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]
