agent services
1,223,151
Custodian fee
164,705
Administrative personnel and services
153,504
Printing and postage
290,156
Trust share registration costs
69,259
Auditing fees
18,218
Legal fees
45,017
Trustees' fees
16,560
Miscellaneous
16,443
- ------------
Total expenses before expense reimbursement
8,422,002
Expense reimbursement from investment advisor
(2,302,559)
- ------------
Net expenses
6,119,443
- ------------
Net investment income
47,328,173
- ------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions
8,333,220
Net realized gain on closed or expired option
contracts written
608,260
Net realized gain on closed futures contracts
22,457
- ------------
Net realized gain on investments
8,963,937
Net change in unrealized appreciation of investments
5,865,596
- ------------
Net gain on investments
14,829,533
- ------------
Net increase in net assets resulting from operations $
62,157,706
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1998 and 1997
Year Year
Ended Ended
10/31/98 10/31/97
- ------------ ------------
<S> <C>
<C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $
47,328,173 $ 52,363,161
Net realized gain on investment transactions
8,963,937 3,329,161
Net change in unrealized appreciation or
depreciation of investments
5,865,596 6,682,802
- ------------ ------------
Net increase in net assets resulting from operations
62,157,706 62,375,124
- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A
(46,213,710) (52,271,463)
Class B
(178,145) --
Institutional Class
(1,439,594) --
- ------------ ------------
Total distributions
(47,831,449) (52,271,463)
- ------------ ------------
NET TRUST SHARE TRANSACTIONS:
Class A
(34,562,158) (121,262,283)
Class B
6,819,434 25,000
Institutional Class
8,015,688 18,175,170
- ------------ ------------
Net change in net assets from trust share transactions
(19,727,036) (103,062,113)
- ------------ ------------
Net change in net assets
(5,400,779) (92,958,452)
NET ASSETS:
Beginning of period
778,017,586 870,976,038
- ------------ ------------
End of period (including undistributed net investment
income of $1,118,293 and $1,619,914, respectively)
$772,616,807 $778,017,586
============ ============
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, 1998
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $533,317,832)
$604,054,757
Cash
25,190
Interest receivable
9,061,583
- ------------
Total assets
613,141,530
- ------------
LIABILITIES:
Accrued expenses
128,221
- ------------
NET ASSETS
$613,013,309
============
NET ASSETS CONSIST OF:
Paid-in capital
$543,992,000
Undistributed net investment income
1,940,344
Accumulated net realized loss from sale of investments
(3,655,960)
Unrealized net appreciation of investments
70,736,925
- ------------
NET ASSETS
$613,013,309
============
Class A Shares:
Net asset value and redemption price per share
(based on net assets of $605,041,203 and 66,415,340
shares of beneficial interest outstanding)
$ 9.11
======
Maximum public offering price per share
(based on a net asset value per share of
$9.11 divided by 0.96 for a 4% sales charge)
$ 9.49
======
Class B Shares:
Net asset value, redemption price and offering price
per share (based on net assets of $3,958,329 and 435,463
shares of beneficial interest outstanding)
$ 9.09
======
Institutional Class Shares:
Net asset value, redemption price and offering price per
share (based on net assets of $4,013,777 and 440,672
shares of beneficial interest outstanding)
$ 9.11
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1998
<S> <C>
INVESTMENT INCOME:
Income --
Interest income
$33,492,213
- ------------
Expenses --
Investment advisory fee
3,439,413
Distribution and service plan fees:
Class A
1,486,017
Class B
19,172
Transfer agent services
480,276
Custodian fee
156,793
Administrative personnel and services
120,068
Printing and postage
122,268
Trust share registration costs
72,308
Auditing fees
13,616
Legal fees
34,357
Trustees' fees
16,516
Miscellaneous
12,105
- ------------
Total expenses before expense reimbursement
5,972,904
Expense reimbursement from investment advisor
(1,801,021)
- ------------
Net expenses
4,171,883
- ------------
Net investment income
29,320,330
- ------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions
2,170,541
Net change in unrealized appreciation of investments
15,241,526
- ------------
Net gain on investments
17,412,067
- ------------
Net increase in net assets resulting from operations
$46,732,397
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1998 and 1997
Year Year
Ended Ended
10/31/98 10/31/97
- ------------ ------------
<S>
<C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income
$ 29,320,330 $ 30,656,926
Net realized gain on investment transactions
2,170,541 2,152,165
Net change in unrealized appreciation or depreciation of investments
15,241,526 15,004,813
- ------------ ------------
Net increase in net assets resulting from operations
46,732,397 47,813,904
- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A
(29,169,677) (30,372,431)
Class B
(82,863) --
Institutional Class
(205,936) --
- ------------ ------------
Total distributions
(29,458,476) (30,372,431)
- ------------ ------------
NET TRUST SHARE TRANSACTIONS:
Class A
283,944 (39,259,157)
Class B
3,880,132 25,000
Class Y
(287,112) 4,183,098
- ------------ ------------
Net change in net assets from trust share transactions
3,876,964 (35,051,059)
- ------------ ------------
Net change in net assets
21,150,885 (17,609,586)
NET ASSETS:
Beginning of period
591,862,424 609,472,010
- ------------ ------------
End of period (including undistributed net investment income
of $1,940,344 and $2,081,584, respectively)
$613,013,309 $591,862,424
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Money Market Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1998
<S> <C>
ASSETS:
Investments in securities, at amortized cost and value
$537,985,637
Cash
1,637,948
Interest receivable
1,357,490
- ------------
Total assets
540,981,075
- ------------
LIABILITIES:
Dividends payable
102,550
Accrued expenses
306,581
- ------------
Total liabilities
409,131
- ------------
NET ASSETS
$540,571,944
============
NET ASSETS CONSIST OF:
Paid-in capital
$540,571,944
============
Class A Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $493,160,255 and 493,160,255 shares
of beneficial interest outstanding) $
1.00
======
Class B Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $81,399 and 81,399 shares
of beneficial interest outstanding) $
1.00
======
Institutional Class Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $47,330,290 and 47,330,290 shares
of beneficial interest outstanding) $
1.00
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1998
INVESTMENT INCOME:
<S> <C>
Income --
Interest income
$28,693,251
- ------------
Expenses --
Investment advisory fee
2,530,134
Service plan fees:
Class A
1,139,718
Class B
83
Transfer agent services
1,549,977
Custodian fee
386,055
Administrative personnel and services
101,269
Printing and postage
510,591
Trust share registration costs
121,816
Auditing fees
10,342
Legal fees
28,464
Trustees' fees
8,623
Miscellaneous
10,080
- ------------
Total expenses before expense reimbursement
6,397,152
Expense reimbursement from investment advisor
(1,712,946)
- ------------
Net expenses
4,684,206
- ------------
Net investment income
$24,009,045
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1998 and 1997
Year Year
Ended Ended
10/31/98 10/31/97
- ------------ ------------
<S> <C>
<C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income
$24,009,045 $20,527,861
- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A
(21,502,662) (20,527,861)
Class B
(1,573) --
Institutional Class
(2,504,810) --
- ------------ ------------
Total distributions
(24,009,045) (20,527,861)
- ------------ ------------
NET TRUST SHARE TRANSACTIONS:
Class A
76,881,422 (1,329,756)
Class B
56,399 25,000
Institutional Class
(5,589,690) 52,919,980
- ------------ ------------
Net increase in net assets from trust share transactions
71,348,131 51,615,224
- ------------ ------------
Net increase in net assets
71,348,131 51,615,224
NET ASSETS:
Beginning of period
469,223,813 417,608,589
- ------------ ------------
End of period
$540,571,944 $469,223,813
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
Notes to Financial Statements
October 31, 1998
(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
eight series (the "Fund(s)"), each with its own investment objective and
policies. The eight Funds of the Trust are: Lutheran Brotherhood
Opportunity Growth Fund, Lutheran Brotherhood Mid Cap 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 Mid Cap Growth Fund's registration
was declared effective by the Securities and Exchange Commission and
began operations as a series of The Lutheran Brotherhood Family of Funds
on May 30, 1997.
Effective October 31, 1997, the Funds implemented a multiple class
structure whereby each Fund is authorized to offer three classes of
shares: Class A, Class B and Institutional Class. The shares outstanding
prior to October 31, 1997 were designated as Class A shares. The three
classes of shares differ principally in their respective shareholder
servicing and distribution expenses and arrangements. All three classes
of shares have identical rights to earnings, assets and voting
privileges, except for class specific expenses and exclusive rights to
vote on matters affecting only individual classes.
(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. Over-the-counter securities and listed
securities for which no price is readily available are valued at prices
within the range of the current bid and asked prices considered best to
represent the value in the circumstances, based on quotes that are
obtained from an independent pricing service approved by the Board of
Trustees. 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. Securities which cannot be valued by the
approved pricing service are valued using valuations obtained from
dealers that make markets in the securities. 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.
Foreign Currency Translations
The accounting records of the Fund are maintained in U.S. dollars.
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 Fund does
not separately report the effect of changes in foreign exchange rates
from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Federal Income Taxes
No provision has been made for income taxes because the Fund's policy is
to qualify as a regulated investment company under the Internal Revenue
Code and distribute substantially all of its taxable income on a timely
basis. It is also the intention of the Funds to distribute an amount
sufficient to avoid imposition of any federal excise tax. Each Fund is
treated as a separate taxable entity for federal income tax purposes.
Securities Transactions, Investment Income and Expenses
Securities transactions are accounted for on trade date. Realized gains
and losses on investments and unrealized appreciation and depreciation
are determined on an identified cost basis, which is the same basis used
for federal income tax purposes.
Interest income is accrued daily and 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.
Estimated expenses are accrued daily. Each Fund is charged for the
operating expenses that are directly attributable to it. Common expenses
of the Trust are either shared equally or allocated among the Funds
based on the relative net assets of each Fund to the combined net
assets, or via other allocation methodologies.
Realized and unrealized gains and losses and net investment income,
other than class specific expenses, are allocated daily to each class of
shares based upon the relative proportion of net assets of each class.
Operating expenses directly attributable to a specific class are charged
against the operations of that class.
Distributions to Shareholders
Dividends from net investment income, if available, are declared and
paid annually for the Opportunity Growth, Mid Cap 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.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. 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, 1998, accumulated net
realized gain or loss from the sale of investments was increased
(decreased) by $33,901, $269,962, ($575,771), ($9,000,000),
($1,721,568), $23,624, and $3,095, respectively, for the Opportunity
Growth, Mid Cap Growth, World Growth, LB Fund, High Yield, Income and
Municipal Bond Funds; undistributed net investment income was increased
(decreased) by $1,355,100, $123,060, $575,771, $2,373, ($23,624), and
($3,095), respectively, for the Opportunity Growth, Mid Cap Growth,
World Growth, High Yield, Income and Municipal Bond Funds; and net
increases (decreases) of ($1,389,001), ($393,022), $9,000,000, and
$1,719,195, respectively, for the Opportunity Growth, Mid Cap Growth, LB
Fund, and High Yield 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.
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 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.
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 $193,594, from such fees for the
year ended October 31, 1998.
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.
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.
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.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates.
(3) FEES AND COMPENSATION PAID TO AFFILIATES
Investment Advisory Fees
Each Fund pays Lutheran Brotherhood Research Corp. (LB Research), 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 , 0.65% for the next $150 million, 0.60% for
the next $250 million, 0.55% for the next $500 million, and 0.50% for
net assets over $1 billion; Mid Cap Growth Fund, 0.70% for the first
$100 million, 0.65% for the next $150 million, 0.60% for the next $250
million, 0.55% for the next $500 million, and 0.50% for net assets over
$1 billion; World Growth Fund, 1.25% for the first $20 million, 1.10%
for the next $30 million, and 1.0% of net assets over $50 million; LB
Fund and High Yield Fund, 0.65% for the first $500 million, 0.60% for
the next $500 million, and 0.55% for net assets over $1 billion; Income
Fund, 0.60% for the first $500 million, 0.575% for the next $500
million, and 0.55% for net assets over $1 billion; Municipal Bond Fund,
0.575% for the first $500 million, 0.5625% for the next $500 million,
and 0.55% for net assets over $1 billion; Money Market Fund, 0.50% for
the first $500 million, 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 net
assets over $2 billion.
Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee for each of the Funds
equal to 0.25% of the average daily net assets of the Fund. This 0.25%
waiver applies to the contractual rates of compensation in the previous
paragraph at each level of average daily net assets.
Effective January 1, 1997, LB Research has also voluntarily agreed to
waive 5 basis points (0.05%) on an annual basis from the advisory fees
payable by the LB Fund, LB High Yield Fund, LB Income Fund and LB
Municipal Bond Fund. These voluntary partial waivers of advisory fees
may be discontinued at any time.
LB Research has further undertaken to the LB Mid Cap Growth Fund to
waive its advisory fee and if necessary, to bear certain expenses
associated with operating the Fund in order to limit the Fund's total
operating expenses for Class A shares, Class B shares and Institutional
Class shares to an annual rate of 1.95%, 2.70% and 1.70%, respectively,
of the average daily net assets of the relevant class. LB Research has
further undertaken to the LB Money Market Fund, to waive its advisory
fees in order to limit LB Money Market Fund's total operating expenses
for the Class A, Class B and Institutional class shares to 0.95%, 0.95%,
and 0.70%, respectively, of the average net assets of the relevant
class.
LB Research pays Rowe Price - Fleming International, Inc. an annual sub-
advisory fee for the performance of sub-advisory services for the LB
World Growth Fund. LB Research 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. The total dollar amount paid by
LB Research to Rowe Price Fleming under the investment sub-advisory
contract for LB World Growth Fund for the year ended October 31, 1998
was $417,312.
Effective May 15, 1998, LB Research commenced to pay T. Rowe Price
Associates an annual sub-advisory fee for the performance of sub-
advisory services for the LB Opportunity Growth Fund. The fee payable
will be equal to 0.30% of that Fund's average daily net assets up to
$500 million, 0.25% for the next $500 million and 0.20% for net assets
over $1 billion. The total dollar amount paid by LB Research to T. Rowe
Price Associates under the investment sub-advisory contract for LB
Opportunity Growth Fund for the year ended October 31, 1998 was
$330,425.
Distribution and Shareholder Servicing Plans
The Trust has adopted a Distribution Plan (the "12b-1 Plan") under Rule
12b-1 of the 1940 Act with respect to the Class B shares of each Fund
except for the LB Money Market Fund. Under the 12b-1 Plan, the Funds
each pay Lutheran Brotherhood Securities Corp. (LB Securities) at an
annual rate of 0.75% of the average daily net assets of its Class B
shares. The fees collected under the 12b-1 Plan are used by LB
Securities to finance activities primarily intended to result in the
sale of Class B shares of the Fund. For the year ended October 31, 1998,
LB Securities received aggregate 12b-1 fees of $264,302 from the Trust.
In addition, the Trust has adopted shareholder servicing plans for Class
A and Class B shares of each of the Funds (the Shareholder Servicing
Plans"). Pursuant to the Shareholder Servicing Plans, each Fund pays LB
Securities an annual fee of 0.25% of the average daily net assets of the
Class A and Class B shares for financing various shareholder servicing
activities. For the year ended October 31, 1998, LB Securities received
aggregate shareholder servicing fees of $10,318,899 from the Trust.
Sales Charges and Other Fees
For the year ended October 31, 1998, LB Securities, the Trust's
distributor, received $705,080 of aggregate underwriting concessions
from sales of Class A shares. LB Securities also received $41,434 of
aggregate contingent deferred sales charges from redemption of Class B
shares for the year ended October 31, 1998. Sales charges are not an
expense of the Trust and are not reflected in the financial statements
of any of the Funds.
LB Securities also received fees pursuant to an agreement to provide
certain administrative personnel and services to the Funds. For the year
ended October 31, 1998, LB Securities received aggregate fees for
administrative personnel and services of $859,110 from the Trust.
In addition, LB Securities provides the Funds with transfer agent
services pursuant to an agreement. For the year ended October 31, 1998,
LB Securities received aggregate fees for transfer agent services of
$8,796,175 from the Trust.
The Funds have adopted a trustee fee deferral plan which allows the
Trustees to defer the receipt of all or a portion of their Trustee Fees.
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 LB Research and LB Securities; however, they receive no
compensation from the Funds.
(4) DISTRIBUTIONS FROM CAPITAL GAINS
During the year ended October 31, 1998, distributions from net realized
capital gains of $10,517,677, $424,876, $1,053,142, $96,194,373 and
$16,591,227, were paid by the LB Opportunity Growth Fund, LB Mid Cap
Growth Fund, LB World Growth Fund, LB Fund and the LB High Yield Fund,
respectively. These distributions related to net capital gains realized
during the prior fiscal year ended October 31, 1997.
(5) CAPITAL LOSS CARRYOVER
During the fiscal year ended October 31, 1998, the LB Income Fund
utilized $8,789,839 of its capital loss carryover, and the LB Municipal
Bond Fund utilized $2,173,636 of its capital loss carryover against net
realized capital gains.
At October 31, 1998, the LB Opportunity Growth Fund, LB Mid Cap Growth
Fund, LB World Growth Fund, LB Income Fund and the LB Municipal Bond
Fund had accumulated net realized capital loss carryovers expiring as
follows:
<TABLE>
<CAPTION>
Municipal
Opportunity Mid Cap World Income Bond
Year Growth Growth Growth Fund Fund
- ----- ------------ ---------- -------- -----------
- ----------
<S> <C> <C> <C> <C> <C>
2002 -- -- -- $28,292,105
$1,287,686
2003 -- -- -- --
134,719
2004 -- -- -- 8,472,280
- --
2006 21,168,153 1,667,030 510,969 --
- --
------------ ---------- -------- -----------
- ----------
Total $21,168,153 $1,667,030 $510,969 $36,764,385
$1,422,405
=========== ========== ======== ===========
==========
</TABLE>
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 $74,279, $315,225, $972,011, $1,946,006,
$755,361, $69,850, and $2,233,555 existed between net realized capital
gains or losses for financial statement and tax purposes as of October
31, 1998 for the Opportunity Growth, Mid Cap 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.
(6) 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, 1998. The LB Fund and
the High Yield Fund designate $9,000,000 and $1,721,568, respectively,
as capital gain distributions resulting from earnings and profits
distributed to shareholders on redemption of fund shares during the
year.
During the fiscal year ended October 31, 1998, the LB World Growth Fund
generated $1,610,272 of foreign source income on which $184,904 of
foreign taxes were paid. The LB World Growth Fund elects to pass foreign
taxes through to shareholders for their 1998 tax returns. Updated data
will be sent with 1998 form 1099s to provide shareholders with
information to claim either a foreign tax credit or to take a foreign
tax deduction on their 1998 income tax returns.
(7) INVESTMENT TRANSACTIONS
Purchases and Sales of Investment Securities
For the year ended October 31, 1998, 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 $382,699 $402,834
Mid Cap Growth Fund 145,692 117,327
World Growth Fund 24,817 16,096
LB Fund 672,896 625,894
High Yield 704,018 628,085
Income 371,596 475,441
Municipal Bond 80,093 85,954
Purchases and sales of U.S. Government securities were:
$thousands
----------------------------
Fund Purchases Sales
- ------------------- -------- --------
LB Fund $ 2,951 $ 6,601
Income 392,623 254,984
Investments in Restricted Securities
The High Yield Fund owns restricted securities that were purchased in
private placement transactions without registration under the Securities
Act of 1933. Unless such securities subsequently become registered, they
generally may be resold only in privately negotiated transactions with a
limited number of purchasers. The aggregate value of restricted
securities was $5,409 at October 31, 1998, which represented 0.001% of
net assets of the High Yield Fund.
Investments in High Yielding Securities
The High Yield Fund invests primarily in high yielding fixed income
securities. The Income Fund may from time to time invest up to 25% of
its total assets in high-yielding 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.
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.
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 ended October 31, 1998 were as
follows:
Opportunity Growth
-----------------------------
Number of Premium
Contracts Amount
------------ ------------
Balance at October 31, 1997 1,791 $ 751,131
Opened -- --
Closed (179) (96,430)
Expired (136) (55,052)
Exercised (1,476) (599,649)
------------ ------------
Balance at October 31, 1998 -- $ --
============ ============
Income Fund
-----------------------------
Number of Premium
Contracts Amount
------------ ------------
Balance at October 31, 1997 400 $ 133,272
Opened 4,750 1,754,213
Closed (4,366) (1,603,256)
Expired (584) (198,849)
Exercised -- --
------------ ------------
Balance at October 31, 1998 200 $ 85,380
============ ============
(8) SHARES OF BENEFICIAL INTEREST
The Master Trust Agreement permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest
($0.001 par value) of all of the Funds. Transactions in Fund shares were
as follows:
<TABLE>
<CAPTION>
LB Opportunity Growth Fund:
Class A
Class B (*) Institutional Class (*)
---------------------------
- -------------------------- ------------------------------
Year Ended October 31, 1997 Shares Amount Shares
Amount Shares Amount
- --------------------------- ------------ ------------ -----------
- ------------ --------------- ------------
<S> <C> <C> <C>
<C> <C> <C>
Sold 5,905,439 $ 69,165,678 1,928
$ 25,000 268,205 $ 3,478,617
Dividends and distributions
reinvested 2,555,559 29,593,578 --
- -- -- --
Redeemed (4,240,983) (50,512,106) --
- -- -- --
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change 4,220,015 $ 48,247,150 1,928
$ 25,000 268,205 $ 3,478,617
============== ============ ===========
============ =============== ============
Year Ended October 31, 1998
- ---------------------------
Sold 3,336,932 $ 37,152,820 458,678
$ 5,110,228 434,351 $ 4,632,322
Dividends and distributions
reinvested 945,910 10,311,584 1,587
17,289 7,970 86,876
Redeemed (5,968,880) (66,607,177) (10,644)
(116,582) (131,340) (1,240,215)
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change (1,686,038) $(19,142,773) 449,621
$ 5,010,935 310,981 $ 3,478,983
============== ============ ===========
============ =============== ============
LB Mid Cap Growth Fund:
Class A
Class B (*) Institutional Class (*)
For the period from May 30, 1997 ---------------------------
- -------------------------- ------------------------------
(effective date) through
October 31, 1997 Shares Amount Shares
Amount Shares Amount
- --------------------------- ------------ ------------ -----------
- ------------ --------------- ------------
Sold 1,450,459 $ 14,716,873 2,420
$ 25,000 51,634 $ 533,378
Dividends and distributions
reinvested -- -- --
- -- -- --
Redeemed (91,390) (950,501) --
- -- -- --
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change 1,359,069 $ 13,766,372 2,420
$ 25,000 51,634 $ 533,378
============== ============ ===========
============ =============== ============
Year Ended October 31, 1998
- ---------------------------
Sold 2,568,750 $ 26,216,558 712,260
$ 7,245,472 18,123 $ 186,772
Dividends and distributions
reinvested 103,725 977,092 3,674
34,580 4,202 39,582
Redeemed (561,731) (5,567,363) (16,727)
(158,648) (7) (58)
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change 2,110,744 $ 21,626,287 699,207
$ 7,121,404 22,318 $ 226,296
============== ============ ===========
============ =============== ============
LB World Growth Fund:
Class A
Class B (*) Institutional Class (*)
---------------------------
- -------------------------- ------------------------------
Year Ended October 31, 1997 Shares Amount Shares
Amount Shares Amount
- --------------------------- ------------ ------------ -----------
- ------------ --------------- ------------
Sold 2,771,231 $ 28,247,203 2,478
$ 25,000 723,689 $ 7,302,027
Dividends and distributions
reinvested 45,757 442,919 --
- -- -- --
Redeemed (1,679,423) (17,088,602) --
- -- -- --
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change 1,137,565 $ 11,601,520 2,478
$ 25,000 723,689 $ 7,302,027
============== ============ ===========
============ =============== ============
Year Ended October 31, 1998
- ---------------------------
Sold 1,585,145 $ 16,928,917 343,460
$ 3,708,212 254,464 $ 2,856,503
Dividends and distributions
reinvested 124,871 1,213,782 476
4,625 625 6,083
Redeemed (1,529,792) (16,363,209) (11,062)
(114,391) (3,083) (34,712)
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change 180,224 $ 1,779,490 332,874
$ 3,598,446 252,006 $ 2,827,874
============== ============ ===========
============ =============== ============
LB Fund:
Class A
Class B (*) Institutional Class (*)
---------------------------
- -------------------------- ------------------------------
Year Ended October 31, 1997 Shares Amount Shares
Amount Shares Amount
- --------------------------- ------------ ------------ -----------
- ------------ --------------- ------------
Sold 4,207,081 $105,635,206 927
$ 25,000 542,163 $ 14,627,549
Dividends and distributions
reinvested 2,796,737 64,235,302 --
- -- -- --
Redeemed (4,178,880) (106,385,820) --
- -- -- --
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change 2,824,938 $ 63,484,688 927
$ 25,000 542,163 $ 14,627,549
============== ============ ===========
============ =============== ============
Year Ended October 31, 1998
- ---------------------------
Sold 4,669,377 $129,880,138 914,210
$ 25,505,223 492,025 $ 14,204,214
Dividends and distributions
reinvested 3,947,144 97,328,572 6,446
158,266 39,190 972,301
Redeemed (4,660,180) (129,581,508) (24,630)
(667,875) (47,664) (1,337,121)
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change 3,956,341 $ 97,627,202 896,026
$ 24,995,614 483,551 $ 13,839,394
============== ============ ===========
============ =============== ============
LB High Yield Fund:
Class A
Class B (*) Institutional Class (*)
---------------------------
- -------------------------- ------------------------------
Year Ended October 31, 1997 Shares Amount Shares
Amount Shares Amount
- --------------------------- ------------ ------------ -----------
- ------------ --------------- ------------
Sold 19,214,316 $178,869,458 2,610
$ 25,000 5,314,802 $ 50,915,801
Dividends and distributions
reinvested 5,475,615 50,814,451 --
- -- -- --
Redeemed (16,218,071) (152,343,508) --
- -- -- --
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change 8,471,860 $ 77,340,401 2,610
$ 25,000 5,314,802 $ 50,915,801
============== ============ ===========
============ =============== ============
Year Ended October 31, 1998
- ---------------------------
Sold 18,172,832 $168,786,677 2,353,144
$ 21,833,102 1,133,496 $ 10,601,155
Dividends and distributions
reinvested 7,301,475 66,955,002 85,254
761,182 214,572 1,963,594
Redeemed (13,270,623) (122,117,907) (56,523)
(515,272) (196,259) (1,782,144)
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change 12,203,684 $113,623,772 2,381,875
$ 22,079,012 1,151,809 $ 10,782,605
============== ============ ===========
============ =============== ============
LB Income Fund:
Class A
Class B (*) Institutional Class (*)
---------------------------
- -------------------------- ------------------------------
Year Ended October 31, 1997 Shares Amount Shares
Amount Shares Amount
- --------------------------- ------------ ------------ -----------
- ------------ --------------- ------------
Sold 4,334,735 $ 36,746,239 2,904
$ 25,000 2,110,937 $ 18,175,170
Dividends and distributions
reinvested 4,686,641 39,615,137 --
- -- -- --
Redeemed (23,296,755) (197,623,659) --
- -- -- --
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change (14,275,379) $(121,262,283) 2,904
$ 25,000 2,110,937 $ 18,175,170
============== ============= ===========
============ =============== ============
Year Ended October 31, 1998
- ---------------------------
Sold 6,258,736 $ 54,414,119 789,422
$ 6,853,828 1,263,720 $ 10,956,014
Dividends and distributions
reinvested 4,108,055 35,564,485 18,414
159,786 113,092 979,995
Redeemed (14,352,811) (124,540,762) (22,223)
(194,180) (450,950) (3,920,321)
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change (3,986,020) $(34,562,158) 785,613
$ 6,819,434 925,862 $ 8,015,688
============== ============ ===========
============ =============== ============
LB Municipal Fund:
Class A
Class B (*) Institutional Class (*)
---------------------------
- -------------------------- ------------------------------
Year Ended October 31, 1997 Shares Amount Shares
Amount Shares Amount
- --------------------------- ------------ ------------ -----------
- ------------ --------------- ------------
Sold 3,478,212 $ 30,173,502 2,825
$ 25,000 472,666 $ 4,183,098
Dividends and distributions
reinvested 2,700,258 23,380,685 --
- -- -- --
Redeemed (10,686,508) (92,813,344) --
- -- -- --
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change (4,508,038) $(39,259,157) 2,825
$ 25,000 472,666 $ 4,183,098
============== ============ ===========
============ =============== ============
Year Ended October 31, 1998
- ---------------------------
Sold 4,760,068 $ 42,825,003 443,559
$ 3,980,577 9,238 $ 82,709
Dividends and distributions
reinvested 2,483,486 22,294,735 8,016
72,063 22,290 200,033
Redeemed (7,215,856) (64,835,794) (18,937)
(172,508) (63,522) (569,854)
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change 27,698 $ 283,944 432,638
$ 3,880,132 (31,994) $ (287,112)
============== ============ ===========
============ =============== ============
LB Money Market Fund:
Class A
Class B (*) Institutional Class (*)
---------------------------
- -------------------------- ------------------------------
Year Ended October 31, 1997 Shares Amount Shares
Amount Shares Amount
- --------------------------- ------------ ------------ -----------
- ------------ --------------- ------------
Sold 754,520,379 $754,520,379 25,000
$ 25,000 52,919,980 $ 52,919,980
Dividends and distributions
reinvested 19,916,469 19,916,469 --
- -- -- --
Redeemed (775,766,604) (775,766,604) --
- -- -- --
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change (1,329,756) $ (1,329,756) 25,000
$ 25,000 52,919,980 $ 52,919,980
============== ============ ===========
============ =============== ============
Year Ended October 31, 1998
- ---------------------------
Sold 847,057,988 $847,057,988 69,710
$ 69,710 58,777,946 $ 58,777,946
Dividends and distributions
reinvested 21,123,289 21,123,289 369
369 2,433,544 2,433,544
Redeemed (791,299,855) (791,299,855) (13,680)
(13,680) (66,801,180) (66,801,180)
-------------- ------------ -----------
- ------------ --------------- ------------
Net Change 76,881,422 $ 76,881,422 56,399
$ 56,399 (5,589,690) $ (5,589,690)
============== ============ ===========
============ =============== ============
*Denotes transactions in Class B and Institutional Class Shares that
were recorded by the Fund on October 31, 1997, the inception date of the
new offerings.
</TABLE>
(9) 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 MID CAP 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
Herbert F. Eggerding, Jr.
Noel K. Estenson
Jodi L. Harpstead
Richard A. Hauser
Connie M. Levi
Bruce J. Nicholson
Ruth E. Randall
OFFICERS
Rolf F. Bjelland Brenda J. Pederson
Chairman and President Vice President
Wade M. Voigt Richard B. Ruckdashel
Treasurer Vice President
Otis F. Hilbert John C. Bjork
Secretary and Vice President Assistant Secretary
Randall L. Boushek James M. Odland
Vice President Assistant Secretary
Frederick P. Johnson Rand E. Mattsson
Vice President Assistant Treasurer
James R. Olson
Vice President
This report is authorized for distribution to prospective
investors only when preceded or accompanied by the
current prospectuses.
Bulk Rate
U.S. Postage
PAID
Minneapolis, MN
Permit No.1529
We're Listening to You!
In response to shareholder concerns regarding multiple mailings, we are
sending one Lutheran Brotherhood Family of Funds Prospectus and Annual
Report to each household. This consolidation helps reduce printing and
postage costs, thereby saving shareholders' money. If you wish to
receive an additional copy of this year's Prospectus and
Annual Report, call us toll free at 1-800-990-6290.
[LUTHERAN BROTHERHOOD LOGO OMITTED]
Lutheran Brotherhood Securities Corp.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
SC 92SH
[GRAPHIC OF PRINTED WITH SOY INK LOGO OMITTED]
<PAGE>
Exhibit (i)
The Lutheran Brotherhood Family of Funds
625 Fourth Avenue South
Minneapolis, Minnesota 55415
December 21, 1998
The Lutheran Brotherhood Family of Funds
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Gentlemen:
As counsel to the Lutheran Brotherhood Family of Funds, a business trust
organized under the laws of the State of Delaware (the "Trust"), I have been
asked to render an opinion in connection with Post-Effective Amendment No.
65 under the Securities Act of 1933 to the Registration Statement on Form N-
1A (Securities Act File No. 2-25984) to be filed by the Trust with the
Securities and Exchange Commission (as amended, the "Registration
Statement").
I wish to advise you that I have examined such documents and questions of
law as I have deemed necessary for purposes of this opinion. Based upon the
foregoing, I am of the opinion that:
1. The Trust has been duly organized and is validly existing pursuant to
the laws of the State of Delaware;
2. In its pre-effective Registration Statement, the Trust elected to
register an indefinite number of shares pursuant to the provision of Rule
24f-2; and
3. The shares of beneficial interest of the Funds which are described in
the foregoing Registration Statement will, when sold in accordance with the
terms of the Prospectus and Statement of Additional Information in effect at
the time of the sale, be legally issued, fully paid and non-assessable by
the Trust.
I consent to this opinion being filed as an exhibit to the foregoing
Registration Statement.
Sincerely,
/s/ John C. Bjork
John C. Bjork
Counsel
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-
Effective Amendment No. 65 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated December 11, 1998 relating to
the financial statements and financial highlights appearing in the October
31, 1998 Annual Report to Shareholders of the Lutheran Brotherhood Family of
Funds which is also incorporated by reference into the Registration
Statement. We also consent to the references to us under the headings
"Financial Highlights" in the Prospectus and under the heading "Independent
Accountants" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
Price Waterhouse LLP
Minneapolis, Minnesota
December 21, 1998
<PAGE> EXHIBIT (p)
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
Power of Attorney of Trustees and Officers
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned trustees and/or
officers of The Lutheran Brotherhood Family of Funds, a Delaware business
trust, does hereby make, constitute and appoint John C. Bjork, Otis F.
Hilbert, and James M. Odland, and each or any of them, the undersigned's
true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such trustee and/or officer of such Company
to a Registration Statement or Registration Statements, on Form N-1A or
other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by such Company with the Securities and
Exchange Commission, Washington, D.C., in connection with the registration
under the Securities Act of 1933, as amended, and the Investment Company Act
of 1940, as amended, of shares of such Company, and to file the same, with
all exhibits thereto and other supporting documents, with such Commission,
granting unto such attorneys-in-fact, and each of them, full power and
authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand
this 3rd day of December, 1998.
* *
- ------------------------------------ -----------------------------------
Rolf F. Bjelland Richard A. Hauser
President (Chief Executive Officer), Trustee
Chairman and Trustee
* *
- ------------------------------------ -----------------------------------
Wade M. Voigt Connie M. Levi
Treasurer (Principal Financial Officer) Trustee
* *
- ------------------------------------ -----------------------------------
Herbert F. Eggerding, Jr. Bruce J. Nicholson
Trustee Trustee
* *
- ------------------------------------ -----------------------------------
Noel K. Estenson Ruth E. Randall
Trustee Trustee
*
- ------------------------------------
Jodi L. Harpstead
Trustee
<PAGE> EXHIBIT (a)(5)
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
AMENDMENT NO. 4
TO
THE FIRST AMENDED AND RESTATED MASTER TRUST AGREEMENT
AMENDMENT NO. 4 to the First Amended and Restated Master Trust
Agreement dated as of September 1, 1993 (the "Agreement") of Lutheran
Brotherhood Family of Funds (the "Trust"), made as of the 30th day of June,
1998.
W I T N E S S E T H:
WHEREAS, Article VII, Section 7.3 of the Agreement provides that the
Agreement may be amended at any time, so long as such amendment does not
materially adversely affect the rights of any shareholder and so long as
such amendment is not in contravention of applicable law, including the
Investment Company Act of 1940, as amended, by an instrument in writing
signed by an officer of the Trust pursuant to a vote of a majority of the
Trustees; and
WHEREAS, Section 3.1(c) of the First Amended and Restated Master Trust
Agreement, as amended, of The Lutheran Brotherhood Family of Funds reads in
part:
No person shall serve as a Trustee beyond the earlier of the end
of the month in which he or she attains the age of 70 years, or
the end of the month in which he or she completes ten continuous
years of service as Trustee, except that the limitation contained
in this sentence with respect to not serving as Trustee for more
than ten years shall not apply to Rolf F. Bjelland, Charles W.
Arnason and Ruth E. Randall, or any person who is an interested
person of the Trust as defined in Section 2(a)(19) of the 1940
Act; and
WHEREAS, on June 10, 1998, a majority of the Trustees voted to change
the term limit from ten continuous years to fifteen continuous years; and
WHEREAS, the undersigned has been duly authorized by the Trustees to
execute and file this Amendment No. 4 to the Agreement; and
NOW, THEREFORE, Section 3.1(c) of the Agreement is hereby amended as
follows:
Section 3.1 Number, Designation, Election, Term, etc.
(c) Election and Term
Trustees, in addition to those named above, may become such by
election by Shareholders or the Trustees in office pursuant to
Section 3.1(f). Each Trustee, whether named above or hereafter
becoming a Trustee, shall serve as a Trustee of the Trust and of
each Sub-Trust hereunder during the lifetime of this Trust and
until its termination as hereinafter provided except as such
Trustee sooner dies, resigns, retires or is removed. Subject to
Section 16(a) of the 1940 Act, the Trustees may elect successors
and may, pursuant to Section 3.1(f) hereof, appoint Trustees to
fill vacancies. Notwithstanding anything to the contrary
contained in this Section 3.1(c), no person shall serve as a
Trustee beyond the earlier of the end of the month in which he or
she attains the age of 70 years, or the end of the month in which
he or she completes fifteen continuous years of service as
Trustee, except that the limitation contained in this sentence
with respect to not serving as Trustee for more than fifteen years
shall not apply to Rolf F. Bjelland, Bruce J. Nicholson, Charles
W. Arnason and Ruth E. Randall, or any person who is an interested
person of the Trust as defined in Section 2(a)(19) of the 1940
Act.
The undersigned hereby certifies that the Amendment set forth above has
been duly adopted in accordance with the provisions of the Agreement.
IN WITNESS WHEREOF, the undersigned has hereunto set his hands as of
the day and year first above written.
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
By: /s/ Rolf F. Bjelland
Name: Rolf F. Bjelland
Title: Chairman, Trustee and President
AMENDMENT NO. 4
TO
THE FIRST AMENDED AND RESTATED MASTER TRUST AGREEMENT
<PAGE> EXHIBIT (d)(5)
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
AMENDMENT NO. 1 TO MASTER ADVISORY CONTRACT
AMENDMENT NO. 1 to the Master Advisory Contract between Lutheran
Brotherhood Research Corp. (the "Adviser") and The Lutheran Brotherhood
Family of Funds (the "Trust"), dated as of November 1, 1993, as supplemented
by letters dated June 8, 1996 and May 30, 1997 (together, the "Advisory
Contract"), effective as of the 3rd day of December, 1998.
W I T N E S S E T H:
WHEREAS, the Adviser serves as investment adviser to the Lutheran
Brotherhood Fund, Lutheran Brotherhood Opportunity Growth Fund, Lutheran
Brotherhood Income Fund, Lutheran Brotherhood Municipal Bond Fund, Lutheran
Brotherhood Money Market Fund, Lutheran Brotherhood High Yield Fund,
Lutheran Brotherhood World Growth Fund and Lutheran Brotherhood Mid Cap
Growth Fund (each, a "Fund" and collectively, the "Funds"), each a series of
the Trust, pursuant to the Advisory Contract; and
WHEREAS, at a Special Meeting held on December 2, 1998, the
shareholders of each Fund approved an amendment to the Advisory Contract
that, among other things, authorizes the Trustees of the Trust to reduce the
advisory fees payable by one or more Funds to the Adviser without
shareholder approval.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:
1. The Advisory Contract is hereby amended by deleting Section 8(b) of
the Advisory Contract in its entirety and substituting the following
therefor:
(b) Amendment. No amendment to this Agreement shall become effective
with respect to a Fund unless approved by (i) the Adviser, (ii)
vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of that Fund and (iii) vote of the
Trustees, including a majority of the Trustees who are not parties
to this Agreement or "interested persons" (as defined in the 1940
Act) of any such party, cast in person at a meeting called for the
purpose of voting on such approval; provided, however, that
approval by vote of a majority of the outstanding voting
securities of a Fund shall not be required with respect to any
amendment that reduces the investment advisory fees payable by a
Fund under the Agreement.
2. All other terms and conditions of the Advisory Contract remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
the Master Advisory Agreement to be executed as of the date first set forth
above.
ATTEST: THE LUTHERAN BROTHERHOOD FAMILY
OF FUNDS
/s/ Otis F. Hilbert By: /s/ Rolf F. Bjelland
Otis F. Hilbert, Secretary Rolf F. Bjelland, President
ATTEST: LUTHERAN BROTHERHOOD RESEARCH
CORP.
/s/ Otis F. Hilbert By: /s/ Rolf F. Bjelland
Otis F. Hilbert, Secretary Rolf F. Bjelland, President
<PAGE> EXHIBIT (d)(6)
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
AMENDMENT NO. 2 TO MASTER ADVISORY CONTRACT
AMENDMENT NO. 2 to the Master Advisory Contract between Lutheran
Brotherhood Research Corp. (the "Adviser") and The Lutheran Brotherhood
Family of Funds (the "Trust"), dated as of November 1, 1993, as supplemented
by letters dated June 8, 1996 and May 30, 1997 and Amendment No. 1 thereto
dated December 3rd, 1998, (together, the "Advisory Contract"), effective as
of the 3rd day of December, 1998.
W I T N E S S E T H:
WHEREAS, the Adviser serves as investment adviser to the Lutheran
Brotherhood Fund, Lutheran Brotherhood Opportunity Growth Fund, Lutheran
Brotherhood Income Fund, Lutheran Brotherhood Municipal Bond Fund, Lutheran
Brotherhood Money Market Fund, Lutheran Brotherhood High Yield Fund,
Lutheran Brotherhood World Growth Fund and Lutheran Brotherhood Mid Cap
Growth Fund (each, a "Fund" and collectively, the "Funds"), each a series of
the Trust, pursuant to the Advisory Contract; and
WHEREAS, Section 8(b) of the Advisory Contract provides that
shareholder approval is not required with respect to any amendment that
reduces the investment advisory fees payable by a Fund under the Advisory
Contract; and
WHEREAS, the Adviser, by letter dated October 31, 1997, agreed to a
permanent waiver of a portion of its advisory fee for each of the Funds, in
an amount equal to .25% of average daily net assets of such Fund, as set
forth in Schedule A to such letter; and
WHEREAS, the Trust and the Adviser desire to amend the Advisory
Contract to restate the advisory fees set forth in each of Annex A through
Annex H by incorporating the permanent fee waiver agreed to by the Adviser.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:
1. Each of Annex A through Annex H of the Advisory Contract is hereby
deleted in its entirety and the following is substituted therefor:
<PAGE>
ANNEX A
Lutheran Brotherhood Fund
Rates of Annual
Advisory Fee as
a Percentage of
Average Daily Average Daily
Net Assets Net Assets
On the portion of the Fund which is:
$500,000,000 or less .40%
Over $500,000,000 but not over $1,000,000,000 .35%
Over $1,000,000,000 .30%
ANNEX B
Lutheran Brotherhood Opportunity Growth Fund
Rates of Annual
Advisory Fee as
a Percentage of
Average Daily Average Daily
Net Assets Net Assets
On the portion of the Fund which is:
$100,000,000 or less .50%
Over $100,000,000 but not over $250,000,000 .40%
Over $250,000,000 but not over $500,000,000 .35%
Over $500,000,000 but not over $1,000,000,000 .30%
Over $1,000,000,000 .25%
<PAGE>
ANNEX C
Lutheran Brotherhood Income Fund
Rates of Annual
Advisory Fee as
a Percentage of
Average Daily Average Daily
Net Assets Net Assets
On the portion of the Fund which is:
$500,000,000 or less .35%
Over $500,000,000 but not over $1,000,000,000 .325%
Over $1,000,000,000 .30%
ANNEX D
Lutheran Brotherhood Municipal Bond Fund
Rates of Annual
Advisory Fee as
a Percentage of
Average Daily Average Daily
Net Assets Net Assets
On the portion of the Fund which is:
$500,000,000 or less .325%
Over $500,000,000 but not over $1,000,000,000 .3125%
Over $1,000,000,000 .30%
<PAGE>
ANNEX E
Lutheran Brotherhood Money Market Fund
Rates of Annual
Advisory Fee as
a Percentage of
Average Daily Average Daily
Net Assets Net Assets
On the portion of the Fund which is:
$500,000,000 or less .25%
Over $500,000,000 but not over $1,000,000,000 .225%
Over $1,000,000,000 but not over $1,500,000,000 .20%
Over $1,500,000,000 but not over $2,000,000,000 .175%
Over $2,000,000,000 .15%
ANNEX F
Lutheran Brotherhood High Yield Fund
Rates of Annual
Advisory Fee as
a Percentage of
Average Daily Average Daily
Net Assets Net Assets
On the portion of the Fund which is:
$500,000,000 or less .40%
Over $500,000,000 but not over $1,000,000,000 .35%
Over $1,000,000,000 .30%
<PAGE>
ANNEX G
Lutheran Brotherhood World Growth Fund
Rates of Annual
Advisory Fee as
a Percentage of
Average Daily Average Daily
Net Assets Net Assets
On the portion of the Fund which is:
$20,000,000 or less 1.00%
Over $20,000,000 but not over $50,000,000 .85%
Over $50,000,000 .75%
ANNEX H
Lutheran Brotherhood Mid Cap Growth Fund
Rates of Annual
Advisory Fee as
a Percentage of
Average Daily Average Daily
Net Assets Net Assets
On the portion of the Fund which is:
$100,000,000 or less .45%
Over $100,000,000 but not over $250,000,000 .40%
Over $250,000,000 but not over $500,000,000 .35%
Over $500,000,000 but not over $1,000,000,000 .30%
Over $1,000,000,000 .25%
<PAGE>
2. All other terms and conditions of the Advisory Contract remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
the Master Advisory Agreement to be executed as of the date first set forth
above.
ATTEST: THE LUTHERAN BROTHERHOOD FAMILY
OF FUNDS
/s/ Otis F. Hilbert By: /s/ Rolf F. Bjelland
Otis F. Hilbert, Secretary Rolf F. Bjelland, President
ATTEST: LUTHERAN BROTHERHOOD RESEARCH
CORP.
/s/ Otis F. Hilbert By: /s/ Rolf F. Bjelland
Otis F. Hilbert, Secretary Rolf F. Bjelland, President
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 238,475
<INVESTMENTS-AT-VALUE> 213,420
<RECEIVABLES> 3,944
<ASSETS-OTHER> 49
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 217,413
<PAYABLE-FOR-SECURITIES> 1,918
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 184
<TOTAL-LIABILITIES> 2,102
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 261,615
<SHARES-COMMON-STOCK> 22,049
<SHARES-COMMON-PRIOR> 23,735
<ACCUMULATED-NII-CURRENT> (7)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (21,242)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (25,055)
<NET-ASSETS> 215,311
<DIVIDEND-INCOME> 940
<INTEREST-INCOME> 1,435
<OTHER-INCOME> 0
<EXPENSES-NET> 4,398
<NET-INVESTMENT-INCOME> (1,359)
<REALIZED-GAINS-CURRENT> (20,273)
<APPREC-INCREASE-CURRENT> (53,310)
<NET-CHANGE-FROM-OPS> (74,942)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 10,383
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,337
<NUMBER-OF-SHARES-REDEEMED> 5,969
<SHARES-REINVESTED> 946
<NET-CHANGE-IN-ASSETS> (96,113)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 9,514
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,819
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,398
<AVERAGE-NET-ASSETS> 258,988
<PER-SHARE-NAV-BEGIN> 12.97
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> (3.14)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.33
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<NAME> LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
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<NAME> LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
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<TABLE> <S> <C>
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<NUMBER> 021
<NAME> LUTHERAN BROTHERHOOD FUND
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<S> <C>
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<TABLE> <S> <C>
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<NAME> LUTHERAN BROTHERHOOD FUND
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<S> <C>
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<TABLE> <S> <C>
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<NAME> LUTHERAN BROTHERHOOD FUND
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<S> <C>
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<TABLE> <S> <C>
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<NAME> LUTHERAN BROTHERHOOD HIGH YIELD FUND
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<NAME> LUTHERAN BROTHERHOOD HIGH YIELD FUND
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<NAME> LUTHERAN BROTHERHOOD HIGH YIELD FUND
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<TABLE> <S> <C>
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<NAME> LUTHERAN BROTHERHOOD INCOME FUND
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<S> <C>
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<TABLE> <S> <C>
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<NAME> LUTHERAN BROTHERHOOD INCOME FUND
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<TABLE> <S> <C>
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<NAME> LUTHERAN BROTHERHOOD INCOME FUND
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<S> <C>
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 051
<NAME> LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
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<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 052
<NAME> LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
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<S> <C>
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<TABLE> <S> <C>
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<NAME> LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
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<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 061
<NAME> LUTHERAN BROTHERHOOD MONEY MARKET FUND
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<S> <C>
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<NAME> LUTHERAN BROTHERHOOD MONEY MARKET FUND
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<S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> LUTHERAN BROTHERHOOD MONEY MARKET FUND
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 071
<NAME> LUTHERAN BROTHERHOOD WORLD GROWTH FUND
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<S> <C>
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