As Filed with the Securities and Exchange
Commission on May 13, 1998
1933 Act File No. 2-25984
1940 Act File No. 811-1467
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 63 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 42 [X]
(Check appropriate box or boxes.)
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
----------------------------------------
(Exact Name of Registrant)
625 Fourth Avenue South, Minneapolis, Minnesota 55415
-----------------------------------------------------
(Address of Principal Executive Offices)
(612) 340-7215
------------------------------
(Registrant's Telephone Number)
Otis F. Hilbert, Secretary
The Lutheran Brotherhood Family of Funds
625 Fourth Avenue South
Minneapolis, Minnesota 55415
--------------------------------------------------
(Name and Address of Agent for Service of Process)
Approximate date of proposed public offering:
It is proposed that this filing will become effective under Rule 485 (check
appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On May 15, 1998, pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (c)(1)
[ ] On (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] On (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
============================================================================
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and:
__X__ filed the Notice required by that Rule on January 23, 1998; or
_____ intends to file the Notice required by that Rule on or about (date);
or
_____ during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a)
UNDER THE SECURITIES ACT OF 1933
Form N-1A Item No. Caption or Location
Part A in Prospectuses
- ------------------- -------------------
1. Cover Page Same
2. Synopsis Summary of Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objectives and
Policies; Investment
Limitations; Investment Risks;
The Funds and Their Shares
5. Management of the Fund Fund Management; Fund
Administration
Management's Discussion Not Applicable
of Fund Performance
6. Capital Stock and Other Securities Multiple Class System;
Dividend and Capital Gains;
Taxes; The Funds and their
Shares
7. Purchase of Securities Being Buying Shares of The Lutheran
Offered Brotherhood Family of Funds;
Net Asset Value Multiple Class
System; Receiving Your Order;
Certificates and Statements
8. Redemption or Repurchase Redeeming Shares
9. Legal Proceedings Not Applicable
Caption or Location
Form N-1A Item No. Statement of
Part B Additional Information
- ------------------- ----------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information
13. Investment Objectives and Investment Policies and
Policies Restrictions; Additional
Information Concerning Certain
Investment Techniques;
Brokerage Transactions
14. Management of the Registrant Fund Management
15. Control Persons and Principal Fund Management
Holders of Securities
16. Investment Advisory and Other Investment Advisory Services;
Services Administration Services;
Distribution and Shareholder
Services
17. Brokerage Allocation and Other Brokerage Transactions
Practices
18. Capital Stock and Other General Information
Securities
19. Purchase, Redemption and Pricing Purchasing Shares; Sales
of Securities Being Offered Change; Net Asset Value;
Redeeming Shares
20. Tax Status Tax Status
21. Underwriters Distribution and Shareholder
Services
22. Calculations of Performance Data Calculation of Performance Data
23. Financial Statements Financial Statements
<PAGE>
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
LUTHERAN BROTHERHOOD FUND
LUTHERAN BROTHERHOOD HIGH YIELD FUND
LUTHERAN BROTHERHOOD INCOME FUND
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
LUTHERAN BROTHERHOOD MONEY MARKET FUND
CLASS A AND CLASS B SHARES
PROSPECTUS May 15, 1998
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND ("LB Opportunity Growth
Fund") seeks long term growth of capital by investing primarily in a
professionally managed diversified portfolio of smaller capitalization
common stocks. See page .
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND ("LB Mid Cap Growth Fund")
seeks to achieve long term growth of capital by investing primarily in a
professionally managed diversified portfolio of common stocks of companies
with medium market capitalizations. See page .
LUTHERAN BROTHERHOOD WORLD GROWTH FUND ("LB World Growth Fund") seeks
high total return from long-term growth of capital by investing primarily in
a professionally managed diversified portfolio of common stocks of
established, non-U.S. companies. See page .
LUTHERAN BROTHERHOOD FUND ("LB Fund") seeks growth of capital and
income by investing in a professionally managed diversified portfolio of
common stocks and other securities issued by leading companies. See page .
LUTHERAN BROTHERHOOD HIGH YIELD FUND ("LB High Yield Fund") seeks high
current income by investing primarily in a professionally managed
diversified portfolio of high yield, high risk securities. The Fund will
also consider growth of capital as a secondary investment objective. See
page .
LUTHERAN BROTHERHOOD INCOME FUND ("LB Income Fund") seeks high current
income while preserving principal, with possible long term growth of
capital, by investing primarily in a professionally managed diversified
portfolio of debt securities and dividend paying common and preferred
stocks. See page .
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND ("LB Municipal Bond Fund")
seeks to provide high current income exempt from federal income tax by
investing primarily in a professionally managed diversified portfolio of
municipal bonds. See page .
LUTHERAN BROTHERHOOD MONEY MARKET FUND ("LB Money Market Fund") seeks
to provide current income consistent with stability of principal. See page .
Lutheran Brotherhood Research Corp. ("LB Research"), an indirect
wholly-owned subsidiary of Lutheran Brotherhood, serves as investment
adviser for the funds listed above (each, a "Fund"). Lutheran Brotherhood
and LB Research personnel have developed skills in the investment advisory
business over the past 27 years, and have extensive skill in managing over
$22.5 billion in assets as of March 31, 1998, including $10.5 billion in
mutual fund assets. Lutheran Brotherhood Securities Corp. ("LB Securities")
serves as distributor for The Lutheran Brotherhood Family of Funds. LB
Research currently engages Rowe Price-Fleming International, Inc. ("Price-
Fleming") as investment sub-advisor for LB World Growth Fund. LB Research
currently engages T. Rowe Price Associates, Inc. ("T. Rowe Price") as
investment sub-advisor for LB Opportunity Growth Fund.
Each Fund is a diversified series of The Lutheran Brotherhood Family of
Funds (the "Trust"), an open-end management investment company.
Each Fund offers three classes of shares: Class A shares, Class B
shares and Institutional Class shares. The shares offered by this Prospectus
are the Class A shares and Class B shares. Class B shares of the LB Money
Market Fund are offered solely in exchange for Class B shares of other
Funds. The Institutional Class shares are offered through a separate
prospectus and are offered to Lutheran institutions, Lutheran church
organizations and to certain other institutional investors as may be
determined by the Trust from time to time, subject in each case to a minimum
investment of $100,000. As of October 31, 1997, all of the then outstanding
shares of each Fund were redesignated as Class A shares and, immediately
thereafter, shares held by Lutheran institutions and church organizations
with accounts of at least $100,000 were automatically converted to
Institutional Class shares. A copy of the prospectus for the Institutional
Class shares may be obtained by writing LB Securities or by calling toll
free (800) 328-4552.
This Prospectus sets forth concisely the information a prospective
investor ought to know about the Funds before investing. It should be
retained for future reference. A Statement of Additional Information about
the Funds dated May 15, 1998 has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated by reference in this Prospectus.
It is available, at no charge, upon request by writing LB Securities or by
calling toll free (800) 328-4552. The SEC maintains a web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference herein and other information regarding
the Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN LB MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE>
TABLE OF CONTENTS
PAGE
Summary of Fund Expenses.......................................
Financial Highlights..........................................
Investment Objectives and Policies............................
Investment Limitations........................................
Investment Risks..............................................
Buying Shares of The Lutheran Brotherhood Family of Funds .....
Net Asset Value of Your Shares................................
Multiple Class System.........................................
Distribution and Shareholder Servicing Plans..................
Receiving Your Order..........................................
Certificates and Statements...................................
Redeeming Shares..............................................
Dividends and Capital Gains...................................
Taxes.........................................................
Optimum Account...............................................
IRAs and Other Tax-Deferred Plans.............................
Fund Performance..............................................
The Funds and Their Shares.......... .........................
Fund Management...............................................
Fund Administration...........................................
Description of Debt Ratings...................................
How to Invest.................................................
Addresses.....................................................
<PAGE>
SUMMARY OF FUND EXPENSES
LB OPPORTUNITY GROWTH FUND
LB MID CAP GROWTH FUND
LB WORLD GROWTH FUND
LB FUND
LB HIGH YIELD FUND
LB INCOME FUND
LB MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
LB MONEY MARKET FUND (3)
CLASS A SHARES CLASS B SHARES CLASS A SHARES CLASS B SHARES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4%(1) None None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price) None None None None
Maximum Deferred Sales Charge
(as a percentage of net asset value at time of
purchase or redemption, whichever is lower) None 5%(2) None None
Redemption Fees (as a percentage
of amount redeemed, if applicable) None None None None
Exchange Fees None None None None
</TABLE>
1. Initial sales charges for the Class A shares vary from 0% to 4% of the
public offering price, depending upon the amount of your investment. For a
complete description of sales charges for the Class A shares, see "Multiple
Class System - - Class A Shares."
2. The maximum 5% contingent deferred sales charge on Class B shares applies
to redemptions during the first year after purchase. The contingent deferred
sales charge declines thereafter and no contingent deferred sales charge is
imposed after the fifth year. For a complete description of contingent
deferred sales charges for the Class B shares, see "Multiple Class System -
Class B shares."
3. Holders of Class A shares of the LB Money Market Fund may elect the
OPTIMUM ACCOUNT(R) package, which is subject to a one-time new account fee
of $25 and a monthly administrative fee of $5. Exchanges of Class A shares
of the LB Money Market Fund for shares of other Funds incur the normal
initial sales charge for those Funds' shares, unless the Class A shares of
the LB Money Market Fund shares were previously acquired through an exchange
of shares from other Funds for which a sales charge was previously paid.
ANNUAL FUND OPERATING EXPENSES
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
CLASS A CLASS B
------- -------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (1) 0.43% 0.43%
12b-1 Fees (2) -- 0.75%
Other Expenses(3) 0.86% 0.86%
Total Fund Operating Expenses (after waiver)(1) 1.29% 2.04%
- --------------------------------------------------------------------------
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
CLASS A CLASS B
------- -------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver)(4) 0.21% 0.21%
12b-1 Fees (2) -- 0.75%
Other Expenses (3)(4) 1.74% 1.74%
Total Fund Operating Expenses (after waiver)(4) 1.95% 2.70%
- --------------------------------------------------------------------------
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
CLASS A CLASS B
------- -------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (5) 0.75% 0.75%
12b-1 Fees (2) -- 0.75%
Other Expenses(3) 1.07% 1.07%
Total Fund Operating Expenses (after waiver)(5) 1.82%
- --------------------------------------------------------------------------
LUTHERAN BROTHERHOOD FUND
CLASS A CLASS B
------- -------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (6) 0.34% 0.34%
12b-1 Fees(2) -- 0.75%
Other Expenses(3) 0.54% 0.54%
Total Fund Operating Expenses (after waiver) (6) 0.88% 1.63%
- --------------------------------------------------------------------------
LUTHERAN BROTHERHOOD HIGH YIELD FUND
CLASS A CLASS B
------- -------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (7) 0.34% 0.34%
12b-1 Fees (2) -- 0.75%
Other Expenses(3) 0.50% 0.50%
Total Fund Operating Expenses (after waiver) (7) 0.84% 1.59%
- --------------------------------------------------------------------------
LUTHERAN BROTHERHOOD INCOME FUND
CLASS A CLASS B
------- -------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (8) 0.30% 0.30%
12b-1 Fees (2) -- 0.75%
Other Expenses(3) 0.50% 0.50%
Total Fund Operating Expenses (after waiver) (8) 0.80% 1.55%
- --------------------------------------------------------------------------
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
CLASS A CLASS B
------- -------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (9) 0.28% 0.28%
12b-1 Fees (2) -- 0.75%
Other Expenses(3) 0.42% 0.42%
Total Fund Operating Expenses (after waiver) (9) 0.70% 1.45%
- --------------------------------------------------------------------------
LUTHERAN BROTHERHOOD MONEY MARKET FUND
CLASS A CLASS B
------- -------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (10) 0.15% 0.15%
12b-1 Fees (2) -- --
Other Expenses (3) 0.80%(3) 0.80%(3)
Total Fund Operating Expenses (after waiver) (10) 0.95% 0.95%
- ---------------------
(1) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee equal to 0.25% of the
average daily net assets of LB Opportunity Growth Fund. Without the waiver,
Management Fees and Total Operating Expenses would be 0.68% and 1.54% for
the Class A shares and 0.68% and 2.29% for the Class B shares.
(2) The offering of Class A and Class B shares of the Funds commenced on
October 31, 1997. 12b-1 Fees and Shareholder Servicing Fees are based on
estimated fees. Because the 12b-1 Fee is an annual fee charged against the
assets of the Fund, long term shareholders may indirectly pay more than the
economic equivalent of the maximum front end sale charge permitted under
applicable rules.
(3) Includes a 0.25% shareholder servicing fee for each of the Class A
and Class B shares.
(4) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee equal to 0.25% of the
average daily net assets of LB Mid Cap Growth Fund. LB Research has further
undertaken, until October 31, 1998, and thereafter until further notice to
the LB Mid Cap Growth Fund, to waive its advisory fee and, if necessary, to
bear certain expenses associated with operating LB Mid Cap Growth Fund in
order to limit the Fund's total operating expenses for the Class A shares
and Class B shares to an annual rate of 1.95% and 2.70%, respectively of the
average net assets of the relevant class. Without the waivers, Management
Fees and Total Fund Operating Expenses for LB Mid Cap Growth Fund would be
0.70% and 2.44% for the Class A shares and 0.70% and 3.19% for the Class B
shares.
(5) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee equal to 0.25% of the
average daily net assets of LB World Growth Fund. Without the waivers,
Management Fees and Total Fund Operating Expenses for LB World Growth Fund
would be 1.00% and 2.07% for the Class A shares and 1.00% and 2.82% for
Class B shares.
(6) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fees equal to 0.25% of the
average daily net assets of the LB Fund. Effective January 31, 1997, LB
Research has also voluntarily agreed to temporarily waive a portion of its
advisory fees equal to 0.05% of the average daily net assets of the LB Fund.
The temporary waiver of advisory fees may be discontinued at any time.
Without the waivers, Management Fees and Total Operating Expenses would have
been 0.63% and 1.17% for the Class A shares and 0.63% and 1.92% for the
Class B shares. See "Fund Management."
(7) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fees equal to 0.25% of the
average daily net assets of the LB High Yield Fund. Effective January 31,
1997, LB Research has also voluntarily agreed to temporarily waive a portion
of its advisory fees equal to 0.05% of the average daily net assets of the
LB High Yield Fund. The temporary waiver of advisory fees may be
discontinued at any time. Without the waivers, Management Fees and Total
Operating Expenses would have been 0.63% and 1.13% for the Class A shares
and 0.63% and 1.88% for the Class B shares. See "Fund Management."
(8) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fees equal to 0.25% of the
average daily net assets of the LB Income Fund. Effective January 31, 1997,
LB Research has also voluntarily agreed to temporarily waive a portion of
its advisory fees equal to 0.05% of the average daily net assets of the LB
Income Fund. The temporary waiver of advisory fees may be discontinued at
any time. Without the waivers, Management Fees and Total Operating Expenses
would have been 0.59% and 1.09% for the Class A shares and 0.59% and 1.84%
for the Class B shares. See "Fund Management."
(9) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fees equal to 0.25% of the
average daily net assets of the LB Municipal Bond Fund. Effective January
31, 1997, LB Research has also voluntarily agreed to temporarily waive a
portion of its advisory fees equal to 0.05% of the average daily net assets
of the LB Municipal Bond Fund. The temporary waiver of advisory fees may be
discontinued at any time. Without the waivers, Management Fees and Total
Operating Expenses would have been 0.57% and 0.99% for the Class A shares
and 0.57% and 1.74% for the Class B shares. See "Fund Management."
(10) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee equal to 0.25% of the
average daily net assets of LB Money Market Fund. LB Research has further
undertaken, until October 31, 1998 and thereafter until further notice to
the Fund, to limit the LB Money Market Fund's total operating expenses for
the Class A shares and Class B shares to 0.95%, of the average net assets of
each class by means of a voluntary waiver of its advisory fee. Management
Fees and Total Fund Operating Expenses would be 0.50% and 1.30%, of average
net assets of each of the Class A shares and Class B shares without such
waivers.
EXAMPLE:
YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, INCLUDING, FOR
THE CLASS A SHARES, THE MAXIMUM APPLICABLE INITIAL SALES CHARGES AND
ASSUMING (1) 5% ANNUAL RETURN AND (2) REDEMPTION AT THE END OF EACH TIME
PERIOD:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Opportunity Growth Fund
Class A shares $53 $79 $108 $189
Class B shares(1) $71 $94 $120 $192
LB Mid Cap Growth Fund
Class A shares $59 $99 $141 $258
Class B shares(1) $77 $114 $153 $261
LB World Growth Fund
Class A shares $58 $95 $135 $245
Class B shares(1) $76 $110 $147 $248
LB Fund
Class A shares $49 $67 $87 $144
Class B shares(1) $67 $81 $99 $146
LB High Yield Fund
Class A shares $48 $66 $85 $140
Class B shares(1) $66 $80 $97 $142
LB Income Fund
Class A shares $48 $65 $83 $135
Class B shares(1) $66 $79 $94 $137
LB Municipal Bond Fund
Class A shares $47 $61 $77 $124
Class B shares(1) $65 $76 $89 $126
LB Money Market Fund
Class A shares $10 $30 $53 $117
Class B shares(2) $60 $60 $63 $117
YOU WOULD PAY THE FOLLOWING EXPENSES ON THE SAME INVESTMENT, ASSUMING NO
REDEMPTION:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
LB Opportunity Growth Fund
Class A shares $53 $79 $108 $189
Class B shares(1) $21 $64 $110 $192
LB Mid Cap Growth Fund
Class A shares $59 $99 $141 $258
Class B shares(1) $27 $84 $143 $261
LB World Growth Fund
Class A shares $58 $95 $135 $245
Class B shares(1) $26 $80 $137 $248
LB Fund
Class A shares $49 $67 $87 $144
Class B shares(1) $17 $51 $89 $146
LB High Yield Fund
Class A shares $48 $66 $85 $140
Class B shares(1) $16 $50 $87 $142
LB Income Fund
Class A shares $48 $65 $83 $135
Class B shares(1) $16 $49 $84 $137
LB Municipal Bond Fund
Class A shares $47 $61 $77 $124
Class B shares(1) $15 $46 $79 $126
LB Money Market Fund
Class A shares $10 $30 $53 $117
Class B shares(2) $10 $30 $53 $117
(1) Ten-year figures assume conversion of Class B shares to Class A shares
at the end of five years.
(2) Class B shares of the LB Money Market Fund are offered solely in
exchange for Class B shares of other Funds of The Lutheran Brotherhood
Family of Funds. The example set forth above assumes that no Class B shares
of any other Funds that are subject to a CDSC were previously held. See
"Multiple Class System - Class B Shares" for more information.
THE EXAMPLE SHOULD NOT BE CONSIDERED AS A REPRESENTATION OF PAST OR FUTURE
RETURN OR EXPENSES. ACTUAL RETURN OR EXPENSES MAY BE GREATER OR LESS THAN
SHOWN.
The purpose of the table above is to assist the investor in
understanding the various costs and expenses that an investor will bear
directly or indirectly. Actual expense levels for the current and future
years may vary from the amounts shown. The table does not reflect charges
for optional services elected by certain shareholders. For more complete
information and descriptions of various costs and expenses, see "Multiple
Class System" and "Fund Administration".
FINANCIAL HIGHLIGHTS
The tables below for each of the Funds, to the extent and for the periods
indicated in its report, have been examined by Price Waterhouse LLP,
independent accountants, whose reports are included in the Annual Reports to
Shareholders for the fiscal year ended October 31, 1997. The tables should
be read in conjunction with the financial statements and notes thereto that
appear in such reports, which are incorporated by reference into the
Statement of Additional Information. Shares of the Fund had no class
designations until October 31, 1997, when designations were assigned based
on the sales charges, Rule 12b-1 fees and shareholder servicing fees
applicable to shares sold thereafter. The financial data below only covers
periods prior to the adoption of class designations and therefore do not
reflect the Rule 12b-1 fees of 0.75% per year applicable to the Class B
shares and the shareholder servicing fees of 0.25% per year applicable to
the Class A and Class B shares, which will adversely affect performance
results for periods after October 31, 1997.
LB OPPORTUNITY GROWTH FUND
CLASS A SHARES
<TABLE>
<CAPTION>
For the Period
January 8, 1993
Year Ended Year Ended Year Ended Year Ended (effective date) to
(For a share outstanding throughout 10/31/97 10/31/96 10/31/95 10/31/94 October 31, 1993
the period)(a) ----------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..... $13.62 $13.83 $10.76 $10.66 $ 8.43
------ ------ ------ ------ ------
Investment Operations:
Net Investment Loss .................. (0.07) (0.11) (0.09) (0.06) (0.07)
Net Realized and Unrealized Gain
(Loss) on Investment................. .91 2.63 3.16 0.16 2.30
------ ------ ------ ------ ------
Total from Investment Operations......... .84 2.52 3.07 0.10 2.23
------ ------ ------ ------ ------
Less Distributions:
Distributions from Net Realized
Gain on Investments.................. (1.49) (2.73) -- -- --
------ ------ ------ ------ ------
Net Asset Value, End of Period........... $12.97 $13.62 $13.83 $10.76 $10.66
====== ====== ====== ====== ======
Total Investment Return at Net Asset
Value(%)(b) (7.52)% 21.27% 28.53% 0.94% 26.45%
Net Assets, End of Period (in millions).. $311.4 $265.8 $165.7 $99.6 $40.8
Ratio of Expenses to Average Net
Assets (%) 1.29% 1.28% 1.43% 1.66% 2.33%(c)
Ratio of Net Investment Loss to
Average Net Assets (%)................. (0.60%) -0.92% -0.88% -0.83% -1.76%(c)
Portfolio Turnover (%)................... 136% 176% 213% 64% 97%
Average commission rate(d)............... $0.0524 $0.0488 N/A N/A N/A
- ----------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) Average commission rate is based on total broker commissions incurred in connection with execution of
portfolio transactions during the period, divided by the sum of all portfolio shares purchased and sold during
the period that were subject to a commission. Broker commissions are treated as capital items that increase the
cost basis of securities purchased, or reduce the proceeds of securities sold.
</TABLE>
LB Mid Cap Growth Fund
CLASS A SHARES
<TABLE>
<CAPTION>
For the period from
May 30, 1997
(effective date)
to October 31, 1997
------------------
<S> <C>
(For a share outstanding throughout the period) (a)
Net Asset Value, Beginning of Period ...................... $ 9.25
--------
Investment Operations:
Net Investment Loss ....................................... (0.02)
Net Realized and Unrealized Gain
(Loss) on Investments ................................... 1.10
--------
Total from Investment Operations .......................... 1.08
--------
Net Asset Value, End of Period ............................ $ 10.33
========
Total Investment Return at
Net Asset Value (b) ...................................... 11.68%
Net Assets, End of Period ($ in millions) ................. $ 14.6
Ratio of Expenses to Average
Net Assets ............................................... 1.95%(c)
Ratio of Net Investment Loss to
Average Net Assets ....................................... (0.84%)(c)
Portfolio Turnover Rate ................................... 94%
Average commission rate (d) ............................... $ 0.0588
- ----------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of a sales charge.
(c) Computed on an annualized basis.
(d) Average commission rate is based on total broker commissions incurred in connection with execution of
portfolio transactions during the period, divided by the sum of all portfolio shares purchased and sold during
the period that were subject to a commission. Broker commissions are treated as capital items that increase the
cost basis of securities purchased, or reduce the proceeds of securities sold.
</TABLE>
<PAGE>
LB WORLD GROWTH FUND
CLASS A SHARES
<TABLE>
<CAPTION>
For the Period From
September 5, 1995
Year Ended Year Ended (effective date) to
(For a share outstanding throughout the period)(a) October 31, 1997 October 31, 1996 October 31, 1995
---------------- ---------------- -------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $9.48 $8.44 $8.50
----- ----- -----
Income From Investment Operations:
Net Investment Income............................ 0.02 0.04 0.01
Net Realized and Unrealized Gain (Loss)
on Investments................................ 0.67 1.02 (0.07)
----- ----- -----
Total from Investment Operations...................... 0.69 1.06 (0.06)
----- ----- -----
Less Distributions from:
Net Investment Income............................ (0.04) (0.02) --
Net Realized Gains on Investments................ (0.04) -- --
----- ----- -----
Total Distributions................................... (0.08) (0.02) --
----- ----- -----
Net Asset Value, End of Period........................ $10.09 $9.48 $8.44
===== ===== =====
Total Investment Return at Net Asset Value(b)......... 7.38% 12.53% -0.71%
Net Assets, End of Period (in millions)............... $75.1 $52.9 $14.0
Ratio of Expenses to Average Net Assets............... 1.82% 1.95%(d) 1.95%(c,d)
Ratio of Net Investment Income to Average Net Assets.. 0.17% 0.67%(d) 1.60%(c,d)
Portfolio Turnover Rate............................... 17% 11% 0%
Average commission rate(e)............................ $0.0226 $0.0216 N/A
- ------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) Effective September 5, 1995 through October 31, 1996, Lutheran Brotherhood Research Corp. (LBRC) had voluntarily
undertaken to limit the Fund's expense ratio at 1.95%. Had LBRC not undertaken such action, the ratio of expenses to
average net assets would have been 2.13% and 2.89%, and the ratio of net investment income to average net assets would
have been 0.49% and 0.66%, respectively, for the year ended October 31, 1996 and for the period from September 5, 1995
to October 31, 1995.
(e) Average commission rate is based on total broker commissions incurred in connection with execution of portfolio
transactions during the period, divided by the sum of all portfolio shares purchased and sold during the period that
were subject to a commission. Broker commissions are treated as capital items that increase the cost basis of
securities purchased, or reduce the proceeds of securities sold.
</TABLE>
<PAGE>
LB FUND
CLASS A SHARES
<TABLE>
<CAPTION>
Nine
Months
(For a share outstanding Year Year Year Year ended Years ended January 31,
throughout the period)(a) Ended Ended Ended Ended Oct. 31 --------------------------------------
10/31/97 10/31/96 10/31/95 10/31/94 1993 1993 1992 1991 1990 1989
--------- -------- -------- -------- ------- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 23.07 $ 21.19 $17.67 $18.85 $18.53 $19.14 $17.10 $15.83 $15.97 $14.44
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Investment Operations:
Net Investment Income...... 0.19 0.20 0.22 0.19 0.29 0.27 0.32 0.37 0.36 0.47
Net Realized and Unrealized
Gain Loss on Investments. 5.68 3.33 3.52 (0.20) 1.04 1.42 3.90 1.34 1.32 1.54
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations 5.87 3.53 3.74 (0.01) 1.33 1.69 4.22 1.71 1.68 2.01
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income... (0.20) (0.20) (0.22) (0.20) (0.28) (0.27) (0.31) (0.38) (0.32) (0.48)
Net Realized Gain on
Investments............. (1.76) (1.45) -- (0.97) (0.73) (2.03) (1.87) (0.06) (1.50) --
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions........ (1.96) (1.65) (0.22) (1.17) (1.01) (2.30) (2.18) (0.44) (1.82) (0.48)
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value End of
Period.................. $26.98 $ 23.07 $21.19 $17.67 $18.85 $18.53 $19.14 $17.10 $15.83 $15.97
======= ======= ====== ====== ====== ====== ====== ====== ====== ======
Total Investment Return a
Net Asset Value(%)(b)... 26.99% 17.61% 21.34% -0.11% 7.41% 9.47% 24.67% 10.92% 9.77% 14.26%
Net Assets, End of Period
(in millions)........... $ 989.8 $ 768.8 $645.5 $548.6 $527.3 $460.9 $380.3 $303.4 $273.3 $275.9
Ratio of Expenses to
Average Net Assets (%).. 0.88%(e) 0.97% 1.02% 1.04% 1.01%(c) 0.97% 1.00% 1.05% 1.04% 1.08%
Ratio of Net Investment
Income to Average Net
Assets (%).............. 0.76%(e) 0.94% 1.15% 1.10% 2.15%(c) 1.44% 1.69% 2.21% 1.99% 3.24%
Portfolio Turnover (%)..... 54% 91% 127% 234% 237% 249% 175% 148% 145% 89%
Average commission rate(d) $0.0599 $0.0664 N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) Average commission rate is based on total broker commissions incurred in connection with execution of portfolio
transactions during the period, divided by the sum of all portfolio shares purchased and sold during the period that
were subject to a commission. Broker commissions are treated as capital items that increase the cost basis of securities
purchased, or reduce the proceeds of securities sold.
(e) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory
fees payable by the LB Fund. Had LB Research not undertaken such action, the ratio of expenses to average net assets
would have been 0.92% and the ratio of net investment income to average net assets would have been 0.72%.
</TABLE>
<PAGE>
LB HIGH YIELD FUND
CLASS A SHARES
<TABLE>
<CAPTION>
Nine
Months
(For a share Year Year Year Year ended Years ended January 31,
outstanding throughout Ended Ended Ended Ended Oct. 31 -----------------------------------------
the period)(a) 10/31/97 10/31/96 10/31/95 10/31/94 1993 1993 1992 1991 1990 1989
----------- ------- -------- -------- ------- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... $ 9.21 $ 9.03 $ 8.86 $ 9.73 $ 9.12 $ 8.45 $ 6.72 $ 7.93 $ 9.72 $ 9.86
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Investment Operations:
Net Investment Income . 0.85 0.84 0.83 0.83 0.61 0.88 0.93 0.92 1.12 1.14
Net Realized and
Unrealized Gain (Loss)
on Investments........ 0.41 0.17 0.24 (0.86) 0.60 0.68 1.72 (1.21) (1.76) (0.17)
------ ------ ----- ------ ------ ----- ------ ------ ------ ------
Total from Investment
Operations............ 1.26 1.01 1.07 (0.03) 1.21 1.56 2.65 (0.29) (0.64) 0.97
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income. (0.86) (0.83) (0.85) (0.82) (0.60) (0.89) (0.92) (0.92) (1.15) (1.11)
Net Realized Gain
on Investments........ (0.03) -- (0.05) (0.02) -- -- -- -- -- --
------ ----- ------ ------ ------ ------ ------ ------ ------ ----
Total Distributions.... (0.89) (0.83) (0.90) (0.84) (0.60) (0.89) (0.92) (0.92) (1.15) (1.11)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value End
of Period............. $ 9.58 $ 9.21 $ 9.03 $ 8.86 $ 9.73 $ 9.12 $ 8.45 $ 6.72 $ 7.93 $ 9.72
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Investment
Return at Net
Asset Value(%)(b)..... 14.43% 11.64% 12.93% -0.47% 13.72% 19.51% 41.59% -3.98% -7.52% 10.52%
Net Assets, End of
Period (in millions).. $862.9 $703.1 $594.3 $499.6 $440.3 $330.2 $217.0 $137.0 $149.6 $126.5
Ratio of Expenses to
Average Net Assets (%). 0.84%(d) 0.91% 0.93% 0.95% 0.94%(c) 0.99% 1.16% 1.23% 1.19% 1.21%
Ratio of Net Investment
Income to Average
Net Assets (%)........ 9.14%(d) 9.23% 9.53% 8.92% 8.72%(c) 10.04% 11.95% 12.51% 12.23% 11.72%
Portfolio Turnover..... 113% 104% 71% 50% 66% 86% 145% 120% 86% 73%
- -------------------
* For the period April 3, 1987 (effective date) to January 31, 1988.
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory
fees payable by the LB High Yield Fund. Had LB Research not undertaken such action, the ratio of expenses to average
net assets would have been 0.88% and the ratio of net investment income to average net assets would have been 9.10%.
</TABLE>
LB INCOME FUND
CLASS A SHARES
<TABLE>
<CAPTION>
Nine
Months
(For a share outstanding Year Year Year Year ended
throughout the period)(a) Ended Ended Ended Ended Oct. 31
10/31/97 10/31/96 10/31/95 10/31/94 1993
--------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period....... $ 8.50 $ 8.72 $ 8.01 $ 9.43 $ 9.10
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income...... 0.55 0.57 0.59 0.58 0.47
Net Realized and
Unrealized Gain (Loss)
on Investments............ 0.11 (0.19) 0.69 (1.19) 0.33
------ ------ ------ ------ -----
Total from Investment
Operations................ 0.66 0.38 1.28 (0.61) 0.80
------ ------ ------ ------ ----
Less Distributions from:
Net Investment Income..... (0.55) 0.60) (0.57) (0.56) (0.47)
Net Realized Gain on
Investments............... -- -- -- (0.25) --
------ ------ ----- ------ -----
Total Distributions........ (0.55) (0.60) (0.57) (0.81) (0.47)
------ ------ ------ ------ ------
Net Asset Value End of
Period.................... $ 8.61 8.50 $ 8.72 $ 8.01 $ 9.43
====== ===== ====== ====== ======
Total Investment Return
at Net Asset
Value(%)(b).............. 8.05% 4.56% 16.53% -6.81% 8.97%
Net Assets, End of
Period (in millions)..... $778.0 $871.0 $942.1 $907.2 $1,042.2
Ratio of Expenses to
Average Net Assets (%)... 0.80%(e) 0.83% 0.83% 0.82% 0.80%(c,d)
Ratio of Net Investment
Income to Average
Net Assets (%)........... 6.44%(e) 6.61% 7.01% 6.77% 6.87%(c,d)
Portfolio Turnover (%).... 97% 142% 131% 155% 84%
</TABLE>
<TABLE>
<CAPTION>
(For a share outstanding Years ended January 31,
throughout the period)(a) -------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........$ 8.79 $ 8.35 $ 8.47 $ 8.52 $ 8.62
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income....... 0.66 0.72 0.78 0.82 0.80
Net Realized and
Unrealized Gain (Loss)
on Investments............. 0.31 0.44 (0.11) (0.06) (0.10)
------ ------ ------ ------ ------
Total from Investment
Operations................. 0.97 1.16 0.67 0.76 0.70
------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income...... (0.66) (0.72) (0.79) (0.81) (0.80)
Net Realized Gain on
Investments................ -- -- -- -- --
------ ------ ------ ----- ------
Total Distributions......... (0.66) (0.72) (0.79) (0.81) (0.80)
------ ------ ------ ------ ------
Net Asset Value End of
Period.....................$ 9.10 $ 8.79 $ 8.35 $ 8.47 $ 8.52
====== ====== ====== ====== ======
Total Investment Return
at Net Asset
Value(%)(b)................ 11.50% 14.48% 8.39% 9.18% 8.69%
Net Assets, End of
Period (in millions).......$944.6 $819.5 $736.5 $719.8 $725.5
Ratio of Expenses to
Average Net Assets (%)..... 0.90% 0.97% 1.02% 1.02% 1.03%
Ratio of Net Investment
Income to Average
Net Assets (%)............. 7.40% 8.38% 9.35% 9.53% 9.52%
Portfolio Turnover (%)...... 104% 117% 118% 113% 68%
</TABLE>
- ------------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Computed on an annualized basis.
(d) During the nine month period ended October 31, 1993, Lutheran Brotherhood
Research Corp. (LBRC) undertook a voluntary reduction of the Fund's investment
advisory fee equal to 0.10% of average daily net assets. Had LBRC not undertaken
such action, the ratio of expenses to average net assets would have been 0.90%
and the ratio of net investment income to average net assets would have been
6.77%.
(e) Effective January 1, 1997, LB Research voluntarily agreed to waive five
basis points (0.05%) from the advisory fees payable by the LB Income Fund. Had
LB Research not undertaken such action, the ratio of expenses to average net
assets would have been 0.84% and the ratio of net investment income to average
net assets would have been 6.40%.
LB MUNICIPAL BOND FUND
CLASS A SHARES
<TABLE>
<CAPTION>
Nine
Months
(For a share outstanding Year Year Year Year ended
throughout the period)(a) Ended Ended Ended Ended Oct. 31
10/31/97 10/31/96 10/31/95 10/31/94 1993
-------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......... $ 8.60 $ 8.58 $ 7.88 $ 9.00 $ 8.52
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income.......... 0.45 0.44 0.45 0.46 0.37
Net Realized and Unrealized Gain
(Loss) on Investments....... 0.24 0.01 0.70 (0.96) 0.51
------ ------ ------ ------ ------
Total from Investment Operations. 0.69 0.45 1.15 0.50 0.88
------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income....... (0.44) (0.43) (0.45) (0.46) (0.37)
Net Realized Gain on
Investments............... -- -- -- (0.16) (0.03)
------ ------ ------ ------ ------
Total Distributions............ (0.44) (0.43) (0.45) (0.62) (0.40)
------ ------ ------ ------ ------
Net Asset Value End of Period.. $ 8.85 $ 8.60 $ 8.58 $ 7.88 $ 9.00
====== ===== ====== ====== ======
Total Investment Return at
Net Asset Value(%)(b)....... 8.28% 5.33% 14.97% -5.93% 10.73%
Net Assets, End of
Period (in millions)........ $591.9 $609.5 $628.7 $595.2 $629.7
Ratio of Expenses to Average
Net Assets (%).............. 0.70%(e) 0.74% 0.74% 0.75% 0.74%(c,d)
Ratio of Net Investment Income
to Average Net Assets (%)... 5.13%(e) 5.14% 5.43% 5.44% 5.69%(c,d)
Portfolio Turnover (%)......... 18% 33% 36% 38% 46%
</TABLE>
<TABLE>
<CAPTION>
(For a share outstanding
throughout the period)(a) YEARS ENDED JANUARY 31,
-----------------------------------------
1993 1992 1991 1990 1989
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......... $ 8.45 $ 8.32 $ 8.15 $ 8.18 $ 8.09
------ ----- ----- ----- -----
Investment Operations:
Net Investment Income.......... 0.53 0.56 0.58 0.58 0.60
Net Realized and Unrealized Gain
(Loss) on Investments....... 0.28 0.29 0.16 (0.02) 0.07
------ ----- ----- ----- -----
Total from Investment Operations. 0.81 0.85 0.74 0.56 0.67
------ ----- ----- ----- -----
Less Distributions from:
Net Investment Income......... (0.52) (0.56) (0.57) (0.59) (0.58)
Net Realized Gain on
Investments................. (0.22) (0.16) -- -- --
------ ----- ----- ----- -----
Total Distributions.............. (0.74) (0.72) (0.57) (0.59) (0.58)
------ ----- ----- ----- -----
Net Asset Value End of Period.... $ 8.52 $ 8.45 $ 8.32 $ 8.15 $ 8.18
====== ===== ===== ===== =====
Total Investment Return at
Net Asset Value(%)(b)......... 9.96% 10.64% 9.54% 7.02% 8.70%
Net Assets, End of
Period (in millions).......... $532.6 $448.4 $382.5 $348.2 $306.5
Ratio of Expenses to Average
Net Assets (%)................ 0.80% 0.83% 0.86% 0.86% 0.92%
Ratio of Net Investment Income
to Average Net Assets (%)..... 6.22% 6.65% 7.06% 7.04% 7.37%
Portfolio Turnover (%)........... 77% 78% 68% 60% 70%
- ------------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) During the nine month period ended October 31, 1993, Lutheran Brotherhood
Research Corp. (LBRC) undertook a voluntary reduction of the Fund's investment
advisory fee equal to 0.05% of average daily net assets. Had LBRC not undertaken
such action, the ratio of expenses to average net assets would have been 0.79%
and the ratio of net investment income to average net assets would have been 5.64%.
(e) Effective January 1, 1997, LB Research voluntarily agreed to waive five
basis points (0.05%) from the advisory fees payable by the LB Municipal Bond Fund.
Had LB Research not undertaken such action, the ratio of expenses to average net
assets would have been 0.74% and the ratio of net investment income to average
net assets would have been 5.09%.
</TABLE>
LB MONEY MARKET FUND
CLASS A SHARES
<TABLE>
<CAPTION>
Nine
Months
(For a share outstanding Year Year Year Year ended
throughout the period)(a) Ended Ended Ended Ended Oct. 31
10/31/97 10/31/96 10/31/95 10/31/94 1993
------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Net asset Value,
Beginning of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income.... 0.05 0.05 0.05 0.03 0.02
------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income.... (0.05) (0.05) (0.05) (0.03) (0.02)
------ ------ ------ ------ ------
Net Asset Value,
End of Period. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total Investment Return
at Net Asset Value (%)(b) 4.74% 4.63% 4.95% 2.89% 1.63%
Net Assets, End of
Period (in millions).. $469.2 $417.6 $341.1 $276.9 $275.1
Ratio of Expenses to
Average Net Assets (%)(d). 0.95% 1.01% 1.10% 1.10% 1.10%(c)
Ratio of Net Investment
Income to Average Net
Assets (%)(d). 4.64% 4.53% 4.85% 2.85% 2.16%(c)
</TABLE>
<TABLE>
<CAPTION>
(For a share outstanding
throughout the period)(a) Years ended January 31,
--------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income.......... 0.03 0.05 0.07 0.08 0.07
------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income.......... (0.03) (0.05) (0.07) (0.08) (0.07)
------ ------ ------ ------ ------
Net Asset Value, End of Period. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total Investment Return at Net
Asset Value (%)(b).......... 2.77% 5.10% 7.40% 8.44% 7.01%
Net Assets, End of
Period (in millions)........ $317.0 $412.3 $473.4 $423.5 $309.3
Ratio of Expenses to Average
Net Assets (%).............. 1.10%(d) 1.08% 1.07% 1.09% 1.07%
Ratio of Net Investment Income
to Average Net Assets (%)... 2.76%(d) 5.01% 7.16% 8.10% 6.83%
- ----------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total return is based on the change in net asset value during the period
and assumes reinvestment of all distributions.
(c) Computed on an annualized basis.
(d) Effective February 1, 1992 through March 31, 1996, Lutheran Brotherhood
Research Corp. (LBRC) had voluntarily undertaken to limit the Fund's expense
ratio to 1.10% of annual average daily net assets. Effective April 1, 1996,
LBRC voluntarily lowered the expense limit prospectively to 0.95% of average
daily net assets. Had LBRC not undertaken such action to limit expenses, the
ratio of expenses to average net assets would have been 1.05%, 1.07%, 1.18%,
1.36%, 1.44% and 1.23% and the ratio of net investment income to average net
assets would have been 4.35%, 4.47%, 4.77%, 2.59%, 1.82% and 2.63%, respectively,
for the years ended October 31, 1997, 1996, 1995, and 1994, the nine month period
ended October 31, 1993 and the year ended January 31, 1993.
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
Each of the Funds in The Lutheran Brotherhood Family of Funds has a
separate investment objective and investment policies for the pursuit of
that objective. The investment objective of each Fund is fundamental and may
not be changed without the approval of shareholders of that Fund. Except as
otherwise indicated in this Prospectus, the investment policies of each Fund
may be changed from time to time by the Board of Trustees of the Trust.
There is no assurance that any of the Funds will achieve its investment
objective, but it will strive to do so by following the policies set forth
below.
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
The investment objective of the LB Opportunity Growth Fund is to
achieve long term growth of capital.
The Fund will pursue its objective by seeking realized and unrealized
capital gains through the active management of a portfolio consisting
primarily of common stocks. Such active management may involve a high level
of portfolio turnover. The Fund will invest primarily in common stocks of
domestic and foreign companies that in the opinion of T. Rowe Price have a
potential for above average sales and earnings growth that is expected to
lead to capital appreciation. T. Rowe Price believes that over a long period
of time, smaller companies that have a competitive advantage will be able to
grow faster than larger companies, leading to a higher rate of growth in
capital. For a description of the risks associated with investments in such
companies, see "Investment Risks--LB Opportunity Growth Fund Investment
Risks".
The Fund may also invest in bonds and preferred stocks, convertible
bonds, convertible preferred stocks, warrants, American Depository Receipts
(ADR's), foreign stocks and other debt or equity securities. In addition,
the Fund may invest in U.S. Government securities or cash. The Fund will not
use any minimum level of credit quality. At no time will the Fund invest
more than 5% of its net assets in debt obligations (excluding cash and U.S.
Government Securities). Debt obligations may be rated less than investment
grade, which is defined as having a quality rating below "Baa", as rated by
Moody's Investors Service, Inc. ("Moody's"), or below "BBB", as rated by
Standard & Poor's Corporation ("S&P"). For a description of Moody's and
S&P's ratings, see "Description of Debt Ratings". Securities rated below
investment grade are considered to be speculative and involve certain risks,
including a higher risk of default and greater sensitivity to interest rate
and economic changes.
T. Rowe Price will use a number of proprietary quantitative models to
seek out those companies that have a competitively superior product or
service in an unsaturated market with large potential for growth and measure
the major characteristics of stocks in the small capitalization growth
sector. These will often be companies with shorter histories and less
seasoned operations. Based on these models, stocks are selected in a "top
down" manner so that the portfolio as a whole reflects the specific
characteristics that the sub-adviser considers important, such as valuation
and projected earnings growth. Many of such companies will have market
capitalizations that are less than $1.5 billion, with lower daily trading
volume in their stocks and less overall liquidity than larger, more well
established companies. T. Rowe Price anticipates that the common stocks of
such companies may increase in market value more rapidly than the stocks of
other companies.
The Fund will focus primarily on companies that possess superior
earnings prospects. The stocks that the Fund invests in may be traded on
national exchanges or in the over-the-counter market ("OTC"). There will be
no limit on the proportion of the Fund's investment portfolio that may
consist of OTC stocks.
The Fund may dispose of securities held for a short period if T. Rowe
Price believes such disposition to be advisable. The Fund will not
generally trade in securities for short-term profits, but when circumstances
warrant, securities may be purchased and sold without regard to the length
of time held. The annual portfolio turnover rates of the Fund for the fiscal
years ended October 31, 1997 and October 31, 1996 were 136% and 176%,
respectively.
For more information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
The investment objective of the LB Mid Cap Growth Fund is to achieve
long term growth of capital.
The Fund will pursue its objective by investing primarily in a
professionally managed diversified portfolio of common stocks of companies
with medium market capitalizations LB Research defines companies with
medium market capitalizations ("mid cap companies") as those with market
capitalizations that fall within the capitalization range of companies
included in the Standard & Poor's MidCap 400 Index at the time of the
Portfolio's investment. The Fund will seek to invest in companies that have
a track record of earnings growth or the potential for continued above
average growth. The Fund will normally invest at least 65% of its total
assets in common stocks of mid cap companies. LB Research will use both
fundamental and technical investment research techniques to seek out these
companies.
The stocks that the Fund invests in may be traded on national
exchanges or in the over-the-counter market ("OTC"). There will be no limit
on the proportion of the Fund's investment portfolio that may consist of OTC
stocks.
Many mid cap companies have lower daily trading volume in their stocks
and less overall liquidity than larger, more well established companies. The
common stocks of such companies may have greater price volatility than the
stocks of other larger companies. For a description of these and other risks
associated with investments in such companies, see "Investment Risks -- LB
Mid Cap Growth Fund Investment Risks".
The Fund may also invest in other types of securities, including
bonds, preferred stocks, convertible bonds, convertible preferred stocks,
warrants, American Depository Receipts (ADR's), common stocks of companies
falling outside the medium market capitalization range, and other debt or
equity securities. In addition, the Fund may invest in U.S. Government
securities or cash. The Fund will not use any minimum level of credit
quality. At no time will the Fund invest more than 5% of its net assets in
debt obligations. Debt obligations may be rated less than investment grade,
which is defined as having a quality rating below "Baa", as rated by Moody's
Investors Service, Inc. ("Moody's), or below "BBB", as rated by Standard &
Poor's Corporation ("S&P"). For a description of Moody's and S&P's ratings,
see "Description of Debt Ratings". Securities rated below investment grade
(sometimes referred to as "high yield" or "junk bonds") are considered to be
speculative and involve certain risks, including a higher risk of default
and greater sensitivity to interest rate and economic changes.
The Fund may dispose of securities held for a short period if the
Fund's investment adviser believes such disposition to be advisable. While
LB Research does not intend to select portfolio securities for the specific
purpose of trading them within a short period of time, LB Research does
intend to use an active method of management which will result in the sale
of some securities after a relatively brief holding period. This method of
management necessarily results in higher cost to the Fund due to the fees
associated with portfolio securities transactions. A higher portfolio
turnover rate may also result in taxes on realized capital gains to be borne
by shareholders. However, it is LB Research's belief that this method of
management can produce added value to the Fund and its shareholders that
exceeds the additional costs of such transactions. The annual portfolio
turnover rate of the Fund for the period ended October 31, 1997 was 94%.
For more information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
The investment objective of the LB World Growth Fund is to seek total
return from long-term growth of capital. The Fund will pursue its objective
principally through investments in common stocks of established, non-U.S.
companies. Total return consists of capital appreciation or depreciation,
dividend income, and currency gains or losses.
The Fund intends to diversify investments broadly among countries and
to normally have at least three different countries represented in the Fund.
The Fund may invest in countries of the Far East and Western Europe as well
as South Africa, Australia, Canada and other areas (including developing
countries). As a temporary defensive measure, the Fund may invest
substantially all of its assets in one or two countries.
In seeking its objective, the Fund will invest primarily in common
stocks of established foreign companies which have the potential for growth
of capital. In order to increase total return, the Fund may also invest in
bonds and preferred stocks, convertible bonds, convertible preferred stocks,
warrants, American Depository Receipts (ADR's) and other debt or equity
securities. In addition, the Fund may invest in U.S. Government securities
or cash. The Fund will not use any minimum level of credit quality. At no
time will the Fund invest more than 5% of its net assets in debt obligations
or other securities that may be converted to debt obligations (excluding
cash and U.S. Government securities). Debt obligations may be rated less
than investment grade, which is defined as having a quality rating below
"Baa", as rated by Moody's Investors Service, Inc. ("Moody's"), or below
"BBB", as rated by Standard & Poor's Corporation ("S&P"). Debt obligations
rated "Baa" or "BBB" are considered to have speculative characteristics. For
a description of Moody's and S&P's ratings, see "Description of Debt
Ratings". Securities rated below investment grade are considered to be
speculative and involve certain risks, including a higher risk of default
and greater sensitivity to interest rate and economic changes.
In determining the appropriate distribution of investments among
various countries and geographic regions, Price-Fleming considers the
following factors: prospects for relative economic growth between foreign
countries; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range
of individual investment opportunities available to international investors.
In analyzing companies for investment, Price-Fleming looks for one or
more of the following characteristics: an above-average earnings growth per
share; high return on invested capital; healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management;
and general operating characteristics which will enable the companies to
compete successfully in their market place. While current dividend income is
not a prerequisite in the selection of portfolio companies, the companies in
which the Fund invests normally will have a record of paying dividends, and
will generally be expected to increase the amounts of such dividends in
future years as earnings increase.
The Fund's investments also may include, but are not limited to,
European Depository Receipts ("EDRs"), other debt and equity securities of
foreign issuers, and the securities of foreign investment funds or trusts
(including passive foreign investment companies). For a discussion of the
risks involved in foreign investing see the section of this Prospectus
entitled "Foreign Issuers".
The Fund may engage in certain forms of options and futures
transactions that are commonly known as derivative securities transactions.
These derivative securities transactions are identified and described in the
sections of this Prospectus entitled "Put and Call Options" and "Financial
Futures and Options on Futures."
The Fund may use foreign currency exchange-related securities
including foreign currency warrants, principal exchange rate linked
securities, and performance indexed paper. The Fund does not expect to hold
more than 5% of its total assets in foreign currency exchange-related
securities.
The Fund will normally conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or through entering into forward
contracts to purchase or sell foreign currencies. The Fund will generally
not enter into a forward contract with a term of greater than one year.
The Fund will generally enter into forward foreign currency exchange
contracts only under two circumstances. First, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
Second, when Price-Fleming believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, it may enter into a forward contract to sell or buy the former
foreign currency (or another currency which acts as a proxy for that
currency) approximating the value of some or all of the Fund's securities
denominated in such foreign currency. Under certain circumstances, the Fund
may commit a substantial portion of the entire value of its portfolio to the
consummation of these contracts. Price-Fleming will consider the effect
such a commitment of its portfolio to forward contracts would have on the
investment program of the Fund and the flexibility of the Fund to purchase
additional securities. Although forward contracts will be used primarily to
protect the Fund from adverse currency movements, they also involve the risk
that anticipated currency movements will not be accurately predicted and the
Fund's total return could be adversely affected as a result.
For a discussion of foreign currency contracts and the risks involved
therein, see the section of this Prospectus entitled, "Investment Risks."
The Fund will not generally trade in securities for short-term
profits, but, when circumstances warrant, securities may be purchased and
sold without regard to the length of time held. The annual portfolio
turnover rate of the Fund for the fiscal year ended October 31, 1997 and
October 31, 1996 were 17% and 11%, respectively.
For more information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD FUND
The investment objective of the LB Fund is to seek growth of capital
and income.
The Fund seeks to achieve its objective by investing in securities
issued by leading companies. The Fund may invest in the common stocks and
other securities of leading companies, including corporate bonds, notes,
preferred stock, and warrants. The Fund may also invest in U.S. Government
securities and cash. For purposes of the Fund's investment objective,
companies are deemed "leading" in terms of market share, asset size, cash
flow and other fundamental factors.
LB Research will use fundamental investment research techniques to
seek out those companies that have a leading position within their industry
or within the capital markets generally. LB Research will focus upon market
shares, growth in sales and earnings, market capitalization and asset size
and competitive dominance. These will often be mature companies with a
lengthy history and seasoned operations. Many of them will have market
capitalizations in excess of $1 billion.
The Fund may dispose of securities held for a short period if the
Fund's investment adviser believes such disposition to be advisable. LB
Research intends to use an active method of management and may select
portfolio securities for the specific purpose of trading them within a short
period of time, which will result in the sale of some securities after a
relatively brief holding period. This method of management necessarily
results in higher cost to the Fund due to the fees associated with portfolio
securities transactions. However, it is LB Research's belief that this
method of management can produce added value to the Fund and its
shareholders that exceeds the additional costs of such transactions. The
annual portfolio turnover rates of the Fund for the fiscal years ended
October 31, 1997 and October 31, 1996 were 54% and 91%, respectively.
For information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD HIGH YIELD FUND
The investment objective of the LB High Yield Fund is to obtain high
current income and, secondarily, growth of capital.
The Fund seeks to achieve its investment objectives by investing
primarily in a diversified portfolio of professionally managed high yield,
high risk securities, many of which involve greater risks than higher
quality investments. The Fund may invest in high yield, high risk bonds,
notes, debentures and other income producing debt obligations and dividend
paying preferred stocks. These securities are commonly known as "junk
bonds". High yield, high risk securities will ordinarily carry a quality
rating "Ba" or lower by Moody's, "BB" or lower by S&P, or, if not rated,
such securities will be of comparable quality as determined by the Fund's
investment adviser. The Fund will use no minimum level of quality rating and
may purchase and hold securities in default. Securities having a quality
rating of Ba or BB and lower are considered to be speculative. See
"Investment Risks - LB High Yield Fund Investment Risks". For a description
of Moody's and S&P's ratings, see "Description of Debt Ratings".
The Fund may also invest in common stocks, warrants to purchase
stocks, bonds or preferred stock convertible into common stock, and other
equity securities. Investments in such securities will be made in pursuit of
the income and capital growth objectives of the Fund, but at no time will
the Fund invest more than 20% of its total assets in equity securities.
As a nonfundamental policy, during normal market conditions the Fund
will maintain at least 65% of its total assets, taken at market value, in
lower rated securities. The Fund may invest, without limit, in short-term
money market instruments when, in the opinion of LB Research, short-term
investments provide a better opportunity for achieving the Fund's objectives
than do longer term investments. When making short-term investments for such
purpose, the Fund will not be limited to a minimum quality level and may use
unrated instruments.
The Fund does not intend to engage in short-term trading but may
dispose of securities held for a short time if LB Research believes such
disposition to be advisable. The annual portfolio turnover rates of the Fund
for the fiscal years ended October 31, 1997 and October 31, 1996 were 113%
and 104%, respectively.
For information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD INCOME FUND
The investment objective of the LB Income Fund is to seek high current
income while preserving principal. The Fund's secondary investment objective
is to obtain long-term growth of capital in order to maintain investors'
purchasing power.
The Fund seeks to achieve its investment objectives by investing
primarily in debt securities such as bonds, notes, debentures, mortgage-
backed securities, other income producing debt obligations, and preferred
stocks rated "Baa" or higher by Moody's or "BBB" or higher by S&P. If not
rated, such securities will be of comparable quality in the opinion of LB
Research. Securities rated BBB or Baa, although considered to be investment
grade or higher, have speculative characteristics. If a portfolio security's
quality rating drops below investment grade after the Fund has acquired the
security, the Fund may continue to hold the security in its portfolio. A
description of the ratings that are given to debt securities by Moody's and
S&P and the standards applied by them in assigning these ratings may be
found at end of this Prospectus.
The Fund may from time to time invest in debt securities that are not
rated as investment grade. For a description of the risks of investing in
such securities, see the section of this Prospectus entitled "Investment
Risks of High Yield Securities". The Fund may also invest in common stock
and bonds and preferred stock that are convertible into common stock. No
more than 10% of the Fund's total assets will be invested in common stock
and no more than 25% of the value of the total assets will be invested in
all securities described in this paragraph.
Debt securities may bear fixed or variable rates of interest. They may
involve equity features such as conversion or exchange rights, warrants for
the acquisition of common stock of the same or a different issuer,
participation based on revenues, sales or profits, or the purchase of common
stock in a unit transaction (where corporate debt securities and common
stock are offered as a unit).
The Fund may engage in short-term trading and dispose of securities
held for a short time if LB Research believes such disposition to be
advisable. This method of management necessarily results in higher cost to
the Fund due to the fees associated with portfolio securities transactions.
However, it is LB Research's belief that this method of management can
produce added value to the Fund and its shareholders that exceeds the
additional costs of such transactions. The annual portfolio turnover rates
of the Fund for the fiscal years ended October 31, 1997 and October 31, 1996
were 97% and 142%, respectively.
For information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
The investment objective of the LB Municipal Bond Fund is to provide
its shareholders with a high level of current income which is exempt from
federal income tax.
The Fund seeks to achieve its investment objective by investing in a
diversified portfolio of municipal bonds. Municipal bonds are debt
obligations issued by or on behalf of states (including the District of
Columbia), territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities, the interest from
which is exempt from federal income tax. At least 80% of the Fund's total
assets will be invested in municipal bonds unless LB Research determines
that market conditions call for a temporary defensive posture.
The Fund does not generally intend to purchase securities if, as a
result of such purchase, more than 25% of the value of its total assets
would be invested in the securities of governmental subdivisions located in
any one state, territory or possession of the United States. The Fund may
invest more than 25% of the value of its total assets in industrial
development bonds. As to industrial development bonds, the Fund may invest
up to 25% of its total assets in securities issued in connection with the
financing of projects with similar characteristics, such as toll road
revenue bonds, housing revenue bonds or electric power project revenue
bonds, or in industrial development revenue bonds which are based, directly
or indirectly, on the credit of private entities in any one industry. This
may make the Fund more susceptible to economic, political or regulatory
occurrences affecting a particular industry or sector and increase the
potential for fluctuation of net asset value.
Municipal Bonds: Municipal bonds are generally issued to finance
public works, such as bridges and highways, housing, mass transportation
projects, schools and hospitals. Municipal bonds are also issued to repay
outstanding obligations, to raise funds for general operating expenses and
to make loans to other public institutions and facilities. The two principal
classifications of municipal bonds are "general obligation" and "revenue"
bonds. General obligation bonds are secured by the issuer's pledge and
ability to raise taxes to repay the principal and interest. Revenue bonds
are repayable only from the income earned from the facility financed by the
bond or other specific source of revenue. For example, income earned by a
housing development can be used to repay the bonds that raised the funds for
its construction.
Industrial Development Bonds: Industrial development bonds are
considered municipal bonds if the interest paid on them is exempt from
federal income tax. Industrial development bonds which qualify as municipal
bonds are almost always revenue bonds. They are issued by or on behalf of
public authorities to raise money for privately-operated housing facilities,
sports facilities, convention or trade show centers, airports, mass transit,
port facilities, parking areas, air or water pollution control facilities
and certain local facilities for water supply, gas, electricity or sewage
disposal.
Municipal Bonds Suitable for Investment: The Fund generally restricts
its investments to municipal bonds rated Aaa, Aa, A or Baa by Moody's, or
AAA, AA, A or BBB by S&P. Municipal bonds in the lowest rated category have
speculative characteristics. The Fund also may invest in municipal bonds
(but not industrial development bonds) that are not rated by Moody's or S&P
but, in the opinion of LB Research, would qualify for Standard & Poor's BBB
or Moody's Baa rating. Subsequent to its purchase by the Fund, an issue of
municipal bonds may cease to be rated or its rating may be reduced below the
minimums required for purchase by the Fund. Neither event requires the
elimination of such obligation from the Fund's portfolio, but LB Research
will consider such an event in its determination of whether the Fund should
continue to hold such obligation in its
portfolio.
The annual portfolio turnover rates of the Fund for the fiscal years
ended October 31, 1997 and October 31, 1996 were 18% and 33%, respectively.
For information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD MONEY MARKET FUND
The LB Money Market Fund's investment objective is current income
consistent with stability of principal.
The Fund pursues this investment objective by investing in a portfolio
of money market instruments that mature in 397 days or less in order to
obtain current income and maintain a stable principal. The dollar-weighted
average maturity of money market instruments held by the LB Money Market
Fund will be 90 days or less. The policy of the Fund is generally to hold
instruments until maturity. However, the Fund may attempt to increase yield
by trading portfolio securities to take advantage of short-term market
variations.
Permissible LB Money Market Fund investments include, but are not
limited to: U.S. Treasury bills and all other marketable obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities;
instruments of domestic and foreign banks and savings and loans; prime
commercial paper; variable amount demand master notes; repurchase
agreements; instruments secured by the obligations described above and
asset-backed securities.
The Fund will not purchase a security (other than U.S. Government
obligations) unless the security (i) is rated by at least two nationally
recognized statistical rating organizations (NRSROs) with the highest rating
assigned to short-term debt securities (or, if rated by only one NRSRO by
that NRSRO, or if not rated, is determined to be of comparable quality), or
(ii) is rated by at least two such NRSROs within the two highest ratings
assigned to short-term debt securities (or, if rated by only one NRSRO by
that NRSRO, or if not rated, is determined to be of comparable quality) and
not more than 5% of the assets of the Fund would be invested in such
securities. In addition, the Fund may not invest more than 1% of its total
assets or $1 million (whichever is greater) in the securities of a single
issuer included in clause (ii) above. Determinations of comparable quality
are made by LB Research in accordance with procedures established by the
Board of Trustees.
U.S. Government Obligations: The types of U.S. Government obligations
in which the Fund may invest include, but are not limited to: direct
obligations of the U.S. Treasury, such as U.S. Treasury bills, bonds and
notes; and instruments issued or guaranteed by the U.S. Government, its
agencies or instrumentalities which are backed by the full faith and credit
of the United States, the credit of the agency or instrumentality (a
governmental agency organized under federal charter with government
supervision) issuing the obligations, or the issuer's right to borrow from
the U.S. Treasury. These U.S. Government obligations may include notes,
bonds and discount notes issued by following agencies: Federal Land Banks;
Central Bank for Cooperatives; Federal Intermediate Credit Banks; Federal
Home Loan Banks; Farmers Home Administration; and Federal National Home
Mortgage Association.
Bank Instruments: The Fund invests only in instruments of domestic and
foreign banks and savings and loans if they have capital and surplus of over
$100,000,000 or the principal amount of the instrument in which the Fund is
investing is insured by the Federal Deposit Insurance Corporation (FDIC),
including domestic or Eurodollar certificates of deposit, demand and time
deposits, savings shares and bankers' acceptances.
Asset-Backed Securities: Asset-backed securities represent interests
in pools of consumer loans such as credit card receivables, leases on
equipment such as computers and other financial instruments. These
securities provide a flow-through of interest and principal payments as
payments are received on the loans or leases and may be supported by letters
of credit or similar guarantees of payment by a financial institution. These
securities are subject to the risks of non-payment of the underlying loans
as well as the risks of prepayment. An interest in a bank sponsored master
trust which holds the receivables for a major international credit card is
an example of an asset backed security; an interest in a trust which holds
the customer receivable for a large consumer products company is another
example.
For information on other investment policies of the Fund, see
"Additional Investment Practices" below.
ADDITIONAL INVESTMENT PRACTICES
Various of the Funds may purchase the following securities or may
engage in the following transactions.
REPURCHASE AGREEMENTS
Each of the Funds may engage in repurchase agreement transactions in
pursuit of its investment objective. A repurchase agreement consists of a
purchase and a simultaneous agreement to resell for later delivery at an
agreed upon price and rate of interest U.S. Government obligations. The Fund
or its custodian will take possession of the obligations subject to a
repurchase agreement. If the original seller of a security subject to a
repurchase agreement fails to repurchase the security at the agreed upon
time, the Fund could incur a loss due to a drop in the market value of the
security during the time it takes the Fund to either sell the security or
take action to enforce the original seller's agreement to repurchase the
security. Also, if a defaulting original seller filed for bankruptcy or
became insolvent, disposition of such security might be delayed by pending
court action. The Fund may only enter into repurchase agreements with banks
and other recognized financial institutions such as broker/dealers which are
found by LB Research (or a sub-advisor) to be creditworthy.
RESTRICTED SECURITIES
Subject to the limitations on illiquid securities noted above, the
Funds may buy or sell securities that meet the requirements of Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities"). Securities may be
resold pursuant to Rule 144A under certain circumstances only to qualified
institutional buyers as defined in the rule, and the markets and trading
practices for such securities are relatively new and still developing;
depending on the development of such markets, such Rule 144A Securities may
be deemed to be liquid as determined by or in accordance with methods
adopted by the Trustees. Under such methods the following factors are
considered, among others: the frequency of trades and quotes for the
security, the number of dealers and potential purchasers in the market,
market making activity, and the nature of the security and marketplace
trades. Investments in Rule 144A Securities could have the effect of
increasing the level of a Fund's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing such
securities. Also, a Fund may be adversely impacted by the subjective
valuation of such securities in the absence of an active market for them.
REVERSE REPURCHASE AGREEMENTS
Each of the Funds except the LB Money Market Fund also may enter into
reverse repurchase agreements, which are similar to borrowing cash. A
reverse repurchase agreement is a transaction in which the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker or dealer, in return for a percentage of the
instrument's market value in cash, with an agreement that at a stipulated
date in the future the Fund will repurchase the portfolio instrument by
remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not assure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time. The Fund will engage in reverse
repurchase agreements which are not in excess of 60 days to maturity and
will do so to avoid borrowing cash and not for the purpose of investment
leverage or to speculate on interest rate changes.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued and
delayed delivery basis. When-issued and delayed delivery transactions arise
when U.S. Government obligations and other types of securities are bought by
the Fund with payment and delivery taking place in the future. The
settlement dates of these transactions, which may be a month or more after
entering into the transaction, are determined by mutual agreement of the
parties. There are no fees or other expenses associated with these types of
transactions other than normal transaction costs. To the extent a Fund
engages in when-issued and delayed delivery transactions, it will do so for
the purpose of acquiring portfolio instruments consistent with its
investment objective and policies and not for the purpose of investment
leverage or to speculate on interest rate changes. On the settlement date,
the value of such instruments may be less than the cost thereof. When
effecting when-issued and delayed delivery transactions, cash, cash
equivalents or high grade debt obligations of a dollar amount sufficient to
make payment for the obligations to be purchased will be segregated at the
trade date and maintained until the transaction has been settled.
LENDING SECURITIES
Consistent with applicable regulatory requirements, each of the Funds
may from time to time lend the securities it holds to broker-dealers,
provided that such loans are made pursuant to written agreements and are
continuously secured by collateral in the form of cash, U.S. Government
securities, irrevocable standby letters of credit or other liquid securities
in an amount at all times equal to at least the market value of the loaned
securities plus the accrued interest and dividends. For the period during
which the securities are on loan, the lending Fund will be entitled to
receive the interest and dividends, or amounts equivalent thereto, on the
loaned securities and a fee from the borrower or interest on the investment
of the cash collateral. The right to terminate the loan will be given to
either party subject to appropriate notice. Upon termination of the loan,
the borrower will return to the Fund securities identical to the loaned
securities.
The primary risk in lending securities is that the borrower may become
insolvent on a day on which the loaned security is rapidly increasing in
value. In such event, if the borrower fails to return the loaned security,
the existing collateral might be insufficient to purchase back the full
amount of the security loaned, and the borrower would be unable to furnish
additional collateral. The borrower would be liable for any shortage, but
the lending Fund would be an unsecured creditor with respect to such
shortage and might not be able to recover all or any thereof. However, this
risk may be minimized by a careful selection of borrowers and securities to
be lent and by monitoring collateral.
No Fund will lend securities to broker-dealers affiliated with LB
Research or a sub-advisor. LB Research believes that this will not affect
the Fund's ability to maximize its securities lending opportunities. No Fund
may lend any security or make any other loan if, as a result, more than one-
third of its total assets would be lent to other parties.
PUT AND CALL OPTIONS (ALL FUNDS EXCEPT THE LB MONEY MARKET FUND)
Selling ("Writing") Covered Call Options: Certain of the Funds may
from time to time sell ("write") covered call options on any portion of its
portfolio as a hedge to provide partial protection against adverse movements
in prices of securities in those Funds and, subject to the limitations
described below, for the non- hedging purpose of attempting to create
additional income. A call option gives the buyer of the option, upon payment
of a premium, the right to call upon the writer to deliver a specified
amount of a security on or before a fixed date at a predetermined ("strike")
price. As the writer of a call option, a Fund assumes the obligation to
deliver the underlying security to the holder of the option on demand at the
strike price.
If the price of a security hedged by a call option falls below or
remains below the strike price of the option, a Fund will generally not be
called upon to deliver the security. A Fund will, however, retain the
premium received for the option as additional income, offsetting all or part
of any decline in the value of the security. If the price of a hedged
security rises above or remains above the strike price of the option, the
Fund will generally be called upon to deliver the security. In this event, a
Fund limits its potential gain by limiting the value it can receive from the
security to the strike price of the option plus the option premium.
Buying Call Options: Certain of the Funds may also from time to time
purchase call options on securities in which those Funds may invest. As the
holder of a call option, a Fund has the right to purchase the underlying
security or currency at the exercise price at any time during the option
period (American style) or at the expiration of the option (European style).
A Fund generally will purchase such options as a hedge to provide protection
against adverse movements in the prices of securities which the Fund intends
to purchase. In purchasing a call option, a Fund would realize a gain if,
during the option period, the price of the underlying security increased by
more than the amount of the premium paid. A Fund would realize a loss equal
to all or a portion of the premium paid if the price of the underlying
security decreased, remained the same, or did not increase by more than the
premium paid.
Buying Put Options: Certain of the Funds may from time to time
purchase put options on any portion of its portfolio. A put option gives the
buyer of the option, upon payment of a premium, the right to deliver a
specified amount of a security to the writer of the option on or before a
fixed date at a predetermined ("strike") price. A Fund generally will
purchase such options as a hedge to provide protection against adverse
movements in the prices of securities in the Fund. In purchasing a put
option, a Fund would realize a gain if, during the option period, the price
of the security declined by an amount in excess of the premium paid. A Fund
would realize a loss equal to all or a portion of the premium paid if the
price of the security increased, remained the same, or did not decrease by
more than the premium paid.
Options on Foreign Currencies: The LB World Growth Fund may also write
covered call options and purchase put and call options on foreign currencies
as a hedge against changes in prevailing levels of currency exchange rates.
Selling Put Options: The Funds may not sell put options, except in the
case of a closing purchase transaction (see Closing Transactions).
Index Options: As part of its options transactions, certain of the
Funds may also purchase and sell call options and purchase put options on
stock and bond indices. Options on securities indices are similar to options
on a security except that, upon the exercise of an option on a securities
index, settlement is made in cash rather than in specific securities.
Closing Transactions: Certain of the Funds may dispose of options
which they have written by entering into "closing purchase transactions".
Those Funds may dispose of options which they have purchased by entering
into "closing sale transactions". A closing transaction terminates the
rights of a holder, or the obligation of a writer, of an option and does not
result in the ownership of an option.
A Fund realizes a profit from a closing purchase transaction if the
premium paid to close the option is less than the premium received by the
Fund from writing the option. The Fund realizes a loss if the premium paid
is more than the premium received. The Fund may not enter into a closing
purchase transaction with respect to an option it has written after it has
been notified of the exercise of such option.
A Fund realizes a profit from a closing sale transaction if the
premium received to close out the option is more than the premium paid for
the option. A Fund realizes a loss if the premium received is less than the
premium paid.
Spreads and Straddles: Certain of the Funds may also engage in
"straddle" and "spread" transactions in order to enhance return, which is a
speculative, non-hedging purpose. A straddle is established by buying both a
call and a put option on the same underlying security, each with the same
exercise price and expiration date. A spread is a combination of two or more
call options or put options on the same security with differing exercise
prices or times to maturity. The particular strategies employed by a Fund
will depend on LB Research's or the Ssub-advisor's perception of anticipated
market movements.
Negotiated Transactions: Certain of the Funds will generally purchase
and sell options traded on a national securities or options exchange. Where
options are not readily available on such exchanges, a Fund may purchase and
sell options in negotiated transactions. A Fund effects negotiated
transactions only with investment dealers and other financial institutions
deemed creditworthy by its investment adviser. Despite the investment
adviser's or sub-advisor's best efforts to enter into negotiated options
transactions with only creditworthy parties, there is always a risk that the
opposite party to the transaction may default in its obligation to either
purchase or sell the underlying security at the agreed upon time and price,
resulting in a possible loss by the Fund. This risk is described more
completely in the section of this Prospectus entitled, "Risks of
Transactions in Options and Futures". Options written or purchased by a Fund
in negotiated transactions are illiquid and there is no assurance that a
Fund will be able to effect a closing purchase or closing sale transaction
at a time when its investment adviser or sub-advisor believes it would be
advantageous to do so. In the event the Fund is unable to effect a closing
transaction with the holder of a call option written by the Fund, the Fund
may not sell the security underlying the option until the call written by
the Fund expires or is exercised. The underlying securities on such
transactions will also be considered illiquid and are subject to the Fund's
15% illiquid securities limitations.
Limitations: A Fund will not purchase any option if, immediately
thereafter, the aggregate cost of all outstanding options purchased and held
by the Fund would exceed 5% of the market value of the Fund's total assets.
A Fund will not write any option if, immediately thereafter, the aggregate
value of the Fund's securities subject to outstanding options would exceed
30% of the market value of the Fund's total assets.
FINANCIAL FUTURES AND OPTIONS ON FUTURES (ALL FUNDS EXCEPT THE LB MONEY
MARKET FUND)
Selling Futures Contracts: Certain of the Funds may sell financial
futures contracts ("futures contracts") as a hedge against adverse movements
in the prices of securities in those Funds. Such contracts may involve
futures on items such as U.S. Government Treasury bonds, notes and bills,
government mortgage-backed securities; corporate and municipal bond indices;
and stock indices. A futures contract sale creates an obligation for the
Fund, as seller, to deliver the specific type of instrument called for in
the contract at a specified future time for a specified price. In selling a
futures contract, the Fund would realize a gain on the contract if, during
the contract period, the price of the securities underlying the futures
contract decreased. Such a gain would be expected to approximately offset
the decrease in value of the same or similar securities in the Fund. The
Fund would realize a loss if the price of the securities underlying the
contract increased. Such a loss would be expected to approximately offset
the increase in value of the same or similar securities in the Fund.
Futures contracts have been designed by and are traded on boards of
trade which have been designated "contract markets" by the Commodity Futures
Trading Commission ("CFTC"). These boards of trade, through their clearing
corporations, guarantee performance of the contracts. Although the terms of
some financial futures contracts specify actual delivery or receipt of
securities, in most instances these contracts are closed out before the
settlement due date without the making or taking of delivery of the
securities. Other financial futures contracts, such as futures contracts on
a securities index, by their terms call for cash settlements. The closing
out of a futures contract is effected by entering into an offsetting
purchase or sale transaction.
When a Fund sells a futures contract, or a call option on a futures
contract, it is required to make payments to the commodities broker which
are called "margin" by commodities exchanges and brokers.
The payment of "margin" in these transactions is different than
purchasing securities "on margin". In purchasing securities "on margin" an
investor pays part of the purchase price in cash and receives an extension
of credit from the broker, in the form of a loan secured by the securities,
for the unpaid balance. There are two categories of "margin" involved in
these transactions: initial margin and variation margin. Initial margin does
not represent a loan between a Fund and its broker, but rather is a "good
faith deposit" by a Fund to secure its obligations under a futures contract
or an option. Each day during the term of certain futures transactions, a
Fund will receive or pay "variation margin" equal to the daily change in the
value of the position held by the Fund.
Buying Futures Contracts: Certain of the Funds may purchase financial
futures contracts as a hedge against adverse movements in the prices of
securities which they intend to purchase. The Opportunity Growth and World
Growth Funds may buy and sell futures contracts for a number of reasons,
including to manage their exposure to changes in securities prices and
foreign currencies as an efficient means of adjusting their overall exposure
to certain markets in an effort to enhance income; and to protect the value
of portfolio securities. A futures contract purchase creates an obligation
by a Fund, as buyer, to take delivery of the specific type of instrument
called for in the contract at a specified future time for a specified price.
In purchasing a futures contract, a Fund would realize a gain if, during the
contract period, the price of the securities underlying the futures contract
increased. Such a gain would approximately offset the increase in cost of
the same or similar securities which a Fund intends to purchase. A Fund
would realize a loss if the price of the securities underlying the contract
decreased. Such a loss would approximately offset the decrease in cost of
the same or similar securities which a Fund intends to purchase.
Options on Futures Contracts: Certain of the Funds may also sell
("write") covered call options on futures contracts and purchase put and
call options on futures contracts in connection with the above strategies. A
Fund may not sell put options on futures contracts. An option on a futures
contract gives the buyer of the option, in return for the premium paid for
the option, the right to assume a position in the underlying futures
contract (a long position if the option is a call and a short position if
the option is a put). The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of securities
underlying the futures contract to the extent of the premium received for
the option. The purchase of a put option on a futures contract constitutes a
hedge against price declines below the exercise price of the option and net
of the premium paid for the option. The purchase of a call option
constitutes a hedge, net of the premium, against an increase in cost of
securities which a Fund intends to purchase.
Currency Futures Contracts and Options: The LB World Growth Fund may
also sell and purchase currency futures contracts (or options thereon) as a
hedge against changes in prevailing levels of currency exchange rates. Such
contracts may be traded on U.S. or foreign exchanges. The Fund will not use
such contracts or options for leveraging purposes.
Limitations: Certain of the Funds may engage in futures transactions,
and transactions involving options on futures, only on regulated commodity
exchanges or boards of trade. A Fund will not enter into a futures contract
or purchase or sell related options if immediately thereafter (a) the sum of
the amount of initial margin deposits on the Fund's existing futures and
related options positions and premiums paid for options with respect to
futures and options used for non-hedging purposes would exceed 5% of the
market value of the Fund's total assets or (b) the sum of the then aggregate
value of open futures contracts sales, the aggregate purchase prices under
open futures contract purchases, and the aggregate value of futures
contracts subject to outstanding options would exceed 30% of the market
value of the Fund's total assets. In addition, in instances involving the
purchase of futures contracts or call options thereon, a Fund will maintain
cash or cash equivalents, less any related margin deposits, in an amount
equal to the market value of such contracts. "Cash and cash equivalents" may
include cash, government securities, or liquid high quality debt
obligations.
HYBRID INVESTMENTS (ALL FUNDS EXCEPT THE LB MONEY MARKET FUND)
As part of its investment program and to maintain greater flexibility,
the Fund may invest in hybrid instruments (a potentially high risk
derivative) which have the characteristics of futures, options and
securities. Such instruments may take a variety of forms, such as debt
instruments with interest or principal payments determined by reference to
the value of a currency, security index or commodity at a future point in
time. The risks of such investments would reflect both the risks of
investing in futures, options, currencies and securities, including
volatility and illiquidity. Under certain conditions, the redemption value
of a hybrid instrument could be zero. The Fund does not expect to hold more
than 5% of its total assets in hybrid instruments. For a discussion of
hybrid investments and the risks involved therein, see the Trust's Statement
of Additional Information under "Additional Information Concerning Certain
Investment Techniques".
RISKS OF TRANSACTIONS IN OPTIONS AND FUTURES
There are certain risks involved in the use of futures contracts,
options on securities and securities index options, and options on futures
contracts, as hedging devices. There is a risk that the movement in the
prices of the index or instrument underlying an option or futures contract
may not correlate perfectly with the movement in the prices of the assets
being hedged. The lack of correlation could render a Fund's hedging strategy
unsuccessful and could result in losses. The loss from investing in futures
transactions is potentially unlimited.
There is a risk that LB Research or a sub-advisor could be incorrect
in their expectations about the direction or extent of market factors such
as interest rate movements. In such a case a Fund would have been better off
without the hedge. In addition, while the principal purpose of hedging is to
limit the effects of adverse market movements, the attendant expense may
cause a Fund's return to be less than if hedging had not taken place. The
overall effectiveness of hedging therefore depends on the expense of hedging
and LB Research's or a Fund's sub-advisor's accuracy in predicting the
future changes in interest rate levels and securities price movements.
A Fund will generally purchase and sell options traded on a national
securities or options exchange. Where options are not readily available on
such exchanges a Fund may purchase and sell options in negotiated
transactions. When a Fund uses negotiated options transactions it will seek
to enter into such transactions involving only those options and futures
contracts for which there appears to be an active secondary market. There is
nonetheless no assurance that a liquid secondary market such as an exchange
or board of trade will exist for any particular option or futures contract
at any particular time. If a futures market were to become unavailable, in
the event of an adverse movement, a Fund would be required to continue to
make daily cash payments of maintenance margin if it could not close a
futures position. If an options market were to become unavailable and a
closing transaction could not be entered into, an option holder would be
able to realize profits or limit losses only by exercising an option, and an
option writer would remain obligated until exercise or expiration. In
addition, exchanges may establish daily price fluctuation limits for options
and futures contracts, and may halt trading if a contract's price moves
upward or downward more than the limit in a given day. On volatile trading
days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for a Fund to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent
prompt liquidation of unfavorable positions, and potentially could require a
Fund to continue to hold a position until delivery or expiration regardless
of changes in its value. As a result, a Fund's access to other assets held
to cover its options or futures positions could also be impaired.
When conducting negotiated options transactions there is a risk that
the opposite party to the transaction may default in its obligation to
either purchase or sell the underlying security at the agreed upon time and
price. In the event of such a default, a Fund could lose all or part of
benefit it would otherwise have realized from the transaction, including the
ability to sell securities it holds at a price above the current market
price or to purchase a security from another party at a price below the
current market price.
The Funds intend to continue to meet the requirements of federal law
to be treated as a regulated investment company. For taxable years of a Fund
that began on or prior to August 5, 1997, one of these requirements is that
a Fund realize less than 30% of its annual gross income from the sale of
securities held for less than three months. Accordingly, the extent to which
a Fund may engage in futures contracts and related options may be materially
limited by this 30% test. Options activities of a Fund may increase the
amount of gains from the sale of securities held for less than three months,
because gains from the expiration of, or from closing transactions with
respect to, call options written by a Fund will be treated as short-term
gains and because the exercise of call options written by the Fund would
cause it to sell the underlying securities before it otherwise might. For
each taxable year of a Fund beginning after August 5, 1997, a Fund will no
longer be subject to the 30% test described above.
Finally, if a broker or clearing member of an options or futures
clearing corporation were to become insolvent, a Fund could experience
delays and might not be able to trade or exercise options or futures
purchased through that broker or clearing member. In addition, a Fund could
have some or all of its positions closed out without its consent. If
substantial and widespread, these insolvencies could ultimately impair the
ability of the clearing corporations themselves.
TEMPORARY DEFENSIVE INVESTMENTS
The LB Opportunity Growth Fund, LB World Growth Fund, LB Fund, LB Mid
Cap Growth Fund, LB High Yield Fund, LB Income Fund, and LB Municipal Bond
Fund, may hold up to 100% of their assets in cash or short-term debt
securities for temporary defensive position when, in the opinion of LB
Research or a Fund's sub-advisor such a position is more likely to provide
protection against unfavorable market conditions than adherence to the
Funds' other investment policies. The types of short-term instruments in
which the Funds may invest for such purposes include short-term money market
securities such as repurchase agreements and securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, certificates of
deposit, Eurodollar certificates of deposit, commercial paper and banker's
acceptances issued by domestic and foreign corporations and banks. When
investing in short-term money market obligations for temporary defensive
purposes, a Fund will invest only in securities rated at the time of
purchase Prime-1 or Prime-2 by Moody's, A-1 or A-2 by S&P, F-1 or F-2 by
Fitch Investors Service, Inc., or unrated instruments that are determined by
LB Research or the Sub-advisor to be of a comparable level of quality. When
a Fund adopts a temporary defensive position its investment objective may
not be achieved.
INVESTMENT LIMITATIONS
In seeking to lessen investment risk, each Fund operates under certain
investment restrictions. The restrictions in the following paragraphs may
not be changed with respect to any Fund except by a vote of a majority of
the outstanding voting securities of that Fund.
No Fund may, with respect to 75% of its total assets, purchase the
securities of any issuer (except Government Securities, as such term is
defined in the Investment Company Act of 1940) if, as a result, the Fund
would own more than 10% of the outstanding voting securities of such issuer
or the Fund would have more than 5% of its total assets invested in the
securities of such issuer. The LB Opportunity Growth Fund, LB Mid Cap Growth
Fund, LB World Growth Fund, LB Fund, LB High Yield Fund, LB Income Fund, and
LB Money Market Fund may not invest in a security if the transaction would
result in 25% or more of the Fund's total assets being invested in any one
industry.
A Fund other than the LB Money Market Fund may borrow (through reverse
repurchase agreements or otherwise) up to one-third of its total assets. If
a Fund borrows money its share price will be subject to greater fluctuation
until the borrowing is paid off. If a Fund makes additional investments
while borrowings are outstanding, this may be considered a form of leverage.
If borrowings, including reverse repurchase agreements, exceed 5% of a
Fund's total assets, such Fund will not purchase portfolio securities.
For further information on these and other investment restrictions,
including nonfundamental investment restrictions which may be changed
without a shareholder vote, see the Statement of Additional Information.
INVESTMENT RISKS
Special risks are associated with investments in some of the Funds,
beyond the standard level of risks. These risks are described below. An
investor should take into account his or her investment objectives and
ability to absorb a loss or decline in his or her investment when
considering an investment in such Funds. Investors in certain of the Funds
assume an above average risk of loss, and should not consider an investment
those Funds to be a complete investment program.
LB OPPORTUNITY GROWTH FUND INVESTMENT RISKS
The LB Opportunity Growth Fund is aggressively managed and invests
primarily in the stocks of smaller, less seasoned companies many of which
are traded on an over-the-counter basis, rather than on a national exchange.
These companies represent a relatively higher degree of risk than do the
stocks of larger, more established companies. The companies the LB
Opportunity Growth Fund invests in also tend to be more dependent on the
success of a single product line and have less experienced management. They
tend to have smaller market shares, smaller capitalization, and less access
to sources of additional capital. As a result, these companies tend to have
less ability to cope with problems and market downturns and their shares of
stock tend to be less liquid and more volatile in price.
LB MID CAP GROWTH FUND INVESTMENT RISKS
Stocks in mid cap companies entail greater risk than the stocks of
larger, well-established companies. These companies tend to have smaller
revenues, narrower product lines, less management depth and experience,
smaller shares of their product or service markets, fewer financial
resources, and less competitive strength than larger companies. Also, mid
cap companies usually reinvest a high portion of their earnings in their own
businesses and therefore lack a predictable dividend yield. Since investors
frequently buy these stocks because of their expected above average earnings
growth, earnings levels that fail to meet expectations often result in sharp
price declines of such stocks.
In addition, in many instances, the frequency and volume of trading of
mid cap companies is substantially less than is typical of larger companies.
Therefore, the securities of such companies may be subject to wider price
fluctuations. The spreads between the bid and asked prices of the securities
of these companies in the over-the-counter market typically are larger than
the spreads for more actively-traded companies. As a result, the Fund could
incur a loss if it determined to sell such a security shortly after its
acquisition. When making large sales, the Fund may have to sell portfolio
holdings at discounts from quoted prices or may have to make a series of
small sales over an extended period of time due to the trading volume of
such securities. Investors should be aware that, based on the foregoing
factors, an investment in the Fund may be subject to greater price
fluctuations than an investment in a fund that invests primarily in larger
more established companies.
LB WORLD GROWTH FUND INVESTMENT RISKS
The Fund, may invest in stocks of foreign issuers and in "ADRs" "EDRs"
of foreign stocks. When investing in foreign stocks, ADRs and EDRs, the Fund
assumes certain additional risks that are not present with investments in
stocks of domestic companies. These risks include political and economic
developments such as possible expropriation or confiscatory taxation that
might adversely affect the market value of such stocks, ADRs and EDRs. In
addition, there may be less publicly available information about such
foreign issuers than about domestic issuers, and such foreign issuers may
not be subject to the same accounting, auditing and financial standards and
requirements as domestic issuers.
OTHER RISKS OF FOREIGN INVESTING INCLUDE:
Foreign Securities: Investments in securities of foreign issuers may
involve risks that are not present with domestic investments. While
investments in foreign securities are intended to reduce risk by providing
further diversification, such investments involve sovereign risk in addition
to credit and market risks. Sovereign risk includes local political or
economic developments, potential nationalization, withholding taxes on
dividend or interest payments, and currency blockage (which would prevent
cash from being brought back to the United States). Compared to United
States issuers, there is generally less publicly available information about
foreign issuers and there may be less governmental regulation and
supervision of foreign stock exchanges, brokers and listed companies. Fixed
brokerage commissions on foreign securities exchanges are generally higher
than in the United States. Foreign issuers are not generally subject to
uniform accounting and auditing and financial reporting standards, practices
and requirements comparable to those applicable to domestic issuers.
Securities of some foreign issuers are less liquid and their prices are more
volatile than securities of comparable domestic issuers. In some countries,
there may also be the possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, difficulty in enforcing
contractual and other obligations, political or social instability or
revolution, or diplomatic developments which could affect investments in
those countries. Settlement of transactions in some foreign markets may be
delayed or less frequent than in the United States, which could affect the
liquidity of investments. For example, securities which are listed on
foreign exchanges or traded in foreign markets may trade on days (such as
Saturday) when the Fund does not compute its price or accept orders for the
purchase, redemption or exchange of its shares. As a result, the net asset
value of the Fund may be significantly affected by trading on days when
shareholders cannot make transactions. Further, it may be more difficult for
the Trust's agents to keep currently informed about corporate actions which
may affect the price of portfolio securities. Communications between the
U.S. and foreign countries may be less reliable than within the U.S.,
increasing the risk of delayed settlements or loss of certificates for
portfolio securities.
Investments by the Fund in foreign companies may require the Fund to
hold securities and funds denominated in a foreign currency. Foreign
investments may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. Thus, the Fund's net asset value per
share will be affected by changes in currency exchange rates. Changes in
foreign currency exchange rates may also affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to shareholders of
the Fund. They generally are determined by the forces of supply and demand
in foreign exchange markets and the relative merits of investment in
different countries, actual or perceived changes in interest rates or other
complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. In
addition, the Fund may incur costs in connection with conversions between
various currencies. Investors should understand and consider carefully the
special risks involved in foreign investing. These risks are often
heightened for investments in emerging or developing countries.
Developing Countries: Investing in developing countries involves
certain risks not typically associated with investing in U.S. securities,
and imposes risks greater than, or in addition to, risks of investing in
foreign, developed countries. These risks include: the risk of
nationalization or expropriation of assets or confiscatory taxation;
currency devaluations and other currency exchange rate fluctuations; social,
economic and political uncertainty and instability (including the risk of
war); more substantial government involvement in the economy; higher rates
of inflation; less government supervision and regulation of the securities
markets and participants in those markets; controls on foreign investment
and limitations on repatriation of invested capital and on the Fund's
ability to exchange local currencies for U.S. dollars; unavailability of
currency hedging techniques in certain developing countries; the fact that
companies in developing countries may be smaller, less seasoned and newly
organized companies; the difference in, or lack of, auditing and financial
reporting standards, which may result in unavailability of material
information about issuers; the risk that it may be more difficult to obtain
and/or enforce a judgment in a court outside the United States; and greater
price volatility, substantially less liquidity and significantly smaller
market capitalization of securities markets.
American Depository Receipts (ADRs) and European Depository Receipts
(EDRs): ADRs are dollar-denominated receipts generally issued by a domestic
bank that represents the deposit of a security of a foreign issuer. ADRs may
be publicly traded on exchanges or over-the-counter in the United States.
EDRs are receipts similar to ADRs and are issued and traded in Europe. ADRs
and EDRs may be issued as sponsored or unsponsored programs. In sponsored
programs, the issuer makes arrangements to have its securities traded in the
form of ADRs or EDRs. In unsponsored programs, the issuer may not be
directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are
generally similar, the issuers of unsponsored ADRs or EDRs are not obligated
to disclose material information in the United States and, therefore, the
import of such information may not be reflected in the market value of such
securities.
Currency Fluctuations: Investment in securities denominated in foreign
currencies involves certain risks. A change in the value of any such
currency against the U.S. dollar will result in a corresponding change in
the U.S. dollar value of a Fund's assets denominated in that currency. Such
changes will also affect a Fund's income. Generally, when a given currency
appreciates against the dollar (the dollar weakens) the value of a Fund's
securities denominated in that currency will rise. When a given currency
depreciates against the dollar (the dollar strengthens) the value of a
Fund's securities denominated in that currency would be expected to decline.
INVESTMENT RISKS OF HIGH YIELD SECURITIES (LB HIGH YIELD FUND, LB INCOME
FUND, AND LB MID CAP GROWTH FUND)
Investment in high yield, high risk securities (sometimes referred to
as "junk bonds") involves a greater degree of risk than investment in higher
quality securities. Investment in high yield, high risk securities involves
increased financial risk due to the higher risk of default by the issuers of
bonds and other debt securities having quality rating of "Ba" or lower by
Moody's or "BB" or lower by Standard & Poor's. The higher risk of default
may be due to higher debt leverage ratios, a history of low profitability or
losses, or other fundamental factors that weaken the ability of the issuer
to service its debt obligations.
In addition to the factors of issuer creditworthiness described above,
high yield, high risk securities generally involve a number of additional
market risks. These risks include:
Youth and Growth of High Yield, High Risk Market: The high yield, high
risk bond market is relatively new. While many of the high yield issues
currently outstanding have endured an economic recession, there can be no
assurance that this will be true in the event of increased interest rates or
widespread defaults brought about by a more severe and sustained economic
downturn.
Sensitivity to Interest Rate and Economic Changes: The market value of
high yield, high risk securities have been found to be less sensitive to
interest rate changes on a short-term basis than higher-rated investments,
but more sensitive to adverse economic developments or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may be more likely to experience
financial stress which would impair their ability to service their principal
and interest payment obligations or obtain additional financing. In the
event the issuer of a bond defaults on payments, the LB High Yield Fund may
incur additional expenses in seeking recovery. In periods of economic change
and uncertainty, market values of high yield, high risk securities and the
LB High Yield Fund's assets value may become more volatile. Furthermore, in
the case of zero coupon or payment-in-kind high yield, high risk securities,
market values tend to be more greatly affected by interest rate changes than
securities which pay interest periodically and in cash. Changes in the
market value of securities owned by the LB High Yield Fund will not affect
cash income but will affect the net asset value of the Fund's shares.
Payment Expectations: High yield, high risk securities, like higher
quality securities, may contain redemption or call provisions, which allow
the issuer to redeem a security in the event interest rates drop. In this
event, the LB High Yield Fund would have to replace the issue with a lower
yielding security, resulting in a decreased yield for investors.
Liquidity and Valuation: High yield, high risk securities at times
tend to be more thinly traded and are less likely to have an estimated
retail secondary market than investment grade securities. This may adversely
impact the LB High Yield Fund's ability to dispose of particular issues and
to accurately value securities in the LB High Yield Fund's portfolios. Also,
adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease market values and liquidity, especially
on thinly traded issues.
Taxation: High yield, high risk securities structured as zero coupon
or payment-in-kind issues may require the LB High Yield Fund to report
interest on such securities as income even though the LB High Yield Fund
receives no cash interest on such securities until the maturity or payment
date. The LB High Yield Fund may be required to sell other securities to
generate cash to make any required dividend distribution.
LIMITING INVESTMENT RISK
LB Research believes that the risks of investing in high yield, high
risk securities can be reduced by the use of professional portfolio
management techniques including:
Credit Research: LB Research will perform it owns credit analysis in
addition to using recognized rating agencies and other sources, including
discussions with the issuer's management, the judgment of other investment
analysts and its own judgment. The adviser's credit analysis will consider
such factors as the issuer's financial soundness, its responsiveness to
changes in interest rates and business conditions, its anticipated cash
flow, asset values, interest or dividend coverage and earnings.
Diversification: The LB High Yield Fund invests in widely diversified
portfolio of securities to minimize the impact of a loss in any single
investment and to reduce portfolio risk. As of October 31, 1997, the LB High
Yield Fund held securities of 178 corporate issuers, and the LB High Yield
Fund's holdings had the following credit quality characteristics:
Percentage of
Investment Net Assets
---------- -------------
Short-term securities
AAA equivalent........................................ 2.6%
Government obligations..................................... --
Corporate obligations
AAA/Aaa............................................... --
AA/Aa................................................. --
A/A................................................... --
BBB/Baa............................................... 2.3%
BB/Ba................................................. 10.6%
B/B................................................... 50.6%
CCC/Caa............................................... 9.3%
CC/Ca................................................. --
D/D................................................... --
Not rated............................................. 7.7%
Other Net Assets...................................... 16.9%
-----
Total...................................................... 100.0%
=====
Economic and Market Analysis: LB Research will analyze current
developments and trends in the economy and in the financial markets. The LB
High Yield Fund may invest in higher quality securities in the event that
investment in high yield, high risk securities is deemed to present
unacceptable market or financial risk.
BUYING SHARES OF THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
INITIAL PURCHASES
The Funds are a family of mutual funds offering investment
opportunities to members of Lutheran Brotherhood and to Lutheran
institutions, Lutheran church organizations, trusts, and employee benefit
plans. Lutheran Brotherhood membership is open to any person who is (1)
baptized in the Christian faith or affiliated with a Lutheran church
organization and (2) professes to be a Lutheran, or to any non-Lutheran who
is a spouse, dependent child, or grandchild of a member or qualified
proposed member.
To make your first purchase of the Class A or Class B shares of the
Funds:
o complete and sign an account application included in this booklet;
o enclose a check made payable to the Lutheran Brotherhood Family of
Funds
o mail your application and check to Lutheran Brotherhood Securities
Corp., 625 Fourth Avenue S., Minneapolis, MN 55415.
SUBSEQUENT PURCHASES
To purchase additional shares of any of The Lutheran Brotherhood
Family of Funds, send a check payable to the Fund to the "LB Family of
Funds" together with a completed To Invest By Mail form. You may also buy
additional Fund shares through:
o your LB Securities representative;
o the Systematic Investment Plan (SIP), under which you authorize
automatic monthly payments to the Fund from your checking account;
o the automatic Payroll Deduction Plan;
o Invest-by-Phone; or
o Federal Reserve or bank wire.
INVEST-BY-PHONE
The Fund's Invest-by-Phone service allows you to telephone LB
Securities to request the purchase of Fund shares. You may elect this
feature on your account application or you may complete an Account Features
Request permitting LB Securities to accept your telephoned requests. When LB
Securities receives your telephoned request, it will draw funds directly
from your preauthorized bank account at a commercial or savings bank or
credit union. The bank or credit union must be a member of the Automated
Clearing House system. To use this service, you may call 800-328-4552 before
4:00 p.m. (Eastern time). Funds will be withdrawn from your bank or credit
union account and shares will be purchased for you at the price next
calculated by the Fund after receipt of funds from your bank. This service
may also be used to redeem shares. See "Redeeming Shares."
FEDERAL RESERVE OR BANK WIRE
You may purchase shares by Federal Reserve or bank wire directly to
Norwest Bank Minnesota, N.A. This method will result in a more rapid
investment in Fund shares. To wire Funds:
Notify LB Securities of a pending wire, call: (800) 328-4552
Wire to: Norwest Bank of Minneapolis, NA
Norwest Bank
6th Street and Marquette Avenue
Minneapolis, MN 55479
ABA Routing #: 091000019
Account #: 00-003-156
Account Name: Lutheran Brotherhood Securities Corp.
Use text message to indicate:
Transfer for --shareholder name(s), fund number and account number, LB
Representative name and number.
Your LB Securities representative can explain any of these investment plans.
MINIMUM INVESTMENTS REQUIRED
Minimum investments required for purchases of Class A or Class B
shares of each of The Lutheran Brotherhood Family of Funds are outlined
below.
First Additional
Purchase Purchases
--------- -----------
Lutheran Brotherhood Opportunity Growth Fund $ 500(1) $ 50
Lutheran Brotherhood Mid Cap Growth Fund $ 500(1) $ 50
Lutheran Brotherhood World Growth Fund $ 500(1) $ 50
Lutheran Brotherhood Fund $ 500(1) $ 50
Lutheran Brotherhood High Yield Fund $ 500(1) $ 50
Lutheran Brotherhood Income Fund $ 500(1) $ 50
Lutheran Brotherhood Municipal Bond Fund $ 500(2) $ 50
Lutheran Brotherhood Money Market Fund $1,500(3) $100
- ----------------------
(1 ) $50 initial purchase under Systematic Investment Plan, payroll
deduction plans, and for tax-deferred retirement plans.
(2) $50 initial purchase under Systematic Investment Plan and payroll
deduction plans.
(3) $100 initial purchase under Systematic Investment Plan and payroll
deduction plans.
EXCHANGING SHARES BETWEEN FUNDS
Shareholders of any of the Funds of The Lutheran Brotherhood Family of
Funds may exchange their shares for available shares of the same class of
any of the other Funds at any time on the basis of the relative net asset
values of the respective shares to be exchanged, subject to minimum
investment requirements. Shares of one class may not be exchanged for shares
of another class.
If you exchange Class A shares of a Fund for which you have previously
paid an initial sales charge for Class A shares of another Fund, you will
not be charged an initial sales charge for the exchange. You may also
exchange Class A shares of LB Money Market Fund that you previously acquired
through an exchange for Class A shares of other Funds for which you paid an
initial sales charge at relative net asset value. However, if you exchange
Class A shares of the LB Money Market Fund that were not previously acquired
through an exchange for Class A shares of any other Fund, you will be
subject to the initial sales charge applicable to an initial investment in
the Class A shares of such Fund.
If you exchange Class B shares of one Fund for Class B shares of
another Fund, you will not be charged any contingent deferred sales charge
("CDSC") that would otherwise be due at the time of the exchange. Instead,
the period of time you held the Class B shares that are being exchanged will
be combined with the period of time that you hold the acquired Class B
shares for purposes of calculating any CDSC that may be payable when you
subsequently redeem the acquired Class B shares. If you exchange Class B
shares of a Fund for Class B shares of the LB Money Market Fund, the period
of time you hold the Class B shares of LB Money Market Fund will not be
counted for purposes of calculating any CDSC. If you subsequently exchange
the LB Money Market Fund Class B shares into Class B shares of another Fund,
you may include the period of time that you held Class B shares of a Fund
prior to an exchange into Class B shares of LB Money Market Fund for
purposes of calculating any CDSC.
Each exchange constitutes a sale of shares requiring the calculation
of a capital gain or loss for tax reporting purposes. To obtain an exchange
form or to receive more information about making exchanges between Funds,
contact your LB Securities representative. This exchange offer may be
modified or terminated in the future. If the exchange offer is materially
modified or terminated, you will receive at least 60 days prior notice.
TELEPHONE EXCHANGES
You may make the type of exchanges between Funds described above by
telephone unless otherwise indicated on the account application. You may
make an unlimited number of telephone exchanges. Telephone exchanges must be
for a minimum amount of $500. Telephone exchanges may be made into new or
existing Fund or LB Money Market Fund accounts, and all accounts involved in
telephone exchanges must have the same ownership registration. To request a
telephone exchange, call toll-free (800) 328-4552.
The Funds reserve the right to refuse a wire or telephone redemption
or exchange if it is reasonably believed to be unauthorized. Procedures for
redeeming or exchanging Fund shares by wire or telephone may be modified or
terminated at any time by the Funds. When requesting a redemption or
exchange by telephone, shareholders should have available the correct
account registration and account number or tax identification number. All
telephone redemptions and exchanges are recorded and written confirmations
are subsequently mailed to an address of record. Neither the Funds nor LB
Securities will be liable for following redemption or exchange instructions
received by telephone, which are reasonably believed to be genuine, and the
shareholder will bear the risk of loss in the event of unauthorized or
fraudulent telephone instructions. The Funds and LB Securities will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. The Funds and/or LB Securities may be liable for any losses due
to unauthorized or fraudulent instructions in the absence of following these
procedures.
WHAT YOUR SHARES WILL COST
The offering price of the Fund is the next determined net asset value
(which will fluctuate) plus any applicable sales charge. See "Multiple Class
System" below.
NET ASSET VALUE OF YOUR SHARES
LB Money Market Fund seeks to maintain a stable $1.00 net asset value
pursuant to procedures established by the Board of Trustees in connection
with the amortized cost method of portfolio valuation. The net asset value
for the other seven Funds varies with the value of their investments. Each
Fund determines its net asset value for a particular class by adding the
value of Fund assets attributable to such class, subtracting the Fund's
liabilities attributable to such class, and dividing the result by the
number of shares of that class outstanding.
The Funds determine their net asset value on each day the New York
Stock Exchange is open for business, or any other day as required under the
rules of the Securities and Exchange Commission. The calculation is made as
of the close of regular trading of the New York Stock Exchange (currently
4:00 p.m. Eastern time) after the Fund has declared any applicable
dividends.
MULTIPLE CLASS SYSTEM
SUMMARY
The Trust has adopted a system of multiple classes of shares for each
of the Funds (the "Multiple Class System"). The Multiple Class System
permits you to choose the class of shares that you believe to be the most
advantageous for you, given the amount of your purchase, the length of time
you anticipate holding the shares and other factors. You will be able to
determine whether in your particular circumstances it is more advantageous
to incur an initial sales charge through purchase of Class A shares and be
subject to lower ongoing charges or to have your entire initial purchase
price invested in Class B shares of the Fund with the investment being
subject thereafter to higher ongoing Rule 12b-1 distribution fees for the
first five years that such shares are held and a CDSC if the shares are
redeemed within the first five years after purchase.
The major differences between the two classes of shares offered by
this prospectus are as follows:
<TABLE>
<CAPTION>
Class A Class B
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales Charges(a) Initial sales charge at time of investment CDSC of 5% to 1% applies to any shares
of up to 4.0% depending on amount of redeemed within first five years
investment(b) following their purchase. There is no
CDSC after five years
- --------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Distribution Fee(C) None 0.75% for first five years(d); Class B
shares convert automatically to Class A
shares after five years
- --------------------------------------------------------------------------------------------------------------------
Shareholder Servicing Fee 0.25% each year(d) 0.25% each year(d)
- --------------------------------------------------------------------------------------------------------------------
- --------------
(a) Class A shares purchases of $500,000 or more are not subject to an initial sales charge.
(b) Class A shares of the LB Money Market Fund are not subject to such charges.
(c) Class B shares of the LB Money Market Fund are not subject to a Rule 12b-1 distribution fee.
(d) As a percentage of average daily net assets.
</TABLE>
In deciding which class of shares to purchase, you should consider the
amount of the investment, the length of time the investment is expected to
be held, the initial sales charge or CDSC and the ongoing shareholder
servicing fee and Rule 12b-1 distribution fee, among other factors.
Class A shares are sold at net asset value plus an initial sales
charge of up to 4.0% of the public offering price. Because of the sales
charge, not all of an investor's purchase amount is invested. Class B
shareholders pay no initial sales charge. For Class B shareholders,
therefore, the entire purchase amount is immediately invested in the
applicable Fund, but a CDSC of up to 5.0% will apply to shares redeemed
within five years of purchase.
If you qualify for a reduced initial sales charge for the purchase of
Class A shares, you might elect that option to take advantage of the lower
ongoing fees that characterize Class A shares compared with Class B shares
(because no Rule 12b-1 distribution fees are assessed for the Class A
shares). All purchases of $100,000 or more must be made in Class A shares or
if the purchaser is qualified, in Institutional Class shares.
Class A and Class B shares are assessed an annual shareholder
servicing fee of 0.25% of average daily net assets for as long as the shares
are held. Class B shares (except for the Class B shares of the LB Money
Market Fund) are also assessed an annual distribution fee of 0.75% of
average daily net assets, but automatically convert into Class A shares at
the end of five years following the date of purchase. See "Distribution and
Shareholder Servicing Plans" below.
CLASS A SHARES
Initial Sales Charges. Initial sales charges apply to purchases of
Class A shares of each Fund except the LB Money Market Fund. These sales
charges vary from 0% to 4% of the offering price, depending upon the amount
purchased, including the value of existing investments. The larger your
purchase, the smaller the sales charge. Offering prices in this table apply
to purchases by an individual or by an individual together with spouse and
children under the age of 21. The LB Money Market Fund has no initial sales
charge.
SALES CHARGE SALES CHARGE
AS A AS A
PERCENTAGE OF PERCENTAGE OF
AMOUNT INVESTED OFFERING PRICE AMOUNT INVESTED
- - --------------- -------------- ---------------
$500,000 or more 0% 0%
$250,000 and above but less than $500,000 1% 1%
$100,000 and above but less than $250,000 2% 2%
$50,000 and above but less than $100,000 3% 3.1%
$25,000 and above but less than $50,000 .75% 3.9%
Less than $25,000 4% 4.2%
Reduction in Initial Sales Charges. Ways to reduce the initial sales
charge assessed on the purchase of Class A shares include:
Cumulative Discount: All current holdings of shares of LB Opportunity
Growth Fund, LB Mid Cap Growth Fund, LB World Growth Fund, LB Fund, LB High
Yield Fund, LB Income Fund, or LB Municipal Bond Fund, will be aggregated to
permit you to enjoy any initial sales charge reduction allowed for larger
sales of Class A shares. The Funds will combine purchases, including the
value of existing investments, made by you, your spouse and your children
under age 21, of both Class A and Class B shares when it calculates your
initial sales charge. You must inform LB Securities that you qualify for
this discount.
Reinvestment of Dividends: Class A and Class B shares purchased by
automatic reinvestment of dividends will not be subject to any sales
charges.
Purchases by LifeMapsm participants: If you have paid an intial fee or
an annual update fee within the past 12 months for a LifeMapsm Legend
financial plan offered by Lutheran Brotherhood Securities Corp., you may
purchase Class A shares of any Fund without paying a sales charge.
Thirteen-month Letter of Intent: If you intend to accumulate $25,000
or more, including the value of existing investments, in Class A or Class B
shares of one or more of the Funds (except the LB Money Market Fund) within
the next 13 months, you may sign a letter of intent and receive a reduced
sales charge on purchases of any Class A shares.
Reinvestment upon Redemption: If you redeem any or all of your Class A
or Class B shares of LB Opportunity Growth Fund, LB Mid Cap Growth Fund, LB
World Growth Fund, LB Fund, LB High Yield Fund, LB Income Fund, or LB
Municipal Bond Fund shares or received cash dividends from one of the Funds,
you may reinvest the amount in Class A shares of any of these seven Funds
without paying a sales charge. You must make your reinvestment within 90
days after redeeming your Class A shares or Class B shares.
Funds from Lutheran Brotherhood and Other Life Insurance and
Annuities: If Class A shares of any Fund are purchased with lump sum
proceeds (does not apply to periodic payments) that are payable in the form
of death benefits from any life insurance or annuity contract, insured
endowment benefits, or matured annuity benefits issued by Lutheran
Brotherhood, and are purchased within 90 days of the issuance of such
benefits, the sales charge, if any, for such Class A shares will be reduced
to one-half of the usual charge for such a purchase. If additional Class A
shares are also purchased with benefits payable under similar contracts or
policies of other insurance companies, and such benefits have become payable
as a result of the same occurrence for which the Lutheran Brotherhood
benefits became payable, the sales charge, if any, for such additional
purchase will also be reduced to one-half of the usual charge for such a
purchase. To qualify for the reduction in sales charge, either such purchase
must be made within 90 days of the date that such benefits were issued.
Purchases by Tax-exempt Organizations: Class A shares of any Fund are
available at one-half of the regular sales charge, if any, if purchased by
organizations qualifying for tax-exemption under Sections 501(c)(3) and
501(c)(13) of the Internal Revenue Code. Section 501(c)(3) generally would
include organizations such as community chests, churches, universities and
colleges, libraries and other foundations or organizations operated
exclusively for charitable purposes. Section 501(c)(13) would generally
include companies such as cemetery companies and other companies owned and
operated exclusively for the benefit of their members and also includes not-
for-profit companies.
Automatic Conversion of Class A Shares to Institutional Class Shares.
Class A shares, including any shares representing reinvestments of dividends
or capital gains distributions with respect to such shares, will
automatically convert to Institutional Class shares if the shareholder
becomes ineligible to hold Class A shares. Lutheran institutions and
Lutheran church organizations with accounts of at least $100,000 are not
eligible to hold Class A shares. Consequently, any such account in Class A
shares would be subject to automatic conversion to Institutional Class
shares. The Fund will provide such Class A shareholders with prior notice of
any such automatic conversion. Any automatic conversion will take place on
the basis of relative net asset values of the two
classes.
Institutional Class shares are offered to Lutheran institutions,
Lutheran church organizations and certain other institutional investors as
may be determined by the Trust from time to time, subject in each case to a
minimum investment in each Fund of $100,000. There is no sales load imposed
in connection with the purchase of Institutional Class shares and such
shares are not subject to any Rule 12b-1 fee or shareholder servicing fee.
Because the sales charges and expenses vary between the Class A shares,
Class B shares and Institutional Class shares, performance will vary with
respect to each class. A copy of the Institutional Class prospectus may be
obtained by writing LB Securities or by calling toll free (800) 328-4552.
CLASS B SHARES
Contingent Deferred Sales Charges. The public offering price of Class
B shares is the net asset value per share of the Class B shares next
determined after the purchase order and funds are received. No sales charge
is imposed at the time of purchase. Therefore, the applicable Fund will
receive the full amount of the investor's purchase payment. However, a CDSC
may be imposed upon redemptions of Class B shares as described below.
Investments in Class B shares of $100,000 or more per purchase will not be
accepted. Because of the reduced sales charges available on such purchases,
Class A shares (or Institutional Class shares if the investor is eligible)
must be purchased instead. Class B shares of the LB Money Market Fund are
offered solely in exchange for Class B shares of other Funds of The Lutheran
Brotherhood Family of Funds.
Class B shares that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents (1) reinvestment of
dividends or capital gains distributions, (2) capital appreciation of shares
redeemed or (3) shares held more than five years. The amount of any
applicable CDSC will be calculated by multiplying the net asset value of
shares subject to the charge at the time of purchase or redemption,
whichever is less, by the applicable percentage shown in the table below:
Contingent Deferred Sales Charge as
a Percentage of the Lower of Net
Asset Value at Purchase or
Redemption During Redemption
----------------- -----------------------------------
1st Year Since Purchase........... 5%
2nd Year Since Purchase........... 4
3rd Year Since Purchase........... 3
4th Year Since Purchase........... 2
5th Year Since Purchase........... 1
In determining the applicability and rate of any CDSC, it will be
assumed that a redemption of Class B shares is made first of shares
representing reinvestment of dividends and capital gains distributions and
then of the remaining shares held by the shareholder for the longest period
of time. These determinations will result in any CDSC being imposed at the
lowest possible rate. The holding period for purposes of applying a CDSC on
shares of a Fund acquired through an exchange from another Fund will include
the holding period of the shares from which such shares were exchanged.
However, if you exchange Class B shares of any other Fund for Class B shares
of the LB Money Market Fund, the CDSC will stop declining during the period
your investment is in the LB Money Market Fund Class B shares. For federal
income tax purposes, the amount of the CDSC will reduce the gain or increase
the loss, as the case may be, on the amount realized on redemption. The
amount of any CDSC will be paid to LB Securities.
Contingent Deferred Sales Charge Waivers
The CDSC will be waived for a total or partial redemption made due to
the death or disability (caused by injury or the sudden onset of a life
threatening illness) of a sole individual shareholder (but not for shares
held in joint accounts or "family," "living" or other trusts) and for excess
contribution returns and redemptions from an IRA/TSCA when the shareholder
is age 70 1/2 or older.
Conversion of Class B Shares to Class A Shares
Your Class B shares will automatically convert into Class A shares
of the same Fund at the end of five years following the issuance of the
Class B shares and consequently will no longer be subject to the higher
expenses borne by Class B shares. In addition, all of the Class B shares of
such Fund held by you at the end of such period that represent the
reinvestment of dividends or capital gains distributions will also be
automatically converted to Class A shares at such time. Holding periods of
shares of a Fund that are exchanged for Class B shares of another Fund will
be counted toward the five-year period. Holding periods of Class B shares of
the LB Money Market Fund will not be counted toward the five-year period.
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 provisions of the 12b-1 Plan,
the Funds each pay LB Securities at an annual rate of .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 the Class B shares of the Fund. Payments to LB
Securities under the 12b-1 Plan are not directly tied to expenses and
payments under the 12b-1 Plan may be more or less than actual expenses
incurred by LB Securities. The excess of fees received over expenditures may
constitute a "profit" to LB Securities.
In addition, the Trust has adopted shareholder servicing plans for the
Class A and Class B shares of each of the Funds (the "Shareholder Servicing
Plans"). The Shareholder Servicing Plans permit the Funds to pay a
shareholder servicing fee for shareholder support services to shareholders
such as, among other things, assisting in designating and changing dividend
options, account designations and addresses and answering inquiries
regarding account status and history, the manner in which purchases and
redemptions may be effected, assisting the LB Securities field force and
other financial intermediaries in responding to shareholders, recruiting,
training and assisting in qualifying the field force, providing the field
force with educational material and technology equipment to assist
shareholders, providing the field force with various benefits, and making
available facilities to enable shareholders to obtain information concerning
their investments. Pursuant to the Shareholder Servicing Plans, each Fund
pays LB Securities a fee of .25% of the average daily net assets of the
Class A and Class B shares. Collectively, the 12b-1 Plan and the Shareholder
Servicing Plans are referred to as the Plans.
A rule of the National Association of Securities Dealers, Inc.
("NASD") effectively limits the annual expenditures which any of the Funds
may incur under the Plans to 1%, of which 0.75% may be used to pay
distribution expenses and 0.25% may be used to pay shareholders services
fees. The NASD Rule also effectively limits the aggregate amount which each
of the Funds may pay for distribution costs to 6.25% of gross share sales of
a class since the inception of any asset-based sales charge plus interest at
the prime rate plus 1% on unpaid amounts thereof (less any contingent
deferred sales charges received by LB Securities). This limitation does not
apply to shareholder service fees.
RECEIVING YOUR ORDER
Shares of the Funds are issued on days on which the New York Stock
Exchange is open. The net asset value of the shares you are buying will be
determined at the close of the regular trading session of the New York Stock
Exchange after your order is received.
Your order will be considered received when your check or other
payment is received in good order by the home office of LB Securities. The
Funds reserve the right to reject any purchase request.
CERTIFICATES AND STATEMENTS
As transfer agent for the Funds, LB Securities will maintain a share
account for you. Share certificates will not be issued. Systematic
Investment Plan, Systematic Withdrawal Plan and Systematic Exchange Plan
transactions, as well as dividend transactions (including dividends
reinvested to other funds) will be confirmed on the quarterly consolidated
statement. All other transactions will be reported as they occur.
REDEEMING SHARES
One of the advantages of owning shares in The Lutheran Brotherhood
Family of Funds is the rapid access you have to your investment. Once your
request for redemption has been received at the home office of LB
Securities, your shares will be redeemed at the next computed net asset
value on any day on which the New York Stock Exchange is open for business,
or any other day as required under the rules of the Securities and Exchange
Commission. That net asset value may be more or less than the net asset
value at the time you bought the shares. Class B shares are subject to a
CDSC if such shares are redeemed during the five years following purchase of
such shares. See "Multiple Class System -- Class B Shares."
You may redeem your shares at any time you choose. The redemption
method you choose will determine exactly when you will receive your funds.
All eight Lutheran Brotherhood funds allow you to redeem your shares:
o in writing;
o through Redeem-by-Phone; or
o through the Fund's systematic withdrawal plan.
The LB Money Market Fund also allows you to redeem Class A shares by
writing a check, or by using your VISA debit card.
WRITTEN REQUESTS
To redeem all or some of your shares, send a written request to:
Lutheran Brotherhood Securities Corp.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Your Signature: Your signature on the redemption request must be
guaranteed by:
o a trust company or commercial bank;
o a savings association;
o a credit union; or
o a securities broker, dealer, exchange, association, or clearing
agency.
The Fund will not accept signatures that are notarized by a notary
public.
Receiving Your Check: Normally, each Fund will mail you a check within
one business day after it receives a proper redemption request, but in no
event more than three days, unless the Fund has not received payment for the
shares to be redeemed. (See "Redemption before Purchase Instruments Clear.")
REDEEM BY PHONE
If you have completed an Account Features Request, you may redeem
shares with a net asset value of at least $1,000 and have them transmitted
electronically to your commercial bank by the third business day after your
redemption request. This feature is NOT available on IRA or other Tax
Deferred Plans.
SYSTEMATIC WITHDRAWAL
Shareholders owning or buying shares with a net asset value of at
least $5,000 may order automatic monthly, quarterly, semiannual or annual
redemptions in any amount. The proceeds will be sent to the shareholder or
other designated payee, or may be deposited in the shareholder's commercial
bank, savings bank or credit union.
Income dividends and capital gains distributions will continue to be
reinvested in additional Fund shares. Shares will be redeemed as necessary
to make automatic payments to the shareholder.
You may, at any time, elect to have Federal income taxes withheld from
your IRA or TSCA distributions, or change the amount currently being
withheld. To make the election, please complete and return a Redemption
form, or the Systematic Withdrawal section or the IRA/TSCA Distributions
section of the Account Features Application which includes the IRS required
Substitute W4P.
Shareholders who are making automatic withdrawals ordinarily should
not purchase Fund shares, but rather should terminate withdrawals in order
to avoid sales charges.
WRITING A CHECK
Redeeming by check allows you to continue earning daily income
dividends until your check clears. This service is offered for Class A
shares of LB Money Market Fund only.
Establishing check writing privilege: Upon opening your Class A share
LB Money Market Account, State Street Bank will automatically establish an
LB Money Market Fund checking account for you.
Using your LB Money Market checking account: With a LB Money Market
Fund checking account, you may redeem your shares simply by writing a check
in any amount of $250 or more. However, you may not write a check for the
entire balance of your account. If you redeem shares by check before State
Street Bank has collected your payment for shares purchased by check, State
Street Bank will return your check marked "insufficient funds."
The check may be cashed or deposited like any other check. When it
is received by State Street Bank for payment, the bank will present the
check to the Fund and redeem enough of your shares to cover the amount. The
redemption will be made at the net asset value on the date that State Street
Bank presents the check. Your canceled checks and a statement will be sent
to you each month.
When you open a LB Money Market Fund checking account, you will be
subject to State Street Bank's checking account rules and regulations. State
Street Bank and the LB Money Market Fund have the right to modify or
terminate checking account privileges or to charge for establishing or
maintaining a checking account. There are no current charges for
establishing or maintaining a checking account.
VISA DEBIT CARDS
At your request, and subject to approval State Street Bank will issue
a VISA debit card to you. This service is offered for Class A shares of LB
Money Market Fund only.
With a VISA debit card, you authorize the redemption of your shares by
using the card. The VISA debit card may be used to purchase merchandise or
services from merchants honoring VISA or to obtain cash advances (which a
bank may limit to $5,000 per account per day for merchandise and services,
$600 per account for cash advances) from any bank honoring VISA.
Redeeming your shares: a) VISA Purchases. Purchase transactions are
escrowed, or held against your current Money Market account balance. At
month end the total escrowed purchases are redeemed from your Money Market
account. b) Cash Advances. Enough shares will be redeemed from your LB Money
Market Fund account on the date the cash advance advice reaches State Street
Bank. You will continue to earn daily income dividends on Fund shares up to
the date they are redeemed.
Rules and fees: When you receive a LB Money Market Fund VISA debit
card, you will be subject to State Street Bank's VISA account regulations.
State Street Bank charges an annual VISA fee of $25 to cover its fees and
administrative costs. State Street also charges a fee of $1.50 each time an
Automated Teller Machine (ATM) is used. In addition to that fee, the bank
that owns the ATM machine may also charge a fee for each transaction. Enough
shares will be redeemed automatically from your account to pay the fee. Lost
or stolen cards should be reported immediately to State Street Bank at
toll-free (800) 543-6325.
State Street Bank and the LB Money Market Fund have the right to
modify or terminate the VISA debit card privilege or to impose additional
charges for establishing or maintaining a VISA account upon 30 days prior
written notice.
Statements: In addition to the quarterly LB Money Market Fund account
statement, you will receive a monthly statement from State Street Bank
listing VISA transactions.
DIVIDENDS ON REDEMPTION
If you redeem all your shares, the redemption proceeds will include
all dividends to which you have become entitled since they were last paid.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
If you redeem shares purchased by check before State Street Bank has
collected your payment for such shares, State Street Bank reserves the right
to hold payment on such redemption until it is reasonably satisfied that the
investment has been collected (which could take up to 15 days from the
purchase date).
UNDELIVERABLE MAIL
If mail from LB Securities to a shareholder is returned as
undeliverable on two or more consecutive occasions, LB Securities will not
send any future mail to the shareholder unless it receives notification of a
correct mailing address for the shareholder. Any dividends that would be
payable by check to such shareholders will be held in escrow by LB
Securities until LB Securities receives notification of the shareholder's
correct mailing address or until it becomes escheatable under the applicable
state law.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the
Funds may redeem shares in any account if the net asset value of shares in
the account falls below a certain minimum. The required minimum net asset
value for Class A and Class B share accounts is $500 for all Funds except LB
Money Market Fund, which has a minimum net asset value for Class A and Class
B share accounts of $1,000.
Before shares are redeemed to close an account, the shareholder is
notified in writing and allowed 60 days to purchase additional shares.
Shares will not be redeemed if the account's value drops below the minimum
only because of market fluctuations.
BACKUP WITHHOLDING
When you sign your account application you will be asked to certify
that your social security or taxpayer identification number is correct and
that you are not subject to 31% backup withholding for failure to report
income to the IRS. If you violate IRS regulations, the IRS can generally
require the Funds to withhold 31% of your taxable distributions and
redemptions.
FOR MORE INFORMATION
For more information about the Fund or your shares, see your LB
Securities representative or call toll-free: at (800) 328-4552.
DIVIDENDS AND CAPITAL GAINS
DIVIDENDS
Each Fund declares and pays dividends from net income at regular
intervals. LB High Yield Fund, LB Income Fund, and LB Municipal Bond Fund
declare and pay dividends monthly. LB Fund declares and pays dividends
quarterly. LB Opportunity Growth Fund, LB Mid Cap Growth Fund and LB World
Growth Fund each declare and pay dividends annually in years that the
relevant Fund has accumulated enough net income to require the payment of a
dividend. LB Money Market Fund declares dividends daily and pays accumulated
dividends monthly. Dividends are determined in the same manner and are paid
in the same amount, regardless of class, except for such differences as are
attributable to differential class expenses.
Unless you ask to receive all or a portion of your dividends in cash,
they will automatically be reinvested in shares of the Fund. You may also
choose to have your dividends reinvested into an existing account in another
Fund within The Lutheran Brotherhood Family of Funds. On the dividend
payable date, your dividend will be invested in the designated Fund account
at net asset value. In order to receive your dividends in cash, you must
notify LB Securities in writing or indicate this choice in the appropriate
place on your account application. Your request to receive all or a portion
of your dividends and other distributions in cash must be received by LB
Securities at least ten days
before the record date of the dividend or other distribution.
STATEMENTS
You will receive quarterly statements of dividends and capital gains
paid the previous quarter.
CAPITAL GAINS
The Funds distribute their realized gains in accordance with federal
tax regulations. Distributions from any net realized capital gains will
usually be declared in December.
TAXES
As with any investment, you should consider the tax implications of an
investment in the Funds. The following discussion is only a short summary of
the important tax considerations generally affecting the Funds and their
shareholders. In particular, the following discussion does not address the
taxation of foreign shareholders in the Funds. You should consult with your
tax advisor with specific reference to your own tax situation.
FUNDS' TAX STATUS
The Funds expect to pay no federal income tax because they intend to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to receive the special tax treatment afforded to
such companies.
SHAREHOLDERS' TAX POSITION
Except for dividends you receive from LB Municipal Bond Fund, unless
you are otherwise exempt, you will be required to pay federal income tax on
any dividends and other distribution that you receive. This applies whether
you receive dividends or distributions in cash or as additional shares. To
the extent any of the Funds earn interest from U.S. Government obligations,
a number of states may allow pass-through treatment and permit shareholders
to exclude a portion of their dividends from state income tax. For corporate
shareholders, dividends paid to shareholders may qualify for the 70%
dividends received deduction to the extent the Fund earns dividend income
from domestic corporations. The Funds will mail annually to each shareholder
advice as to the tax status of each year's dividends and distributions.
You will not be required to pay federal income tax on (i) the
conversion of Class B shares to Class A shares at the end of the five-year
period following issuance of the Class B shares or (ii) the automatic
conversion of Class A shares to Institutional Class shares that occurs when
the shareholder is no longer eligible to hold Class A shares.
You will not be required to pay federal income tax on any LB Municipal
Bond Fund dividends you receive which represent net interest received on
tax-exempt municipal bonds. The portion of that Fund's distributions
representing net interest income from taxable temporary investments, market
discount on tax-exempt municipal bonds, and net short-term capital gains
realized by the Fund, if any, will be taxable to shareholders as ordinary
income. Most of that Fund's income is expected to be free of federal income
tax. This applies whether you receive dividends in cash or as additional
shares. The Fund's income, however, is not necessarily free from state
income taxes. State laws differ on this issue and shareholders are advised
to consult their own tax advisers. The Fund will provide to shareholders an
annual breakdown of the percentage of its income from each state.
Information on the tax status of dividends will be provided annually. You
should also note that income that is not subject to federal income tax may
nonetheless have to be considered along with other adjusted gross income in
determining whether any Social Security payments received by you are subject
to federal income tax. If the LB Municipal Bond Fund holds certain "private
activity bonds" issued after August 7, 1986, shareholders will need to
include as an item of tax preference for purposes of the federal alternative
minimum tax that portion of the dividends paid by that Fund derived from
interest received on such bonds. The maximum federal alternative minimum tax
rate is 28% for individuals. In addition, corporations will need to take
into account all exempt-interest dividends paid by that Fund in determining
certain adjustments for the federal alternative minimum tax and the
environmental tax.
Dividends and certain interest income earned by a Fund from foreign
securities may be subject to foreign withholding taxes or other income
taxes. In the event that more than 50% of the value of a Fund's total assets
at the close of its taxable year consists of stock or securities in foreign
corporations, a Fund may elect, for U.S. income tax purposes, to treat
certain foreign taxes paid by it as paid by its shareholders. Should a Fund
make that election, a pro rata portion of such foreign taxes paid by the
Fund will constitute income to you (in addition to taxable dividends
actually received by you), and you may be entitled to claim an offsetting
tax credit or itemized deduction for that amount of foreign taxes.
For federal income tax purposes, all dividends paid by the Fund that
are derived from taxable net investment income and net short-term capital
gains are taxable as ordinary income whether reinvested or received in cash
unless you are exempt from taxation or entitled to tax deferral.
Distributions paid by the Fund from net long-term capital gains (including
such distributions paid by the LB Municipal Bond Fund), whether received in
cash or reinvested in additional shares, are taxable as long-term capital
gain. The capital gain holding period for this purpose is determined by the
length of time the Fund has held the security and not the length of time you
have held shares in the Fund. For non-corporate taxpayers, however, net
capital gain (i.e., the excess of net long-term capital gain over net short-
term capital loss) will be taxed at a maximum marginal rate of 28%.
The Taxpayer Relief Act of 1997 (the "Act") alters the taxation of net
capital gain income. Under the Act, individuals, trusts and estates that
hold capital investments for more than 18 months may be taxed at a maximum
long-term capital gain rate of 20% on the sale or exchange of those
investments. Individuals, trusts and estates that hold certain assets for
more than 12 months but not more than 18 months may be taxed at a maximum
mid-term capital gain rate of 28% on the sale or exchange of those
investments. Net short-term capital gains remain taxable as ordinary income.
The Act allows the Internal Revenue Service to prescribe regulations on how
the Act's new capital gain rates will apply to sales of capital assets by
"pass-thru entities," which include regulated investment companies such as
the Funds. To date regulations have not yet been prescribed, and it remains
unclear how the Act's new rates will apply to capital gain dividends or
undistributed capital gains, including for example the extent, if any, to
which capital gain dividends or undistributed capital gains from the Funds
will be taxed to individuals at the new rates for mid-term capital gains
rather than the long-term capital gain rates. Investors are urged to consult
their own tax advisors with respect to the new rules contained in the Act.
OPTIMUM ACCOUNT(R)
LB Securities offers Optimum Account to all LB Money Market Fund Class
A shareholders. The features of Optimum Account include the following:
o VISA Debit Card Privilege. You can use the VISA card to purchase
merchandise or obtain cash advances. Purchase transactions are
escrowed, or held against your current Money Market Account
balance. At month end the total escrowed purchases are redeemed
from your money market account. Although the escrowed shares are
not available for use, they do continue to earn interest. All
cash advances are redeemed from your account immediately.
o Checkwriting Privileges. You can write as many checks as you want
with no minimum and at no charge per check. Checks will be
returned to you for recordkeeping. State Street Bank will redeem
enough shares from your LB Money Market Fund account to cover the
checks you write on the date the check reaches the Bank.
o Tax-free Money Market Fund. You have access to Tax-Free
Instruments Trust, a money market fund with dividends exempt from
federal income tax.
o Discount Brokerage. You can use Optimum Account Discount
Brokerage Services for direct purchases of general securities.
o Automatic Settlement. Purchase and sale transactions for general
securities placed through Optimum Account Discount Brokerage
Services will clear automatically through your LB Money Market
Fund account.
o Automatic Purchases and Redemptions. You may arrange to have your
Social Security or payroll check automatically invested in your
LB Money Market Fund account. You can also arrange to have Class
A shares of LB Money Market Fund redeemed to pay Lutheran
Brotherhood insurance premiums.
o Toll-free Telephone Exchange. You can call toll-free to effect
exchanges among accounts with the same class of shares in The
Lutheran Brotherhood Family of Funds and Tax-Free Instruments
Trust. You may also transfer money from your local bank account
to any mutual fund in The Lutheran Brotherhood Family of Funds.
o Monthly Consolidated Statement. In lieu of an immediate
confirmation of LB Money Market Fund financial transactions, you
will receive your monthly Optimum Account statement. The monthly
statement will report all activity in your accounts held in The
Lutheran Brotherhood Family of Funds, Tax-Free Instruments Trust,
Optimum Account Discount Brokerage Account, and VISA Debit cards.
o Toll-free Customer Service. You can initiate the transactions
described above and receive up-to-the-minute information on your
account by calling the Optimum Account Customer Service
Representatives toll-free (800) 421-3997.
o Newsletter. Money management tips and information about Optimum
Account will be sent to you on a regular basis through the
quarterly newsletter offered to Optimum Account holders.
In the future, LB Securities may offer additional features to
shareholders in Optimum Account. In addition, LB Securities may, from time
to time, offer certain items of nominal value to any shareholder or investor
deciding to participate in Optimum Account.
There is a one-time new account fee of $25 for the Optimum Account
package. This fee is waived for LB Money Market Fund Class A shareholders
who already have the LB Money Market Fund VISA debit card when they add the
features of Optimum Account. A monthly administrative fee of $5.00 is
charged. These fees will be automatically redeemed from your LB Money Market
Fund account each month.
IRAS AND OTHER TAX-DEFERRED PLANS
Shares of the Fund may be selected as investments for Individual
Retirement Accounts, the qualified Lutheran Brotherhood prototype plans for
the self-employed, qualified pension and profit-sharing plans and tax-
sheltered custodial accounts (403(b) plans). There are additional fees and
procedural requirements for such plans. See your LB Securities registered
representative for more details.
FUND PERFORMANCE
From time to time, quotations of the Funds' performance in terms of
yield or total return may be included in advertisements, sales literature,
or shareholder reports. Total return and yield information for the Funds are
computed separately for each class of shares of the Funds. Any variations in
shareholder servicing fees, Rule 12b-1 fees or sales charges among the
classes offered now or in the future by the Funds will have an impact on
such performance data. Shares of the Funds had no class designations until
October 31, 1997 when designations were assigned based upon the sales
charges, Rule 12b-1 fees and shareholder servicing fees. Performance data
for periods prior to that date do not reflect Rule 12b-1 fees for the Class
B shares and shareholder servicing fees for the Class A and B shares, which
will adversely affect performance after that date. However, historical
performance has been restated to reflect the revised initial sales charge
schedule for the Class A shares and the CDSC for the Class B shares that are
effective October 31, 1997. All performance data for periods after October
31, 1997 will reflect Rule 12b-1 fees, shareholder servicing fees, and such
sales charges. All performance figures are based on historical results and
are not intended to indicate future performance. Performance data or
rankings for a given class of shares should be interpreted carefully by
investors who hold or may invest in a different class of shares.
"Total returns" are based on the change in value of an investment in a
Fund for a specified period. "Average annual total return" is the average
annual compounded rate of return of an investment in a Fund at the maximum
public offering price, if applicable, assuming the investment has been held
for one year, five years and ten years as of a stated ending date. (If the
Fund has not been in operation for at least ten years, the life of the Fund
will be used where applicable.) Average annual return quotations assume a
constant rate of growth. Actual performance fluctuates and will vary from
the quoted results for periods of time within the quoted periods.
"Cumulative total return" represents the cumulative change in value of an
investment in a Fund over a stated period. Average annual total return may
be accompanied with nonstandard total return information computed in the
same manner, but for differing periods and with or without annualizing the
total return or taking sales charges into account. These calculations assume
that all dividends and capital gains distributions during the period were
reinvested in shares of a Fund.
The yield of the LB High Yield Fund, LB Income Fund, LB Municipal Bond
Fund and LB Money Market Fund refers to the income generated by an
investment in the Fund. A Fund's yield is computed by dividing the net
investment income, after recognition of all recurring charges, per share
earned during the most recent month or other specified 30-day period by the
applicable maximum offering price per share on the last day of such period
and annualizing the result. The yield of the LB Money Market Fund refers to
the income generated by an investment in that Fund over a specified seven-
day period. The LB Municipal Bond Fund's tax-equivalent yield is a
hypothetical current yield that the Fund's actual current yield is
comparable to when the shareholder is assumed to pay federal income tax on
the entire hypothetical yield at a specific tax rate. Yields for a Fund are
expressed as annualized percentages. The "effective yield" of the LB Money
Market Fund is expressed similarly but, when annualized, the income earned
by an investment in that Fund is assumed to be reinvested and will reflect
the effects of compounding.
The average annual total return and yield results take initial sales
charges (for the Class A shares) and the CDSC (for the Class B shares) into
account, if applicable, but do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders
elect and which involve nominal fees. Where sale charges are not applicable
and therefore not taken into account in the calculation of average annual
total return and yield, the results will be increased. Any voluntary waiver
of fees or assumption of expenses will also increase performance results.
The Funds' performance reported from time to time in advertisements
and sales literature may be compared to generally accepted indices or
analyses such as those provided by Lipper Analytical Service, Inc., Standard
& Poor's and Dow Jones. Performance ratings reported periodically in
financial publications such as "Money Magazine", "Forbes", "Business Week",
"Fortune", "Financial Planning" and the "Wall Street" Journal will be used.
THE FUNDS AND THEIR SHARES
All the Funds in The Lutheran Brotherhood Family of Funds, except the
LB World Growth Fund and LB Mid Cap Growth Fund, were organized in 1993 as
series of The Lutheran Brotherhood Family of Funds, a Delaware business
trust. Each of those Funds is the successor to a fund of the same name that
previously operated as a separate corporation or trust pursuant to a
reorganization that was effective as of November 1, 1993. The LB World
Growth Fund and LB Mid Cap Growth Fund began operating as a series of the LB
Family of Funds on September 5, 1995 and May 30, 1997, respectively. The
fiscal year end of the Trust and each Fund is October 31. Prior to October
31, 1997, the shares of the Funds had no specific class designations. As of
that date, Class A, Class B and Institutional Class shares were authorized
by the Board of Trustees of the Trust. The Trust has reserved the right to
create other classes of shares in the future.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material, adverse effect
on the rights of any shareholder. On any matter submitted to the
shareholders, the holder of each Fund share is entitled to one vote per
share (with proportionate voting for fractional shares) regardless of the
relative net asset value thereof.
Shares of a Fund when issued are fully paid and nonassessable by the
Trust. Shares of a Fund represent an identical interest in the same
portfolio of investments of the Fund and have the same rights, privileges
and preferences, except with respect to: (a) the designation of each class;
(b) the sales charge applicable to each class; (c) the Rule 12b-1
distribution fees and shareholder servicing fees borne by each class; (d)
the expenses allocable exclusively to each class, if any; and (e) voting
rights on matters exclusively affecting a single class.
The differences in Rule 12b-1 fees and shareholder servicing fees borne by
each class will result in different net asset values (except for LB Money
Market Fund) and dividends for the Class A and B shares. The Board of
Trustees authorized the creation of such shares by adopting a Multiple Class
Plan pursuant to Rule 18f-3 of the 1940 Act. Rule 18f-3 and the Trust's
Master Trust Agreement require shareholders of specific classes of shares to
vote on certain matters on a class-by-class basis.
Under the Trust's Master Trust Agreement, no annual or regular meeting
of shareholders is required. Thus, there will ordinarily be no shareholder
meetings unless required by the Investment Company Act of 1940. The Trustees
may fill vacancies on the Board or appoint new Trustees provided that
immediately after such action at least two-thirds of the Trustees have been
elected by shareholders. Under the Master Trust Agreement, any Trustee may
be removed by vote of two-thirds of the outstanding Trust shares or by
three-fourths of the Trustees; holders of 10% or more of the outstanding
shares of the Trust can require that the Trustees call a meeting of
shareholders for purposes of voting on the removal of one or more Trustees.
In connection with such meetings called by shareholders, the relevant Fund
or Funds will assist shareholders in shareholder communications.
FUND MANAGEMENT
BOARD OF TRUSTEES
The Board of Trustees of the Trust is responsible for the management
and supervision of the Funds' business affairs and for exercising all powers
except those reserved to the shareholders.
INVESTMENT ADVISER
Investment decisions for each of the Funds, except the LB World Growth
Fund, are made by LB Research, subject to the overall direction of the Board
of Trustees. LB Research provides investment research and supervision of the
Funds' investments and conducts a continuous program of investment
evaluation and appropriate disposition and reinvestment of the Funds'
assets. LB Research assumes the expense of providing the personnel to
perform its advisory functions. Lutheran Brotherhood, the indirect parent
company of LB Research, also serves as the investment adviser for LB Series
Fund, Inc.
James M. Walline, Vice President of LB Research and Vice President of
the Funds has been the portfolio manager of LB Fund since October 31, 1994.
Mr. Walline has been with LB Research since 1969.
Brian L. Thorkelson, Assistant Vice President of LB Research, serves
as the portfolio manager of LB Mid Cap Growth Fund. Mr. Thorkelson has been
with LB Research since 1989, previously serving as a securities analyst for
LB Research and Lutheran Brotherhood.
Paul J. Ocenasek, Assistant Vice President of LB Research, serves as
the portfolio manager of LB High Yield Fund. Mr. Ocenasek joined LB Research
in 1987, previously serving as a fixed-income analyst and bond portfolio
manager.
Charles E. Heeren, Vice President of LB Research, and Michael G.
Landreville, Assistant Vice President of LB Research, serve as portfolio co-
managers of LB Income Fund. Mr. Heeren has served as manager of the Fund
since 1987 and has been with LB Research since 1976. Mr. Landreville has
served as co-manager of the Fund since January 1, 1998, and has been with LB
Research since 1983.
Janet I. Grangaard, Assistant Vice President of LB Research, has been
portfolio manager of LB Municipal Bond Fund since January 1, 1994. Prior to
that time she served as associate portfolio manager of that Fund. Ms.
Grangaard has been with LB Research since 1988.
Gail R. Onan, Assistant Vice President of LB Research, has been the
portfolio manager of LB Money Market Fund since January 1, 1994. Prior to
that time she served as associate portfolio manager of that Fund. Ms. Onan
has been with LB Research since 1986.
LB Research has engaged T. Rowe Price Associates, Inc. ("T. Rowe
Price") as investment sub-advisor for Lutheran Brotherhood Opportunity
Growth Fund. T. Rowe Price was founded in 1937 and has its principal offices
in Baltimore, Maryland. As of December 31, 1997, T. Rowe Price and its
affiliates managed over $124 billion. Richard T. Whitney, Managing Director
of T. Rowe Price, is primarily responsible for day-to-day management of the
Opportunity Growth Portfolio and developing and executing the Portfolio's
investment program.
T. Rowe Price has an Investment Advisory Committee for the Opportunity
Growth Fund composed of the following members: Richard T. Whitney,
Chairman, Marc L. Baylin, Kristin F. Culp, John H. Laporte, and Donald J.
Peters. The committee chairman has day-to-day responsibility for managing
the portfolio and works with the committee in developing and executing the
portfolio's investment program. Mr. Whitney is chairman of the portfolio's
committee. Mr. Whitney joined T. Rowe Price in 1985 and has been managing
investments since 1986.
LB Research has engaged Rowe Price-Fleming International, Inc.
("Price-Fleming") as investment sub-advisor for Lutheran Brotherhood World
Growth Fund. Price-Fleming was founded in 1979 as a joint venture between T.
Rowe Price and Robert Fleming Holdings Limited ("Flemings"). The common
stock of Price-Fleming is 50% owned by a wholly-owned subsidiary of T. Rowe
Price, 25% by a subsidiary of Flemings and 25% by Jardine Fleming Group
Limited ("Jardine Fleming"). (Half of Jardine Fleming is owned by Flemings
and half by Jardine Matheson Holdings Limited.) T. Rowe Price has the right
to elect a majority of the board of directors of Price-Fleming, and Flemings
has the right to elect the remaining directors, one of whom will be
nominated by Jardine Fleming.
Price-Fleming is one of the world's largest international mutual fund
asset managers with the U.S. equivalent of approximately $30 billion under
management as of October 31, 1997 in its offices in Baltimore, London,
Tokyo, Singapore, Hong Kong, and Buenos Aires. Price-Fleming has an
investment advisory group that has day-to-day responsibility for managing
the Fund and developing and executing the Fund's investment program. The
members of the advisory group are listed below:
Martin G. Wade, Mark J.T. Edwards, John R. Ford, James B.M. Seddon,
Mark Bickford-Smith, and David J.L. Warren.
Martin Wade joined Price-Fleming in 1979 and has 29 years of
experience with the Fleming Group in research, client service and investment
management, including assignments in the Far East and the United States.
(Fleming Group includes Flemings and/or Jardine Fleming.)
Mark Edwards joined Price-Fleming in 1987 and has 16 years of
experience in financial analysis, including three years in Fleming European
research. John Ford joined Price-Fleming in 1982 and has 18 years of
experience with Fleming Group in research and portfolio management,
including assignments in the Far East and the United States. James Seddon
joined Price-Fleming in 1987 and has 11 years of experience in investment
management. Mark Bickford-Smith joined Price-Fleming in 1995 and has 13
years of experience with the Fleming Group in research and financial
analysis. David Warren joined Price-Fleming in 1983 and has 17 years
experience in equity research, fixed income research and portfolio
management.
LB Research, T. Rowe Price, and Price-Fleming personnel may invest in
securities for their own account pursuant to a code of ethics that
establishes procedures for personal investing and restricts certain
transactions.
The Trust and its Adviser have conducted a review of their computer
systems to identify the internal systems that could be affected by the "Year
2000" problem and are developing an implementation plan to resolve the
issue. The Year 2000 problem is the result of computer programs being
written using two digits (rather than four) to define the applicable year.
Any of the Trust's and its Adviser's computer programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Trust and its Adviser presently believe that, with
modifications to existing software and conversions to new software, the Year
2000 problem will not pose significant operational problems for their
computer systems as so modified and converted. However, if such
modifications and conversions are not completed timely, the Year 2000
problem may have a material impact on the operations of the Trust and its
Adviser. The Year 2000 readiness of other third parties whose system
failures could have an impact on the Trust's and its Adviser's operations is
currently being evaluated. The potential materiality of any such impact is
not known at this time.
LB Research receives an annual investment advisory fee from each Fund.
The advisory contract between LB Research and the Trust provides for the
following advisory fees: LB Opportunity Growth Fund pays an advisory fee
equal to .75% of average daily net assets up to $100 million, .65% of
average daily net assets over $100 million but not over $250 million, .60%
of average daily net assets over $250 million but not over $500 million,
.55% of average daily net assets over $500 million but not over $1 billion,
and .50% of average daily net assets over $1 billion. LB Mid Cap Growth Fund
pays an advisory fee equal to .70% of average daily net assets up to $100
million, .65% of average daily net assets over $100 million but not over
$250 million, .60 % of average daily net assets over $250 million but not
over $500 million, .55% of average daily net assets over $500 million but
not over $1 billion and .50% of average daily net assets over $1 billion. LB
World Growth Fund pays and advisory fee equal to 1.25% of average daily net
assets up to $20 million, 1.10% of average daily net assets over $20 million
but not over $50 million, and 1.00% of average daily net assets over $50
million. LB Fund pays an advisory fee equal to .65% of average daily net
assets of $500 million or less, .60% of average daily net assets over $500
million but not over $1 billion, and .55% of average daily net assets over
$1 billion. LB High Yield Fund pays an advisory fee equal to .65% of average
daily net assets of $500 million or less, .60% of average daily net assets
over $500 million but not over $1 billion, and .55% of average daily assets
over $1 billion. LB Income Fund pays an advisory fee equal to .60% of
average daily net assets of $500 million or less, .575% of average daily net
assets over $500 million but not over $1 billion, and .55% of average daily
net assets over $1 billion. LB Municipal Bond Fund pays an advisory fee
equal to .575% of average daily net assets of $500 million or less, .5625%
of average daily net assets over $500 million but not over $1 billion, and
.55% of average daily net assets over $1 billion. LB Money Market Fund pays
an advisory fee equal to .50% of average daily net assets of $500 million or
less, .475% of average daily net assets on the next $500 million of average
daily net assets, .45% of average daily net assets on the next $500 million
of average daily net assets, .425% of average daily net assets on the next
$500 million of average daily net assets, and .40% of average daily net
assets over $2 billion.
Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee for each of the Funds equal
to .25% of the average daily net assets of the Fund. This .25% waiver
applies to the contractual rates of compensation in the previous paragraph
at each level of average daily net assets.
During the most recent fiscal year of each Fund, LB Research received
fees amounting to the following percentages of each Fund's average daily net
assets:
LB Opportunity Growth Fund 0.68%
LB Mid Cap Growth Fund* 0.46%
LB World Growth Fund 1.00%
LB Fund** 0.59%
LB High Yield Fund** 0.59%
LB Income Fund** 0.55%
LB Municipal Bond Fund** 0.53%
LB Money Market Fund*** 0.40%
- ------------
* After giving effect to a fee waiver of 0.24%.
** After giving effect to a fee waiver of 0.04%.
*** After giving effect to a fee waiver of 0.10%.
LB Research pays T. Rowe Price an annual sub-advisory fee for the
performance of sub-advisory services for the LB Opportunity Growth Fund.
The fee payable is equal to .30% of that Fund's average daily net assets up
to $500 million, .25% of that Fund's average daily net assets over $500
million but not over $1 billion, and .20% of that Fund's average daily net
assets over $1 billion.
LB Research pays Price-Fleming an annual sub-advisory fee for the
performance of sub-advisory services for the LB World Growth Fund. The fee
payable is equal to a percentage of that Fund's average daily net assets.
The percentage decreases as the Fund's assets increase. For purposes of
determining the percentage level of the sub-advisory fee for the Fund, the
assets of the Fund are combined with the assets of the LB Series Fund, Inc.
World Growth Portfolio, another fund with investment objectives and policies
that are similar to the LB World Growth Fund and for which Price-Fleming
also provides sub-advisory services. The sub-advisory fee LB Research pays
Price-Fleming is equal to the LB World Growth Fund's pro rata share of the
combined assets of the Fund and the LB Series Fund, Inc. World Growth
Portfolio and is equal to .75% of combined average daily net assets up to
$20 million, .60% of combined average daily net assets over $20 million but
not over $50 million, and .50% of combined average daily net assets over $50
million. When the combined assets of the LB World Growth Fund and the LB
Series Fund, Inc. World Growth Portfolio exceed $200 million, the sub-
advisory fee for the LB World Growth Fund is equal to .50% of all of the
Fund's average daily net assets. Price-Fleming has agreed to waive its fees
so that when the combined assets of the LB World Growth Fund and The LB
Series Fund, Inc. World Growth Portfolio exceed $500 million, the sub-
advisory fee for the LB World Growth Fund is equal to .45% of all the Fund's
average daily net assets. At October 31, 1997 the combined assets of LB
World Growth Fund and World Growth Portfolio totaled $351.0 million.
LB Research has further undertaken, until October 31, 1998 and
thereafter until further notice to 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
the Class A shares and Class B shares to an annual rate of 1.95% and 2.70%,
respectively, of the average daily net assets of the Fund.
LB Research has further undertaken, until October 31, 1998 and
thereafter until further notice to 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 and Class B shares to 0.95% of the average net
assets of each class.
Effective January 1, 1997, LB Research has also voluntarily agreed to
waive 5 basis points (0.05%) from the advisory fees payable by the LB Fund,
LB High Yield Fund, LB Income Fund, and LB Municipal Bond Fund. These
voluntary partial waivers of advisory fees may be discontinued at any time.
FUND ADMINISTRATION
ADMINISTRATIVE SERVICES
LB Securities, the Funds' distributor, provides administrative
personnel and services necessary to operate the Funds on a daily basis at
for a fee equal to 0.02% of each Fund's daily net assets.
During the fiscal year ended October 31, 1997, the Funds paid the
following amounts to LB Securities for administrative services:
LB Opportunity Growth Fund $55,875
LB Mid Cap Growth Fund $617
LB World Growth Fund $13,826
LB Fund $184,583
LB High Yield Fund $158,365
LB Income Fund $166,209
LB Municipal Bond Fund $122,078
LB Money Market Fund $90,172
CUSTODIAN
State Street Bank ("State Street Bank") is custodian of the Funds'
cash and securities.
TRANSFER AGENT
LB Securities serves as transfer agent for the Funds, with the
assistance of Norwest Bank Minnesota, N.A., respecting cash transactions.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP is the independent accountants for the Funds.
DESCRIPTION OF DEBT RATINGS
Moody's Investors Service, Inc. describes grades of corporate debt
securities and "Prime-1" and "Prime-2" commercial paper as follows:
BONDS:
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged". Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
COMMERCIAL PAPER:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return of funds employed.
o Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
o Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of senior short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earning trends and coverage ratios, while sound,
will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's Corporation describes grades of corporate debt
securities and "A" commercial paper as follows:
BONDS:
AAA Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher rated categories. However, the obligor's capacity to meet
its financial commitments on the obligation is still strong.
BBB Debt rated BBB exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial
commitments on the obligation in this category than in higher rated
categories.
BB Debt rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity of the obligor to meet its
financial commitments on the obligation. The BB rating category is
also used for debt subordinated to senior debt that is assigned an
actual or implied BBB-rating.
B Debt rated B is more vulnerable to nonpayment but currently has the
capacity to meet its financial commitments on the obligation.
Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial
commitments on the obligation.
The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC is vulnerable to nonpayment, and is dependent upon
favorable business, financial, and economic conditions for the
obligor to meet its financial commitments on the obligation. In the
event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitments on the obligation.
The CCC rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied B or B- rating.
CC The rating CC typically is currently highly vulnerable to
nonpayment.
C The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken but payments on the
obligation are being continued.
D Debt rated D is in payment default. The D rating category is used
when payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition or the taking
of similar action if payments on the obligation are jeopardized.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
The investor should exercise judgment with respect to such likelihood and
risk.
Commercial Paper: Commercial paper rated A by Standard & Poor's
Corporation has the following characteristics: liquidity ratios are better
than the industry average; long-term senior debt rating is "A" or better
(however, in some cases a "BBB" long-term rating may be acceptable); the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowances made for unusual
circumstances. Also, the issuer's industry typically is well established,
the issuer has a strong position within its industry and the reliability and
quality of management is unquestioned. Issuers rated A are further referred
to by use of numbers 1, 2 and3 to denote relative strength within this
classification.
HOW TO INVEST
o Complete and sign the General Application
o Enclose a check made payable to The Lutheran Brotherhood Family of
Funds
o Mail your application and check to:
Lutheran Brotherhood Securities Corp.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
ADDRESSES
Lutheran Brotherhood
Lutheran Brotherhood Research Corp.
Lutheran Brotherhood Securities Corp.
The Lutheran Brotherhood Family of Funds
625 Fourth Avenue South
Minneapolis, Minnesota 55415
State Street Bank
P.O. Box 1591
Boston, Massachusetts 02104
Norwest Bank Minnesota, N.A.
Sixth & Marquette Avenue
Minneapolis, Minnesota 55402
Price Waterhouse LLP
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, Minnesota 55402
<PAGE>
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
LUTHERAN BROTHERHOOD FUND
LUTHERAN BROTHERHOOD HIGH YIELD FUND
LUTHERAN BROTHERHOOD INCOME FUND
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
LUTHERAN BROTHERHOOD MONEY MARKET FUND
NO LOAD
INSTITUTIONAL CLASS SHARES
PROSPECTUS May 15, 1998
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND ("LB Opportunity Growth
Fund") seeks long term growth of capital by investing primarily in a
professionally managed diversified portfolio of smaller capitalization
common stocks. See page .
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND ("LB Mid Cap Growth Fund")
seeks to achieve long term growth of capital by investing primarily in a
professionally managed diversified portfolio of common stocks of companies
with medium market capitalizations. See page .
LUTHERAN BROTHERHOOD WORLD GROWTH FUND ("LB World Growth Fund") seeks
high total return from long-term growth of capital by investing primarily in
a professionally managed diversified portfolio of common stocks of
established, non-U.S. companies. See page .
LUTHERAN BROTHERHOOD FUND ("LB Fund") seeks growth of capital and
income by investing in a professionally managed diversified portfolio of
common stocks and other securities issued by leading companies. See page .
LUTHERAN BROTHERHOOD HIGH YIELD FUND ("LB High Yield Fund") seeks high
current income by investing primarily in a professionally managed
diversified portfolio of high yield, high risk securities. The Fund will
also consider growth of capital as a secondary investment objective. See
page .
LUTHERAN BROTHERHOOD INCOME FUND ("LB Income Fund") seeks high current
income while preserving principal, with possible long term growth of
capital, by investing primarily in a professionally managed diversified
portfolio of debt securities and dividend paying common and preferred
stocks. See page .
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND ("LB Municipal Bond Fund")
seeks to provide high current income exempt from federal income tax by
investing primarily in a professionally managed diversified portfolio of
municipal bonds. See page .
LUTHERAN BROTHERHOOD MONEY MARKET FUND ("LB Money Market Fund") seeks
to provide current income consistent with stability of principal. See page .
Lutheran Brotherhood Research Corp. ("LB Research"), an indirect
wholly-owned subsidiary of Lutheran Brotherhood, serves as investment
adviser for the funds listed above (each, a "Fund"). Lutheran Brotherhood
and LB Research personnel have developed skills in the investment advisory
business over the past 27 years, and have extensive skill in managing over
$22.5 billion in assets as of March 31, 1998, including $10.5 billion in
mutual fund assets. Lutheran Brotherhood Securities Corp. ("LB Securities")
serves as distributor for The Lutheran Brotherhood Family of Funds. LB
Research currently engages Rowe Price-Fleming International, Inc. ("Price-
Fleming") as investment sub-advisor for LB World Growth Fund. LB Research
currently engages T. Rowe Price Associates, Inc. ("T. Rowe Price") as
investment sub-advisor for LB Opportunity Growth Fund.
Each Fund is a diversified series of The Lutheran Brotherhood Family
of Funds (the "Trust"), an open-end management investment company.
Each Fund offers three classes of shares: Class A shares, Class B
shares and Institutional Class shares. The shares offered by this Prospectus
are the Institutional Class shares which are offered only to Lutheran
institutions, Lutheran church organizations and to certain other
institutional investors as may be determined by the Trust from time to time,
subject in each case to a minimum investment of $100,000. As of October 31,
1997, all of the then outstanding shares of each Fund were redesignated as
Class A shares and, immediately thereafter, shares held by Lutheran
institutions and church organizations with accounts of at least $100,000
were automatically converted to Institutional Class shares. The Class A and
B shares of the Funds are offered through a separate prospectus. A copy of
the prospectus for the Class A and Class B shares may be obtained by writing
LB Securities or by calling toll free (800) 328-4552.
This Prospectus sets forth concisely the information a prospective
investor ought to know about the Funds before investing. It should be
retained for future reference. A Statement of Additional Information about
the Funds dated May 15, 1998 has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated by reference in this Prospectus.
It is available, at no charge, upon request by writing LB Securities or by
calling toll free (800) 328-4552. The SEC maintains a web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference herein and other information regarding
the Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN LB MONEY MARKET FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE
FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Summary of Fund Expenses..............................................
Financial Highlights..................................................
Investment Objectives and Policies...................................
Investment Limitations...............................................
Investment Risks.....................................................
Buying Shares of The Lutheran Brotherhood Family of Fund.............
Net Asset Value of Your Shares.......................................
Multiple Class System................................................
Receiving Your Order.................................................
Certificates and Statements..........................................
Redeeming Shares.....................................................
Dividends and Capital Gains..........................................
Taxes................................................................
Fund Performance....................................... .............
The Funds and Their Shares...........................................
Fund Management................ .....................................
Fund Administration................... ..............................
Description of Debt Ratings........................ .................
How to Invest........................... ............................
Addresses............................................................
<PAGE>
SUMMARY OF FUND EXPENSES
INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
LB OPPORTUNITY GROWTH FUND
LB MID CAP GROWTH FUND
LB WORLD GROWTH FUND
LB FUND
LB HIGH YIELD FUND
LB INCOME FUND LB
LB MUNICIPAL BOND FUND MONEY MARKET FUND (3)
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
("as a percentage of offering price) None None
Maximum Sales Charge Imposed on Reinvested
Dividends ("as a percentage of offering price) None None
Maximum Deferred Sales Charge
("as a percentage of net asset value at time of
purchase or redemption, whichever is lower None None
Redemption Fees ("as a percentage
of amount redeemed, if applicable) None None
Exchange Fees None None
- ---------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (1) 0.43%
12b-1 Fees -
Other Expenses 0.61%
-----
Total Fund Operating Expenses (after waiver) (1) 1.04%
====
- ---------------------
</TABLE>
<TABLE>
<S> <C>
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (2) 0.21%
12b-1 Fees -
Other Expenses 1.49%
----
Total Fund Operating Expenses (after waiver) 1.70%
====
- ---------------------
</TABLE>
<TABLE>
<S> <C>
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (3) .75%
12b-1 Fees -
Other Expenses 0.82%
----
Total Fund Operating Expenses (after waiver) (3) 1.57%
====
- ---------------------
</TABLE>
<TABLE>
<S> <C>
LUTHERAN BROTHERHOOD FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (4) .34%
12b-1 Fees -
Other Expenses) .29%
----
Total Fund Operating Expenses (after waiver) (4) .63%
===
- ---------------------
</TABLE>
<TABLE>
<S> <C>
LUTHERAN BROTHERHOOD HIGH YIELD FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (5) .34%
12b-1 Fees -
Other Expenses .25%
----
Total Fund Operating Expenses (after waiver) (5) .59%
===
- ---------------------
</TABLE>
<TABLE>
<S> <C>
LUTHERAN BROTHERHOOD INCOME FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (6) .30%
12b-1 Fees -
Other Expenses .25%
----
Total Fund Operating Expenses (after waiver) (6) .55%
===
- ---------------------
</TABLE>
<TABLE>
<S> <C>
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (7) .28%
12b-1 Fees
Other Expenses .17%
----
Total Fund Operating Expenses (after waiver) (7) .45%
===
- --------------------
</TABLE>
<TABLE>
<S> <C>
LUTHERAN BROTHERHOOD MONEY MARKET FUND
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver)(8) .15%(8)
12b-1 Fees -
Other Expenses .55%
----
Total Fund Operating Expenses (after waiver)(8) .70%(8)
===
- ---------------------
</TABLE>
(1) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee equal to 0.25% of the
average daily net assets of LB Opportunity Growth Fund. Without the waiver,
Management Fees and Total Operating Expenses would be 0.68% and 1.29%
respectively.
(2) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee equal to 0.25% of the
average daily net assets of LB Mid Cap Growth Fund. LB Research has further
undertaken, until October 31, 1998, and thereafter until further notice to
the LB Mid Cap Growth Fund, to waive its advisory fee and, if necessary, to
bear certain expenses associated with operating LB Mid Cap Growth Fund in
order to limit the Fund's total operating expenses for the Institutional
Class shares to an annual rate of 1.70% of average net assets of the
Institutional Class. Without the waiver, Management Fees and Total Fund
Operating Expenses for LB Mid Cap Growth Fund would be 0.70% and 2.19%,
respectively, for the Institutional Class.
(3) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee equal to 0.25% of the
average daily net assets of LB World Growth Fund. Without the waiver,
Management Fees and Total Fund Operating Expenses for LB World Growth Fund
would be 1.00% and 1.82%, respectively, for the Institutional Class.
(4) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fees equal to 0.25% of the
average daily net assets of LB Fund. Effective January 1, 1997, LB Research
has also voluntarily agreed to temporarily waive a portion of its advisory
fees equal to 0.05% of the average daily net assets of the LB Fund. The
temporary waiver of advisory fees may be discontinued at any time. Without
the waivers, Management Fees and Total Operating Expenses would have been
0.63% and 0.92%, respectively. See "Fund Management."
(5) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee equal to 0.25% of the
average daily net assets of LB High Yield Fund. Effective January 1, 1997,
LB Research has also voluntarily agreed to temporarily waive a portion of
its advisory fees equal to 0.05% of the average daily net assets of the LB
High Yield Fund. The temporary waiver of advisory fees may be discontinued
at any time. Without the waivers, Management Fees and Total Operating
Expenses would have been 0.63% and 0.88%, respectively. See "Fund
Management."
(6) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee equal to 0.25% of the
average daily net assets of LB Income Fund. Effective January 1, 1997, LB
Research has also voluntarily agreed to temporarily waive a portion of its
advisory fees equal to 0.05% of the average daily net assets of the LB
Income Fund. The temporary waiver of advisory fees may be discontinued at
any time. Without the waivers, Management Fees and Total Operating Expenses
would have been 0.59% and 0.84%, respectively. See "Fund Management."
(7) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee equal to 0.25% of the
average daily net assets of LB Municipal Bond Fund. Effective January 1,
1997, LB Research has also voluntarily agreed to temporarily waive a portion
of its advisory fees equal to 0.05% of the average daily net assets of the
LB Municipal Bond Fund. The temporary waiver of advisory fees may be
discontinued at any time. Without the waivers, Management Fees and Total
Operating Expenses would have been 0.57% and 0.74%, respectively. See "Fund
Management."
(8) Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee equal to 0.25% of the
average daily net assets of LB Money Market Fund. LB Research has further
undertaken, until October 31, 1998 and thereafter until further notice to
the Fund, to limit the LB Money Market Fund's total operating expenses for
the Institutional Class shares to 0.70%, of the average net assets of the
class by means of a voluntary waiver of its advisory fee. Without the
waiver, Management Fees and Total Fund Operating Expenses would be 0.50% and
1.05%, respectively.
EXAMPLE:
YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT AND ASSUMING (1)
5% ANNUAL RETURN AND (2) REDEMPTION AT THE END OF EACH TIME PERIOD:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
LB Opportunity Growth Fund $11 $33 $57 $127
LB Mid Cap Growth Fund $17 $54 $92 $201
LB World Growth Fund $16 $50 $86 $187
LB Fund $6 $20 $35 $79
LB High Yield Fund $6 $19 $33 $74
LB Income Fund $6 $18 $31 $69
LB Municipal Bond Fund $5 $14 $25 $57
LB Money Market Fund $7 $22 $39 $87
</TABLE>
YOU WOULD PAY THE FOLLOWING EXPENSES ON THE SAME INVESTMENT, ASSUMING NO
REDEMPTION:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
LB Opportunity Growth Fund $11 $33 $57 $127
LB Mid Cap Growth Fund $17 $54 $92 $201
LB World Growth Fund $16 $50 $86 $187
LB Fund $6 $20 $35 $79
LB High Yield Fund $6 $19 $33 $74
LB Income Fund $6 $18 $31 $69
LB Municipal Bond Fund $5 $14 $25 $57
LB Money Market Fund $7 $22 $39 $87
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED AS A REPRESENTATION OF PAST OR
FUTURE RETURN OR EXPENSES. ACTUAL RETURN OR EXPENSES MAY BE GREATER OR LESS
THAN SHOWN.
The purpose of the table above is to assist the investor in
understanding the various costs and expenses that an investor will bear
directly or indirectly. Actual expense levels for the current and future
years may vary from the amounts shown. The table does not reflect charges
for optional services elected by certain shareholders. For more complete
information and descriptions of various costs and expenses, see "Multiple
Class System" and "Fund Administration".
FINANCIAL HIGHLIGHTS
The tables below for each of the Funds to the extent and for the periods
indicated in its report, have been examined by Price Waterhouse LLP,
independent accountants, whose reports are included in the Annual Reports to
Shareholders for the fiscal year ended October 31, 1997. The tables should
be read in conjunction with the financial statements and notes thereto that
appear in such reports, which are incorporated by reference into the
Statement of Additional Information. Shares of the Fund had no class
designations until October 31, 1997, when designations were assigned based
on the sales charges, Rule 12b-1 fees and shareholder servicing fees
applicable to shares sold thereafter. The financial data below only covers
periods prior to the adoption of class designations.
LB OPPORTUNITY GROWTH FUND
CLASS A SHARES
<TABLE>
<CAPTION>
For the Period
January 8, 1993
Year Ended Year Ended Year Ended Year Ended (effective date) to
(For a share outstanding throughout 10/31/97 10/31/96 10/31/95 10/31/94 October 31, 1993
the period)(a) ------------ ---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..... $13.62 $13.83 $10.76 $10.66 $ 8.43
------ ------ ------ ------ ------
Investment Operations:
Net Investment Loss .................. (0.07) (0.11) (0.09) (0.06) (0.07)
Net Realized and Unrealized Gain
(Loss) on Investment................. .91 2.63 3.16 0.16 2.30
------ ------ ------ ------ ------
Total from Investment Operations......... .84 2.52 3.07 0.10 2.23
------ ------ ------ ------ ------
Less Distributions:
Distributions from Net Realized
Gain on Investments.................. (1.49) (2.73) -- -- --
------ ------ ------ ------ ------
Net Asset Value, End of Period........... $12.97 $13.62 $13.83 $10.76 $10.66
====== ====== ====== ====== ======
Total Investment Return at Net Asset
Value(%)(b) 7.52% 21.27% 28.53% 0.94% 26.45%
Net Assets, End of Period (in millions).. $311.4 $265.8 $165.7 $99.6 $40.8
Ratio of Expenses to Average Net
Assets (%) 1.29% 1.28% 1.43% 1.66% 2.33%(c)
Ratio of Net Investment Loss to
Average Net Assets (%)................. -0.60% -0.92% -0.88% -0.83% -1.76%(c)
Portfolio Turnover (%)................... 136% 176% 213% 64% 97%
Average commission rate(d)............... $0.0524 $0.0488 N/A N/A N/A
- ---------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) Average commission rate is based on total broker commissions incurred in connection with execution of portfolio
transactions during the period, divided by the sum of all portfolio shares purchased and sold during the period that were
subject to a commission. Broker commissions are treated as capital items that increase the cost basis of securities purchased,
or reduce the proceeds of securities sold.
</TABLE>
LB Mid Cap Growth Fund
CLASS A SHARES
<TABLE>
<CAPTION>
For the Period From
May 30, 1997
(effective date) to
October 31, 1997
------------------
<S> <C>
(For a share outstanding throughout the period) (a)
Net Asset Value, Beginning of Period ...................... $ 9.25
--------
Investment Operations:
Net Investment Loss ....................................... (0.02)
Net Realized and Unrealized Gain
(Loss) on Investments ................................... 1.10
--------
Total from Investment Operations .......................... 1.08
--------
Net Asset Value, End of Period ............................ $ 10.33
========
Total Investment Return at
Net Asset Value (b) ...................................... 11.68%
Net Assets, End of Period ($ in millions) ................. $ 14.6
Ratio of Expenses to Average
Net Assets ............................................... 1.95%(c)
Ratio of Net Investment Loss to
Average Net Assets ....................................... 0.84%(c)
Portfolio Turnover Rate ................................... 94%
Average commission rate (d) ............................... $ 0.0588
- ----------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of a sales charge.
(c) Computed on an annualized basis.
(d) Average commission rate is based on total broker commissions incurred in connection with execution of portfolio
transactions during the period, divided by the sum of all portfolio shares purchased and sold during the period that were
subject to a commission. Broker commissions are treated as capital items that increase the cost basis of securities purchased,
or reduce the proceeds of securities sold.
</TABLE>
LB WORLD GROWTH FUND
CLASS A SHARES
<TABLE>
<CAPTION>
For the Period From
September 5, 1995
Year Ended Year Ended (effective date) to
(For a share outstanding throughout the period)(a) October 31, 1997 October 31, 1996 October 31, 1995
---------------- ---------------- -------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $9.48 $8.44 $8.50
----- ----- -----
Income From Investment Operations:
Net Investment Income............................ .02 0.04 0.01
Net Realized and Unrealized Gain (Loss)
on Investments................................ 0.67 1.02 (0.07)
----- ----- -----
Total from Investment Operations...................... 0.69 1.06 (0.06)
----- ----- -----
Less Distributions from:
Net Investment Income............................ (0.04) (0.02) --
Net Realized Gains on Investments................ (0.04) -- --
----- ----- -----
Total Distributions................................... (0.08) (0.02) --
----- ----- -----
Net Asset Value, End of Period........................ $10.09 $9.48 $8.44
===== ===== =====
Total Investment Return at Net Asset Value(b)......... 7.38% 12.53% -0.71%
Net Assets, End of Period (in millions)............... $75.1 $52.9 $14.0
Ratio of Expenses to Average Net Assets............... 1.82% 1.95%(d) 1.95%(c,d)
Ratio of Net Investment Income to Average Net Assets.. 0.17% 0.67%(d) 1.60%(c,d)
Portfolio Turnover Rate............................... 17% 11% 0%
Average commission rate(e)............................ $0.0226 $0.0216 N/A
- ------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) Effective September 5, 1995 through October 31, 1996, Lutheran Brotherhood Research Corp. (LBRC) had voluntarily
undertaken to limit the Fund's expense ratio at 1.95%. Had LBRC not undertaken such action, the ratio of expenses to average
net assets would have been 2.13% and 2.89%, and the ratio of net investment income to average net assets would have been 0.49%
and 0.66%, respectively, for the year ended October 31, 1996 and for the period from September 5, 1995 to October 31, 1995.
(e) Average commission rate is based on total broker commissions incurred in connection with execution of portfolio
transactions during the period, divided by the sum of all portfolio shares purchased and sold during the period that were
subject to a commission. Broker commissions are treated as capital items that increase the cost basis of securities purchased,
or reduce the proceeds of securities sold.
</TABLE>
LB FUND
CLASS A SHARES
<TABLE>
<CAPTION>
Nine
Months
(For a share outstanding Year Year Year Year ended Years ended January 31,
throughout the period)(a) Ended Ended Ended Ended Oct. 31 --------------------------------------
10/31/97 10/31/96 10/31/95 10/31/94 1993 1993 1992 1991 1990 1989
-------------- -------- -------- -------- ------- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 23.07 $ 21.19 $17.67 $18.85 $18.53 $19.14 $17.10 $15.83 $15.97 $14.44
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Investment Operations:
Net Investment Income...... 0.19 0.20 0.22 0.19 0.29 0.27 0.32 0.37 0.36 0.47
Net Realized and Unrealized
Gain Loss on Investments. 5.68 3.33 3.52 (0.20) 1.04 1.42 3.90 1.34 1.32 1.54
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations 5.87 3.53 3.74 (0.01) 1.33 1.69 4.22 1.71 1.68 2.01
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income... (0.20) (0.20) (0.22) (0.20) (0.28) (0.27) (0.31) (0.38) (0.32) (0.48)
Net Realized Gain on
Investments............. (1.76) (1.45) -- (0.97) (0.73) (2.03) (1.87) (0.06) (1.50) --
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions........ (1.96) (1.65) (0.22) (1.17) (1.01) (2.30) (2.18) (0.44) (1.82) (0.48)
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value End of
Period.................. $26.98 $ 23.07 $21.19 $17.67 $18.85 $18.53 $19.14 $17.10 $15.83 $15.97
======= ======= ====== ====== ====== ====== ====== ====== ====== ======
Total Investment Return a
Net Asset Value(%)(b)... 26.99% 17.61% 21.34% -0.11% 7.41% 9.47% 24.67% 10.92% 9.77% 14.26%
Net Assets, End of Period
(in millions)........... $ 989.8 $ 768.8 $645.5 $548.6 $527.3 $460.9 $380.3 $303.4 $273.3 $275.9
Ratio of Expenses to
Average Net Assets (%).. 0.88%(e) 0.97% 1.02% 1.04% 1.01%(c) 0.97% 1.00% 1.05% 1.04% 1.08%
Ratio of Net Investment
Income to Average Net
Assets (%).............. 0.76%(e) 0.94% 1.15% 1.10% 2.15%(c) 1.44% 1.69% 2.21% 1.99% 3.24%
Portfolio Turnover (%)..... 54% 91% 127% 234% 237% 249% 175% 148% 145% 89%
Average commission rate(d). $0.0599 $0.0664 N/A N/A N/A N/A N/A N/A N/A N/A
- ----------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) Average commission rate is based on total broker commissions incurred in connection with execution of portfolio
transactions during the period, divided by the sum of all portfolio shares purchased and sold during the period that were
subject to a commission. Broker commissions are treated as capital items that increase the cost basis of securities purchased,
or reduce the proceeds of securities sold.
(e) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory fees
payable by the LB Fund. Had LB Research not undertaken such action, the ratio of expenses to average net assets would have been
0.92% and the ratio of net investment income to average net assets would have been 0.72%.
</TABLE>
LB HIGH YIELD FUND
CLASS A SHARES
<TABLE>
<CAPTION>
Nine
Months
(For a share Year Year Year Year ended Years ended January 31,
outstanding throughout Ended Ended Ended Ended Oct. 31 ------------------------------------------
the period)(a) 10/31/97 10/31/96 10/31/95 10/31/94 1993 1993 1992 1991 1990 1989
-------------- -------- -------- -------- ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period................ $ 9.21 $ 9.03 $ 8.86 $ 9.73 $ 9.12 $ 8.45 $ 6.72 $ 7.93 $ 9.72 $ 9.86
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Investment Operations:
Net Investment
Income................ 0.85 0.84 0.83 0.83 0.61 0.88 0.93 0.92 1.12 1.14
Net Realized and
Unrealized Gain (Loss)
on Investments........ 0.41 0.17 0.24 (0.86) 0.60 0.68 1.72 (1.21) (1.76) (0.17)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations............ 1.26 1.01 1.07 (0.03) 1.21 1.56 2.65 (0.29) (0.64) 0.97
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income. (0.89) (0.83) (0.85) (0.82) (0.60) (0.89) (0.92) (0.92) (1.15) (1.11)
Net Realized Gain
on Investments........ (0.03) -- (0.05) (0.02) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions.... (0.89) (0.83) (0.90) (0.84) (0.60) (0.89) (0.92) (0.92) (1.15) (1.11)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value End
of Period............. $ 9.58 $ 9.21 $ 9.03 $ 8.86 $ 9.73 $ 9.12 $ 8.45 $ 6.72 $ 7.93 $ 9.72
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Investment
Return at Net
Asset Value(%)(b)..... 14.43% 11.64% 12.93% -0.47% 13.72% 19.51% 41.59% -3.98% -7.52% 10.52%
Net Assets, End of
Period (in millions). . $862.9 $703.1 $594.3 $499.6 $440.3 $330.2 $217.0 $137.0 $149.6 $126.5
Ratio of Expenses to
Average Net Assets (%). 0.84%(d) 0.91% 0.93% 0.95% 0.94%(c) 0.99% 1.16% 1.23% 1.19% 1.21%
Ratio of Net Investment
Income to Average
Net Assets (%)........ 9.14%(d) 9.23% 9.53% 8.92% 8.72%(c) 10.04% 11.95% 12.51% 12.23% 11.72%
Portfolio Turnover..... 113% 104% 71% 50% 66% 86% 145% 120% 86% 73%
- -------------------
* For the period April 3, 1987 (effective date) to January 31, 1988.
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory fees
payable by the LB High Yield Fund. Had LB Research not undertaken such action, the ratio of expenses to average net assets
would have been 0.88% and the ratio of net investment income to average net assets would have been 9.10%.
</TABLE>
LB INCOME FUND
CLASS A SHARES
<TABLE>
<CAPTION>
Nine
Months
(For a share outstanding Year Year Year Year ended
throughout the period)(a) Ended Ended Ended Ended Oct. 31
10/31/97 10/31/96 10/31/95 10/31/94 1993
-------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............ $ 8.50 $ 8.72 $ 8.01 $ 9.43 $ 9.10
------ ------ ------ ------ --------
Investment Operations:
Net Investment Income........... 0.55 0.57 0.59 0.58 0.47
Net Realized and
Unrealized Gain (Loss)
on Investments................. 0.11 (0.19) 0.69 (1.19) 0.33
------ ------ ------ ------ --------
Total from Investment
Operations..................... 0.66 0.38 1.28 (0.61) 0.80
------ ------ ------ ------ --------
Less Distributions from:
Net Investment Income.......... (0.55) (0.60) (0.57) (0.56) (0.47)
Net Realized Gain on
Investments.................... -- -- -- (0.25) --
------ ------ ----- ------ --------
Total Distributions............. (0.55) (0.60) (0.57) (0.81) (0.47)
------ ------ ------ ------ --------
Net Asset Value End of
Period......................... $ 8.61 $ 8.50 $ 8.72 $ 8.01 $ 9.43
====== ====== ====== ====== ========
Total Investment Return
at Net Asset
Value(%)(b).................... 8.05% 4.56% 16.53% -6.81% 8.97%
Net Assets, End of
Period (in millions)........... $778.0 $871.0 $942.1 $907.2 $1,042.2
Ratio of Expenses to
Average Net Assets (%)......... 0.80%(e) 0.83% 0.83% 0.82% 0.80%(c,d)
Ratio of Net Investment
Income to Average
Net Assets (%)................. 6.44%(e) 6.61% 7.01% 6.77% 6.87%(c,d)
Portfolio Turnover (%).......... 97% 142% 131% 155% 84%
</TABLE>
<TABLE>
<CAPTION>
(For a share outstanding Years ended January 31,
throughout the period)(a) ----------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............ $ 8.79 $ 8.35 $ 8.47 $ 8.52 $ 8.62
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income........... 0.66 0.72 0.78 0.82 0.80
Net Realized and
Unrealized Gain (Loss)
on Investments................. 0.31 0.44 (0.11) (0.06) (0.10)
------ ------ ------ ------ ------
Total from Investment
Operations..................... 0.97 1.16 0.67 0.76 0.70
------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income.......... (0.66) (0.72) (0.79) (0.81) (0.80)
Net Realized Gain on
Investments.................... -- -- -- -- --
------ ------ ------ ----- ------
Total Distributions............. (0.66) (0.72) (0.79) (0.81) (0.80)
------ ------ ------ ------ ------
Net Asset Value End of
Period......................... $ 9.10 $ 8.79 $ 8.35 $ 8.47 $ 8.52
====== ====== ====== ====== ======
Total Investment Return
at Net Asset
Value(%)(b).................... 11.50% 14.48% 8.39% 9.18% 8.69%
Net Assets, End of
Period (in millions)........... $944.6 $819.5 $736.5 $719.8 $725.5
Ratio of Expenses to
Average Net Assets (%)......... 0.90% 0.97% 1.02% 1.02% 1.03%
Ratio of Net Investment
Income to Average
Net Assets (%)................. 7.40% 8.38% 9.35% 9.53% 9.52%
Portfolio Turnover (%).......... 104% 117% 118% 113% 68%
- ------------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) During the nine month period ended October 31, 1993, Lutheran Brotherhood Research Corp. (LBRC) undertook a voluntary
reduction of the Fund's investment advisory fee equal to 0.10% of average daily net assets. Had LBRC not undertaken such
action, the ratio of expenses to average net assets would have been 0.90% and the ratio of net investment income to average net
assets would have been 6.77%.
(e) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory fees
payable by the LB Income Fund. Had LB Research not undertaken such action, the ratio of expenses to average net assets would
have been 0.84% and the ratio of net investment income to average net assets would have been 6.40%.
</TABLE>
LB MUNICIPAL BOND FUND
CLASS A SHARES
<TABLE>
<CAPTION>
Nine
Months
(For a share outstanding Year Year Year Year ended
throughout the period)(a) Ended Ended Ended Ended Oct. 31
10/31/97 10/31/96 10/31/95 10/31/94 1993
---------------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $ 8.60 $ 8.58 $ 7.88 $ 9.00 $ 8.52
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income............ 0.45 0.44 0.45 0.46 0.37
Net Realized and Unrealized Gain
(Loss) on Investments......... 0.24 0.01 0.70 (0.96) 0.51
------ ------ ------ ------ ------
Total from Investment Operations. 0.69 0.45 1.15 0.50 0.88
------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income......... (0.44) (0.43) (0.45) (0.46) (0.37)
Net Realized Gain on
Investments................. -- -- -- (0.16) (0.03)
------ ------ ------ ------ ------
Total Distributions.............. (0.44) (0.43) (0.45) (0.62) (0.40)
------ ------ ------ ------ ------
Net Asset Value End of Period.... $ 8.85 $ 8.60 $ 8.58 $ 7.88 $ 9.00
====== ===== ====== ====== ======
Total Investment Return at
Net Asset Value(%)(b)......... 8.28% 5.33% 14.97% -5.93% 10.73%
Net Assets, End of
Period (in millions).......... $591.9 $609.5 $628.7 $595.2 $629.7
Ratio of Expenses to Average
Net Assets (%)................ 0.70%(e) 0.74% 0.74% 0.75% 0.74%(c,d)
Ratio of Net Investment Income
to Average Net Assets (%)..... 5.13%(e) 5.14% 5.43% 5.44% 5.69%(c,d)
Portfolio Turnover (%)........... 18% 33% 36% 38% 46%
</TABLE>
<TABLE>
<CAPTION>
(For a share outstanding
throughout the period)(a) YEARS ENDED JANUARY 31,
--------------------------------------------------
1993 1992 1991 1990 1989
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $ 8.45 $ 8.32 $ 8.15 $ 8.18 $ 8.09
------ ----- ----- ----- -----
Investment Operations:
Net Investment Income............ 0.53 0.56 0.58 0.58 0.60
Net Realized and Unrealized Gain
(Loss) on Investments......... 0.28 0.29 0.16 (0.02) 0.07
------ ----- ----- ----- -----
Total from Investment Operations. 0.81 0.85 0.74 0.56 0.67
------ ----- ----- ----- -----
Less Distributions from:
Net Investment Income......... (0.52) (0.56) (0.57) (0.59) (0.58)
Net Realized Gain on
Investments................. (0.22) (0.16) -- -- --
------ ----- ----- ----- -----
Total Distributions.............. (0.74) (0.72) (0.57) (0.59) (0.58)
------ ----- ----- ----- -----
Net Asset Value End of Period.... $ 8.52 $ 8.45 $ 8.32 $ 8.15 $ 8.18
====== ===== ===== ===== =====
Total Investment Return at
Net Asset Value(%)(b)......... 9.96% 10.64% 9.54% 7.02% 8.70%
Net Assets, End of
Period (in millions).......... $532.6 $448.4 $382.5 $348.2 $306.5
Ratio of Expenses to Average
Net Assets (%)................ 0.80% 0.83% 0.86% 0.86% 0.92%
Ratio of Net Investment Income
to Average Net Assets (%)..... 6.22% 6.65% 7.06% 7.04% 7.37%
Portfolio Turnover (%)........... 77% 78% 68% 60% 70%
- ------------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Computed on an annualized basis.
(d) During the nine month period ended October 31, 1993, Lutheran Brotherhood Research Corp. (LBRC) undertook a voluntary
reduction of the Fund's investment advisory fee equal to 0.05% of average daily net assets. Had LBRC not undertaken such
action, the ratio of expenses to average net assets would have been 0.79% and the ratio of net investment income to average net
assets would have been 5.64%.
(e) Effective January 1, 1997, LB Research voluntarily agreed to waive five basis points (0.05%) from the advisory fees
payable by the LB Municipal Bond Fund. Had LB Research not undertaken such action, the ratio of expenses to average net assets
would have been 0.74% and the ratio of net investment income to average net assets would have been 5.09%.
</TABLE>
LB MONEY MARKET FUND
CLASS A SHARES
<TABLE>
<CAPTION>
Nine
Months
(For a share outstanding Year Year Year Year ended
throughout the period)(a) Ended Ended Ended Ended Oct. 31
10/31/97 10/31/96 10/31/95 10/31/94 1993
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset Value,
Beginning of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income........... 0.05 0.05 0.05 0.03 0.02
------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income.......... (0.05) (0.05) (0.05) (0.03) (0.02)
------ ------ ------ ------ ------
Net Asset Value, End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total Investment Return at Net
Asset Value (%)(b)........... 4.74% 4.63% 4.95% 2.89% 1.63%
Net Assets, End of
Period (in millions).......... $469.2 $417.6 $341.1 $276.9 $275.1
Ratio of Expenses to Average
Net Assets (%)................ 0.95%(d) 1.01%(d) 1.10%(d) 1.10%(d) 1.10%(c,d)
Ratio of Net Investment Income
to Average Net Assets (%)..... 4.64%(d) 4.53%(d) 4.85%(d) 2.85%(d) 2.16%(c,d)
</TABLE>
<TABLE>
<CAPTION>
(For a share outstanding
throughout the period)(a) Years ended January 31,
--------------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Investment Operations:
Net Investment Income............ 0.03 0.05 0.07 0.08 0.07
------ ------ ------ ------ ------
Less Distributions from:
Net Investment Income............ (0.03) (0.05) (0.07) (0.08) (0.07)
------ ------ ------ ------ ------
Net Asset Value, End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total Investment Return at Net
Asset Value (%)(b)............ 2.77% 5.10% 7.40% 8.44% 7.01%
Net Assets, End of
Period (in millions).......... $317.0 $412.3 $473.4 $423.5 $309.3
Ratio of Expenses to Average
Net Assets (%)................ 1.10%(d) 1.08% 1.07% 1.09% 1.07%
Ratio of Net Investment Income
to Average Net Assets (%)..... 2.76%(d) 5.01% 7.16% 8.10% 6.83%
- ----------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total return is based on the change in net asset value during the period and assumes reinvestment of all distributions.
(c) Computed on an annualized basis.
(d) Effective February 1, 1992 through March 31, 1996, Lutheran Brotherhood Research Corp. (LBRC) had voluntarily
undertaken to limit the Fund's expense ratio to 1.10% of annual average daily net assets. Effective April 1, 1996, LBRC
voluntarily lowered the expense limit prospectively to 0.95% of average daily net assets. Had LBRC not undertaken such action
to limit expenses, the ratio of expenses to average net assets would have been 1.05%, 1.07%, 1.18%, 1.36%, 1.44% and 1.23% and
the ratio of net investment income to average net assets would have been 4.54%, 4.47%, 4.77%, 2.59%, 1.82% and 2.63%,
respectively, for the years ended October 31, 1997. 1996, 1995, and 1994, the nine month period ended October 31, 1993 and the
year ended January 31, 1993.
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
Each of the Funds in The Lutheran Brotherhood Family of Funds has a
separate investment objective and investment policies for the pursuit of
that objective. The investment objective of each Fund is fundamental and may
not be changed without the approval of shareholders of that Fund. Except as
otherwise indicated in this Prospectus, the investment policies of each Fund
may be changed from time to time by the Board of Trustees of the Trust.
There is no assurance that any of the Funds will achieve its investment
objective, but it will strive to do so by following the policies set forth
below.
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
The investment objective of the LB Opportunity Growth Fund is to
achieve long term growth of capital.
The Fund will pursue its objective by seeking realized and unrealized
capital gains through the active management of a portfolio consisting
primarily of common stocks. Such active management may involve a high level
of portfolio turnover. The Fund will invest primarily in common stocks of
domestic and foreign companies that in the opinion of T. Rowe Price have a
potential for above average sales and earnings growth that is expected to
lead to capital appreciation. T. Rowe Price believes that over a long period
of time, smaller companies that have a competitive advantage will be able to
grow faster than larger companies, leading to a higher rate of growth in
capital. For a description of the risks associated with investments in such
companies, see "Investment Risks--LB Opportunity Growth Fund Investment
Risks".
The Fund may also invest in bonds and preferred stocks, convertible
bonds, convertible preferred stocks, warrants, American Depository Receipts
(ADR's), foreign stocks and other debt or equity securities. In addition,
the Fund may invest in U.S. Government securities or cash. The Fund will not
use any minimum level of credit quality. At no time will the Fund invest
more than 5% of its net assets in debt obligations (excluding cash and U.S.
Government Securities). Debt obligations may be rated less than investment
grade, which is defined as having a quality rating below "Baa", as rated by
Moody's Investors Service, Inc. ("Moody's"), or below "BBB", as rated by
Standard & Poor's Corporation ("S&P"). For a description of Moody's and
S&P's ratings, see "Description of Debt Ratings". Securities rated below
investment grade are considered to be speculative and involve certain risks,
including a higher risk of default and greater sensitivity to interest rate
and economic changes.
T. Rowe Price will use a number of proprietary quantitative models to
seek out those companies that have a competitively superior product or
service in an unsaturated market with large potential for growth and measure
the major characteristics of stocks in the small capitalization growth
sector. These will often be companies with shorter histories and less
seasoned operations. Based on these models, stocks are selected in a "top
down" manner so that the portfolio as a whole reflects the specific
characteristics that the sub-adviser considers important, such as valuation
and projected earnings growth. Many of such companies will have market
capitalizations that are less than $1.5 billion, with lower daily trading
volume in their stocks and less overall liquidity than larger, more well
established companies. T. Rowe Price anticipates that the common stocks of
such companies may increase in market value more rapidly than the stocks of
other companies.
The Fund will focus primarily on companies that possess superior
earnings prospects. The stocks that the Fund invests in may be traded on
national exchanges or in the over-the-counter market ("OTC"). There will be
no limit on the proportion of the Fund's investment portfolio that may
consist of OTC stocks.
The Fund may dispose of securities held for a short period if T. Rowe
Price believes such disposition to be advisable. The Fund will not
generally trade in securities for short-term profits, but when circumstances
warrant, securities may be purchased and sold without regard to the length
of time held. The annual portfolio turnover rates of the Fund for the fiscal
years ended October 31, 1997 and October 31, 1996 were 136% and 176%,
respectively.
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
The investment objective of the LB Mid Cap Growth Fund is to achieve
long term growth of capital.
The Fund will pursue its objective by investing primarily in a
professionally managed diversified portfolio of common stocks of companies
with medium market capitalizations LB Research defines companies with
medium market capitalizations ("mid cap companies") as those with market
capitalizations that fall within the capitalization range of companies
included in the Standard & Poor's MidCap 400 Index at the time of the
Portfolio's investment. The Fund will seek to invest in companies that have
a track record of earnings growth or the potential for continued above
average growth. The Fund will normally invest at least 65% of its total
assets in common stocks of mid cap companies. LB Research will use both
fundamental and technical investment research techniques to seek out these
companies.
The stocks that the Fund invests in may be traded on national
exchanges or in the over-the-counter market ("OTC"). There will be no limit
on the proportion of the Fund's investment portfolio that may consist of OTC
stocks.
Many mid cap companies have lower daily trading volume in their stocks
and less overall liquidity than larger, more well established companies. The
common stocks of such companies may have greater price volatility than the
stocks of other larger companies. For a description of these and other risks
associated with investments in such companies, see "Investment Risks -- LB
Mid Cap Growth Fund Investment Risks".
The Fund may also invest in other types of securities, including
bonds, preferred stocks, convertible bonds, convertible preferred stocks,
warrants, American Depository Receipts (ADR's), common stocks of companies
falling outside the medium market capitalization range, and other debt or
equity securities. In addition, the Fund may invest in U.S. Government
securities or cash. The Fund will not use any minimum level of credit
quality. At no time will the Fund invest more than 5% of its net assets in
debt obligations. Debt obligations may be rated less than investment grade,
which is defined as having a quality rating below "Baa", as rated by Moody's
Investors Service, Inc. ("Moody's"), or below "BBB", as rated by Standard &
Poor's Corporation ("S&P"). For a description of Moody's and S&P's ratings,
see "Description of Debt Ratings". Securities rated below investment grade
(sometimes referred to as "high yield" or "junk bonds") are considered to be
speculative and involve certain risks, including a higher risk of default
and greater sensitivity to interest rate and economic changes.
The Fund may dispose of securities held for a short period if the
Fund's investment adviser believes such disposition to be advisable. While
LB Research does not intend to select portfolio securities for the specific
purpose of trading them within a short period of time, LB Research does
intend to use an active method of management which will result in the sale
of some securities after a relatively brief holding period. This method of
management necessarily results in higher cost to the Fund due to the fees
associated with portfolio securities transactions. A higher portfolio
turnover rate may also result in taxes on realized capital gains to be borne
by shareholders. However, it is LB Research's belief that this method of
management can produce added value to the Fund and its shareholders that
exceeds the additional costs of such transactions. The annual portfolio
turnover rate of the Fund for the period ended October 31, 1997 was 94%.
For more information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
The investment objective of the LB World Growth Fund is to seek total
return from long-term growth of capital. The Fund will pursue its objective
principally through investments in common stocks of established, non- U.S.
companies. Total return consists of capital appreciation or depreciation,
dividend income, and currency gains or losses.
The Fund intends to diversify investments broadly among countries and
to normally have at least three different countries represented in the Fund.
The Fund may invest in countries of the Far East and Western Europe as well
as South Africa, Australia, Canada and other areas (including developing
countries). As a temporary defensive measure, the Fund may invest
substantially all of its assets in one or two countries.
In seeking its objective, the Fund will invest primarily in common
stocks of established foreign companies which have the potential for growth
of capital. In order to increase total return, the Fund may also invest in
bonds and preferred stocks, convertible bonds, convertible preferred stocks,
warrants, American Depository Receipts (ADR's) and other debt or equity
securities. In addition, the Fund may invest in U.S. Government securities
or cash. The Fund will not use any minimum level of credit quality. At no
time will the Fund invest more than 5% of its net assets in debt obligations
or other securities that may be converted to debt obligations (excluding
cash and U.S. Government securities). Debt obligations may be rated less
than investment grade, which is defined as having a quality rating below
"Baa", as rated by Moody's Investors Service, Inc. ("Moody's"), or below
"BBB", as rated by Standard & Poor's Corporation ("S&P"). Debt obligations
rated "Baa" or "BBB" are considered to have speculative characteristics. For
a description of Moody's and S&P's ratings, see "Description of Debt
Ratings". Securities rated below investment grade are considered to be
speculative and involve certain risks, including a higher risk of default
and greater sensitivity to interest rate and economic changes.
In determining the appropriate distribution of investments among
various countries and geographic regions, Price-Fleming considers the
following factors: prospects for relative economic growth between foreign
countries; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range
of individual investment opportunities available to international investors.
In analyzing companies for investment, Price-Fleming looks for one or
more of the following characteristics: an above-average earnings growth per
share; high return on invested capital; healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management;
and general operating characteristics which will enable the companies to
compete successfully in their market place. While current dividend income is
not a prerequisite in the selection of portfolio companies, the companies in
which the Fund invests normally will have a record of paying dividends, and
will generally be expected to increase the amounts of such dividends in
future years as earnings increase.
The Fund's investments also may include, but are not limited to,
European Depository Receipts ("EDRs"), other debt and equity securities of
foreign issuers, and the securities of foreign investment funds or trusts
(including passive foreign investment companies). For a discussion of the
risks involved in foreign investing see the section of this Prospectus
entitled "Foreign Issuers".
The Fund may engage in certain forms of options and futures
transactions that are commonly known as derivative securities transactions.
These derivative securities transactions are identified and described in the
sections of this Prospectus entitled "Put and Call Options" and "Financial
Futures and Options on Futures."
The Fund may use foreign currency exchange-related securities
including foreign currency warrants, principal exchange rate linked
securities, and performance indexed paper. The Fund does not expect to hold
more than 5% of its total assets in foreign currency exchange-related
securities.
The Fund will normally conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or through entering into forward
contracts to purchase or sell foreign currencies. The Fund will generally
not enter into a forward contract with a term of greater than one year.
The Fund will generally enter into forward foreign currency exchange
contracts only under two circumstances. First, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
Second, when the Fund's sub-advisor believes that the currency of a
particular foreign country may suffer or enjoy a substantial movement
against another currency, it may enter into a forward contract to sell or
buy the former foreign currency (or another currency which acts as a proxy
for that currency) approximating the value of some or all of the Fund's
securities denominated in such foreign currency. Under certain
circumstances, the Fund may commit a substantial portion of the entire value
of its portfolio to the consummation of these contracts. The Fund's sub-
advisor will consider the effect such a commitment of its portfolio to
forward contracts would have on the investment program of the Fund and the
flexibility of the Fund to purchase additional securities. Although forward
contracts will be used primarily to protect the Fund from adverse currency
movements, they also involve the risk that anticipated currency movements
will not be accurately predicted and the Fund's total return could be
adversely affected as a result.
For a discussion of foreign currency contracts and the risks involved
therein, see the section of this Prospectus entitled, "Investment Risks."
The Fund will not generally trade in securities for short-term
profits, but, when circumstances warrant, securities may be purchased and
sold without regard to the length of time held. The annual portfolio
turnover rate of the Fund for the fiscal year ended October 31, 1997 and
October 31, 1996 were 17% and 11%, respectively.
For more information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD FUND
The investment objective of the LB Fund is to seek growth of capital
and income.
The Fund seeks to achieve its objective by investing in securities
issued by leading companies. The Fund may invest in the common stocks and
other securities of leading companies, including corporate bonds, notes,
preferred stock, and warrants. The Fund may also invest in U.S. Government
securities and cash. For purposes of the Fund's investment objective,
companies are deemed "leading" in terms of market share, asset size, cash
flow and other fundamental factors.
LB Research will use fundamental investment research techniques to
seek out those companies that have a leading position within their industry
or within the capital markets generally. LB Research will focus upon market
shares, growth in sales and earnings, market capitalization and asset size
and competitive dominance. These will often be mature companies with a
lengthy history and seasoned operations. Many of them will have market
capitalizations in excess of $1 billion.
The Fund may dispose of securities held for a short period if the
Fund's investment adviser believes such disposition to be advisable. LB
Research intends to use an active method of management and may select
portfolio securities for the specific purpose of trading them within a short
period of time, which will result in the sale of some securities after a
relatively brief holding period. This method of management necessarily
results in higher cost to the Fund due to the fees associated with portfolio
securities transactions. However, it is LB Research's belief that this
method of management can produce added value to the Fund and its
shareholders that exceeds the additional costs of such transactions. The
annual portfolio turnover rates of the Fund for the fiscal years ended
October 31, 1997 and October 31, 1996 were 54% and 91%, respectively.
For information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD HIGH YIELD FUND
The investment objective of the LB High Yield Fund is to obtain high
current income and, secondarily, growth of capital.
The Fund seeks to achieve its investment objectives by investing
primarily in a diversified portfolio of professionally managed high yield,
high risk securities, many of which involve greater risks than higher
quality investments. The Fund may invest in high yield, high risk bonds,
notes, debentures and other income producing debt obligations and dividend
paying preferred stocks. These securities are commonly known as "junk
bonds". High yield, high risk securities will ordinarily carry a quality
rating "Ba" or lower by Moody's, "BB" or lower by S&P, or, if not rated,
such securities will be of comparable quality as determined by the Fund's
investment adviser. The Fund will use no minimum level of quality rating and
may purchase and hold securities in default. Securities having a quality
rating of Ba or BB and lower are considered to be speculative. See
"Investment Risks - LB High Yield Fund Investment Risks". For a description
of Moody's and S&P's ratings, see "Description of Debt Ratings".
The Fund may also invest in common stocks, warrants to purchase
stocks, bonds or preferred stock convertible into common stock, and other
equity securities. Investments in such securities will be made in pursuit of
the income and capital growth objectives of the Fund, but at no time will
the Fund invest more than 20% of its total assets in equity securities.
As a nonfundamental policy, during normal market conditions the Fund
will maintain at least 65% of its total assets, taken at market value, in
lower rated securities. The Fund may invest, without limit, in short-term
money market instruments when, in the opinion of LB Research, short-term
investments provide a better opportunity for achieving the Fund's objectives
than do longer term investments. When making short-term investments for such
purpose, the Fund will not be limited to a minimum quality level and may use
unrated instruments.
The Fund does not intend to engage in short-term trading but may
dispose of securities held for a short time if LB Research believes such
disposition to be advisable. The annual portfolio turnover rates of the Fund
for the fiscal years ended October 31, 1997 and October 31, 1996 were 113%
and 104%, respectively.
For information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD INCOME FUND
The investment objective of the LB Income Fund is to seek high current
income while preserving principal. The Fund's secondary investment objective
is to obtain long-term growth of capital in order to maintain investors'
purchasing power.
The Fund seeks to achieve its investment objectives by investing
primarily in debt securities such as bonds, notes, debentures, mortgage-
backed securities, other income producing debt obligations, and preferred
stocks rated "Baa" or higher by Moody's or "BBB" or higher by S&P. If not
rated, such securities will be of comparable quality in the opinion of LB
Research. Securities rated BBB or Baa, although considered to be investment
grade or higher, have speculative characteristics. If a portfolio security's
quality rating drops below investment grade after the Fund has acquired the
security, the Fund may continue to hold the security in its portfolio. A
description of the ratings that are given to debt securities by Moody's and
S&P and the standards applied by them in assigning these ratings may be
found at end of this Prospectus.
The Fund may from time to time invest in debt securities that are not
rated as investment grade. For a description of the risks of investing in
such securities, see the section of this Prospectus entitled "Investment
Risks of High Yield Securities". The Fund may also invest in common stock
and bonds and preferred stock that are convertible into common stock. No
more than 10% of the Fund's total assets will be invested in common stock
and no more than 25% of the value of the total assets will be invested in
all securities described in this paragraph.
Debt securities may bear fixed or variable rates of interest. They may
involve equity features such as conversion or exchange rights, warrants for
the acquisition of common stock of the same or a different issuer,
participation based on revenues, sales or profits, or the purchase of common
stock in a unit transaction (where corporate debt securities and common
stock are offered as a unit).
The Fund may engage in short-term trading and dispose of securities
held for a short time if LB Research believes such disposition to be
advisable. This method of management necessarily results in higher cost to
the Fund due to the fees associated with portfolio securities transactions.
However, it is LB Research's belief that this method of management can
produce added value to the Fund and its shareholders that exceeds the
additional costs of such transactions. The annual portfolio turnover rates
of the Fund for the fiscal years ended October 31, 1997 and October 31, 1996
were 97% and 142%, respectively.
For information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
The investment objective of the LB Municipal Bond Fund is to provide
its shareholders with a high level of current income which is exempt from
federal income tax.
The Fund seeks to achieve its investment objective by investing in a
diversified portfolio of municipal bonds. Municipal bonds are debt
obligations issued by or on behalf of states (including the District of
Columbia), territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities, the interest from
which is exempt from federal income tax. At least 80% of the Fund's total
assets will be invested in municipal bonds unless LB Research determines
that market conditions call for a temporary defensive posture.
The Fund does not generally intend to purchase securities if, as a
result of such purchase, more than 25% of the value of its total assets
would be invested in the securities of governmental subdivisions located in
any one state, territory or possession of the United States. The Fund may
invest more than 25% of the value of its total assets in industrial
development bonds. As to industrial development bonds, the Fund may invest
up to 25% of its total assets in securities issued in connection with the
financing of projects with similar characteristics, such as toll road
revenue bonds, housing revenue bonds or electric power project revenue
bonds, or in industrial development revenue bonds which are based, directly
or indirectly, on the credit of private entities in any one industry. This
may make the Fund more susceptible to economic, political or regulatory
occurrences affecting a particular industry or sector and increase the
potential for fluctuation of net asset value.
Municipal Bonds: Municipal bonds are generally issued to finance
public works, such as bridges and highways, housing, mass transportation
projects, schools and hospitals. Municipal bonds are also issued to repay
outstanding obligations, to raise funds for general operating expenses and
to make loans to other public institutions and facilities. The two principal
classifications of municipal bonds are "general obligation" and "revenue"
bonds. General obligation bonds are secured by the issuer's pledge and
ability to raise taxes to repay the principal and interest. Revenue bonds
are repayable only from the income earned from the facility financed by the
bond or other specific source of revenue. For example, income earned by a
housing development can be used to repay the bonds that raised the funds for
its construction.
Industrial Development Bonds: Industrial development bonds are
considered municipal bonds if the interest paid on them is exempt from
federal income tax. Industrial development bonds which qualify as municipal
bonds are almost always revenue bonds. They are issued by or on behalf of
public authorities to raise money for privately-operated housing facilities,
sports facilities, convention or trade show centers, airports, mass transit,
port facilities, parking areas, air or water pollution control facilities
and certain local facilities for water supply, gas, electricity or sewage
disposal.
Municipal Bonds Suitable for Investment: The Fund generally restricts
its investments to municipal bonds rated Aaa, Aa, A or Baa by Moody's, or
AAA, AA, A or BBB by S&P. Municipal bonds in the lowest rated category have
speculative characteristics. The Fund also may invest in municipal bonds
(but not industrial development bonds) that are not rated by Moody's or S&P
but, in the opinion of LB Research, would qualify for Standard & Poor's BBB
or Moody's Baa rating. Subsequent to its purchase by the Fund, an issue of
municipal bonds may cease to be rated or its rating may be reduced below the
minimums required for purchase by the Fund. Neither event requires the
elimination of such obligation from the Fund's portfolio, but LB Research
will consider such an event in its determination of whether the Fund should
continue to hold such obligation in its
portfolio.
The annual portfolio turnover rates of the Fund for the fiscal years
ended October 31, 1997 and October 31, 1996 were 18% and 33%, respectively.
For information on other investment policies of the Fund, see
"Additional Investment Practices" below.
LUTHERAN BROTHERHOOD MONEY MARKET FUND
The LB Money Market Fund's investment objective is current income
consistent with stability of principal.
The Fund pursues this investment objective by investing in a portfolio
of money market instruments that mature in 397 days or less in order to
obtain current income and maintain a stable principal. The dollar-weighted
average maturity of money market instruments held by the LB Money Market
Fund will be 90 days or less. The policy of the Fund is generally to hold
instruments until maturity. However, the Fund may attempt to increase yield
by trading portfolio securities to take advantage of short-term market
variations.
Permissible LB Money Market Fund investments include, but are not
limited to: U.S. Treasury bills and all other marketable obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities;
instruments of domestic and foreign banks and savings and loans; prime
commercial paper; variable amount demand master notes; repurchase
agreements; instruments secured by the obligations described above and
asset-backed securities.
The Fund will not purchase a security (other than U.S. Government
obligations) unless the security (i) is rated by at least two nationally
recognized statistical rating organizations (NRSROs) with the highest rating
assigned to short-term debt securities (or, if rated by only one NRSRO by
that NRSRO, or if not rated, is determined to be of comparable quality), or
(ii) is rated by at least two such NRSROs within the two highest ratings
assigned to short-term debt securities (or, if rated by only one NRSRO by
that NRSRO, or if not rated, is determined to be of comparable quality) and
not more than 5% of the assets of the Fund would be invested in such
securities. In addition, the Fund may not invest more than 1% of its total
assets or $1 million (whichever is greater) in the securities of a single
issuer included in clause (ii) above. Determinations of comparable quality
are made by LB Research in accordance with procedures established by the
Board of Trustees.
U.S. Government Obligations: The types of U.S. Government obligations
in which the Fund may invest include, but are not limited to: direct
obligations of the U.S. Treasury, such as U.S. Treasury bills, bonds and
notes; and instruments issued or guaranteed by the U.S. Government, its
agencies or instrumentalities which are backed by the full faith and credit
of the United States, the credit of the agency or instrumentality (a
governmental agency organized under federal charter with government
supervision) issuing the obligations, or the issuer's right to borrow from
the U.S. Treasury. These U.S. Government obligations may include notes,
bonds and discount notes issued by following agencies: Federal Land Banks;
Central Bank for Cooperatives; Federal Intermediate Credit Banks; Federal
Home Loan Banks; Farmers Home Administration; and Federal National Home
Mortgage Association.
Bank Instruments: The Fund invests only in instruments of domestic and
foreign banks and savings and loans if they have capital and surplus of over
$100,000,000 or the principal amount of the instrument in which the Fund is
investing is insured by the Federal Deposit Insurance Corporation (FDIC),
including domestic or Eurodollar certificates of deposit, demand and time
deposits, savings shares and bankers' acceptances.
Asset-Backed Securities: Asset-backed securities represent interests
in pools of consumer loans such as credit card receivables, leases on
equipment such as computers and other financial instruments. These
securities provide a flow-through of interest and principal payments as
payments are received on the loans or leases and may be supported by letters
of credit or similar guarantees of payment by a financial institution. These
securities are subject to the risks of non-payment of the underlying loans
as well as the risks of prepayment. An interest in a bank sponsored master
trust which holds the receivables for a major international credit card is
an example of an asset backed security; an interest in a trust which holds
the customer receivable for a large consumer products company is another
example.
For information on other investment policies of the Fund, see
"Additional Investment Practices" below.
ADDITIONAL INVESTMENT PRACTICES
Various of the Funds may purchase the following securities or may
engage in the following transactions.
REPURCHASE AGREEMENTS
Each of the Funds may engage in repurchase agreement transactions in
pursuit of its investment objective. A repurchase agreement consists of a
purchase and a simultaneous agreement to resell for later delivery at an
agreed upon price and rate of interest U.S. Government obligations. The Fund
or its custodian will take possession of the obligations subject to a
repurchase agreement. If the original seller of a security subject to a
repurchase agreement fails to repurchase the security at the agreed upon
time, the Fund could incur a loss due to a drop in the market value of the
security during the time it takes the Fund to either sell the security or
take action to enforce the original seller's agreement to repurchase the
security. Also, if a defaulting original seller filed for bankruptcy or
became insolvent, disposition of such security might be delayed by pending
court action. The Fund may only enter into repurchase agreements with banks
and other recognized financial institutions such as broker/dealers which are
found by LB Research (or a sub-advisor) to be creditworthy.
RESTRICTED SECURITIES
Subject to the limitations on illiquid securities noted above, the
Funds may buy or sell securities that meet the requirements of Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities"). Securities may be
resold pursuant to Rule 144A under certain circumstances only to qualified
institutional buyers as defined in the rule, and the markets and trading
practices for such securities are relatively new and still developing;
depending on the development of such markets, such Rule 144A Securities may
be deemed to be liquid as determined by or in accordance with methods
adopted by the Trustees. Under such methods the following factors are
considered, among others: the frequency of trades and quotes for the
security, the number of dealers and potential purchasers in the market,
market making activity, and the nature of the security and marketplace
trades. Investments in Rule 144A Securities could have the effect of
increasing the level of a Fund's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing such
securities. Also, a Fund may be adversely impacted by the subjective
valuation of such securities in the absence of an active market for them.
REVERSE REPURCHASE AGREEMENTS
Each of the Funds except the LB Money Market Fund also may enter into
reverse repurchase agreements, which are similar to borrowing cash. A
reverse repurchase agreement is a transaction in which the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker or dealer, in return for a percentage of the
instrument's market value in cash, with an agreement that at a stipulated
date in the future the Fund will repurchase the portfolio instrument by
remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not assure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time. The Fund will engage in reverse
repurchase agreements which are not in excess of 60 days to maturity and
will do so to avoid borrowing cash and not for the purpose of investment
leverage or to speculate on interest rate changes.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued and
delayed delivery basis. When-issued and delayed delivery transactions arise
when U.S. Government obligations and other types of securities are bought by
the Fund with payment and delivery taking place in the future. The
settlement dates of these transactions, which may be a month or more after
entering into the transaction, are determined by mutual agreement of the
parties. There are no fees or other expenses associated with these types of
transactions other than normal transaction costs. To the extent a Fund
engages in when-issued and delayed delivery transactions, it will do so for
the purpose of acquiring portfolio instruments consistent with its
investment objective and policies and not for the purpose of investment
leverage or to speculate on interest rate changes. On the settlement date,
the value of such instruments may be less than the cost thereof. When
effecting when-issued and delayed delivery transactions, cash, cash
equivalents or high grade debt obligations of a dollar amount sufficient to
make payment for the obligations to be purchased will be segregated at the
trade date and maintained until the transaction has been settled.
LENDING SECURITIES
Consistent with applicable regulatory requirements, each of the Funds
may from time to time lend the securities it holds to broker-dealers,
provided that such loans are made pursuant to written agreements and are
continuously secured by collateral in the form of cash, U.S. Government
securities, irrevocable standby letters of credit or other liquid securities
in an amount at all times equal to at least the market value of the loaned
securities plus the accrued interest and dividends. For the period during
which the securities are on loan, the lending Fund will be entitled to
receive the interest and dividends, or amounts equivalent thereto, on the
loaned securities and a fee from the borrower or interest on the investment
of the cash collateral. The right to terminate the loan will be given to
either party subject to appropriate notice. Upon termination of the loan,
the borrower will return to the Fund securities identical to the loaned
securities.
The primary risk in lending securities is that the borrower may become
insolvent on a day on which the loaned security is rapidly increasing in
value. In such event, if the borrower fails to return the loaned security,
the existing collateral might be insufficient to purchase back the full
amount of the security loaned, and the borrower would be unable to furnish
additional collateral. The borrower would be liable for any shortage, but
the lending Fund would be an unsecured creditor with respect to such
shortage and might not be able to recover all or any thereof. However, this
risk may be minimized by a careful selection of borrowers and securities to
be lent and by monitoring collateral.
No Fund will lend securities to broker-dealers affiliated with LB
Research or a sub-advisor. LB Research believes that this will not affect
the Fund's ability to maximize its securities lending opportunities. No Fund
may lend any security or make any other loan if, as a result, more than one-
third of its total assets would be lent to other parties.
PUT AND CALL OPTIONS (ALL FUNDS EXCEPT THE LB MONEY MARKET FUND)
Selling ("Writing" Covered Call Options: Certain of the Funds may from
time to time sell ("write") covered call options on any portion of its
portfolio as a hedge to provide partial protection against adverse movements
in prices of securities in those Funds and, subject to the limitations
described below, for the non- hedging purpose of attempting to create
additional income. A call option gives the buyer of the option, upon payment
of a premium, the right to call upon the writer to deliver a specified
amount of a security on or before a fixed date at a predetermined ("strike")
price. As the writer of a call option, a Fund assumes the obligation to
deliver the underlying security to the holder of the option on demand at the
strike price.
If the price of a security hedged by a call option falls below or
remains below the strike price of the option, a Fund will generally not be
called upon to deliver the security. A Fund will, however, retain the
premium received for the option as additional income, offsetting all or part
of any decline in the value of the security. If the price of a hedged
security rises above or remains above the strike price of the option, the
Fund will generally be called upon to deliver the security. In this event, a
Fund limits its potential gain by limiting the value it can receive from the
security to the strike price of the option plus the option premium.
Buying Call Options: Certain of the Funds may also from time to time
purchase call options on securities in which those Funds may invest. As the
holder of a call option, a Fund has the right to purchase the underlying
security or currency at the exercise price at any time during the option
period (American style) or at the expiration of the option (European style).
A Fund generally will purchase such options as a hedge to provide protection
against adverse movements in the prices of securities which the Fund intends
to purchase. In purchasing a call option, a Fund would realize a gain if,
during the option period, the price of the underlying security increased by
more than the amount of the premium paid. A Fund would realize a loss equal
to all or a portion of the premium paid if the price of the underlying
security decreased, remained the same, or did not increase by more than the
premium paid.
Buying Put Options: Certain of the Funds may from time to time
purchase put options on any portion of its portfolio. A put option gives the
buyer of the option, upon payment of a premium, the right to deliver a
specified amount of a security to the writer of the option on or before a
fixed date at a predetermined ("strike") price. A Fund generally will
purchase such options as a hedge to provide protection against adverse
movements in the prices of securities in the Fund. In purchasing a put
option, a Fund would realize a gain if, during the option period, the price
of the security declined by an amount in excess of the premium paid. A Fund
would realize a loss equal to all or a portion of the premium paid if the
price of the security increased, remained the same, or did not decrease by
more than the premium paid.
Options on Foreign Currencies: The LB World Growth Fund may also write
covered call options and purchase put and call options on foreign currencies
as a hedge against changes in prevailing levels of currency exchange rates.
Selling Put Options: The Funds may not sell put options, except in the
case of a closing purchase transaction (see Closing Transactions).
Index Options: As part of its options transactions, certain of the
Funds may also purchase and sell call options and purchase put options on
stock and bond indices. Options on securities indices are similar to options
on a security except that, upon the exercise of an option on a securities
index, settlement is made in cash rather than in specific securities.
Closing Transactions: Certain of the Funds may dispose of options
which they have written by entering into "closing purchase transactions".
Those Funds may dispose of options which they have purchased by entering
into "closing sale transactions". A closing transaction terminates the
rights of a holder, or the obligation of a writer, of an option and does not
result in the ownership of an option.
A Fund realizes a profit from a closing purchase transaction if the
premium paid to close the option is less than the premium received by the
Fund from writing the option. The Fund realizes a loss if the premium paid
is more than the premium received. The Fund may not enter into a closing
purchase transaction with respect to an option it has written after it has
been notified of the exercise of such option.
A Fund realizes a profit from a closing sale transaction if the
premium received to close out the option is more than the premium paid for
the option. A Fund realizes a loss if the premium received is less than the
premium paid.
Spreads and Straddles: Certain of the Funds may also engage in
"straddle" and "spread" transactions in order to enhance return, which is a
speculative, non-hedging purpose. A straddle is established by buying both a
call and a put option on the same underlying security, each with the same
exercise price and expiration date. A spread is a combination of two or more
call options or put options on the same security with differing exercise
prices or times to maturity. The particular strategies employed by a Fund
will depend on LB Research's or the Sub-advisor's perception of anticipated
market movements.
Negotiated Transactions: Certain of the Funds will generally purchase
and sell options traded on a national securities or options exchange. Where
options are not readily available on such exchanges, a Fund may purchase and
sell options in negotiated transactions. A Fund effects negotiated
transactions only with investment dealers and other financial institutions
deemed creditworthy by its investment adviser. Despite the investment
adviser's or sub-advisor's best efforts to enter into negotiated options
transactions with only creditworthy parties, there is always a risk that the
opposite party to the transaction may default in its obligation to either
purchase or sell the underlying security at the agreed upon time and price,
resulting in a possible loss by the Fund. This risk is described more
completely in the section of this Prospectus entitled, "Risks of
Transactions in Options and Futures". Options written or purchased by a Fund
in negotiated transactions are illiquid and there is no assurance that a
Fund will be able to effect a closing purchase or closing sale transaction
at a time when its investment adviser or sub-advisor believes it would be
advantageous to do so. In the event the Fund is unable to effect a closing
transaction with the holder of a call option written by the Fund, the Fund
may not sell the security underlying the option until the call written by
the Fund expires or is exercised. The underlying securities on such
transactions will also be considered illiquid and are subject to the Fund's
15% illiquid securities limitations.
Limitations: A Fund will not purchase any option if, immediately
thereafter, the aggregate cost of all outstanding options purchased and held
by the Fund would exceed 5% of the market value of the Fund's total assets.
A Fund will not write any option if, immediately thereafter, the aggregate
value of the Fund's securities subject to outstanding options would exceed
30% of the market value of the Fund's total assets.
FINANCIAL FUTURES AND OPTIONS ON FUTURES (ALL FUNDS EXCEPT THE LB MONEY
MARKET FUND)
Selling Futures Contracts: Certain of the Funds may sell financial
futures contracts ("futures contracts") as a hedge against adverse movements
in the prices of securities in those Funds. Such contracts may involve
futures on items such as U.S. Government Treasury bonds, notes and bills,
government mortgage-backed securities; corporate and municipal bond indices;
and stock indices. A futures contract sale creates an obligation for the
Fund, as seller, to deliver the specific type of instrument called for in
the contract at a specified future time for a specified price. In selling a
futures contract, the Fund would realize a gain on the contract if, during
the contract period, the price of the securities underlying the futures
contract decreased. Such a gain would be expected to approximately offset
the decrease in value of the same or similar securities in the Fund. The
Fund would realize a loss if the price of the securities underlying the
contract increased. Such a loss would be expected to approximately offset
the increase in value of the same or similar securities in the Fund.
Futures contracts have been designed by and are traded on boards of
trade which have been designated "contract markets" by the Commodity Futures
Trading Commission ("CFTC"). These boards of trade, through their clearing
corporations, guarantee performance of the contracts. Although the terms of
some financial futures contracts specify actual delivery or receipt of
securities, in most instances these contracts are closed out before the
settlement due date without the making or taking of delivery of the
securities. Other financial futures contracts, such as futures contracts on
a securities index, by their terms call for cash settlements. The closing
out of a futures contract is effected by entering into an offsetting
purchase or sale transaction.
When a Fund sells a futures contract, or a call option on a futures
contract, it is required to make payments to the commodities broker which
are called "margin" by commodities exchanges and brokers.
The payment of "margin" in these transactions is different than
purchasing securities "on margin". In purchasing securities "on margin" an
investor pays part of the purchase price in cash and receives an extension
of credit from the broker, in the form of a loan secured by the securities,
for the unpaid balance. There are two categories of "margin" involved in
these transactions: initial margin and variation margin. Initial margin does
not represent a loan between a Fund and its broker, but rather is a "good
faith deposit" by a Fund to secure its obligations under a futures contract
or an option. Each day during the term of certain futures transactions, a
Fund will receive or pay "variation margin" equal to the daily change in the
value of the position held by the Fund.
Buying Futures Contracts: Certain of the Funds may purchase financial
futures contracts as a hedge against adverse movements in the prices of
securities which they intend to purchase. The Opportunity Growth and World
Growth Funds may buy and sell futures contracts for a number of reasons,
including to manage their exposure to changes in securities prices and
foreign currencies as an efficient means of adjusting their overall exposure
to certain markets in an effort to enhance income; and to protect the value
of portfolio securities. A futures contract purchase creates an obligation
by a Fund, as buyer, to take delivery of the specific type of instrument
called for in the contract at a specified future time for a specified price.
In purchasing a futures contract, a Fund would realize a gain if, during the
contract period, the price of the securities underlying the futures contract
increased. Such a gain would approximately offset the increase in cost of
the same or similar securities which a Fund intends to purchase. A Fund
would realize a loss if the price of the securities underlying the contract
decreased. Such a loss would approximately offset the decrease in cost of
the same or similar securities which a Fund intends to purchase.
Options on Futures Contracts: Certain of the Funds may also sell
("write") covered call options on futures contracts and purchase put and
call options on futures contracts in connection with the above strategies. A
Fund may not sell put options on futures contracts. An option on a futures
contract gives the buyer of the option, in return for the premium paid for
the option, the right to assume a position in the underlying futures
contract (a long position if the option is a call and a short position if
the option is a put). The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of securities
underlying the futures contract to the extent of the premium received for
the option. The purchase of a put option on a futures contract constitutes a
hedge against price declines below the exercise price of the option and net
of the premium paid for the option. The purchase of a call option
constitutes a hedge, net of the premium, against an increase in cost of
securities which a Fund intends to purchase.
Currency Futures Contracts and Options: The LB World Growth Fund may
also sell and purchase currency futures contracts (or options thereon) as a
hedge against changes in prevailing levels of currency exchange rates. Such
contracts may be traded on U.S. or foreign exchanges. The Fund will not use
such contracts or options for leveraging purposes.
Limitations: Certain of the Funds may engage in futures transactions,
and transactions involving options on futures, only on regulated commodity
exchanges or boards of trade. A Fund will not enter into a futures contract
or purchase or sell related options if immediately thereafter (a) the sum of
the amount of initial margin deposits on the Fund's existing futures and
related options positions and premiums paid for options with respect to
futures and options used for non-hedging purposes would exceed 5% of the
market value of the Fund's total assets or (b) the sum of the then aggregate
value of open futures contracts sales, the aggregate purchase prices under
open futures contract purchases, and the aggregate value of futures
contracts subject to outstanding options would exceed 30% of the market
value of the Fund's total assets. In addition, in instances involving the
purchase of futures contracts or call options thereon, a Fund will maintain
cash or cash equivalents, less any related margin deposits, in an amount
equal to the market value of such contracts. "Cash and cash equivalents" may
include cash, government securities, or liquid high quality debt
obligations.
HYBRID INVESTMENTS (ALL FUNDS EXCEPT THE LB MONEY MARKET FUND)
As part of its investment program and to maintain greater flexibility,
the Fund may invest in hybrid instruments (a potentially high risk
derivative) which have the characteristics of futures, options and
securities. Such instruments may take a variety of forms, such as debt
instruments with interest or principal payments determined by reference to
the value of a currency, security index or commodity at a future point in
time. The risks of such investments would reflect both the risks of
investing in futures, options, currencies and securities, including
volatility and illiquidity. Under certain conditions, the redemption value
of a hybrid instrument could be zero. The Fund does not expect to hold more
than 5% of its total assets in hybrid instruments. For a discussion of
hybrid investments and the risks involved therein, see the Trust's Statement
of Additional Information under "Additional Information Concerning Certain
Investment Techniques".
RISKS OF TRANSACTIONS IN OPTIONS AND FUTURES
There are certain risks involved in the use of futures contracts,
options on securities and securities index options, and options on futures
contracts, as hedging devices. There is a risk that the movement in the
prices of the index or instrument underlying an option or futures contract
may not correlate perfectly with the movement in the prices of the assets
being hedged. The lack of correlation could render a Fund's hedging strategy
unsuccessful and could result in losses. The loss from investing in futures
transactions is potentially unlimited.
There is a risk that LB Research or a sub-advisor could be incorrect
in their expectations about the direction or extent of market factors such
as interest rate movements. In such a case a Fund would have been better off
without the hedge. In addition, while the principal purpose of hedging is to
limit the effects of adverse market movements, the attendant expense may
cause a Fund's return to be less than if hedging had not taken place. The
overall effectiveness of hedging therefore depends on the expense of hedging
and LB Research's or a Fund's sub-advisor's accuracy in predicting the
future changes in interest rate levels and securities price movements.
A Fund will generally purchase and sell options traded on a national
securities or options exchange. Where options are not readily available on
such exchanges a Fund may purchase and sell options in negotiated
transactions. When a Fund uses negotiated options transactions it will seek
to enter into such transactions involving only those options and futures
contracts for which there appears to be an active secondary market. There is
nonetheless no assurance that a liquid secondary market such as an exchange
or board of trade will exist for any particular option or futures contract
at any particular time. If a futures market were to become unavailable, in
the event of an adverse movement, a Fund would be required to continue to
make daily cash payments of maintenance margin if it could not close a
futures position. If an options market were to become unavailable and a
closing transaction could not be entered into, an option holder would be
able to realize profits or limit losses only by exercising an option, and an
option writer would remain obligated until exercise or expiration. In
addition, exchanges may establish daily price fluctuation limits for options
and futures contracts, and may halt trading if a contract's price moves
upward or downward more than the limit in a given day. On volatile trading
days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for a Fund to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent
prompt liquidation of unfavorable positions, and potentially could require a
Fund to continue to hold a position until delivery or expiration regardless
of changes in its value. As a result, a Fund's access to other assets held
to cover its options or futures positions could also be impaired.
When conducting negotiated options transactions there is a risk that
the opposite party to the transaction may default in its obligation to
either purchase or sell the underlying security at the agreed upon time and
price. In the event of such a default, a Fund could lose all or part of
benefit it would otherwise have realized from the transaction, including the
ability to sell securities it holds at a price above the current market
price or to purchase a security from another party at a price below the
current market price.
The Funds intend to continue to meet the requirements of federal law
to be treated as a regulated investment company. For taxable years of a Fund
that began on or prior to August 5, 1997, one of these requirements is that
a Fund realize less than 30% of its annual gross income from the sale of
securities held for less than three months. Accordingly, the extent to which
a Fund may engage in futures contracts and related options may be materially
limited by this 30% test. Options activities of a Fund may increase the
amount of gains from the sale of securities held for less than three months,
because gains from the expiration of, or from closing transactions with
respect to, call options written by a Fund will be treated as short-term
gains and because the exercise of call options written by the Fund would
cause it to sell the underlying securities before it otherwise might. For
each taxable year of a Fund beginning after August 5, 1997, a Fund will no
longer be subject to the 30% test described above.
Finally, if a broker or clearing member of an options or futures
clearing corporation were to become insolvent, a Fund could experience
delays and might not be able to trade or exercise options or futures
purchased through that broker or clearing member. In addition, a Fund could
have some or all of its positions closed out without its consent. If
substantial and widespread, these insolvencies could ultimately impair the
ability of the clearing corporations themselves.
TEMPORARY DEFENSIVE INVESTMENTS
The LB Opportunity Growth Fund, LB World Growth Fund, LB Fund, LB Mid
Cap Growth Fund, LB High Yield Fund, LB Income Fund, and LB Municipal Bond
Fund, may hold up to 100% of their assets in cash or short-term debt
securities for temporary defensive position when, in the opinion of LB
Research or a Fund's sub-advisor such a position is more likely to provide
protection against unfavorable market conditions than adherence to the
Funds' other investment policies. The types of short-term instruments in
which the Funds may invest for such purposes include short-term money market
securities such as repurchase agreements and securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, certificates of
deposit, Eurodollar certificates of deposit, commercial paper and banker's
acceptances issued by domestic and foreign corporations and banks. When
investing in short-term money market obligations for temporary defensive
purposes, a Fund will invest only in securities rated at the time of
purchase Prime-1 or Prime-2 by Moody's, A-1 or A-2 by S&P, F-1 or F-2 by
Fitch Investors Service, Inc., or unrated instruments that are determined by
LB Research or the Sub-advisor to be of a comparable level of quality. When
a Fund adopts a temporary defensive position its investment objective may
not be achieved.
INVESTMENT LIMITATIONS
In seeking to lessen investment risk, each Fund operates under certain
investment restrictions. The restrictions in the following paragraphs may
not be changed with respect to any Fund except by a vote of a majority of
the outstanding voting securities of that Fund.
No Fund may, with respect to 75% of its total assets, purchase the
securities of any issuer (except Government Securities, as such term is
defined in the Investment Company Act of 1940) if, as a result, the Fund
would own more than 10% of the outstanding voting securities of such issuer
or the Fund would have more than 5% of its total assets invested in the
securities of such issuer. The LB Opportunity Growth Fund, LB Mid Cap Growth
Fund, LB World Growth Fund, LB Fund, LB High Yield Fund, LB Income Fund, and
LB Money Market Fund may not invest in a security if the transaction would
result in 25% or more of the Fund's total assets being invested in any one
industry.
A Fund other than the LB Money Market Fund may borrow (through reverse
repurchase agreements or otherwise) up to one-third of its total assets. If
a Fund borrows money its share price will be subject to greater fluctuation
until the borrowing is paid off. If a Fund makes additional investments
while borrowings are outstanding, this may be considered a form of leverage.
If borrowings, including reverse repurchase agreements, exceed 5% of a
Fund's total assets, such Fund will not purchase portfolio securities.
For further information on these and other investment restrictions,
including nonfundamental investment restrictions which may be changed
without a shareholder vote, see the Statement of Additional Information.
INVESTMENT RISKS
Special risks are associated with investments in some of the Funds,
beyond the standard level of risks. These risks are described below. An
investor should take into account his or her investment objectives and
ability to absorb a loss or decline in his or her investment when
considering an investment in such Funds. Investors in certain of the Funds
assume an above average risk of loss, and should not consider an investment
those Funds to be a complete investment program.
LB OPPORTUNITY GROWTH FUND INVESTMENT RISKS
The LB Opportunity Growth Fund is aggressively managed and invests
primarily in the stocks of smaller, less seasoned companies many of which
are traded on an over-the-counter basis, rather than on a national exchange.
These companies represent a relatively higher degree of risk than do the
stocks of larger, more established companies. The companies the LB
Opportunity Growth Fund invests in also tend to be more dependent on the
success of a single product line and have less experienced management. They
tend to have smaller market shares, smaller capitalization, and less access
to sources of additional capital. As a result, these companies tend to have
less ability to cope with problems and market downturns and their shares of
stock tend to be less liquid and more volatile in price.
LB MID CAP GROWTH FUND INVESTMENT RISKS
Stocks in mid cap companies entail greater risk than the stocks of
larger, well-established companies. These companies tend to have smaller
revenues, narrower product lines, less management depth and experience,
smaller shares of their product or service markets, fewer financial
resources, and less competitive strength than larger companies. Also, mid
cap companies usually reinvest a high portion of their earnings in their own
businesses and therefore lack a predictable dividend yield. Since investors
frequently buy these stocks because of their expected above average earnings
growth, earnings levels that fail to meet expectations often result in sharp
price declines of such stocks.
In addition, in many instances, the frequency and volume of trading of
mid cap companies is substantially less than is typical of larger companies.
Therefore, the securities of such companies may be subject to wider price
fluctuations. The spreads between the bid and asked prices of the securities
of these companies in the over-the-counter market typically are larger than
the spreads for more actively-traded companies. As a result, the Fund could
incur a loss if it determined to sell such a security shortly after its
acquisition. When making large sales, the Fund may have to sell portfolio
holdings at discounts from quoted prices or may have to make a series of
small sales over an extended period of time due to the trading volume of
such securities. Investors should be aware that, based on the foregoing
factors, an investment in the Fund may be subject to greater price
fluctuations than an investment in a fund that invests primarily in larger
more established companies.
LB WORLD GROWTH FUND INVESTMENT RISKS
The Fund, may invest in stocks of foreign issuers and in "ADRs" "EDRs"
of foreign stocks. When investing in foreign stocks, ADRs and EDRs, the Fund
assumes certain additional risks that are not present with investments in
stocks of domestic companies. These risks include political and economic
developments such as possible expropriation or confiscatory taxation that
might adversely affect the market value of such stocks, ADRs and EDRs. In
addition, there may be less publicly available information about such
foreign issuers than about domestic issuers, and such foreign issuers may
not be subject to the same accounting, auditing and financial standards and
requirements as domestic issuers.
OTHER RISKS OF FOREIGN INVESTING INCLUDE:
Foreign Securities: Investments in securities of foreign issuers may
involve risks that are not present with domestic investments. While
investments in foreign securities are intended to reduce risk by providing
further diversification, such investments involve sovereign risk in addition
to credit and market risks. Sovereign risk includes local political or
economic developments, potential nationalization, withholding taxes on
dividend or interest payments, and currency blockage (which would prevent
cash from being brought back to the United States). Compared to United
States issuers, there is generally less publicly available information about
foreign issuers and there may be less governmental regulation and
supervision of foreign stock exchanges, brokers and listed companies. Fixed
brokerage commissions on foreign securities exchanges are generally higher
than in the United States. Foreign issuers are not generally subject to
uniform accounting and auditing and financial reporting standards, practices
and requirements comparable to those applicable to domestic issuers.
Securities of some foreign issuers are less liquid and their prices are more
volatile than securities of comparable domestic issuers. In some countries,
there may also be the possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, difficulty in enforcing
contractual and other obligations, political or social instability or
revolution, or diplomatic developments which could affect investments in
those countries. Settlement of transactions in some foreign markets may be
delayed or less frequent than in the United States, which could affect the
liquidity of investments. For example, securities which are listed on
foreign exchanges or traded in foreign markets may trade on days (such as
Saturday) when the Fund does not compute its price or accept orders for the
purchase, redemption or exchange of its shares. As a result, the net asset
value of the Fund may be significantly affected by trading on days when
shareholders cannot make transactions. Further, it may be more difficult for
the Trust's agents to keep currently informed about corporate actions which
may affect the price of portfolio securities. Communications between the
U.S. and foreign countries may be less reliable than within the U.S.,
increasing the risk of delayed settlements or loss of certificates for
portfolio securities.
Investments by the Fund in foreign companies may require the Fund to
hold securities and funds denominated in a foreign currency. Foreign
investments may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. Thus, the Fund's net asset value per
share will be affected by changes in currency exchange rates. Changes in
foreign currency exchange rates may also affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to shareholders of
the Fund. They generally are determined by the forces of supply and demand
in foreign exchange markets and the relative merits of investment in
different countries, actual or perceived changes in interest rates or other
complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. In
addition, the Fund may incur costs in connection with conversions between
various currencies. Investors should understand and consider carefully the
special risks involved in foreign investing. These risks are often
heightened for investments in emerging or developing countries.
Developing Countries: Investing in developing countries involves
certain risks not typically associated with investing in U.S. securities,
and imposes risks greater than, or in addition to, risks of investing in
foreign, developed countries. These risks include: the risk of
nationalization or expropriation of assets or confiscatory taxation;
currency devaluations and other currency exchange rate fluctuations; social,
economic and political uncertainty and instability (including the risk of
war); more substantial government involvement in the economy; higher rates
of inflation; less government supervision and regulation of the securities
markets and participants in those markets; controls on foreign investment
and limitations on repatriation of invested capital and on the Fund's
ability to exchange local currencies for U.S. dollars; unavailability of
currency hedging techniques in certain developing countries; the fact that
companies in developing countries may be smaller, less seasoned and newly
organized companies; the difference in, or lack of, auditing and financial
reporting standards, which may result in unavailability of material
information about issuers; the risk that it may be more difficult to obtain
and/or enforce a judgment in a court outside the United States; and greater
price volatility, substantially less liquidity and significantly smaller
market capitalization of securities markets.
American Depository Receipts (ADRs) and European Depository Receipts
(EDRs): ADRs are dollar-denominated receipts generally issued by a domestic
bank that represents the deposit of a security of a foreign issuer. ADRs may
be publicly traded on exchanges or over-the-counter in the United States.
EDRs are receipts similar to ADRs and are issued and traded in Europe. ADRs
and EDRs may be issued as sponsored or unsponsored programs. In sponsored
programs, the issuer makes arrangements to have its securities traded in the
form of ADRs or EDRs. In unsponsored programs, the issuer may not be
directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are
generally similar, the issuers of unsponsored ADRs or EDRs are not obligated
to disclose material information in the United States and, therefore, the
import of such information may not be reflected in the market value of such
securities.
Currency Fluctuations: Investment in securities denominated in foreign
currencies involves certain risks. A change in the value of any such
currency against the U.S. dollar will result in a corresponding change in
the U.S. dollar value of a Fund's assets denominated in that currency. Such
changes will also affect a Fund's income. Generally, when a given currency
appreciates against the dollar (the dollar weakens) the value of a Fund's
securities denominated in that currency will rise. When a given currency
depreciates against the dollar (the dollar strengthens) the value of a
Fund's securities denominated in that currency would be expected to decline.
INVESTMENT RISKS OF HIGH YIELD SECURITIES (LB HIGH YIELD FUND, LB INCOME
FUND, AND LB MID CAP GROWTH FUND)
Investment in high yield, high risk securities (sometimes referred to
as "junk bonds") involves a greater degree of risk than investment in higher
quality securities. Investment in high yield, high risk securities involves
increased financial risk due to the higher risk of default by the issuers of
bonds and other debt securities having quality rating of "Ba" or lower by
Moody's or "BB" or lower by Standard & Poor's. The higher risk of default
may be due to higher debt leverage ratios, a history of low profitability or
losses, or other fundamental factors that weaken the ability of the issuer
to service its debt obligations.
In addition to the factors of issuer creditworthiness described above,
high yield, high risk securities generally involve a number of additional
market risks. These risks include:
Youth and Growth of High Yield, High Risk Market: The high yield, high
risk bond market is relatively new. While many of the high yield issues
currently outstanding have endured an economic recession, there can be no
assurance that this will be true in the event of increased interest rates or
widespread defaults brought about by a more severe and sustained economic
downturn.
Sensitivity to Interest Rate and Economic Changes: The market value of
high yield, high risk securities have been found to be less sensitive to
interest rate changes on a short-term basis than higher-rated investments,
but more sensitive to adverse economic developments or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may be more likely to experience
financial stress which would impair their ability to service their principal
and interest payment obligations or obtain additional financing. In the
event the issuer of a bond defaults on payments, the LB High Yield Fund may
incur additional expenses in seeking recovery. In periods of economic change
and uncertainty, market values of high yield, high risk securities and the
LB High Yield Fund's assets value may become more volatile. Furthermore, in
the case of zero coupon or payment-in-kind high yield, high risk securities,
market values tend to be more greatly affected by interest rate changes than
securities which pay interest periodically and in cash. Changes in the
market value of securities owned by the LB High Yield Fund will not affect
cash income but will affect the net asset value of the Fund's shares.
Payment Expectations: High yield, high risk securities, like higher
quality securities, may contain redemption or call provisions, which allow
the issuer to redeem a security in the event interest rates drop. In this
event, the LB High Yield Fund would have to replace the issue with a lower
yielding security, resulting in a decreased yield for investors.
Liquidity and Valuation: High yield, high risk securities at times
tend to be more thinly traded and are less likely to have an estimated
retail secondary market than investment grade securities. This may adversely
impact the LB High Yield Fund's ability to dispose of particular issues and
to accurately value securities in the LB High Yield Fund's portfolios. Also,
adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease market values and liquidity, especially
on thinly traded issues.
Taxation: High yield, high risk securities structured as zero coupon
or payment-in-kind issues may require the LB High Yield Fund to report
interest on such securities as income even though the LB High Yield Fund
receives no cash interest on such securities until the maturity or payment
date. The LB High Yield Fund may be required to sell other securities to
generate cash to make any required dividend distribution.
LIMITING INVESTMENT RISK
LB Research believes that the risks of investing in high yield, high
risk securities can be reduced by the use of professional portfolio
management techniques including:
Credit Research: LB Research will perform it owns credit analysis in
addition to using recognized rating agencies and other sources, including
discussions with the issuer's management, the judgment of other investment
analysts and its own judgment. The adviser's credit analysis will consider
such factors as the issuer's financial soundness, its responsiveness to
changes in interest rates and business conditions, its anticipated cash
flow, asset values, interest or dividend coverage and earnings.
Diversification: The LB High Yield Fund invests in widely diversified
portfolio of securities to minimize the impact of a loss in any single
investment and to reduce portfolio risk. As of October 31, 1997, the LB High
Yield Fund held securities of 178 corporate issuers, and the LB High Yield
Fund's holdings had the following credit quality characteristics:
Percentage of
Investment Net Assets
---------- -------------
Short-term securities
AAA equivalent........................................ 2.6%
Government obligations..................................... --
Corporate obligations
AAA/Aaa............................................... --
AA/Aa................................................. --
A/A................................................... --
BBB/Baa............................................... 2.3%
BB/Ba................................................. 10.6%
B/B................................................... 50.6%
CCC/Caa............................................... 9.3%
CC/Ca................................................. --
D/D................................................... --
Not rated............................................. 7.7%
Other Net Assets...................................... 16.9%
-----
Total...................................................... 100.0%
=====
Economic and Market Analysis: LB Research will analyze current
developments and trends in the economy and in the financial markets. The LB
High Yield Fund may invest in higher quality securities in the event that
investment in high yield, high risk securities is deemed to present
unacceptable market or financial risk.
BUYING SHARES OF THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
INITIAL PURCHASES
Institutional Class shares are offered to certain Lutheran
institutions, Lutheran church organizations and certain other institutional
investors as may be determined by the Trust from time to time, subject in
each case to a minimum investment in each Fund of $100,000. There is no
sales load imposed in connection with the purchase of Institutional Class
shares.
To make your first purchase of Institutional Class shares of the
Funds:
o complete and sign an Institutional Account application;
o enclose a check made payable to the "LB Family of Funds;" and
o mail your application and check to Lutheran Brotherhood
Securities Corp., 625 Fourth Avenue S., Minneapolis, MN 55415.
SUBSEQUENT PURCHASES
To purchase additional shares of any of The Lutheran Brotherhood
Family of Funds, send a check payable to the LB Family of Funds to LB
Securities together with a completed To Invest By Mail form. You may also
buy additional Fund shares through:
o your LB Securities representative;
o the Systematic Investment Plan (SIP), under which you authorize
automatic monthly payments to the Fund from your checking
account;
o the automatic Payroll Deduction Plan;
o Invest-by-Phone; or
o Federal Reserve or bank wire.
INVEST-BY-PHONE
The Fund's Invest-by-Phone service allows you to telephone LB
Securities to request the purchase of Fund shares. You may elect this
feature on your account application or you may complete an Account Features
Request permitting LB Securities to accept your telephoned requests. When LB
Securities receives your telephoned request, it will draw funds directly
from your preauthorized bank account at a commercial or savings bank or
credit union. The bank or credit union must be a member of the Automated
Clearing House system. To use this service, you may call 800-328-4552 before
4:00 p.m. (Eastern time). Funds will be withdrawn from your bank or credit
union account and shares will be purchased for you at the price next
calculated by the Fund after receipt of funds from your bank. This service
may also be used to redeem shares. See "Redeeming Shares."
FEDERAL RESERVE OR BANK WIRE
You may purchase shares by Federal Reserve or bank wire directly to
Norwest Bank Minnesota, N.A. This method will result in a more rapid
investment in Fund shares. To wire Funds:
Notify LB Securities of a pending wire, call: (800) 328-4552
Wire to: Norwest Bank of Minneapolis, NA
Norwest Bank
6th Street and Marquette Avenue
Minneapolis, MN 55479
ABA Routing #: 091000019
Account #: 00-003-156
Account Name: Lutheran Brotherhood Securities Corp.
Use text message to indicate:
Transfer for -shareholder name(s), fund number and account number, LB
Representative name and number.
Your LB Securities representative can explain any of these investment plans.
MINIMUM INVESTMENTS REQUIRED
The minimum investment required for Institutional Class Shares of a
Fund is $100,000 for an initial purchase and $1,000 for additional
purchases.
EXCHANGING SHARES BETWEEN FUNDS
Shareholders of any of the Funds of The Lutheran Brotherhood Family of
Funds may exchange their shares for available shares of the same class of
any of the other Funds at any time on the basis of the relative net asset
values of the respective shares to be exchanged, subject to minimum
investment requirements. Each such exchange constitutes a sale of shares
requiring the calculation of a capital gain or loss for tax reporting
purposes. To obtain an exchange form or to receive more information about
making exchanges between funds, contact your LB Securities representative.
This exchange offer may be modified or terminated in the future. If the
exchange offer is materially modified or terminated, you will receive at
least 60 days prior notice. Shares of one class may not be exchanged for
shares of another class.
TELEPHONE EXCHANGES
You may make the type of exchanges between Funds described above by
telephone unless otherwise indicated on the account application. You may
make an unlimited number of telephone exchanges. Telephone exchanges must be
for a minimum amount of $1,000. Telephone exchanges may be made into new or
existing Fund or LB Money Market Fund accounts, and all accounts involved in
telephone exchanges must have the same ownership registration. To request a
telephone exchange, call toll-free (800) 328-4552.
The Funds reserve the right to refuse a wire or telephone redemption
or exchange if it is reasonably believed to be unauthorized. Procedures for
redeeming or exchanging Fund shares by wire or telephone may be modified or
terminated at any time by the Funds. When requesting a redemption or
exchange by telephone, shareholders should have available the correct
account registration and account number or tax identification number. All
telephone redemptions and exchanges are recorded and written confirmations
are subsequently mailed to an address of record. Neither the Funds nor LB
Securities will be liable for following redemption or exchange instructions
received by telephone, which are reasonably believed to be genuine, and the
shareholder will bear the risk of loss in the event of unauthorized or
fraudulent telephone instructions. The Funds and LB Securities will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. The Funds and/or LB Securities may be liable for any losses due
to unauthorized or fraudulent instructions in the absence of following these
procedures.
WHAT YOUR SHARES WILL COST
The offering price of the Fund is the next determined net asset
value (which will fluctuate). Currently there is no sales load imposed in
connection with the purchase of Institutional Class shares.
NET ASSET VALUE OF YOUR SHARES
LB Money Market Fund seeks to maintain a stable $1.00 net asset
value pursuant to procedures established by the Board of Trustees in
connection with the amortized cost method of portfolio valuation. The net
asset value for the other seven Funds varies with the value of their
investments. Each Fund determines its net asset value for a particular class
by adding the value of Fund assets attributable to such class, subtracting
the Fund's liabilities attributable to such class, and dividing the result
by the number of shares of that class outstanding.
The Funds determine their net asset value on each day the New York
Stock Exchange is open for business, or any other day as required under the
rules of the Securities and Exchange Commission. The calculation is made as
of the close of regular trading of the New York Stock Exchange (currently
4:00 p.m. Eastern time) after the Fund has declared any applicable
dividends.
MULTIPLE CLASS SYSTEM
SUMMARY
The Trust has adopted a system of multiple classes of shares for
each of the Funds (the "Multiple Class System") consisting of Class A
shares, Class B shares and Institutional Class shares.
Institutional Class shares are offered to Lutheran institutions,
Lutheran church organizations and certain other institutional investors as
may be determined by the Trust from time to time, subject in each case to a
minimum investment in each Fund of $100,000. There is no sales load imposed
in connection with the purchase of Institutional Class shares and such
shares are not subject to any Rule 12b-1 fee or shareholder servicing fee.
Because the sales charges and expenses vary between the Class A and B shares
and Institutional Class shares, performance will vary will respect to each
class. A copy of the Class A and Class B prospectus may be obtained by
writing LB Securities or by calling toll free (800) 328-4552.
Automatic Conversion of Class A Shares to Institutional Class
Shares.
Class A shares, including any shares received as dividends or
distributions with respect to such shares, will automatically convert to
Institutional Class shares if the shareholder becomes ineligible to hold
Class A shares. Lutheran institutions and Lutheran church organizations with
accounts of at least $100,000 are not eligible to hold Class A shares.
Consequently, any such account in Class A shares would be subject to
automatic conversion to Institutional Class shares. The Fund will provide
such Class A shareholders with prior notice of any such automatic
conversion. Any automatic conversion will take place on the basis of
relative net asset values of the two classes.
RECEIVING YOUR ORDER
Shares of the Funds are issued on days on which the New York Stock
Exchange is open. The net asset value of the shares you are buying will be
determined at the close of the regular trading session of the New York Stock
Exchange after your order is received.
Your order will be considered received when your check or other
payment is received in good order by the home office of LB Securities. The
Funds reserve the right to reject any purchase request.
CERTIFICATES AND STATEMENTS
As transfer agent for the Funds, LB Securities will maintain a share
account for you. Share certificates will not be issued. Systematic
Investment Plan, Systematic Withdrawal Plan and Systematic Exchange Plan
transactions, as well as dividend transactions (including dividends
reinvested to other funds) will be confirmed on the quarterly consolidated
statement. All other transactions will be reported as they occur.
REDEEMING SHARES
One of the advantages of owning shares in The Lutheran Brotherhood
Family of Funds is the rapid access you have to your investment. Once your
request for redemption has been received at the home office of LB
Securities, your shares will be redeemed at the next computed net asset
value on any day on which the New York Stock Exchange is open for business,
or any other day as required under the rules of the Securities and Exchange
Commission. That net asset value may be more or less than the net asset
value at the time you bought the shares.
You may redeem your shares at any time you choose. The redemption
method you choose will determine exactly when you will receive your funds.
All eight Lutheran Brotherhood funds allow you to redeem your
shares:
o in writing;
o through Redeem-by-Phone; or
o through the Fund's systematic withdrawal plan.
WRITTEN REQUESTS
To redeem all or some of your shares, send a written request to:
Lutheran Brotherhood Securities Corp.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Authorized Signature: The signature of an authorized representative
of your institution on the redemption request must be guaranteed by:
o a trust company or commercial bank;
o a savings association;
o a credit union; or
o a securities broker, dealer, exchange, association, or clearing
agency.
The Fund will not accept signatures that are notarized by a notary
public.
Receiving Your Check: Normally, each Fund will mail you a check
within one business day after it receives a proper redemption request, but
in no event more than three days, unless the Fund has not received payment
for the shares to be redeemed. (See "Redemption before Purchase Instruments
Clear.")
REDEEM BY PHONE
If you have completed an Account Features Request, you may redeem
shares with a net asset value of at least $1,000 and have them transmitted
electronically to your commercial bank by the third business day after your
redemption request.
SYSTEMATIC WITHDRAWAL
Shareholders owning or buying shares with a net asset value of at
least $150,000 may order automatic monthly, quarterly, semiannual or annual
redemptions in any amount. The proceeds will be sent to the shareholder or
other designated payee, or may be deposited in the shareholder's commercial
bank, savings bank or credit union.
Income dividends and capital gains distributions will continue to be
reinvested in additional Fund shares. Shares will be redeemed as necessary
to make automatic payments to the shareholder.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the
Funds may redeem shares in any account if the net asset value of
Institutional Class shares in the account falls below $100,000 for all
Funds.
Before shares are redeemed to close an account, the shareholder is
notified in writing and allowed 60 days to purchase additional shares.
Shares will not be redeemed if the account's value drops below the minimum
only because of market fluctuations.
BACKUP WITHHOLDING
When you sign your account application you will be asked to certify
that your social security or taxpayer identification number is correct and
that you are not subject to 31% backup withholding for failure to report
income to the IRS. If you violate IRS regulations, the IRS can generally
require the Funds to withhold 31% of your taxable distributions and
redemptions.
FOR MORE INFORMATION
For more information about the Fund or your shares, see your LB
Securities representative or call toll-free (800) 328-4552.
DIVIDENDS AND CAPITAL GAINS
DIVIDENDS
Each Fund declares and pays dividends from net income at regular
intervals. LB High Yield Fund, LB Income Fund, and LB Municipal Bond Fund
declare and pay dividends monthly. LB Fund declares and pays dividends
quarterly. LB Opportunity Growth Fund, LB Mid Cap Growth Fund and LB World
Growth Fund each declare and pay dividends annually in years that the
relevant Fund has accumulated enough net income to require the payment of a
dividend. LB Money Market Fund declares dividends daily and pays accumulated
dividends monthly.
Unless you ask to receive all or a portion of your dividends in
cash, they will automatically be reinvested in shares of the Fund. You may
also choose to have your dividends reinvested into an existing account in
another Fund within The Lutheran Brotherhood Family of Funds. On the
dividend payable date, your dividend will be invested in the designated Fund
account at net asset value. In order to receive your dividends in cash, you
must notify LB Securities in writing or indicate this choice in the
appropriate place on your account application. Your request to receive all
or a portion of your dividends and other distributions in cash must be
received by LB Securities at least ten days before the record date of the
dividend or other distribution.
STATEMENTS
You will receive quarterly statements of dividends and capital gains
paid the previous quarter.
CAPITAL GAINS
The Funds distribute their realized gains in accordance with federal
tax regulations. Distributions from any net realized capital gains will
usually be declared in December.
TAXES
As with any investment, you should consider the tax implications of
an investment in the Funds. The following discussion is only a short summary
of the important tax considerations generally affecting the Funds and their
shareholders. In particular, the following discussion does not address the
taxation of foreign shareholders in the Funds. You should consult with your
tax advisor with specific reference to your own tax situation.
FUNDS' TAX STATUS
The Funds expect to pay no federal income tax because they intend to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to receive the special tax treatment afforded to
such companies.
SHAREHOLDERS' TAX POSITION
Except for dividends you receive from LB Municipal Bond Fund, unless
you are otherwise exempt, you will be required to pay federal income tax on
any dividends and other distribution that you receive. This applies whether
you receive dividends or distributions in cash or as additional shares. To
the extent any of the Funds earn interest from U.S. Government obligations,
a number of states may allow pass-through treatment and permit shareholders
to exclude a portion of their dividends from state income tax. For corporate
shareholders, dividends paid to shareholders may qualify for the 70%
dividends received deduction to the extent the Fund earns dividend income
from domestic corporations. The Funds will mail annually to each shareholder
advice as to the tax status of each year's dividends and distributions.
You will not be required to pay federal income tax on the automatic
conversion of Class A shares to Institutional Class shares that occurs when
the shareholder is no longer eligible to hold Class A shares.
You will not be required to pay federal income tax on any LB
Municipal Bond Fund dividends you receive which represent net interest
received on tax-exempt municipal bonds. The portion of that Fund's
distributions representing net interest income from taxable temporary
investments, market discount on tax-exempt municipal bonds, and net short-
term capital gains realized by the Fund, if any, will be taxable to
shareholders as ordinary income. Most of that Fund's income is expected to
be free of federal income tax. This applies whether you receive dividends in
cash or as additional shares. The Fund's income, however, is not necessarily
free from state income taxes. State laws differ on this issue and
shareholders are advised to consult their own tax advisers. The Fund will
provide to shareholders an annual breakdown of the percentage of its income
from each state. Information on the tax status of dividends will be provided
annually. You should also note that income that is not subject to federal
income tax may nonetheless have to be considered along with other adjusted
gross income in determining whether any Social Security payments received by
you are subject to federal income tax. If the LB Municipal Bond Fund holds
certain "private activity bonds" issued after August 7, 1986, shareholders
will need to include as an item of tax preference for purposes of the
federal alternative minimum tax that portion of the dividends paid by that
Fund derived from interest received on such bonds. The maximum federal
alternative minimum tax rate is 28% for individuals. In addition,
corporations will need to take into account all exempt-interest dividends
paid by that Fund in determining certain adjustments for the federal
alternative minimum tax and the environmental tax.
Dividends and certain interest income earned by a Fund from foreign
securities may be subject to foreign withholding taxes or other income
taxes. In the event that more than 50% of the value of a Fund's total assets
at the close of its taxable year consists of stock or securities in foreign
corporations, a Fund may elect, for U.S. income tax purposes, to treat
certain foreign taxes paid by it as paid by its shareholders. Should a Fund
make that election, a pro rata portion of such foreign taxes paid by the
Fund will constitute income to you (in addition to taxable dividends
actually received by you), and you may be entitled to claim an offsetting
tax credit or itemized deduction for that amount of foreign taxes.
For federal income tax purposes, all dividends paid by the Fund that
are derived from taxable net investment income and net short-term capital
gains are taxable as ordinary income whether reinvested or received in cash
unless you are exempt from taxation or entitled to tax deferral.
Distributions paid by the Fund from net long-term capital gains (including
such distributions paid by the LB Municipal Bond Fund), whether received in
cash or reinvested in additional shares, are taxable as long-term capital
gain. The capital gain holding period for this purpose is determined by the
length of time the Fund has held the security and not the length of time you
have held shares in the Fund. For non-corporate taxpayers, however, net
capital gains (i.e., the excess of net long-term capital gain over net
short-term capital loss) will be taxed at a maximum marginal rate of 28%.
The Taxpayer Relief Act of 1997 (the "Act") alters the taxation of
net capital gain income. Under the Act, individuals, trusts and estates that
hold capital investments for more than 18 months may be taxed at a maximum
long-term capital gain rate of 20% on the sale or exchange of those
investments. Individuals, trusts and estates that hold certain assets for
more than 12 months but not more than 18 months may be taxed at a maximum
mid-term capital gain rate of 28% on the sale or exchange of those
investments. Net short-term capital gains remain taxable as ordinary income.
The Act allows the Internal Revenue Service to prescribe regulations on how
the Act's new capital gain rates will apply to sales of capital assets by
"pass-thru entities," which include regulated investment companies such as
the Funds. To date regulations have not yet been prescribed, and it remains
unclear how the Act's new rates will apply to capital gain dividends or
undistributed capital gains, including for example the extent, if any, to
which capital gain dividends or undistributed capital gains from the Funds
will be taxed to individuals at the new rates for mid-term capital gains
rather than the long-term capital gain rates. Investors are urged to consult
their own tax advisors with respect to the new rules contained in the Act.
FUND PERFORMANCE
From time to time, quotations of the Funds' performance in terms of
yield or total return may be included in advertisements, sales literature,
or shareholder reports. Total return and yield information for the Funds are
computed separately for each class of shares of the Funds. Any variations in
shareholder servicing fees, Rule 12b-1 fees or sales charges among the
classes offered now or in the future by the Funds will have an impact on
such performance data. Shares of the Funds had no class designations until
October 31, 1997 when designations were assigned based upon the sales
charges, Rule 12b-1 fees and shareholder servicing fees. Institutional Class
shares are not currently subject to such sales charges, Rule 12b-1 fees or
shareholder servicing fees. All performance figures are based on historical
results and are not intended to indicate future performance. Performance
data or rankings for a given class of shares should be interpreted carefully
by investors who hold or may invest in a different class of shares.
"Total returns" are based on the change in value of an investment in
a Fund for a specified period. "Average annual total return" is the average
annual compounded rate of return of an investment in a Fund at the maximum
public offering price, if applicable, assuming the investment has been held
for one year, five years and ten years as of a stated ending date. (If the
Fund has not been in operation for at least ten years, the life of the Fund
will be used where applicable.) Average annual return quotations assume a
constant rate of growth. Actual performance fluctuates and will vary from
the quoted results for periods of time within the quoted periods.
"Cumulative total return" represents the cumulative change in value of an
investment in a Fund over a stated period. Average annual total return may
be accompanied with nonstandard total return information computed in the
same manner, but for differing periods and with or without annualizing the
total return or taking sales charges into account. These calculations assume
that all dividends and capital gains distributions during the period were
reinvested in shares of a Fund.
The yield of the LB High Yield Fund, LB Income Fund, LB Municipal
Bond Fund and LB Money Market Fund refers to the income generated by an
investment in the Fund. A Fund's yield is computed by dividing the net
investment income, after recognition of all recurring charges, per share
earned during the most recent month or other specified 30-day period by the
applicable maximum offering price per share on the last day of such period
and annualizing the result. The yield of the LB Money Market Fund refers to
the income generated by an investment in that Fund over a specified seven-
day period. The LB Municipal Bond Fund's tax-equivalent yield is a
hypothetical current yield that the Fund's actual current yield is
comparable to when the shareholder is assumed to pay federal income tax on
the entire hypothetical yield at a specific tax rate. Yields for a Fund are
expressed as annualized percentages. The "effective yield" of the LB Money
Market Fund is expressed similarly but, when annualized, the income earned
by an investment in that Fund is assumed to be reinvested and will reflect
the effects of compounding.
The average annual total return and yield results take sales charges
into account, if applicable, but do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders
elect and which involve nominal fees. Where sale charges are not applicable
and therefore not taken into account in the calculation of average annual
total return and yield, the results will be increased. Any voluntary waiver
of fees or assumption of expenses will also increase performance results.
The Funds' performance reported from time to time in advertisements
and sales literature may be compared to generally accepted indices or
analyses such as those provided by Lipper Analytical Service, Inc., Standard
& Poor's and Dow Jones. Performance ratings reported periodically in
financial publications such as "Money Magazine", "Forbes", "Business Week",
"Fortune", "Financial Planning" and the "Wall Street" Journal will be used.
In addition, subject to applicable law and regulations, the Funds may refer
to performance ratings reported by Lipper Analytical Services, and other
organizations, that reflects performance data for periods prior to the
introduction of the current class designations and periods after such
designations went into effect.
THE FUNDS AND THEIR SHARES
All the Funds in The Lutheran Brotherhood Family of Funds, except
the LB World Growth Fund and LB Mid Cap Growth Fund, were organized in 1993
as series of The Lutheran Brotherhood Family of Funds, a Delaware business
trust. Each of those Funds is the successor to a fund of the same name that
previously operated as a separate corporation or trust pursuant to a
reorganization that was effective as of November 1, 1993. The LB World
Growth Fund and LB Mid Cap Growth Fund began operating as a series of the LB
Family of Funds on September 5, 1995 and May 30, 1997, respectively. The
fiscal year end of the Trust and each Fund is October 31. Prior to October
31, 1997, the shares of the Funds had no specific class designations. As of
that date, Class A, Class B and Institutional Class shares were authorized
by the Board of Trustees of the Trust. The Trust has reserved the right to
create other classes of shares in the future.
The rights of holders of shares may be modified by the Trustees at
any time, so long as such modifications do not have a material, adverse
effect on the rights of any shareholder. On any matter submitted to the
shareholders, the holder of each Fund share is entitled to one vote per
share (with proportionate voting for fractional shares) regardless of the
relative net asset value thereof.
Shares of a Fund when issued are fully and nonassessable by the
Trust. Shares of Fund represent an identical interest in the same portfolio
of investments of the Fund and have the same rights, privileges and
preferences, except with respect to: (a) the designation of each class; (b)
the sales charge applicable to each class; (c) the Rule 12b-1 distribution
fees and shareholder servicing fees borne by each class; (d) the expenses
allocable exclusively to each class, if any; and (e) voting rights on
matters exclusively affecting a single class. The differences in fees and
expenses borne by each class will result in different net asset values
(except for LB Money Market Fund) and dividends for the classes. Each share
has one vote (with proportionate voting for fractional shares) irrespective
of net asset value. The Board of Trustees authorized the creation of such
shares by adopting a Multiple Class Plan pursuant to Rule 18f-3 of the 1940
Act. Rule 18f-3 and the Trust's Master Trust Agreement require shareholders
of specific classes of shares to vote on certain matters on a class-by-class
basis. The Trust has reserved the right to create other classes of shares in
the future.
Under the Trust's Master Trust Agreement, no annual or regular
meeting of shareholders is required. Thus, there will ordinarily be no
shareholder meetings unless required by the Investment Company Act of 1940.
The Trustees may fill vacancies on the Board or appoint new Trustees
provided that immediately after such action at least two-thirds of the
Trustees have been elected by shareholders. Under the Master Trust
Agreement, any Trustee may be removed by vote of two-thirds of the
outstanding Trust shares or by three-fourths of the Trustees; holders of 10%
or more of the outstanding shares of the Trust can require that the Trustees
call a meeting of shareholders for purposes of voting on the removal of one
or more Trustees. In connection with such meetings called by shareholders,
the relevant Fund or Funds will assist shareholders in shareholder
communications.
FUND MANAGEMENT
BOARD OF TRUSTEES
The Board of Trustees of the Trust is responsible for the management
and supervision of the Funds' business affairs and for exercising all powers
except those reserved to the shareholders.
INVESTMENT ADVISER
Investment decisions for each of the Funds, except the LB World
Growth Fund, are made by LB Research, subject to the overall direction of
the Board of Trustees. LB Research provides investment research and
supervision of the Funds' investments and conducts a continuous program of
investment evaluation and appropriate disposition and reinvestment of the
Funds' assets. LB Research assumes the expense of providing the personnel to
perform its advisory functions. Lutheran Brotherhood, the indirect parent
company of LB Research, also serves as the investment adviser for LB Series
Fund, Inc.
James M. Walline, Vice President of LB Research and Vice President
of the Funds has been the portfolio manager of LB Fund since October 31,
1994. Mr. Walline has been with LB Research since 1969.
Brian L. Thorkelson, Assistant Vice President of LB Research, serves
as the portfolio manager of LB Mid Cap Growth Fund. Mr. Thorkelson has been
with LB Research since 1989, previously serving as a securities analyst for
LB Research and Lutheran Brotherhood.
Paul J. Ocenasek, Assistant Vice President of LB Research, serves as
the portfolio manager of LB High Yield Fund. Mr. Ocenasek joined LB Research
in 1987, previously serving as a fixed-income analyst and bond portfolio
manager
Charles E. Heeren, Vice President of LB Research, and Michael G.
Landreville, Assistant Vice President of LB Research, serve as portfolio co-
managers of LB Income Fund. Mr. Heeren has served as manager of the Fund
since 1987 and has been with LB Research since 1976. Mr. Landreville has
served as co-manager of the Fund since January 1, 1998, and has been with LB
Research since 1983.
Janet I. Grangaard, Assistant Vice President of LB Research, has
been portfolio manager of LB Municipal Bond Fund since January 1, 1994.
Prior to that time she served as associate portfolio manager of that Fund.
Ms. Grangaard has been with LB Research since 1988.
Gail R. Onan, Assistant Vice President of LB Research, has been the
portfolio manager of LB Money Market Fund since January 1, 1994. Prior to
that time she served as associate portfolio manager of that Fund. Ms. Onan
has been with LB Research since 1986.
LB Research has engaged T. Rowe Price Associates, Inc. ("T. Rowe
Price") as investment sub-advisor for Lutheran Brotherhood Opportunity
Growth Fund. T. Rowe Price was founded in 1937 and has its principal offices
in Baltimore, Maryland. As of December 31, 1997, T. Rowe Price and its
affiliates managed over $124 billion. Richard T. Whitney, Managing Director
of T. Rowe Price, is primarily responsible for day-to-day management of the
Opportunity Growth Portfolio and developing and executing the Portfolio's
investment program.
T. Rowe Price has an Investment Advisory Committee for the Opportunity
Growth Fund composed of the following members: Richard T. Whitney,
Chairman, Marc L. Baylin, Kristin F. Culp, John H. Laporte, and Donald J.
Peters. The committee chairman has day-to-day responsibility for managing
the portfolio and works with the committee in developing and executing the
portfolio's investment program. Mr. Whitney is chairman of the portfolio's
committee. Mr Whitney joined T. Rowe Price in 1985 and has been managing
investments since 1986.
LB Research has engaged Rowe Price-Fleming International, Inc.
("Price-Fleming") as investment sub-advisor for Lutheran Brotherhood World
Growth Fund. Price-Fleming was founded in 1979 as a joint venture between T.
Rowe Price and Robert Fleming Holdings Limited ("Flemings"). The common
stock of Price-Fleming is 50% owned by a wholly-owned subsidiary of T. Rowe
Price, 25% by a subsidiary of Flemings and 25% by Jardine Fleming Group
Limited ("Jardine Fleming"). (Half of Jardine Fleming is owned by Flemings
and half by Jardine Matheson Holdings Limited.) T. Rowe Price has the right
to elect a majority of the board of directors of Price-Fleming, and Flemings
has the right to elect the remaining directors, one of whom will be
nominated by Jardine Fleming.
Price-Fleming is one of the world's largest international mutual fund
asset managers with the U.S. equivalent of approximately $30 billion under
management as of October 31, 1997 in its offices in Baltimore, London,
Tokyo, Singapore, Hong Kong, and Buenos Aires. Price-Fleming has an
investment advisory group that has day-to-day responsibility for managing
the Fund and developing and executing the Fund's investment program. The
members of the advisory group are listed below:
Martin G. Wade, Mark J.T. Edwards, John R. Ford, James B.M. Seddon,
Mark Bickford-Smith, and David J.L. Warren.
Martin Wade joined Price-Fleming in 1979 and has 29 years of
experience with the Fleming Group in research, client service and investment
management, including assignments in the Far East and the United States.
(Fleming Group includes Flemings and/or Jardine Fleming.)
Mark Edwards joined Price-Fleming in 1987 and has 16 years of
experience in financial analysis, including three years in Fleming European
research. John Ford joined Price-Fleming in 1982 and has 18 years of
experience with Fleming Group in research and portfolio management,
including assignments in the Far East and the United States. James Seddon
joined Price-Fleming in 1987 and has 11 years of experience in investment
management. Mark Bickford-Smith joined Price-Fleming in 1995 and has 13
years of experience with the Fleming Group in research and financial
analysis. David Warren joined Price-Fleming in 1983 and has 17 years
experience in equity research, fixed income research and portfolio
management.
LB Research, T. Rowe Price, and Price-Fleming personnel may invest in
securities for their own account pursuant to a code of ethics that
establishes procedures for personal investing and restricts certain
transactions.
The Trust and its Adviser have conducted a review of their computer
systems to identify the internal systems that could be affected by the "Year
2000" problem and are developing an implementation plan to resolve the
issue. The Year 2000 problem is the result of computer programs being
written using two digits (rather than four) to define the applicable year.
Any of the Trust's and its Adviser's computer programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Trust and its Adviser presently believe that, with
modifications to existing software and conversions to new software, the Year
2000 problem will not pose significant operational problems for their
computer systems as so modified and converted. However, if such
modifications and conversions are not completed timely, the Year 2000
problem may have a material impact on the operations of the Trust and its
Adviser. The Year 2000 readiness of other third parties whose system
failures could have an impact on the Trust's and its Adviser's operations is
currently being evaluated. The potential materiality of any such impact is
not known at this time.
LB Research receives an annual investment advisory fee from each
Fund. The advisory contract between LB Research and the Trust provides for
the following advisory fees: LB Opportunity Growth Fund pays an advisory fee
equal to .75% of average daily net assets up to $100 million, .65% of
average daily net assets over $100 million but not over $250 million, .60%
of average daily net assets over $250 million but not over $500 million,
.55% of average daily net assets over $500 million but not over $1 billion,
and .50% of average daily net assets over $1 billion. LB Mid Cap Growth Fund
pays an advisory fee equal to .70% of average daily net assets up to $100
million, .65% of average daily net assets over $100 million but not over
$250 million, .60 % of average daily net assets over $250 million but not
over $500 million, .55% of average daily net assets over $500 million but
not over $1 billion and .50% of average daily net assets over $1 billion. LB
World Growth Fund pays and advisory fee equal to 1.25% of average daily net
assets up to $20 million, 1.10% of average daily net assets over $20 million
but not over $50 million, and 1.00% of average daily net assets over $50
million. LB Fund pays an advisory fee equal to .65% of average daily net
assets of $500 million or less, .60% of average daily net assets over $500
million but not over $1 billion, and .55% of average daily net assets over
$1 billion. LB High Yield Fund pays an advisory fee equal to .65% of average
daily net assets of $500 million or less, .60% of average daily net assets
over $500 million but not over $1 billion, and .55% of average daily assets
over $1 billion. LB Income Fund pays an advisory fee equal to .60% of
average daily net assets of $500 million or less, .575% of average daily net
assets over $500 million but not over $1 billion, and .55% of average daily
net assets over $1 billion. LB Municipal Bond Fund pays an advisory fee
equal to .575% of average daily net assets of $500 million or less, .5625%
of average daily net assets over $500 million but not over $1 billion, and
.55% of average daily net assets over $1 billion. LB Money Market Fund pays
an advisory fee equal to .50% of average daily net assets of $500 million or
less, .475% of average daily net assets on the next $500 million of average
daily net assets, .45% of average daily net assets on the next $500 million
of average daily net assets, .425% of average daily net assets on the next
$500 million of average daily net assets, and .40% of average daily net
assets over $2 billion.
Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee for each of the Funds equal
to .25% of the average daily net assets of the Fund. This .25% waiver
applies to the contractual rates of compensation in the previous paragraph
at each level of average daily net assets.
During the most recent fiscal year of each Fund, LB Research
received fees amounting to the following percentages of each Fund's average
daily net assets:
LB Opportunity Growth Fund 0.68%
LB Mid Cap Growth Fund* 0.46%
LB World Growth Fund 1.00%
LB Fund** 0.59%
LB High Yield Fund** 0.59%
LB Income Fund** 0.55%
LB Municipal Bond Fund** 0.53%
LB Money Market Fund*** 0.40%
- ------------
* After giving effect to a fee waiver of 0.24%.
** After giving effect to a fee waiver of 0.04%.
*** After giving effect to a fee waiver of 0.10%.
LB Research pays T. Rowe Price an annual sub-advisory fee for the
performance of sub-advisory services for the LB Opportunity Growth Fund.
The fee payable is equal to .30% of that Fund's average daily net assets up
to $500 million, .25% of that Fund's average daily net assets over $500
million but not over $1 billion, and .20% of that Fund's average daily net
assets over $1 billion.
LB Research pays Price-Fleming an annual sub-advisory fee for the
performance of sub-advisory services for the LB World Growth Fund. The fee
payable is equal to a percentage of that Fund's average daily net assets.
The percentage decreases as the Fund's assets increase. For purposes of
determining the percentage level of the sub-advisory fee for the Fund, the
assets of the Fund are combined with the assets of the LB Series Fund, Inc.
World Growth Portfolio, another fund with investment objectives and policies
that are similar to the LB World Growth Fund and for which Price-Fleming
also provides sub-advisory services. The sub-advisory fee LB Research pays
Price-Fleming is equal to the LB World Growth Fund's pro rata share of the
combined assets of the Fund and the LB Series Fund, Inc. World Growth
Portfolio and is equal to .75% of combined average daily net assets up to
$20 million, .60% of combined average daily net assets over $20 million but
not over $50 million, and .50% of combined average daily net assets over $50
million. When the combined assets of the LB World Growth Fund and the LB
Series Fund, Inc. World Growth Portfolio exceed $200 million, the sub-
advisory fee for the LB World Growth Fund is equal to .50% of all of the
Fund's average daily net assets. Price-Fleming has agreed to waive its fees
so that when the combined assets of the LB World Growth Fund and The LB
Series Fund, Inc. World Growth Portfolio exceed $500 million, the sub-
advisory fee for the LB World Growth Fund is equal to .45% of all the Fund's
average daily net assets. At October 31, 1997 the combined assets of LB
World Growth Fund and World Growth Portfolio totaled $351.0 million.
LB Research has further undertaken, until October 31, 1998 and
thereafter until further notice to 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
the Class A shares and Class B shares to an annual rate of 1.95% and 2.70%,
respectively, of the average daily net assets of the Fund.
LB Research has further undertaken, until October 31, 1998 and
thereafter until further notice to 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 and Class B shares to 0.95% of the average net
assets of each class.
Effective January 1, 1997, LB Research has also voluntarily agreed to
waive 5 basis points (0.05%) from the advisory fees payable by the LB Fund,
LB High Yield Fund, LB Income Fund, and LB Municipal Bond Fund. These
voluntary partial waivers of advisory fees may be discontinued at any time.
FUND ADMINISTRATION
ADMINISTRATIVE SERVICES
LB Securities, the Funds' distributor, provides administrative
personnel and services necessary to operate the Funds on a daily basis at
for a fee equal to 0.02 percent of each Fund's daily net assets.
During the fiscal year ended October 31, 1997, the Funds paid the
following amounts to LB Securities for administrative services:
LB Opportunity Growth Fund $55,875
LB Mid Cap Growth Fund $617
LB World Growth Fund $13,826
LB Fund $184,583
LB High Yield Fund $158,365
LB Income Fund $166,209
LB Municipal Bond Fund $122,078
LB Money Market Fund $90,172
CUSTODIAN
State Street Bank ("State Street Bank") is custodian of the Funds'
cash and securities.
TRANSFER AGENT
LB Securities serves as transfer agent for the Funds, with the
assistance of Norwest Bank Minnesota, N.A., respecting cash transactions.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP is the independent accountants for the Funds.
DESCRIPTION OF DEBT RATINGS
Moody's Investors Service, Inc. describes grades of corporate debt
securities and "Prime-1" and "Prime-2" commercial paper as follows:
BONDS:
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged". Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
COMMERCIAL PAPER:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return of funds employed.
o Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
o Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of senior short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earning trends and coverage ratios, while sound,
will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's Corporation describes grades of corporate debt
securities and "A" commercial paper as follows:
BONDS:
AAA Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher rated categories. However, the obligor's capacity to meet
its financial commitments on the obligation is still strong.
BBB Debt rated BBB exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial
commitments on the obligation in this category than in higher rated
categories.
BB Debt rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity of the obligor to meet its
financial commitments on the obligation. The BB rating category is
also used for debt subordinated to senior debt that is assigned an
actual or implied BBB-rating.
B Debt rated B is more vulnerable to nonpayment but currently has the
capacity to meet its financial commitments on the obligation.
Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial
commitments on the obligation.
The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC is vulnerable to nonpayment, and is dependent upon
favorable business, financial, and economic conditions for the
obligor to meet its financial commitments on the obligation. In the
event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitments on the obligation.
The CCC rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied B or B- rating.
CC The rating CC typically is currently highly vulnerable to
nonpayment.
C The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken but payments on the
obligation are being continued.
D Debt rated D is in payment default. The D rating category is used
when payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition or the taking
of similar action if payments on the obligation are jeopardized.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
The investor should exercise judgment with respect to such likelihood and
risk.
Commercial Paper: Commercial paper rated A by Standard & Poor's
Corporation has the following characteristics: liquidity ratios are better
than the industry average; long-term senior debt rating is "A" or better
(however, in some cases a "BBB" long-term rating may be acceptable); the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowances made for unusual
circumstances. Also, the issuer's industry typically is well established,
the issuer has a strong position within its industry and the reliability and
quality of management is unquestioned. Issuers rated A are further referred
to by use of numbers 1, 2 and 3 to denote relative strength within this
classification.
HOW TO INVEST
o Complete and sign the General Application
o Enclose a check made payable to The Lutheran Brotherhood
Family of Funds:
o Mail your application and check to:
Lutheran Brotherhood Securities Corp.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
ADDRESSES
Lutheran Brotherhood
Lutheran Brotherhood Research Corp.
Lutheran Brotherhood Securities Corp.
The Lutheran Brotherhood Family of Funds
625 Fourth Avenue South
Minneapolis, Minnesota 55415
State Street Bank
P.O. Box 1591
Boston, Massachusetts 02104
Norwest Bank Minnesota, N.A.
Sixth & Marquette Avenue
Minneapolis, Minnesota 55402
Price Waterhouse LLP
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, Minnesota 55402
<PAGE>
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
LUTHERAN BROTHERHOOD WORLD GROWTH FUND
LUTHERAN BROTHERHOOD FUND
LUTHERAN BROTHERHOOD HIGH YIELD FUND
LUTHERAN BROTHERHOOD INCOME FUND
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
LUTHERAN BROTHERHOOD MONEY MARKET FUND
SERIES OF
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MAY 15, 1998
TABLE OF CONTENTS
Page
Investment Policies and Restrictions.....................................
Additional Information Concerning Certain Investment Techniques..........
Fund Management..........................................................
Investment Advisory Services.............................................
Administrative Services..................................................
Distribution and Shareholder Services....................................
Brokerage Transactions...................................................
Code of Ethics...........................................................
Purchasing Shares........................................................
Sales Charges............................................................
Net Asset Value..........................................................
Redeeming Shares.........................................................
Tax Status...............................................................
General Information......................................................
Calculation of Performance Data..........................................
Report of Independent Public Accountants and Financial Statements........
The Lutheran Brotherhood Family of Funds (the "Trust") offers eight
Funds, each of which offer three classes of shares: Class A, Class B and
Institutional Class shares. Class A and B shares are offered through a
combined prospectus and Institutional Class shares are offered through a
separate prospectus. Each such prospectus is referred to hereinafter as a
"prospectus". This Statement of Additional Information should be read in
conjunction with the prospectus dated May 15, 1998 for the applicable class
of the Lutheran Brotherhood Opportunity Growth Fund ("LB Opportunity Growth
Fund"), Lutheran Brotherhood Mid Cap Growth Fund ("LB Mid Cap Growth Fund"),
Lutheran Brotherhood World Growth Fund ("LB World Growth Fund"), Lutheran
Brotherhood Fund ("LB Fund"), Lutheran Brotherhood High Yield Fund ("LB High
Yield Fund"), Lutheran Brotherhood Income Fund ("LB Income Fund"), Lutheran
Brotherhood Municipal Bond Fund ("LB Municipal Bond Fund") and Lutheran
Brotherhood Money Market Fund ("LB Money Market Fund") series of The
Lutheran Brotherhood Family of Funds (the "Trust"). This Statement is not a
prospectus itself. To receive a copy of either prospectus, write to Lutheran
Brotherhood Securities Corp., 625 Fourth Avenue South, Minneapolis,
Minnesota 55415 or call toll-free (800) 328-4552.
FOR MORE INFORMATION, CALL TOLL-FREE
(800) 328-4552
INVESTMENT POLICIES AND RESTRICTIONS
As set forth in part under "Investment Limitations" in the Fund's
Prospectus, the Fund has adopted certain fundamental and nonfundamental
investment policies.
The fundamental investment restrictions for the Fund are set forth
below. These fundamental investment restrictions may not be changed by a
Fund except by the affirmative vote of a majority of the outstanding voting
securities of that Fund as defined in the Investment Company Act of 1940.
(Under the Investment Company Act of 1940, a "vote of the majority of the
outstanding voting securities" means the vote, at a meeting of security
holders duly called, (i) of 67% or more of the voting securities present at
a meeting if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (ii) of more than 50% of
the outstanding voting securities, whichever is less (a "1940 Act Majority
Vote"). Under these restrictions, with respect to each Fund:
(1) The Fund may not borrow money, except that the Fund may
borrow money (through the issuance of debt securities or
otherwise) in an amount not exceeding one-third of the Fund's
total assets immediately after the time of such borrowing.
(2) The Fund may not purchase or sell commodities or commodity
contracts, except that the Fund may invest in financial
futures contracts, options thereon and similar instruments.
(3) The Fund may not purchase or sell real estate unless acquired
as a result of ownership of securities or other instruments,
except that the Fund may invest in securities or other
instruments backed by real estate or securities of companies
engaged in the real estate business or that invest or deal in
real estate.
(4) The Fund may not engage in underwriting or agency
distribution of securities issued by others; provided,
however, that this restriction shall not be construed to
prevent or limit in any manner the power of the Fund to
purchase and resell restricted securities or securities for
investment.
(5) The Fund may not lend any of its assets except portfolio
securities. The purchase of corporate or U.S. or foreign
governmental bonds, debentures, notes, certificates of
indebtedness, repurchase agreements or other debt securities
of an issuer permitted by the Fund's investment objective and
policies will not be considered a loan for purposes of this
limitation.
(6) The Fund may not with respect to 75% of its total assets,
purchase the securities of any issuer (except Government
Securities, as such term is defined in the Investment Company
Act of 1940) if, as a result, the Fund would own more than
10% of the outstanding voting securities of such issuer or
the Fund would have more than 5% of its total assets invested
in the securities of such issuer.
(7) The Fund may not issue senior securities, except as permitted
under the Investment Company Act of 1940 or any exemptive
order or rule issued by the Securities and Exchange
Commission.
(8) The Fund may, notwithstanding any other fundamental
investment policy or limitation, invest all of its assets in
the securities of a single open-end management investment
company with substantially the same fundamental investment
objectives, policies, and limitations as the Fund.
(9) The Fund may not invest in a security if the transaction
would result in 25% or more of the Fund's total assets being
invested in any one industry. This restriction does not apply
to the LB Municipal Bond Fund.
The following nonfundamental investment restrictions may be changed
without shareholder approval. Under these restrictions, with respect to the
Fund:
(1) The Fund may not purchase securities on margin or sell
securities short, except that the Fund may obtain short-term
credits necessary for the clearance of securities
transactions and make short sales against the box. The
deposit or repayment of initial or variation margin in
connection with financial futures contracts or related
options will not be deemed to be a purchase of securities on
margin.
(2) The Fund may not purchase or sell interests in oil, gas and
other mineral exploration or development programs or leases,
although it may invest in securities of companies that do.
(3) The Fund may not purchase the securities of any issuer (other
than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a
result, more than 5% of the value of its total assets would
be invested in the securities of business enterprises (which
does not include issuers of asset-backed securities) that,
including predecessors, have a record of less than three
years of continuous operations. This restriction does not
apply to the LB Opportunity Growth Fund.
(4) The Fund may not purchase or retain the securities of any
issuer if the officers and Trustees of the Fund or its
investment adviser owning individually more than 1/2 of 1% of
the issuer's securities together own more than 5% of the
issuer's securities.
(5) The Fund may not invest in securities of other investment
companies, except to the extent permitted under the
Investment Company Act of 1940 or except by purchases in the
open market involving only customary brokers' commissions, or
securities acquired as dividends or distributions or in
connection with a merger, consolidation or similar
transaction or other exchange.
(6) The Fund may not invest in warrants, if at the time of such
investment (a) more than 5% of the value of the Fund's total
assets would be invested in warrants or (b) more than 2% of
the value of the Fund's total assets would be invested in
warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange, or in the case of the LB
World Growth Fund, warrants not listed on major foreign
exchanges, (and for this purpose, warrants attached to
securities will be deemed to have no value).
(7) The LB Money Market Fund may not write, purchase, or sell
puts, calls, or any combination of puts and calls.
(8) The LB Opportunity Growth Fund, LB Mid Cap Growth Fund, LB
World Growth Fund, LB Fund, LB High Yield Fund, LB Income
Fund, and LB Municipal Bond Fund may not invest more than 15%
of its net assets in illiquid securities, including
repurchase agreements maturing in more than seven days. The
LB Money Market Fund may not invest more than 10% of its net
assets in illiquid securities, including repurchase
agreements maturing in more than seven days.
(9) The Fund will not purchase any security while borrowings,
including reverse repurchase agreements, representing more
than 5% of the Fund's total assets are outstanding.
(10) The LB Mid Cap Growth Fund may not write put options but may
write covered call options and purchase put and call options.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
Some of the investment instruments, techniques and methods which may
be used by each Fund to aid in achieving its investment objective, and the
risks attendant thereto, are described below. Other risk factors and
investment methods may be described in the "Investment Objectives and
Policies" and "Investment Risks" sections of the Funds' Prospectus.
SHORT SALES AGAINST THE BOX
The Funds may effect short sales, but only if such transactions are
short sale transactions known as short sales "against the box". A short sale
is a transaction in which a Fund sells a security it does not own by
borrowing it from a broker, and consequently becomes obligated to replace
that security. A short sale against the box is a short sale where a Fund
owns the security sold short or has an immediate and unconditional right to
acquire that security without additional cash consideration upon conversion,
exercise or exchange of options with respect to securities held in its
portfolio. The effect of selling a security short against the box is to
insulate that security against any future gain or loss.
FOREIGN FUTURES AND OPTIONS
Participation in foreign futures and foreign options transactions
involves the execution and clearing of trades on or subject to the rules of
a foreign board of trade. Neither the National Futures Association nor any
domestic exchange regulates activities of any foreign boards of trade,
including the execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked
to a domestic market so that a position taken on the market may be
liquidated by a transaction on another market. Moreover, such laws or
regulations will vary depending on the foreign country in which the foreign
futures or foreign options transaction occurs. For these reasons, customers
who trade foreign futures or foreign options contracts may not be afforded
certain of the protective measures provided by the Commodity Exchange Act,
the CFTC's regulations and the rules of the National Futures Association and
any domestic exchange, including the right to use reparations proceedings
before the Commission and arbitration proceedings provided by the National
Futures Association or any domestic futures exchange. In particular, funds
received from customers for foreign futures or foreign options transactions
may not be provided the same protections as funds received in respect of
transactions on United States futures exchanges. In addition, the price of
any foreign futures or foreign options contract and, therefore, the
potential profit and loss thereon may be affected by any variance in the
foreign exchange rate between the time your order is placed and the time it
is liquidated, offset or exercised.
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
Foreign Currency Warrants. Foreign currency warrants are warrants
which entitle the holder to receive from their issuer an amount of cash
(generally, for warrants issued in the United States, in U.S. dollars) which
is calculated pursuant to a predetermined formula and based on the exchange
rate between a specified foreign currency and the U.S. dollar as of the
exercise date of the warrant. Foreign currency warrants generally are
exercisable upon their issuance and expire as of a specified date and time.
Foreign currency warrants have been issued in connection with U.S. dollar-
denominated debt offerings by major corporate issuers in an attempt to
reduce the foreign currency exchange risk which, from the point of view of
prospective purchasers of the securities, is inherent in the international
fixed-income marketplace. Foreign currency warrants may attempt to reduce
the foreign exchange risk assumed by purchasers of a security by, for
example, providing for a supplemental payment in the event that the U.S.
dollar depreciates against the value of a major foreign currency such as the
Japanese Yen or German Deutschmark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. dollar appreciates or
depreciates against the particular foreign currency to which the warrant is
linked or indexed). Foreign currency warrants are severable from the debt
obligations with which they may be offered, and may be listed on exchanges.
Foreign currency warrants may be exercisable only in certain minimum
amounts, and an investor wishing to exercise warrants who possesses less
than the minimum number required for exercise may be required either to sell
the warrants or to purchase additional warrants, thereby incurring
additional transaction costs. In the case of any exercise of warrants, there
may be a time delay between the time a holder of warrants gives instructions
to exercise and the time the exchange rate relating to exercise is
determined, during which time the exchange rate could change significantly,
thereby affecting both the market and cash settlement values of the warrants
being exercised. The expiration date of the warrants may be accelerated if
the warrants should be delisted from an exchange or if their trading should
be suspended permanently, which would result in the loss of any remaining
"time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case the
warrants were "out-of-the-money," in a total loss of the purchase price of
the warrants. Warrants are generally unsecured obligations of their issuers
and are not standardized foreign currency options issued by the Options
Clearing Corporation ("OCC"). Unlike foreign currency options issued by OCC,
the terms of foreign exchange warrants generally will not be amended in the
event of governmental or regulatory actions affecting exchange rates or in
the event of the imposition of other regulatory controls affecting the
international currency markets. The initial public offering price of foreign
currency warrants is generally considerably in excess of the price that a
commercial user of foreign currencies might pay in the interbank market for
a comparable option involving significantly larger amounts of foreign
currencies. Foreign currency warrants are subject to significant foreign
exchange risk, including risks arising from complex political or economic
factors.
Principal Exchange Rate Linked Securities. Principal exchange rate
linked securities are debt obligations the principal on which is payable at
maturity in an amount that may vary based on the exchange rate between the
U.S. dollar and a particular foreign currency at or about that time. The
return on "standard" principal exchange rate linked securities is enhanced
if the foreign currency to which the security is linked appreciates against
the U.S. dollar, and is adversely affected by increases in the foreign
exchange value of the U.S. dollar; "reverse" principal exchange rate linked
securities are like the "standard" securities, except that their return is
enhanced by increases in the value of the U.S. dollar and adversely impacted
by increases in the value of foreign currency. Interest payments on the
securities are generally made in U.S. dollars at rates that reflect the
degree of foreign currency risk assumed or given up by the purchaser of the
notes (i.e., at relatively higher interest rates if the purchaser has
assumed some of the foreign exchange risk, or relatively lower interest
rates if the issuer has assumed some of the foreign exchange risk, based on
the expectations of the current market). Principal exchange rate linked
securities may in limited cases be subject to acceleration of maturity
(generally, not without the consent of the holders of the securities), which
may have an adverse impact on the value of the principal payment to be made
at maturity.
Performance Indexed Paper. Performance indexed paper is U.S. dollar-
denominated commercial paper the yield of which is linked to certain foreign
exchange rate movements. The yield to the investor on performance indexed
paper is established at maturity as a function of spot exchange rates
between the U.S. dollar and a designated currency as of or about that time
(generally, the index maturity two days prior to maturity). The yield to the
investor will be within a range stipulated at the time of purchase of the
obligation, generally with a guaranteed minimum rate of return that is
below, and a potential maximum rate of return that is above, market yields
on U.S. dollar-denominated commercial paper, with both the minimum and
maximum rates of return on the investment corresponding to the minimum and
maximum values of the spot exchange rate two business days prior to
maturity.
Hybrid Instruments. Hybrid Instruments (a type of potentially high
risk derivative) have recently been developed and combine the elements of
futures contracts or options with those of debt, preferred equity or a
depository instrument (hereinafter "Hybrid Instruments"). Often these Hybrid
Instruments are indexed to the price of a commodity, particular currency, or
a domestic foreign debt or equity securities index. Hybrid Instruments may
take a variety of forms, including, but not limited to, debt instruments
with interest or principal payments or redemption terms determined by
reference to the value of a currency or commodity or securities index at a
future point in time, preferred stock with dividend rates determined by
reference to the value of a currency, or convertible securities with the
conversion terms related to a particular
commodity.
The risks of investing in Hybrid Instruments reflect a combination
of the risks from investing in securities, options, futures and currencies,
including volatility and lack of liquidity. Reference is made to the
discussion of futures, options, and forward contracts herein for a
discussion of these risks. Further, the prices of the Hybrid Instrument and
the related commodity or currency may not move in the same direction or at
the same time. Hybrid Instruments may bear interest or pay preferred
dividends at below market (or even relatively nominal) rates. Alternatively,
Hybrid Instruments may bear interest at above market rates but bear an
increased risk of principal loss (or gain). In addition, because the
purchase and sale of Hybrid Instruments could take place in an over-the-
counter market or in a private transaction between the Fund and the seller
of the Hybrid Instrument, the creditworthiness of the contra party to the
transaction would be a risk factor which the Fund would have to consider.
Hybrid Instruments also may not be subject to regulation of the Commodities
Futures Trading Commission ("CFTC"), which generally regulates the trading
of commodity futures by U.S. persons, the SEC, which regulates the offer and
sale of securities by and to U.S. persons, or any other governmental
regulatory authority.
INVESTMENT RISKS OF FOREIGN INVESTING
There are special risks in investing in the LB World Growth Fund, as
discussed in the Prospectus. Certain of these risks are inherent in any
international mutual fund while others relate more to the countries in which
the Fund will invest ("Portfolio Companies"). Many of the risks are more
pronounced for investments in developing or emerging countries. Although
there is no universally accepted definition, a developing country is
generally considered to be a country which is in the initial stages of its
industrialization cycle with a per capita gross national product of less
than $8,000.
Investors should understand that all investments have a risk factor.
There can be no guarantee against loss resulting from an investment in the
Fund, and there can be no assurance that the Fund's investment policies will
be successful, or that its investment objective will be attained. The Fund
is designed for individual and institutional investors seeking to diversify
beyond the United States in an actively researched and managed portfolio,
and is intended for long-term investors who can accept the risks entailed in
investment in foreign securities. In addition to the general risks of
foreign investing described in the Trust's Prospectus, other risks include:
Investment and Repatriation Restrictions. Foreign investment in the
securities markets of certain foreign countries is restricted or controlled
in varying degrees. These restrictions may at times limit or preclude
investment in certain of such countries and may increase the cost and
expenses of a Fund. Investments by foreign investors are subject to a
variety of restrictions in many developing countries. These restrictions may
take the form of prior governmental approval, limits on the amount or type
of securities held by foreigners, and limits on the types of companies in
which foreigners may invest. Additional or different restrictions may be
imposed at any time by these or other countries in which a Fund invests. In
addition, the repatriation of both investment income and capital from
several foreign countries is restricted and controlled under certain
regulations, including in some cases the need for certain government
consents. Although these restrictions may in the future make it undesirable
to invest in these countries, the Advisor and Sub-advisor do not believe
that any current repatriation restrictions would affect its decision to
invest in these countries.
Market Characteristics. Foreign securities may be purchased in over-
the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities
are located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as, and may be more volatile than,
those in the United States. While growing in volume, they usually have
substantially less volume than U.S. markets and a Fund's portfolio
securities may be less liquid and more volatile than securities of
comparable U.S. companies. Equity securities may trade at price/earnings
multiples higher than comparable United States securities and such levels
may not be sustainable. Fixed commissions on foreign stock exchanges are
generally higher than negotiated commissions on United States exchanges,
although a Fund will endeavor to achieve the most favorable net results on
its portfolio transactions. There is generally less government supervision
and regulation of foreign stock exchanges, brokers and listed companies than
in the United States. Moreover, settlement practices for transactions in
foreign markets may differ from those in United States markets, and may
include delays beyond periods customary in the United States.
Political and Economic Factors. Individual foreign economies of
certain countries may differ favorably or unfavorably from the United
States' economy in such respects as growth of gross national product, rate
of inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. The internal politics of certain foreign countries are
not as stable as in the United States. For example, in 1991, the existing
government in Thailand was overthrown in a military coup. In addition,
significant external political risks currently affect some foreign
countries. Both Taiwan and China still claim sovereignty of one another and
there is a demilitarized border between North and South Korea.
Governments in certain foreign countries continue to participate to
a significant degree, through ownership interest or regulation, in their
respective economics. Action by these governments could have a significant
effect on market prices of securities and payment of dividends. The
economies of many foreign countries are heavily dependent upon international
trade and are accordingly affected by protective trade barriers and economic
conditions of their trading partners. The enactment by these trading
partners of protectionist trade legislation could have a significant adverse
effect upon the securities markets of such countries.
Information and Supervision. There is generally less publicly
available information about foreign companies comparable to reports and
ratings that are published about companies in the United States. Foreign
companies are also generally not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to
those applicable to United States companies.
Taxes. The dividends and interest payable on certain of a Fund's
foreign portfolio securities may be subject to foreign withholding taxes,
thus reducing the net amount of income available for distribution to the
Fund's shareholders.
Costs. Investors should understand that the expense ratio of the
Fund can be expected to be higher than investment companies investing in
domestic securities since the cost of maintaining the custody of foreign
securities and the rate of advisory fees paid by the Fund are higher.
Other. With respect to certain foreign countries, especially
developing and emerging ones, there is the possibility of adverse changes in
investment or exchange control regulations, expropriation or confiscatory
taxation, limitations on the removal of funds or other assets of the Fund,
political or social instability, or diplomatic developments which could
affect investments by U.S. persons in those countries.
Eastern Europe and Russia. Changes occurring in Eastern Europe and
Russia today could have long-term potential consequences. As restrictions
fall, this could result in rising standards of living, lower manufacturing
costs, growing consumer spending, and substantial economic growth. However,
investment in the countries of Eastern Europe and Russia is highly
speculative at this time. Political and economic reforms are too recent to
establish a definite trend away from centrally-planned economies and state
owned industries. In many of the countries of Eastern Europe and Russia,
there is no stock exchange or formal market for securities. Such countries
may also have government exchange controls, currencies with no recognizable
market value relative to the established currencies of western market
economies, little or no experience in trading in securities, no financial
reporting standards, a lack of a banking and securities infrastructure to
handle such trading, and a legal tradition which does not recognize rights
in private property. In addition, these countries may have national policies
which restrict investments in companies deemed sensitive to the country's
national interest. Further, the governments in such countries may require
governmental or quasi-governmental authorities to act as custodian of the
Fund's assets invested in such countries and these authorities may not
qualify as a foreign custodian under the Investment Company Act of 1940 and
exemptive relief from such Act may be required. All of these considerations
are among the factors which could cause significant risks and uncertainties
to investment in Eastern Europe and Russia. The Fund will only invest in a
company located in, or a government of, Eastern Europe or Russia, if the
Sub-advisor believes the potential return justifies the risk. To the extent
any securities issued by companies in Eastern Europe and Russia are
considered illiquid, the Fund will be required to include such securities
within its 10% restriction on investing in illiquid securities.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in
which the respective principal offices of the issuers of the various
securities are located, if that is the best available market.
The Fund may invest in investment portfolios which have been
authorized by the governments of certain countries specifically to permit
foreign investment in securities of companies listed and traded on the stock
exchanges in these respective countries. The Fund's investment in these
portfolios is subject to the provisions of the 1940 Act discussed below. If
the Fund invests in such investment portfolios, the Fund's shareholders will
bear not only their proportionate share of the expenses of the Fund
(including operating expenses and the fees of the Investment Manager), but
also will bear indirectly similar expenses of the underlying investment
portfolios. In addition, the securities of these investment portfolios may
trade at a premium over their net asset value.
Apart from the matters described herein, the Fund is not aware at
this time of the existence of any investment or exchange control regulations
which might substantially impair the operations of the Fund as described in
the Trust's Prospectus and this Statement. It should be noted, however, that
this situation could change at any time.
Foreign Currency Transactions. The Fund will generally enter into
forward foreign currency exchange contracts under two circumstances. First,
when the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security.
Second, when the Sub-advisor believes that the currency of a
particular foreign country may suffer or enjoy a substantial movement
against another currency, including the U.S. dollar, it may enter into a
forward contract to sell or buy the amount of the former foreign currency,
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. Alternatively, where appropriate, the
Fund may hedge all or part of its foreign currency exposure through the use
of a basket of currencies or a proxy currency where such currency or
currencies act as an effective proxy for other currencies. In such a case,
the Fund may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities denominated in such
currency. The use of this basket hedging technique may be more efficient and
economical than entering into separate forward contracts for each currency
held in the Fund. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible since
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of short-term currency market movement is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Other than as set forth above, and immediately below, the Fund
will also not enter into such forward contracts or maintain a net exposure
to such contracts where the consummation of the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency.
The Fund, however, in order to avoid excess transactions and transaction
costs, may maintain a net exposure to forward contracts in excess of the
value of the Fund's portfolio securities or other assets to which the
forward contracts relate (including accrued interest to the maturity of the
forward on such securities) provided the excess amount is "covered" by
liquid, high-grade debt securities, denominated in any currency, at least
equal at all times to the amount of such excess. For these purposes "the
securities or other assets to which the forward contracts relate may be
securities or assets denominated in a single currency, or where proxy
forwards are used, securities denominated in more than one currency. Under
normal circumstances, consideration of the prospect for currency parities
will be incorporated into the longer term investment decisions made with
regard to overall diversification strategies. However, the Sub-advisor
believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the Fund
will be served.
At the maturity of a forward contract, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of the foreign
currency.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for the Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is made
to sell the security and make delivery of the foreign currency. Conversely,
it may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security if its market value exceeds
the amount of foreign currency the Fund is obligated to deliver. However, as
noted, in order to avoid excessive transactions and transaction costs, the
Fund may use liquid, high-grade debt securities denominated in any currency,
to cover the amount by which the value of a forward contract exceeds the
value of the securities to which it relates.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract
prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between the Fund's entering
into a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency,
the Fund will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Fund will suffer a loss to the extent of
the price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange contracts
will generally be limited to the transactions described above. However, the
Fund reserves the right to enter into forward foreign currency contracts for
different purposes and under different circumstances. Of course, the Fund is
not required to enter into forward contracts with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate
by the Sub-advisor. It also should be realized that this method of hedging
against a decline in the value of a currency does not eliminate fluctuations
in the underlying prices of the securities. It simply establishes a rate of
exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which
might result from an increase in the value of that currency.
Although the Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to
sell a foreign currency to the Fund at one rate, while offering a lesser
rate of exchange should the Fund desire to resell that currency to the
dealer.
In addition to the restrictions described above, some foreign
countries limit, or prohibit, all direct foreign investment in the
securities of their companies. However, the governments of some countries
have authorized the organization of investment portfolios to permit indirect
foreign investment in such securities. For tax purposes these portfolios may
be known as Passive Foreign Investment Companies. The Fund is subject to
certain percentage limitations under the 1940 Act and certain states
relating to the purchase of securities of investment companies, and may be
subject to the limitation that no more than 10% of the value of the Fund's
total assets may be invested in such securities.
For an additional discussion of certain risks involved in foreign
investing, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
FUND MANAGEMENT
The officers and Trustees of the Trust and their addresses,
positions with the Trust, and principal occupations are set forth below. As
of September 30, 1997 the officers and Trustees own less than 1% of any
Fund's outstanding shares.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATION DURING THE
PAST 5 YEARS
<S> <C> <C>
Rolf F. Bjelland* Chairman, Trustee and Executive Vice President and Chief
625 Fourth Avenue South President Investment Officer, Lutheran
Minneapolis, MN Brotherhood; President and Director,
Age 60 Lutheran Brotherhood Research Corp;
Director and Vice President-Investments,
Lutheran Brotherhood Variable Insurance
Products Company; Director and Executive
Vice President, Lutheran Brotherhood
Financial Corporation; Director, Lutheran
Brotherhood Securities Corp.; Director,
Lutheran Brotherhood Real Estate Products
Company; Director, Chairman and President
of LB Series Fund, Inc.
Charles W. Arnason Trustee Lawyer in private practice; formerly
101 Judd Street, Suite 1 member of Head, Hempel. Seifert &
P.O. Box 150 Vander Weide; formerly Executive
Marine-On St. Croix, MN Director of Minnesota Technology
Age 69 Corridor; formerly Senior Vice
President, Secretary and General Counsel
of Cowles Media Company; Officer,
Director or Trustee of various community
non-profit boards and organizations;
Director of LB Series Fund, Inc.
Herbert F. Eggerding, Jr. Trustee Retired Executive Vice President and
12587 Glencroft Dr. Chief Financial Officer, Petrolite
St. Louis, MO Corporation; Director, Wheat Ridge
Age 60 Foundation; Director, Lutheran
Charities Association of St. Louis,
MO; Director of LB Series Fund, Inc.
Connie M. Levi Trustee Retired President of the Greater
P.O. Box 675325 Minneapolis Chamber of Commerce;
Rancho Santa Fe, CA Director or member of numerous
Age 58 governmental, public service and
non-profit boards and organizations;
Director of LB Series Fund, Inc.
Noel K. Estenson Trustee Chairman, CENEX, Inc.; Director of
CENEX, Inc. LB Series Fund, Inc.
P.O. Box 64089
St. Paul, MN
Age 59
Bruce J. Nicholson* Trustee Executive Vice President and Chief
625 Fourth Avenue South Operating Officer, Lutheran
Minneapolis, MN Brotherhood; Director, Executive Vice
Age 51 President and Chief Financial Officer,
Lutheran Brotherhood Financial
Corporation; Director, Lutheran
Brotherhood Research Corp; Director,
Lutheran Brotherhood Securities Corp.;
Director and Chief Financial Officer,
Lutheran Brotherhood Variable
Insurance Products Company; Director,
Lutheran Brotherhood Real Estate
Products Company; Director, LB Series
Fund, Inc.
Ruth E. Randall Trustee Retired Interim Dean, Division of
25 Coolidge Road Continuing Studies, University of
West Hartford, CT Nebraska-Lincoln; formerly Associate
Age 69 Dean, Teachers College and Professor,
Department of Educational
Administration, Teachers College,
University of Nebraska-Lincoln;
Commissioner of Education for the
State of Minnesota; Director or member
of numerous governmental, public
service and non-profit boards and
organizations; Director of LB Series
Fund, Inc.
James R. Olson Vice President Senior Vice President, Lutheran
625 Fourth Avenue South Brotherhood; Vice President, Lutheran
Minneapolis, MN Brotherhood Variable Insurance Products
Age 55 Company; Vice President, Lutheran
Brotherhood Research Corp.; Vice
President, Lutheran Brotherhood Research
Corp.; Vice President, Lutheran
Brotherhood Securities Corp.; Vice
President, Lutheran Brotherhood Real
Estate Products Company; Vice President
of LB Series Fund, Inc.
Richard B. Ruckdashel Vice President Vice President, Lutheran Brotherhood;
625 Fourth Avenue South Vice President of LB Series Fund, Inc.
Minneapolis,
Age 42
James M. Walline Vice President Vice President, Lutheran Brotherhood;
625 Fourth Avenue South Vice President, Lutheran Brotherhood
Minneapolis, MN Research Corp.; Vice President,
Age 52 Lutheran Brotherhood Variable
Insurance Products Company; Vice
President of LB Series Fund, Inc.
Wade M. Voigt Treasurer Assistant Vice President, Mutual Fund
625 Fourth Avenue South Accounting, Lutheran Brotherhood;
Minneapolis, MN Treasurer of LB Series Fund, Inc.
Age 42
Otis F. Hilbert Secretary and Vice President Vice President, Lutheran Brotherhood;
625 Fourth Avenue South Counsel, Vice President and Secretary,
Minneapolis, MN Lutheran Brotherhood Securities Corp.;
Age 61 Counsel and Secretary of Lutheran
Brotherhood Research Corp.; Vice
President and Secretary, Lutheran
Brotherhood Real Estate Products
Company; Vice President and Assistant
Secretary, Lutheran Brotherhood
Variable Insurance Products Company;
Secretary and Vice President of LB
Series Fund, Inc.
- -----------------------
(*) "Interested person" of the Fund as defined in the Investment Company
Act of 1940 by virtue of his positions with affiliated entities
referred to elsewhere herein.
Lutheran Brotherhood, directly and through its wholly-owned subsidiary
companies, owned 9.39% of the outstanding Institutional Class shares of LB World
Growth Fund and 8.33% of the outstanding Institutional Class shares of LB Money
Market Fund as of November 30, 1997.
</TABLE>
COMPENSATION OF TRUSTEES AND OFFICERS
The Funds make no payments to any of its officers for services performed
for the Fund. Trustees of the Trust who are not interested persons of the Trust
are paid an annual retainer fee by the Trust of $23,500 and an annual fee of
$9,000 per year to attend meetings of Board of Trustees.
Trustees who are not interested persons of the Trust are reimbursed by
the Trust for any expenses they may incur by reason of attending Board meetings
or in connection with other services they may perform in connection with their
duties as Trustees of the Trust. The Trustees receive no pension or retirement
benefits in connection with their service to the Fund.
For the fiscal year ended October 31, 1997, the Trustees of the Trust
received the following amounts of compensation either directly or in the form of
payments made into a deferred compensation plan:
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL TOTAL COMPENSATION
NAME AND POSITION COMPENSATION AS PART OF FUND BENEFITS UPON PAID BY FUND
OF PERSON FROM TRUST EXPENSES RETIREMENT AND FUND COMPLEX (1)
<S> <C> <C> <C> <C>
Rolf F. Bjelland(2) $0 $0 $0 $0
Chairman and Trustee
Charles W. Arnason $17,170 $0 $0 $31,000
Trustee
Herbert F. Eggerding, Jr. $17,170 $0 $0 $31,000
Trustee
Connie M. Levi $17,170 $0 $0 $31,000
Trustee
Bruce J. Nicholson(2) $0 $0 $0 $0
Trustee
Ruth E. Randall $17,170 $0 $0 $31,000
Trustee
Noel K. Estenson $8,125 $0 $0 $4,536
Trustee
- -------------------------
(1) The "Fund Complex" includes The Lutheran Brotherhood Family of Funds
and LB Series Fund, Inc.
(2) "Interested person" of the Fund as defined in the Investment Company
Act of 1940.
</TABLE>
INVESTMENT ADVISORY SERVICES
The Funds' investment adviser, LB Research, was organized as a
Pennsylvania corporation in 1969 and was reincorporated as a Minnesota
corporation in 1987. It has been in the investment advisory business since
1970. LB Research is a wholly-owned subsidiary of Lutheran Brotherhood
Financial Corporation which, in turn, is a wholly-owned subsidiary of
Lutheran Brotherhood, a fraternal benefit society. The officers and
directors of LB Research who are affiliated with the Trust are set forth
under "Fund Management".
Investment decisions for each of the Funds, except the LB Opportunity
Growth Fund and the LB World Growth Fund, are made by LB Research, subject
to the overall direction of the Board of Trustees. LB Research provides
overall investment supervision of the LB Opportunity Growth Fund's and the
LB World Growth Fund's investments, with investment decisions for that Fund
being made by investment sub-advisors. Except for the LB Opportunity Growth
Fund and the LB World Growth Fund, LB Research provides investment research
and supervision of each Fund's investments and conducts a continuous program
of investment evaluation and appropriate disposition and reinvestment of
each Fund's assets. LB Research assumes the expense of providing the
personnel to perform its advisory functions. Lutheran Brotherhood, the
indirect parent company of LB Research, also serves as the investment
adviser for LB Series Fund, Inc. The Master Advisory Contract (the "Advisory
Contract") for the Funds provides that Lutheran Brotherhood has reserved the
right to grant the non-exclusive use of the name "Lutheran Brotherhood" or
any derivative thereof to any other investment company, investment adviser,
distributor or other business enterprise, and to withdraw from each Fund the
use of the name "Lutheran Brotherhood". The name "Lutheran Brotherhood" will
continue to be used by each Fund as long as such use is mutually agreeable
to Lutheran Brotherhood and the Funds.
Investment decisions for the LB Opportunity Growth Fund are made by T.
Rowe Price Associates, Inc. ("T. Rowe Price"), which LB Research has engaged
as the sub-advisor for that Fund. T. Rowe Price manages the LB Opportunity
Growth Fund on a daily basis, subject to the overall direction of LB
Research and the Funds' Board of Trustees.
T. Rowe Price was founded in 1937 and has its principal offices in
Baltimore, Maryland. As of December 31, 1997, T. Rowe Price and its
affiliates managed over $124 billion.
Investment decisions for the LB World Growth Fund are made by Rowe
Price-Fleming International, Inc. ("Price-Fleming"), which LB Research has
engaged as the sub-advisor for that Fund. Price-Fleming manages that Fund on
a daily basis, subject to the overall direction of LB Research and the
Funds' Board of Trustees.
Price-Fleming was founded in 1979 as a joint venture between T. Rowe
Price Associates, Inc. and Robert Fleming Holdings Limited. Price-Fleming
is one of the world's largest international mutual fund asset managers with
the U.S. equivalent of approximately $31 billion under management as of
October 31, 1997 in its offices in Baltimore, London, Tokyo, Singapore, Hong
Kong, and Buenos Aires.
To the extent required under applicable state regulatory
requirements, the Investment Manager will reduce its management fee up to
the amount of any expenses (exclusive of interest, taxes, brokerage
expenses, distribution expenses, extra-ordinary items and any other items
allowed to be excluded by applicable state law) paid or incurred by any of
the Funds in any fiscal year which exceed specified percentages of the
average daily net assets of such Fund for such fiscal year. The most
restrictive of such percentage limitations is (which does not presently
apply to any of the Funds) currently 2.5% of the first $30 million of
average net assets, 2.0% of the next $70 million of average net assets and
1.5% of the remaining average net assets. These commitments may be amended
or rescinded in response to changes in the requirements of the various
states by the Trustees without shareholder approval.
The Advisory Contract provides that it shall continue in effect with
respect to each Fund from year to year as long as it is approved at least
annually both (i) by a vote of a majority of the outstanding voting
securities of such Fund (as defined in the 1940 Act) or by the Trustees of
the Trust, and (ii) in either event by a vote of a majority of the Trustees
who are not parties to the Advisory Contract or "interested persons" of any
party thereto, cast in person at a meeting called for the purpose of voting
on such approval. The Advisory Contract may be terminated on 60 days'
written notice by either party and will terminate automatically in the event
of its assignment, as defined under the 1940 Act and regulations thereunder.
Such regulations provide that a transaction which does not result in a
change of actual control or management of an adviser is not deemed an
assignment.
The Sub-advisory Contract between the Trust and T. Rowe Price provides
that it shall continue in effect with respect to the LB Opportunity Growth
Fund from year to year as long as it is approved at least annually both (i)
by a vote of a majority of the outstanding voting securities of such Fund
(as defined in the 1940 Act) or by the Trustees of the Trust, and (ii) in
either event by a vote of a majority of the Trustees who are not parties to
the Sub-advisory Contract or "interested persons" of any party thereto, cast
in person at a meeting called for the purpose of voting on such approval.
The Sub-advisory Contract may be terminated on 60 days' written notice by
either party and will terminate automatically in the event of its
assignment, as defined under the 1940 Act and regulations thereunder. Such
regulations provide that a transaction which does not result in a change of
actual control or management of an adviser is not deemed an assignment.
The Sub-advisory Contract between the Trust and Price-Fleming
provides that it shall continue in effect with respect to the LB World
Growth Fund from year to year as long as it is approved at least annually
both (i) by a vote of a majority of the outstanding voting securities of
such Fund (as defined in the 1940 Act) or by the Trustees of the Trust, and
(ii) in either event by a vote of a majority of the Trustees who are not
parties to the Sub-advisory Contract or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on
such approval. The Sub-advisory Contract may be terminated on 60 days'
written notice by either party and will terminate automatically in the event
of its assignment, as defined under the 1940 Act and regulations thereunder.
Such regulations provide that a transaction which does not result in a
change of actual control or management of an adviser is not deemed an
assignment.
LB Research receives an annual investment advisory fee from each
Fund. The Advisory Contract provides for the following advisory fees: The
advisory contract between LB Research and the Trust provides for the
following advisory fees: LB Opportunity Growth Fund pays an advisory fee
equal to .75% of average daily net assets up to $100 million, .65% of
average daily net assets over $100 million but not over $250 million, .60%
of average daily net assets over $250 million but not over $500 million,
.55% of average daily net assets over $500 million but not over $1 billion,
and .50% of average daily net assets over $1 billion. LB Mid Cap Growth Fund
pays an advisory fee equal to .70% of average daily net assets up to $100
million, .65% of average daily net assets over $100 million but not over
$250 million, .60 % of average daily net assets over $250 million but not
over $500 million, .55% of average daily net assets over $500 million but
not over $1 billion and .50% of average daily net assets over $1 billion. LB
World Growth Fund pays an advisory fee equal to 1.25% of average daily net
assets up to $20 million, 1.10% of average daily net assets over $20 million
but not over $50 million, and 1.00% of average daily net assets over $50
million. LB Fund pays an advisory fee equal to .65% of average daily net
assets of $500 million or less, .60% of average daily net assets over $500
million but not over $1 billion, and .55% of average daily net assets over
$1 billion. LB High Yield Fund pays an advisory fee equal to .65% of average
daily net assets of $500 million or less, .60% of average daily net assets
over $500 million but not over $1 billion, and .55% of average daily assets
over $1 billion. LB Income Fund pays an advisory fee equal to .60% of
average daily net assets of $500 million or less, .575% of average daily net
assets over $500 million but not over $1 billion, and .55% of average daily
net assets over $1 billion. LB Municipal Bond Fund pays an advisory fee
equal to .575% of average daily net assets of $500 million or less, .5625%
of average daily net assets over $500 million but not over $1 billion, and
.55% of average daily net assets over $1 billion. LB Money Market Fund pays
an advisory fee equal to .50% of average daily net assets of $500 million or
less, .475% of average daily net assets on the next $500 million of average
daily net assets, .45% of average daily net assets on the next $500 million
of average daily net assets, .425% of average daily net assets on the next
$500 million of average daily net assets, and .40% of average daily net
assets over $2 billion.
Effective October 31, 1997, LB Research voluntarily agreed to
permanently waive a portion of its advisory fee for each of the Funds equal
to .25% of the average daily net assets of the Fund. This .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%) 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, until October 31, 1998 and
thereafter until further notice to 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
the Class A shares, Class B shares and Institutional Class shares to an
annual rate of 1.95%, 2.70%, and 1.70%, respectively, of the average daily
net assets of the relevant class. LB Research has further undertaken, until
October 31, 1998 and thereafter until further notice to 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 shares and Institutional
Class shares to 0.95%, 0.95%, and 0.70%, respectively of the average net
assets of the relevant class.
The total dollar amounts paid to LB Research under the investment
advisory contract then in effect for the last three fiscal years (other than
LB Mid Cap Growth Fund, which is in its first year of operations) are as
follows:
10/31/97 10/31/96 10/31/95
LB Opportunity Growth Fund $1,868,475 $ 1,563,341 $ 938,166
LB Mid Cap Growth Fund 21,586 -- --
LB World Growth Fund 682,203 392,419 17,787
LB Fund 5,686,741 4,529,474 3,726,938
LB High Yield Fund 4,911,490 4,150,072 3,509,710
LB Income Fund 4,799,245 5,330,930 5,431,506
LB Municipal Bond Fund 3,424,258 3,551,045 3,504,880
LB Money Market Fund 2,210,254 1,922,505 1,538,307
LB Research waived fees with respect to LB World Growth Fund
totaling $66,807 for the fiscal year ended October 31, 1996, and $13,415 for
the period from September 5, 1995 to October 31, 1995. LB Research waived
fees with respect to the LB Fund totaling $385,904 for the fiscal year ended
October 31, 1997. LB Research waived fees with respect to LB High Yield Fund
totaling $328,810. LB Research waived fees with respect to LB Income Fund
totaling $333,931. LB Research waived fees with respect to LB Municipal Bond
Fund totaling $247,844. LB Research waived fees with respect to the Mid Cap
Growth Fund totaling $7,357. LB Research waived fees with respect to the
Money Market Fund totaling $435,799 for the fiscal year ended October 31,
1997, $246,901 for the fiscal year ended October 31, 1996 and $253,844 for
the fiscal year ended October 31, 1995.
LB Research pays the T. Rowe Price an annual sub-advisory fee for the
performance of sub-advisory services for the LB Opportunity Growth Fund. The
fee payable is equal to .30% of that Fund's average daily net assets up to
$500 million, .25% of that Fund's average daily net assets over $500 million
but not over $1 billion, and .20% of that Fund's average daily net assets
over $1 billion.
LB Research pays Price-Fleming an annual sub-advisory fee for the
performance of sub-advisory services for the LB World Growth Fund. The fee
payable is equal to a percentage of the that Fund's average daily net
assets. The percentage decreases as the Fund's assets increase. For purposes
of determining the percentage level of the sub-advisory fee for the Fund,
the assets of the Fund are combined with the assets of the World Growth
Portfolio of LB Series Fund, Inc., another fund with investment objectives
and policies that are similar to the LB World Growth Fund and for which
Price-Fleming also provides sub-advisory services. The sub-advisory fee LB
Research pays Price-Fleming is equal to the World Growth Fund's pro rata
share of the combined assets of the Fund and the World Growth Portfolio of
LB Series Fund, Inc. and is equal to .75% of combined average daily net
assets up to $20 million, .60% of combined average daily net assets over $20
million but not over $50 million, and .50% of combined average daily net
assets over $50 million. When the combined assets of the LB World Growth
Fund and the World Growth Portfolio of LB Series Fund, Inc. exceed $200
million, the sub-advisory fee for the LB World Growth Fund is equal to .50%
of all of the Fund's average daily net assets. Price-Fleming has agreed to
waive its fees so that when the combined assets of the LB World Growth Fund
and The LB Series Fund, Inc. World Growth Portfolio exceed $500 million, the
sub-advisory fee for the LB World Growth Fund is equal to .45% of all the
Fund's average daily net assets. At October 31, 1997, the combined assets of
LB World Growth Fund and World Growth Portfolio totaled $351.0 million.
The total dollar amount paid by LB Research Price-Fleming under the
investment sub-advisory contract for LB World Growth Fund for the fiscal
period ended October 31, 1997 is $342,403.
ADMINISTRATIVE SERVICES
Lutheran Brotherhood Securities Corp. ("LB Securities") provides
administrative personnel and services necessary to operate the Funds on a
daily basis for a fee equal to 0.02 percent of the Funds' average daily net
assets. Prior to January 1, 1997, the fee equaled 0.0225 percent of the
Fund's average daily net assets. The total dollar amounts paid to LB
Securities for administrative services for the last three fiscal years are
as follows:
10/31/97 10/31/96 10/31/95
LB Opportunity Growth Fund $ 55,875 $ 51,379 $ 33,788
LB Mid Cap Growth Fund 617 -- --
LB World Growth Fund 13,826 8,217 56
LB Fund 184,583 163,270 144,572
LB High Yield Fund 158,365 148,767 136,969
LB Income Fund 166,209 207,659 215,922
LB Municipal Bond Fund 122,078 142,190 151,391
LB Money Market Fund 90,172 87,973 85,688
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian, State Street
Bank and Trust Company is responsible for, among other things, safeguarding
and controlling the Funds' cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on the Funds'
investments.
TRANSFER AGENT
LB Securities provides transfer agency services necessary to the
Funds on a daily basis for a fee that is based on the number of shareholder
accounts. The total dollar amounts paid to LB Securities for transfer agency
services for the last three fiscal years are as follows:
10/31/97 10/31/96 10/31/95
LB Opportunity Growth Fund $ 1,147,649 $ 865,339 $ 582,903
LB Mid Cap Growth Fund 21,145 -- --
LB World Growth Fund 311,027 169,451 4,983
LB Fund 1,791,020 1,610,381 1,478,056
LB High Yield Fund 1,205,817 1,061,296 944,128
LB Income Fund 1,275,325 1,382,275 1,398,946
LB Municipal Bond Fund 492,743 516,423 517,010
LB Money Market Fund 1,383,639 1,239,592 1,211,889
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 3100 Multifoods Tower, 33 South Sixth Street,
Minneapolis, Minnesota 55402, serves as the Trust's independent accountants,
providing professional services including audits of the Funds' annual
financial statements, assistance and consultation in connection with
Securities and Exchange Commission filings, and review of the annual income
tax returns filed on behalf of the Funds.
DISTRIBUTION AND SHAREHOLDER SERVICES
PLAN OF DISTRIBUTION AND DISTRIBUTION CONTRACT
The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "12b-1 Plan") with respect to the Class B shares of
each Fund except for the LB Money Market Fund. General information about the
12b-1 Plan is set forth under "Distribution and Shareholder Servicing Plans"
in the prospectus regarding the Class A and B shares. The 12b-1 Plan
permits, among other things, payment by each such Fund for the purpose of
(1) making payments to underwriters, securities dealers and others engaged
in the sale of Class B shares, including payments to LB Securities to be
used to compensate or reimburse the LB Securities and others (including
affiliates of LB Securities) engaged in the distribution and marketing of
Class B shares or furnishing assistance to investors on an ongoing basis,
and (2) providing reimbursement of direct out-of-pocket expenditures
incurred by LB Securities in connection with the distribution and marketing
of Class B shares, (3) providing reimbursements of payments of commissions
to LB Securities's field force and others involved in the distribution of
the Class B shares at the time of purchase, plus interest at a rate not to
exceed prime plus 1% on the amount of unreimbursed commissions and (4)
providing payment of expenses relating to the formulation and implementation
of marketing strategies and promotional activities such as direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising, the preparation, printing and distribution of sales literature,
the preparation, printing and distribution of prospectuses of the Trust and
reports for recipients other than existing shareholders of the Trust, and
obtaining such information, analyses and reports with respect to marketing
and promotional activities and investor accounts as the Trust may, from time
to time, deem advisable. The Trust and the Funds are authorized to engage in
the activities listed above, and in other activities primarily intended to
result in the sale of Class B shares, either directly or through other
persons with which the Trust has entered into agreements pursuant to the
12b-1 Plan.
The 12b-1 Plan provides that it may not be amended to increase
materially the costs which a Fund may bear pursuant to the 12b-1 Plan
without approval by a 1940 Act Majority Vote of the Class B shareholders and
that other material amendments of the 12b-1 Plan must be approved by the
Trustees, and by the Trustees who are neither "interested persons" (as
defined in the 1940 Act) of the Trust nor have any direct or indirect
financial interest in the operation of the 12b-1 Plan or in any related
agreement (the "Qualified Trustees"), by vote cast in person at a meeting
called for the purpose of considering such amendments. While the 12b-1 Plan
is in effect, the selection and nomination of the Trustees of the Trust who
are not "interested persons" of the Trust has been committed to the
discretion of the Trustees who are not "interested persons" of the Trust.
The 12b-1 Plan was initially approved by the Board of Trustees, including a
majority of the Qualified Trustees, on September 9, 1997, and is subject to
annual approval, by the Board of Trustees and by the Qualified Trustees by
vote cast in person at a meeting called for the purpose of voting on the
12b-1 Plan. The 12b-1 Plan is terminable with respect to the Class B shares
of any Fund at any time by a vote of a majority of the Qualified Trustees or
by 1940 Act Majority Vote of the Class B shareholders of such Fund. A
quarterly report of the amounts expended under the 12b-1 Plan and the
purposes for which such expenditures were incurred must be made to the
Trustees for their review.
The Funds' distributor, LB Securities, is a Pennsylvania corporation
organized in 1969. LB Securities is a wholly-owned subsidiary of LB Research
and is located in Minneapolis, Minnesota. The officers and directors of LB
Securities who are affiliated with the Trust are set forth under "Fund
Management". Under a First Amended and Restated Distribution Contract dated
October 31, 1997 (the "Distribution Contract"), LB Securities is granted the
right to sell Class A, B and Institutional Class shares of the Funds as
agent for the Trust. LB Securities agrees to use its best efforts to secure
purchasers for the shares of the Funds. In connection with the services to
be provided by LB Securities under the Distribution Contract, LB Securities
receives from each Fund other than LB Money Market Fund an amount with
respect to Class B shares determined at an annual rate of .75% of the
average daily net asset value represented by such shares, such amount to be
paid in arrears at the end of each calendar month. The Distribution Contract
was initially approved by the Board of Trustees including a majority of the
Qualified Trustees, on September 9, 1997, and will continue in effect from
year to year so long as its continuance is approved at least annually by the
Board of Trustees and the Qualified Trustees.
SHAREHOLDER SERVICING PLANS
The Trust has adopted shareholder servicing plans (each a
"Shareholder Servicing Plan") for the Class A and Class B shares of each
Fund (including LB Money Market Fund). Such plans are more fully described
in the prospectus for the Class A and Class B shares under the caption
"Distribution and Shareholder Servicing Plans". Each Shareholder Servicing
Plan provides that the relevant class may spend annually, directly or
indirectly, up to .25% of the average daily value of the net assets
attributable to the relevant class for shareholder servicing activities.
Under the Distribution Contract, LB Securities has agreed to undertake
certain shareholder servicing activities on behalf of the Funds in exchange
for a fee of .25% of the average daily value of the net assets represented
by Class A and Class B shares. A quarterly report of the amounts expended
under the Shareholder Servicing Plans, and the purposes for which such
expenditures were incurred, must be made to the Trustees for their review.
Each Shareholder Servicing Plans may be amended by a majority of the
Qualified Trustees or by a 1940 Act Majority Vote by shareholders of the
respective class. The Shareholder Servicing Plans have been approved, and
are subject to annual approval, by the Board of Trustees and the Qualified
Trustees.
UNDERWRITING COMMISSIONS
The total dollar amounts of gross underwriting commissions on sales
of shares of the LB Opportunity Growth Fund, LB Fund, LB High Yield Fund, LB
Income Fund, and LB Municipal Bond paid to LB Securities for the last three
fiscal years, and the amounts retained by LB Securities for such years, are
as follows:
10/31/97 10/31/96
---------------------- -----------------------
Gross Amount Gross Amount
Commissions Retained Commissions Retained
LB Opportunity Growth Fund $1,724,236 $375,950 $2,272,864 $499,118
LB Mid Cap Growth Fund 278,924 59,480 -- --
LB World Growth Fund 637,128 138,984 857,697 187,621
LB Fund 2,613,029 566,543 2,306,035 504,687
LB High Yield Fund 3,716,291 812,906 3,372,402 742,668
LB Income Fund 905,599 194,851 1,486,518 324,229
LB Municipal Bond Fund 689,914 152,127 988,150 215,239
10/31/95
------------------------
Gross Amount
Commissions Retained
LB Opportunity Growth Fund $1,423,809 $315,636
LB Mid Cap Growth Fund -- --
LB World Growth Fund 153,713 33,490
LB Fund 1,609,270 352,617
LB High Yield Fund 2,422,070 530,028
LB Income Fund 1,325,519 288,981
LB Municipal Bond Fund 989,735 212,445
BROKERAGE TRANSACTIONS
PORTFOLIO TRANSACTIONS
In connection with the management of the investment and reinvestment
of the assets of the Funds, the Advisory Contract authorizes LB Research,
acting by its own officers, directors or employees or by a duly authorized
subcontractor, including T. Rowe Price and Price-Fleming (each a "sub-
advisor"), to select the brokers or dealers that will execute purchase and
sale transactions for the Funds. In executing portfolio transactions and
selecting brokers or dealers, if any, LB Research and the sub-advisors will
use reasonable efforts to seek on behalf of the Funds the best overall terms
available. In assessing the best overall terms available for any
transaction, LB Research and the sub-advisors will consider all factors it
deems relevant, including the breadth of the market in and the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis). In evaluating the best overall terms
available, and in selecting the broker or dealer, if any, to execute a
particular transaction, LB Research and the sub-advisors may also consider
the brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) provided to any other accounts
over which LB Research or the sub-advisors or an affiliate of LB Research or
the sub-advisors exercises investment discretion. LB Research and the sub-
advisors may pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, LB Research or the
sub-advisors determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided.
To the extent that the receipt of the above-described services may
supplant services for which LB Research or the sub-advisors might otherwise
have paid, it would, of course, tend to reduce the expenses of LB Research
or the sub-advisors.
The investment decisions for a Fund are and will continue to be made
independently from those of other investment companies and accounts managed
by LB Research, a sub-advisor, or their affiliates. Such other investment
companies and accounts may also invest in the same securities as a Fund.
When purchases and sales of the same security are made at substantially the
same time on behalf of such other investment companies and accounts,
transactions may be averaged as to the price and available investments
allocated as to the amount in a manner which LB Research and its affiliates
believe to be equitable to each investment company or account, including the
Fund. In some instances, this investment procedure may affect the price paid
or received by a Fund or the size of the position obtainable or sold by a
Fund.
AFFILIATED TRANSACTIONS OF THE SUB-ADVISORS
Subject to applicable SEC rules, as well as other regulatory
requirements, the sub-advisors of the LB Opportunity Growth Fund and the LB
World Growth Fund may allocate orders to brokers or dealers affiliated with
such sub-advisors. Such allocation shall be in such amounts and proportions
as the sub-advisor shall determine and the Fund's sub-advisor will report
such allocations either to LB Research, which will report such allocations
to the Board of Trustees, or, if requested, directly to the Board of
Trustees.
BROKERAGE COMMISSIONS
During the last three fiscal years, the Funds paid the following
brokerage fees:
10/31/97 10/31/96 10/31/95
LB Opportunity Growth Fund $ 520,660 $ 472,846 $ 197,461
LB Mid Cap Growth Fund 29,180 -- --
LB World Growth Fund* 102,408 108,394 24,302
LB Fund 941,481 1,349,473 1,787,109
LB High Yield Fund 15,071 36,567 47,583
LB Income 162,275 92,838 61,164
LB Municipal Bond Fund 7,399 7,399 9,518
LB Money Market Fund -- -- --
- --------------------
* Amount paid to affiliated broker-dealer is $2,608 for the fiscal
year ended October 31, 1997, $4,028 for the fiscal year ended October 31,
1996 and $250 for the period ended October 31, 1995.
Of the brokerage fee amounts stated above and underwriting
concessions of dealers from whom the Funds purchased newly issued debt
securities, the following percentages were paid to firms which provided
research, statistical, or other services to LB Research or the Sub-advisor
in connection with the management of the Funds:
10/31/97 10/31/96 10/31/95
LB Opportunity Growth Fund 6.68% 0.60% 0.22%
LB Mid Cap Growth Fund 68.99 -- --
LB World Growth Fund 0.48 0.08
LB Fund 1.30 7.17 8.10
LB High Yield Fund 0.00 0.24 0.70
LB Income Fund 5.12 6.41 0.62
LB Municipal Bond Fund 0.00 0.00 0.00
LB Money Market Fund 0.00 0.00 0.00
PORTFOLIO TURNOVER RATE
The rate of portfolio turnover in the Funds will not be a limiting
factor when LB Research or the Sub-advisor deems changes in a Fund's
portfolio appropriate in view of its investment objectives. As a result,
while a Fund will not purchase or sell securities solely to achieve short
term trading profits, a Fund may sell portfolio securities without regard to
the length of time held if consistent with the Fund's investment objective.
A higher degree of equity portfolio activity will increase brokerage costs
to a Fund. The portfolio turnover rate is computed by dividing the dollar
amount of securities purchased or sold (whichever is smaller) by the average
value of securities owned during the year. Short-term investments such as
commercial paper and short-term U.S. Government securities are not
considered when computing the turnover rate.
For the last three fiscal years, the portfolio turnover rates of the
LB Opportunity Growth Fund, LB Mid Cap Growth Fund, LB World Growth Fund, LB
Fund, LB High Yield Fund, LB Income Fund, and LB Municipal Bond Fund were as
follows:
10/31/97 10/31/96 10/31/95
LB Opportunity Growth Fund 136% 176% 213%
LB Mid Cap Growth Fund 94% -- --
LB World Growth Fund 17% 11% 0%
LB Fund 54% 91% 127%
LB High Yield Fund 113% 104% 71%
LB Income Fund 97% 142% 131%
LB Municipal Bond Fund 18% 33% 36%
CODE OF ETHICS
The Trust has adopted a code of ethics that imposes certain
limitations and restrictions on personal securities transactions by persons
having access to Fund investment information, including portfolio managers.
Such access persons may not purchase any security being offered under an
initial public offering, any security for which one of the Funds has a
purchase or sale order pending, or any security currently under active
consideration for purchase or sale by a Fund. Additionally, portfolio
managers of the Funds may not purchase or sell any security within seven
days before or after any transaction in such security by the Fund that he or
she manages. In order for the Trust to monitor the personal investment
transactions, all access persons must obtain the approval of an officer of
the Trust designated by the Trustees before they may purchase or sell any
security and they must have all such transactions reported to such officer
by the broker-dealer through which the transaction was accomplished.
PURCHASING SHARES
Initial purchases of Fund shares must be made by check and
accompanied by an application. Subsequent purchases may be made by:
- check;
- Federal Reserve or bank wire;
- Invest-by-Phone;
- Systematic Investment Plan (SIP); and
- automatic payroll deduction.
Use of checks, Federal Reserve or bank wire and Invest-by-Phone is
explained in the General Information section of the Fund's prospectus under
"Buying Shares of The Lutheran Brotherhood Family of Funds".
SYSTEMATIC INVESTMENT PLAN
Under the Systematic Investment Plan program, funds may be withdrawn
monthly from the shareholder's checking account and invested in the Funds.
LB Securities representatives will provide shareholders with the necessary
authorization forms.
AUTOMATIC PAYROLL DEDUCTION
Under the Automatic Payroll Deduction program, funds may be
withdrawn monthly from the payroll account of any eligible shareholder of a
Fund and invested in a Fund. To be eligible for this program, the
shareholder's employer must permit and be qualified to conduct automatic
payroll deductions. LB Securities representatives will provide shareholders
with the necessary authorization forms.
SALES CHARGES
Purchases of Fund shares other than the Institutional Class shares
carry either an initial sales charges (Class A) or contingent deferred sales
charge (Class B) as explained in the section of the Funds' prospectus
relating to such shares entitled, "Sales Charges", which also lists ways to
reduce or avoid sales charges on subsequent purchases.
In addition to the situations described in the prospectus, sales
charges are waived when shares are purchased by:
- directors and regular full-time and regular part-time
employees of Lutheran Brotherhood and its subsidiaries;
- registered representatives of LB Securities; and
- any trust, pension, profit-sharing or other benefit plan
for such persons.
FULL-TIME EMPLOYEES
Regular full-time and regular part-time employees of Lutheran
Brotherhood are persons who are defined as such by the Lutheran Brotherhood
Human Resources Policy Manual.
RESTRICTION ON SALE OF SHARES PURCHASED
Sales to any of the persons or groups mentioned in this section are
made only with the purchaser's written promise that the shares will not be
resold, except through redemption or repurchase by or on behalf of a Fund.
NET ASSET VALUE
LB OPPORTUNITY GROWTH FUND, LB MID CAP GROWTH FUND, LB WORLD GROWTH FUND,
LB FUND, LB HIGH YIELD FUND, LB INCOME FUND, AND LB MUNICIPAL BOND FUND
The net asset value per share is determined at the close of each
day the New York Stock Exchange is open, or any other day as provided by
Rule 22c-1 under the Investment Company Act of 1940. Determination of net
asset value may be suspended when the Exchange is closed or if certain
emergencies have been determined to exist by the Securities and Exchange
Commission, as allowed by the Investment Company Act of 1940.
Net asset value is determined by adding the market or appraised
value of all securities and other assets attributable to each class of
shares; subtracting liabilities attributable to such class; and dividing the
result by the number of shares of such class outstanding.
The market value of each Fund's portfolio securities is determined
at the close of regular trading of the New York Stock Exchange (the
"Exchange") on each day the Exchange is open, except the day after
Thanksgiving. The value of portfolio securities is determined in the
following manner:
- - Equity securities traded on the Exchange or any other national
securities exchange are valued at the last sale price. If there has
been no sale on that day or if the security is unlisted, it is
valued at prices within the range of the current bid and asked
prices considered best to represent value in the circumstances.
- - Equity securities not traded on a national securities exchange are
valued at prices within the range of the current bid and asked
prices considered best to represent the value in the circumstances,
except that securities for which quotations are furnished through
the nationwide automated quotation system approved by the NASDAQ
will be valued at their last sales prices so furnished on the date
of valuation, if such quotations are available for sales occurring
on that day.
- - Bonds and other income securities traded on a national securities
exchange will be valued at the last sale price on such national
securities exchange that day. LB Research may value such securities
on the basis of prices provided by an independent pricing service
or within the range of the current bid and asked prices considered
best to represent the value in the circumstances, if those prices
are believed to better reflect the fair market value of such
exchange listed securities.
- - Bonds and other income securities not traded on a national
securities exchange will be valued within the range of the current
bid and asked prices considered best to represent the value in the
circumstances. Such securities may also be valued on the basis of
prices provided by an independent pricing service if those prices
are believed to reflect the fair market value of such securities.
For all Funds other than the Money Market Fund, short-term
securities with maturities of 60 days or less are valued at amortized cost;
those with maturities greater than 60 days are valued at the mean between
bid and asked price.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices and may consider institutional
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics and other market data
employed in determining valuation for such securities.
All other securities and assets will be appraised at fair value as
determined by the Board of Trustees.
Generally, trading in foreign securities, as well as U.S.
Government securities, money market instruments and repurchase agreements,
is substantially completed each day at various times prior to the close of
the Exchange. The values of such securities used in computing the net asset
value of shares of a Fund are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the
Exchange. Occasionally, events affecting the value of such securities and
exchange rates may occur between the times at which they are determined and
the close of the Exchange, which will not be reflected in the computation of
net asset values. If during such periods events occur which materially
affect the value of such securities, the securities will be valued at their
fair market value as determined in good faith by the Trustees of the Fund.
For purposes of determining the net asset value of shares of a Fund
all assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing
service that takes into account the quotes provided by a number of such
major banks.
LB MONEY MARKET FUND
The net asset value for each share of the LB Money Market Fund
remains at $1.00.
USE OF AMORTIZED COST METHOD
The Trustees have determined that the best method for determining
the value of portfolio securities of the LB Money Market Fund is the
amortized cost method. The Executive Committee will continue to assess this
method of valuation and recommend changes to assure that the Fund's
portfolio instruments are properly valued.
The LB Money Market Fund's use of the amortized cost method of
valuing portfolio securities depends on its compliance with an order (the
"Order") of permanent exemption from certain provisions of the Investment
Company Act of 1940 granted by the Securities and Exchange Commission. Under
the Order, the Fund's Trustees must establish procedures reasonably designed
to stabilize the net asset value per share as computed for purposes of
distribution and redemption at $1.00 per share, taking into account current
market conditions and the Fund's investment objective.
The Trustee's procedures include monitoring the relationship
between the amortized cost value per share and a net asset value per share
based upon available indications of market value. The Trustees will decide
if any steps should be taken if there is a difference of more than .5%
between the two. The Trustees will take any steps they consider appropriate
(such as redemption in kind or shortening the average portfolio maturity) to
minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.
INVESTMENT RESTRICTIONS
The Order requires that the LB Money Market Fund limit its
investments to instruments that, in the opinion of the Trustees, present
minimal credit risks and that are of high quality as determined by any major
rating agency. If they are not rated, the Trustees must determine that the
instrument is of comparable quality. It also calls for the Fund to maintain
a dollar weighted average portfolio maturity (not more than 90 days)
appropriate to its objective of maintaining a stable net asset value of
$1.00 per share.
The Order also allows the purchase of any instrument with a
remaining maturity of more than one year. Should the disposition of a
portfolio security result in a dollar weighted average portfolio maturity of
more than 90 days, the Fund will invest its available cash to reduce the
maturity to 90 days or less as soon as practicable. The 90-day maximum
dollar-weighted average maturity notwithstanding, it is the Fund's intention
to not exceed a dollar-weighted average maturity of 90 days.
It is the Fund's usual practice to hold portfolio securities to
maturity and realize par, unless sale or other disposition is mandated by
redemption requirements or other extraordinary circumstances. Under the
amortized cost method of valuation traditionally employed by institutions
for valuation of money market instruments, neither the amount of daily
income nor the net asset value is affected by any unrealized appreciation or
depreciation of the portfolio.
In periods of DECLINING interest rates, the indicated daily yield on
shares of the Fund computed by dividing the annualized daily income on the
Fund's portfolio by the net asset value computed as above may tend to be
higher than a similar computation made by using a method of valuation based
upon market prices and estimates.
In periods of RISING interest rates, the indicated daily yield on
shares of the Fund computed by dividing the annualized daily income on the
Fund's portfolio by the net asset value as computed above may tend to be
lower than a similar computation made by using a method of calculation based
upon market prices and estimates.
CONVERSION TO FEDERAL FUNDS
It is the LB Money Market Fund's policy to be as fully invested as
possible so that maximum interest may be earned on money market instruments
in the Fund's portfolio. To the end, all payments from investors must be in
federal funds or be converted into federal funds when deposited to State
Street Bank' account at the Boston Federal Reserve Bank. This conversion
must be made before shares are purchased. State Street Bank will act as the
investor's agent in depositing checks and converting them to federal funds.
State Street will convert the funds and enter the investor's order for
shares within two days of receipt of the check.
REDEEMING SHARES
Shares may be redeemed with requests made:
- in writing;
- through Redeem-by-Phone; or
- through the Lutheran Brotherhood systematic withdrawal plan.
All methods of redemption are described in the Funds' prospectus
under "Redeeming Shares".
TAX STATUS
THE FUNDS' TAX STATUS
The Funds expect to pay no federal income tax because they intend to
meet requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, each Fund must,
for each of its tax years that has begun on or prior to August 5, 1997,
among other requirements:
- derive at least 90% of its gross income from dividends,
interest, gains from the sale of securities, and certain
other investments;
- derive less than 30% of its gross income from the sale of
securities held less than three months (the "30% test");
- invest in securities within certain statutory limits; and
- distribute at least 90% of its ordinary income to
shareholders.
For any Fund tax year beginning after August 5, 1997, the Fund will have to
comply with each of the requirements listed above except the 30% test in
order to qualify for such treatment.
It is each Fund's policy to distribute substantially all of its
income on a timely basis, including any net realized gains on investments
each year.
To avoid payment of a 4% excise tax, each Fund is also generally
required to distribute to shareholders at least 98% of its ordinary income
earned during the calendar year and 98% of its net capital gains realized
during the 12-month period ending October 31.
SHAREHOLDERS' TAX STATUS
Information on a shareholder's tax status is described in the Fund's
prospectus under "Taxes."
CAPITAL GAINS
While the Funds do not intend to engage in short-term trading, they
may dispose of securities held for only a short time if LB Research believes
it to be advisable. Such changes may result in the realization of capital
gains. Each Fund distributes its realized gains in accordance with federal
tax regulations. Distributions from any net realized capital gains will
usually be declared in December.
GENERAL INFORMATION
The Lutheran Brotherhood Family of Funds, a business trust organized
under the laws of the State of Delaware, was established pursuant to a
Master Trust Agreement dated July 15, 1993. The Trust is authorized to issue
shares of beneficial interest, par value $.001 per share, divisible into an
indefinite number of different series and classes and operates as a "series
company" as provided by Rule 18f-2 under the 1940 Act. Currently, eight
series of the Trust exist and each series is authorized to issue three
classes of shares: Class A, Class B and Institutional Class shares.
Effective October 31, 1997, all of the outstanding shares of the Funds were
redesignated as Class A shares and, immediately thereafter, shares held by
Lutheran institutions and church organizations with accounts of at least
$100,000 were automatically converted to Institutional Class shares. The
attributes of the various classes of shares are more fully described in
their respective prospectus. The interests of investors in the various
series of the Trust will be separate and distinct.
The assets received by the Trust from the issue and sale of shares
of a Fund and all income, earnings, profits and proceeds thereof, subject
only to the rights of creditors, are specially allocated to each class of
such Fund and constitute the underlying assets of such Fund. The underlying
assets of such Fund are required to be segregated on the books of account,
and are charged with the expenses in respect of each class of the Fund and
with a share of the general expenses of the Trust. Under the Trust's
Multiple Class Expense Allocation Plan adopted under Rule 18f-3 of the 1940
Act, all expenses other than Rule 12b-1 and shareholder servicing fees are
allocated pro rata based on the relative net assets of each class. Upon any
liquidation of a Fund, shareholders thereof are entitled to share pro rata
in the net assets of each class available for distribution.
Except for the LB World Growth Fund and the LB Mid Cap Growth Fund,
each Fund is the successor to a fund of the same name that previously
operated as a separate corporation or trust. At a Special Meeting of
Shareholders of each such fund held on October 28, 1993, the shareholders of
each fund approved a reorganization of the respective funds as separate
series of the Trust, which reorganization became effective on November 1,
1993. The LB World Growth Fund and the LB Mid Cap Growth Fund commenced
operations as a series of The Lutheran Brotherhood Family of Funds on
September 5, 1995 and May 30, 1997, respectively.
CALCULATION OF PERFORMANCE DATA
The total return and yield of the Class A, Class B and Institutional
Class shares will be calculated as set forth below. Total return and yield
are computed separately for each class of shares of the Funds. The
performance data listed below covers periods prior to the adoption of the
current class designations. Shares of the Funds had no class designations
until October 31, 1997, when designations were assigned based upon the sales
charges, Rule 12b-1 fees and shareholder servicing fees applicable to shares
sold thereafter. Total return and yield performance data for periods prior
to October 31, 1997 have been restated to reflect the revised initial sales
charge schedule for the Class A shares and the CDSC for the Class B shares
that became effective on that date. However, the total return and yield
performance data have not been restated to reflect Rule 12b-1 fees for the
Class B shares and shareholder servicing fees for the Class A and B shares,
which will adversely affect performance after October 31, 1997.
Future performance data will reflect Rule 12b-1 fees, shareholder
servicing fees and sales charges, where applicable, as follows:
Class Rule 12b-1 Shareholder Sales Charge
Servicing Fee
---------- ------------- -------------
A None .25% of average Maximum 4.0% initial
daily net assets sales charge
reflected(1)
B .75% of .25% of average 1- and 5- year
average daily daily net assets periods reflect a
net assets(1) 5% and 1% CDSD,
respectively(1)
Institutional None None None
- -----------------
(1) Except for LB Money Market Fund, which is not subject to initial
sales charges, CDSC or Rule 12b-1 fees.
Calculations of performance data for all Funds except LB Opportunity
Growth Fund in this section reflect the subsidization by Fund affiliates of
fees and expenses relating to the Fund during the subject period. In the
absence of such subsidization actual performance would be lower.
TOTAL RETURN
Average annual total return is computed by determining the average
annual compounded rates of return over the designated periods that, if
applied to the initial amount invested would produce the ending redeemable
value, according to the following formula:
P(1+T)(n) = ERV
[In the above formula "n" is an exponent.]
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
designated period assuming a hypothetical
$1,000 payment made at the beginning of the
designated period
The calculation is based on the further assumptions that the maximum
initial sales charge applicable to the investment is deducted, and that all
dividends and distributions by the Fund are reinvested at net asset value on
the reinvestment dates during the periods. All accrued expenses are also
taken into account as described later herein.
The following table presents the average annual returns of the Class
A shares for the indicated periods ended October 31, 1997:
AVERAGE ANNUAL TOTAL RETURNS FOR CLASS A SHARES FOR THE INDICATED PERIODS
ENDED
OCTOBER 31, 1997*
LB OPPORTUNITY
GROWTH FUND LB FUND LB HIGH YIELD FUND
- - -------------------- ----------------- ------------------
1 year 3.20% 1 year 21.92% 1 year 9.90%
Since Fund 16.13% 5 years 14.87% 5 years 11.18%
Inception
1/8/93
10 years 13.80% 10 Years 10.98%
LB INCOME FUND LB MUNICIPAL BOND FUND LB MONEY MARKET FUND
- - --------------- ------------------ --------------------
[S] [C] [C] [C] [C] [C]
1 year 3.77% 1 year 3.93% 1 year 4.74%
5 years 5.90% 5 years 6.57% 5 years 3.88%
10 years 8.52% 10 years 8.22% 10 years 5.11%
LB WORLD GROWTH FUND LB MID CAP GROWTH FUND
- - ------------------ ----------------------
1 Year 3.04% Since Fund 7.16%
Inception
Since Fund 6.80% (5/30/97)
Inception
(9/5/95)
* Reflects the revised initial sales charge schedule for the Class A
shares effective October 31, 1997. Does not reflect the shareholder
servicing fee applicable to the Class A shares after October 31, 1997.
YIELD
Yield is computed by dividing the net investment income per share
earned during a recent month or other specified 30-day period by the
applicable maximum offering price per share on the last day of the period
and annualizing the result, according to the following formula:
[A formula is expressed here that is as follows:
Yield is equal to 2 times the difference between the sixth power of
a number and 1, where that number is equal to the sum of the quotient of a
divided by b and 1.]
Where:
a = dividends and interest earned during the period
minus expenses accrued for the period (net of
voluntary expense reductions by the Investment
Manager)
b = the average daily number of shares outstanding
during the period that were entitled to receive
dividends multiplied by the maximum offering
price per share on the last day of the period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, a Fund computes the yield to maturity of each obligation held
by a Fund based on the market value of the obligation (including actual
accrued interest) at the close of the last business day of the preceding
period, or, with respect to obligations purchased during the period, the
purchase price (plus actual accrued interest). The yield to maturity is then
divided by 360 and the quotient is multiplied by the market value of the
obligation (including actual accrued interest) to determine the interest
income on the obligation for each day of the period that the obligation is
in the portfolio. Dividend income is recognized daily based on published
rates.
In the case of a tax-exempt obligation issued without original issue
discount and having a current market discount, the coupon rate of interest
is used in lieu of the yield to maturity. Where, in the case of a tax-exempt
obligation with original issue discount, the discount based on the current
market value exceeds the then-remaining portion of original issue discount
(market discount), the yield to maturity is the imputed rate based on the
original issue discount calculation. Where, in the case of a tax-exempt
obligation with original issue discount, the discount based on the current
market value is less than the then-remaining portion of original issue
discount (market premium), the yield to maturity is based on the market
value. Dividend income is recognized daily based on published rates.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to
monthly payments of principal and interest ("paydowns"), a Fund accounts for
gain or loss attributable to actual monthly paydowns as a realized capital
gain or loss during the period. Each Fund has elected not to amortize
discount or premium on such securities.
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the
end of the base period, has not been declared as a dividend, but is
reasonably expected to be declared as a dividend shortly thereafter. The
maximum offering price includes, as applicable, a maximum sales charge of
4.0%.
All accrued expenses are taken into account as described later
herein.
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings
accounts and similar investment alternatives which are insured and/or often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that yield is a function of the kind and
quality of the instruments in the Fund's portfolio, portfolio maturity and
operating expenses and market conditions.
The 30-day yield for the base period ended October 31, 1997,
including the maximum sales charge of 4% for the LB High Yield Fund, LB
Income Fund and LB Municipal Bond Fund were 8.90%, 5.65%, and 4.16%,
respectively.
TAX EQUIVALENT YIELD
The LB Municipal Bond Fund may quote its tax equivalent yield. The
LB Municipal Bond Fund's tax equivalent yield is computed by dividing that
portion of such Fund's yield (computed as described under "Yield" above)
which is tax-exempt, by the complement of the combined federal and state
maximum effective marginal rate and adding the result to that portion, if
any, of the yield of such Fund that is not tax-exempt. The complement, for
example, of a tax rate of 31% is 69%, that is 1.00 - 0.31 = 0.69.
The LB Municipal Bond Fund's tax equivalent yields for the 30-day
base period ended October 31, 1997, including the maximum sales charge of 4%
assuming a tax rate of 15%, 28%, 31% and 39.6%, were 4.89%, 5.78%, 6.03% and
6.89%, respectively.
YIELD - MONEY MARKET FUND
When the LB Money Market Fund quotes a "current annualized" yield,
it is based on a specified recent seven calendar-day period. It is computed
by (1) determining the net change, exclusive of capital changes, in the
value of a hypothetical preexisting account having a balance of one share at
the beginning of the period, (2) dividing the net change in account value by
the value of the account at the beginning of the base period to obtain the
base return, then (3) multiplying the base period by 52.14 (365 divided by
7). The resulting yield figure is carried to the nearest hundredth of one
percent.
The calculation includes (1) the value of additional shares
purchased with dividends on the original share, and dividends declared on
both the original share and any such additional shares, and (2) all fees
charge to all shareholder accounts, in proportion to the length of the base
period and the Trust's average account size.
The capital changes excluded from the calculation are realized
capital gains and losses from the sale of securities and unrealized
appreciation and depreciation. The Fund's effective (compounded) yield will
be computed by dividing the seven-day annualized yield as defined above by
365, adding 1 to the quotient, raising the sum to the 365th power, and
subtracting 1 from the result.
Current and effective yields fluctuate daily and will vary with
factors such as interest rates and the quality, length of maturities, and
type of investments in the portfolio.
Yield For 7-day Period Ended 10/31/97...................... 4.74%
Effective Yield For 7-day Period Ended 10/31/97............ 4.85%
ACCRUED EXPENSES
Accrued expenses include all recurring expenses that are charged to
all shareholder accounts in proportion to the length of the base period. The
average annual total return and yield results take sales charges, if
applicable, into account, although the results do not take into account
recurring and nonrecurring charges for optional services which only certain
shareholders elect and which involve nominal fees.
Accrued expenses include the subsidization by Fund affiliates of
fees or expenses relating to a Fund, during the subject period.
NONSTANDARDIZED TOTAL RETURN
A Fund may provide the above described average annual total return
results for periods which end no earlier than the most recent calendar
quarter end and which begin one, five and ten years before such quarter end
and at the commencement of such Fund's operations. In addition, a Fund may
provide nonstandardized total return results for differing periods, such as
for the most recent six months, and/or without taking sales charges into
account. Such nonstandardized total return is computed as otherwise
described under "Total Return" except that the result may or may not be
annualized, and as noted any applicable sales charge may not be taken into
account and therefore not deducted from the hypothetical initial payment of
$1,000.
REPORT OF INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The Report of Independent Accountants and financial statements in the
Annual Report to Shareholders for the fiscal year ended October 31, 1997 of
the Funds are a separate report furnished with this Statement of Additional
Information and are incorporated herein by reference.
<PAGE>
PART C
THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- -------------------------------------------
(a) Financial Statements
(1) Financial Statements included in PART A (Prospectus) of this
Registration Statement:
(A) Financial Highlights for Lutheran Brotherhood Opportunity
Growth Fund for the fiscal year ended October 31, 1997
(B) Financial Highlights for Lutheran Brotherhood Mid Cap
Growth Fund for the fiscal year ended October 31, 1997
(C) Financial Highlights for Lutheran Brotherhood World
Growth Fund for the fiscal year ended October 31, 1997
(D) Financial Highlights for Lutheran Brotherhood Fund for
the fiscal year ended October 31, 1997
(E) Financial Highlights for Lutheran Brotherhood High Yield
Fund for the fiscal year ended October 31, 1997
(F) Financial Highlights for Lutheran Brotherhood Income Fund
for the fiscal year ended October 31, 1997
(G) Financial Highlights for Lutheran Brotherhood Municipal
Bond Fund for the fiscal year ended October 31, 1997
(H) Financial Highlights for Lutheran Brotherhood Money
Market Fund for the fiscal year ended October 31, 1997
(2) Financial Statements included in the Annual Report to Shareholders
for the period ended October 31, 1997 as incorporated by reference
into PART B (Statement of Additional Information) of this
Registration Statement for Lutheran Brotherhood Opportunity Growth
Fund, Lutheran Brotherhood Mid Cap Growth Fund, Lutheran
Brotherhood World Growth Fund, Lutheran Brotherhood Fund, Lutheran
Brotherhood High Yield Fund, Lutheran Brotherhood Income Fund,
Lutheran Brotherhood Municipal Bond Fund, Lutheran Brotherhood
Money Market Fund:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements (including Financial
Highlights referenced to the Prospectus)
Report of Independent Accountants
(b) Exhibits
(1) First Amended and Restated Master Trust Agreement of the
Registrant (4)
(1)(b) Form of Amendment No. 1 to First Amended and Restated Master
Trust Agreement (1)
(1)(c) Form of Amendment No. 2 to First Amended and Restated Master
Trust Agreement (2)
(1)(d) Form of Amendment No. 3 to First Amended and Restated Master
Trust Agreement (3)
(2) By-Laws of the Registrant (4)
(3) Not applicable
(4) Not applicable
(5)(a) Form of Master Advisory Contract between the Registrant and
Lutheran Brotherhood Research Corp. (4)
(5)(b) Form of Amendment to Master Advisory Contract (1)
(5)(c) Form of Sub-Advisory Agreement between Lutheran Brotherhood
Research Corp. and Rowe Price-Fleming International, Inc. (1)
(5)(d) Form of Sub-Advisory Agreement between Lutheran Brotherhood
Research Corp., the Registrant and T. Rowe Price Associates,
Inc. (5)
(6) Form of Amended and Restated Distribution Contract (3)
(7) Not applicable
(8)(a) Form of Custodian Contract between the Registrant and State
Street Bank and Trust Company (4)
(8)(b) Form of Amended and Restated Transfer Agency Agreement between
the Registrant and Lutheran Brotherhood Securities Corp. (3)
(8)(c) Form of Administrative Services Agreement between the Registrant
and Lutheran Brotherhood Securities Corp. (4)
(8)(d) Form of Amendment to Custodian Contract (1)
(8)(f) Administration Contract Between The Lutheran Brotherhood Family
of Funds and Lutheran Brotherhood Securities Corp. (1)
(8)(g) Form of Amendment to Administrative Services Agreement (1)
(8)(h) Form of Amendment to Custodian Contract (2)
(8)(j) Form of Amendment to Administration Contract (2)
(9) Not applicable
(10) Opinion and consent of counsel (4)(6)
(11) Consent of Independent Accountants (6)
(12) Not applicable
(13)(a) Subscription and Investment Letter with respect to each of
Lutheran Brotherhood Opportunity Growth Fund, Lutheran
Brotherhood Fund, Lutheran Brotherhood High Yield Fund, Lutheran
Brotherhood Income Fund, Lutheran Brotherhood Municipal Bond Fund
and Lutheran Brotherhood Money Market Fund (4)
(13)(b) Form of Subscription and Investment Letter with respect to
Lutheran Brotherhood World Growth Fund (1)
(13)(c) Form of Subscription and Investment Letter with respect to
Lutheran Brotherhood Mid Cap Growth Fund (2)
(14)(a)(i) Lutheran Brotherhood Defined Contribution Plan and Trust,
Standardized Target Benefit Plan and Trust Adoption
Agreement, Target Benefit Plan and Trust Adoption Agreement,
Standardized Nonintegrated Profit Sharing Plan and Trust
Adoption Agreement, Standardized Nonintegrated Money Purchase
Plan and Trust Adoption Agreement, Standardized Integrated
Profit Sharing Plan and Trust Adoption Agreement,
Standardized Integrated Money Purchase Plan and Trust
Adoption Agreement, Integrated Money Purchase Plan and Trust
Adoption Agreement, Nonintegrated Money Purchase Plan and
Trust Adoption Agreement, Nonintegrated Profit Sharing Plan
and Trust Adoption Agreement and Integrated Profit Sharing
Plan and Trust Adoption Agreement (4)
(14)(a)(ii) Lutheran Brotherhood Defined Benefit Plan and Trust,
Standardized Nonintegrated Defined Benefit Plan Adoption
Agreement and Standardized Integrated Defined Benefit Plan
and Trust Adoption Agreement (4)
(14)(b) Lutheran Brotherhood Individual Retirement Account, Disclosure
Statement and Custodial Agreement (4)
(14)(c) Lutheran Brotherhood Self-Directed Individual Retirement Account,
Supplemental Disclosure Statement, Disclosure Statement and
Custodial Agreement (4)
(14)(d) Lutheran Brotherhood Tax Sheltered Custodial Account (4)
(14)(e) Lutheran Brotherhood Prototype Simplified Employee Pension Plan
(4)
(15)(a) Plan of Distribution Pursuant to Rule 12b-1 with respect to the
Class B Shares (3)
(15)(b) Shareholder Servicing Plan with respect to the Class A Shares (3)
(15)(c) Shareholder Servicing Plan with respect to the Class B Shares (3)
(16) Schedule of computation of performance data provided in response
to Item 22 of this Registration Statement (4)
(17) Financial Data Schedule (6)
(18) Multiple Class Expense Allocation Plan Adopted Pursuant to Rule
18f-3 (3)
(19)(a) Powers of Attorney for:
(i) Rolf F. Bjelland, Wade M. Voigt, Charles W. Arnason,
Herbert F. Eggerding, Jr., and Ruth E. Randall (4)
(ii) Connie M. Levi (4)
(19)(b) Power of Attorney for Bruce J. Nicholson (1)
(19)(c) Power of Attorney for Noel K. Estenson (3)
- --------------------
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote
Reference Securities Act of 1933 Amendment Date Filed
--------- -------------------------------- ----------
(1) Post-Effective Amendment No. 55 June 19, 1995
(2) Post-Effective Amendment No. 58 March 10, 1997
(3) Post-Effective Amendment No. 60 October 28, 1997
(4) Post-Effective Amendment No. 61 December 31, 1997
(5) Post-Effective Amendment No. 62 March 16, 1998
(6) Filed herewith
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of December 1, 1997 the numbers of record holders of shares of the
Registrant was as follows:
(1) (2)
Number of
Title of Class Record Holders
Shares of Beneficial Interest
Lutheran Brotherhood Opportunity Growth Fund 57,970
Lutheran Brotherhood Mid Cap Growth Fund 4,885
Lutheran Brotherhood World Growth Fund 17,583
Lutheran Brotherhood Fund 90,955
Lutheran Brotherhood High Yield Fund 58,459
Lutheran Brotherhood Income Fund 55,084
Lutheran Brotherhood Municipal Bond Fund 21,730
Lutheran Brotherhood Money Market Fund 53,340
Item 27. Indemnification
Under Article VI of the Registrant's Master Trust Agreement each
of its Trustees and officers or persons serving in such capacity with
another entity at the request of the Registrant ("Covered Person") shall be
indemnified against all liabilities, including, but not limited to, amounts
paid in satisfaction of judgments, in compromises or as fines or penalties,
and expenses, including reasonable legal and accounting fees, in connection
with the defense or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or administrative or legislative
body, in which such Covered Person may be or may have been involved as a
party or otherwise or with which such Covered Person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer, director or trustee, except with respect to any
matter as to which it has been determined that such Covered Person had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's office (such
conduct referred to hereafter as "Disabling Conduct"). A determination that
the Covered Person is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before which the proceeding
was brought that the person to be indemnified was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of evidence of
Disabling Conduct, or (iii) a reasonable determination, based upon a review
of the facts, that the indemnitee was not liable by reason of Disabling
Conduct by (a) a vote of a majority of a quorum of Trustees who are neither
"interested persons" of the Registrant as defined in section 2(a)(19) of the
1940 Act nor parties to the proceeding, or (b) an independent legal counsel
in a written opinion.
Under the Distribution Agreement between the Registrant and
Lutheran Brotherhood Securities Corp., the Registrant's distributor, the
Registrant has agreed to indemnify, defend and hold Lutheran Brotherhood
Securities Corp., its officers, directors, employees and agents and any
person who controls Lutheran Brotherhood Securities Corp. free and harmless
from and against any loss, claim, damage, liability and expense incurred by
any of them arising out of or based upon any untrue or alleged untrue
statement of material fact, or the omission or alleged omission to state a
material fact necessary to make the statements made not misleading, in a
Registration Statement, the Prospectus or Statement of Additional
Information of the Registrant, or any amendment or supplement thereto,
unless such statement or omission was made in reliance upon written
information furnished by Lutheran Brotherhood Securities Corp.
Under the Amended and Restated Transfer Agent and Service
Agreement between the Registrant and Lutheran Brotherhood Securities Corp.,
the Registrant has agreed, provided that Lutheran Brotherhood Securities
Corp. has at all relevant times acted in good faith and without negligence
or willful misconduct, to indemnify and hold Lutheran Brotherhood Securities
Corp. harmless from and against any and all losses, damages, costs, charges,
attorneys fees, payments, expenses and liability arising out of or
attributable to (a) all actions of Lutheran Brotherhood Securities Corp. or
its agents or subcontractors required to be taken under the Transfer Agency
and Service Agreement or which arise out of the Registrant's lack of good
faith, negligence, or willful misconduct or the breach of any representation
or warranty of the Registrant under the Transfer Agency and Service
Agreement, (c) the reliance on or use by Lutheran Brotherhood Securities
Corp. or its agents or subcontractors of information, records or documents
which are furnished by or on behalf of Registrant, (d) the reliance on or
the carrying out by Lutheran Brotherhood Securities Corp. or its agents or
subcontractors of any instructions or requests by Registrant, or (e) the
offer or sale of shares of the Registrant unknown by Lutheran Brotherhood
Securities Corp. to be in violation of law.
Insofar as indemnification by the Registrant for liabilities
arising under the Securities Act of 1933 may be permitted to trustees,
officers, underwriters and controlling persons of the Registrant, pursuant
to Article VI of the Registrant's Master Trust Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such
trustee, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
Lutheran Brotherhood Research Corp. has been engaged in the investment
advisory business since 1970. Lutheran Brotherhood, the indirect parent
company of LB Research, also acts as investment adviser to LB Series Fund,
Inc.
The directors and officers of Lutheran Brotherhood Research Corp. are
listed below, together with their principal occupations during the past two
years. (Their titles may have varied during that period.)
Directors:
Robert P. Gandrud, Chairman (President and Chief Executive Officer of
Lutheran Brotherhood)
Bruce J. Nicholson (Executive Vice President and Chief Operating
Officer of Lutheran Brotherhood)
David W. Angstadt (Executive Vice President and Chief Marketing Officer
of Lutheran Brotherhood)
Rolf F. Bjelland (Executive Vice President of Lutheran Brotherhood)
Jerald E. Sourdiff (Senior Vice President and Chief Financial Officer
of Lutheran Brotherhood)
David J. Larson (Senior Vice President and General Counsel of Lutheran
Brotherhood)
Jennifer H. Martin (Senior Vice President of Lutheran Brotherhood)
Officers:
Rolf F. Bjelland, President
David K. Stewart, Treasurer (Vice President and Treasurer of Lutheran
Brotherhood)
Otis F. Hilbert, Secretary (Vice President of Lutheran Brotherhood)
Jerald E. Sourdiff, Chief Financial Officer (Chief Financial Officer
and Senior Vice President of Lutheran Brotherhood)
Charles E. Heeren, Vice President (Vice President of Lutheran
Brotherhood)
James R. Olson, Vice President (Senior Vice President of Lutheran
Brotherhood)
James M. Walline, Vice President (Vice President of Lutheran
Brotherhood)
Randall L. Boushek, Vice President (Vice President of Lutheran
Brotherhood)
Michael A. Binger, Assistant Vice President (Associate Portfolio
Manager of Lutheran Brotherhood)
Janet I. Grangaard, Assistant Vice President (Assistant Vice President
of Lutheran Brotherhood)
Thomas N. Haag, Assistant Vice President (Assistant Vice President of
Lutheran Brotherhood)
Fred P. Johnson, Assistant Vice President (Assistant Vice President of
Lutheran Brotherhood)
Michael G. Landreville, Assistant Vice President (Assistant Vice
President of Lutheran Brotherhood)
Paul J. Ocenasek, Assistant Vice President (Assistant Vice President of
Lutheran Brotherhood)
Gail R. Onan, Assistant Vice President (Portfolio Manager of Lutheran
Brotherhood)
Brian L. Thorkelson, Assistant Vice President (Portfolio Manager of
Lutheran Brotherhood)
Scott A. Vergin, Assistant Vice President (Portfolio Manager of
Lutheran Brotherhood)
Marie A. Sorensen, Assistant Vice President (Assistant Vice President
of Lutheran Brotherhood)
John C. Bjork, Assistant Secretary (Counsel of Lutheran Brotherhood)
James M. Odland, Assistant Secretary (Assistant Vice President of
Lutheran Brotherhood)
Randall L. Wetherille, Assistant Secretary (Assistant Vice President of
Lutheran Brotherhood)
The business address of each of the above directors and officers
employed by Lutheran Brotherhood is 625 Fourth Avenue South, Minneapolis,
Minnesota 55415.
The business and other connections of the officers and directors of Rowe
Price-Fleming International, Inc. ("Sub-advisor") are set forth in the Form
ADV of Sub-advisor currently on file with the Securities and Exchange
Commission (File No. 801-14713)
Item 29. Principal Underwriters
(a) Lutheran Brotherhood Securities Corp. also serves as principal
underwriter for LB Series Fund, Inc.
(b) Directors and officers of Lutheran Brotherhood Securities Corp.
are as follows:
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
------------------ ---------------- --------------------
David W. Angstadt President and --
625 Fourth Avenue South Director
Minneapolis, MN 55415
Rolf F. Bjelland Director --
625 Fourth Avenue South
Minneapolis, MN 55415
Bruce J. Nicholson Director --
625 Fourth Avenue South
Minneapolis, MN 55415
Robert P. Gandrud Chairman and Director --
625 Fourth Avenue South
Minneapolis, MN 55415
Jerald E. Sourdiff Chief Financial Officer --
625 Fourth Avenue South and Director
Minneapolis, MN 55415
Otis F. Hilbert Vice President Vice President
625 Fourth Avenue South and Secretary and Secretary
Minneapolis, MN 55415
David K. Stewart Treasurer --
625 Fourth Avenue South
Minneapolis, MN 55415
David J. Larson Director --
625 Fourth Avenue South
Minneapolis, MN 55415
Jennifer H. Martin Director --
625 Fourth Avenue South
Minneapolis, MN 55415
Larry A. Borlaug Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
Collen Both Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
J. Keith Both Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
Mitchell F. Felchle Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
Wayne A. Hellbusch Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
Douglas B. Miller Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
C. Theodore Molen Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
James R. Olson Vice President Vice President
625 Fourth Avenue South
Minneapolis, MN 55415
William H. Reichwald Vice President --
625 Fourth Avenue South
Minneapolis, MN 55415
Richard B. Ruckdashel Vice President Vice President
625 Fourth Avenue South
Minneapolis, MN 55415
(c) Not Applicable.
Item 30. Location of Accounts and Records
The Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment Company
Act of 1940 at its principal executive offices at 625 Fourth Avenue South,
Minneapolis, Minnesota 55415. Certain records, including records relating to
Registrant's shareholders and the physical possession of its securities, may
be maintained pursuant to Rule 31a-3 under the Investment Company Act of
1940 by the Registrant's transfer agent or custodian at the following
locations:
Name Address
---- -------
Lutheran Brotherhood Securities Corp. 625 Fourth Avenue South
Minneapolis, Minnesota 55415
Norwest Bank Minnesota, N.A. Sixth and Marquette Avenue
Minneapolis, Minnesota 55402
State Street Bank and Trust Company 225 Franklin Street
Boston, Massachusetts 02110
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report
to shareholders upon request and without charge.
The Registrant hereby undertakes, if requested to do so by the holders
of at least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
trustee or trustees and to assist in communications with other shareholders
as required by Section 16(c) of the Investment Company Act of 1940.
The Registrant hereby undertakes to file a post-effective amendment to
its registration for the purposes of filing updated financial statements
(which need not be audited) within the time limit specified by Item 32(b) of
Form N-1A.
Notice
A copy of the Master Trust Agreement of the Registrant is on file with
the Secretary of State of the State of Delaware and notice is hereby given
that the obligations of the Registrant hereunder, and the authorization,
execution and delivery of this amendment to the Registrant's Registration
Statement, shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Registrant as individuals or
personally, but shall bind only the property of the Funds of the Registrant,
as provided in the Master Trust Agreement. Each Fund of the Registrant shall
be solely and exclusively responsible for the payment of any of its direct
or indirect debts, liabilities and obligations, and no other Fund shall be
responsible for the same.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this amendment to its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of
Minneapolis and State of Minnesota, on the 13th day of May, 1998.
THE LUTHERAN BROTHERHOOD
FAMILY OF FUNDS
By: /s/ Randall L. Wetherille
-------------------------------
Randall L. Wetherille,
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to this registration statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature Title Date
* Trustee and President May 13, 1998
- ------------------------ (Principal Executive Officer)
Rolf F. Bjelland
* Treasurer May 13, 1998
- ------------------------ (Principal Financial and
Wade M. Voigt Accounting Officer)
* Trustee May 13, 1998
- ------------------------
Charles W. Arnason
* Trustee May 13, 1998
- -------------------------
Herbert F. Eggerding, Jr.
* Trustee May 13, 1998
- -------------------------
Noel K. Estenson
* Trustee May 13, 1998
- ------------------------
Connie M. Levi
* Trustee May 13, 1998
- ------------------------
Bruce J. Nicholson
* Trustee May 13, 1998
- ------------------------
Ruth E. Randall
* By: /s/ Randall L. Wetherille
----------------------------
Randall L. Wetherille,
Attorney-in-Fact Under Powers
of Attorney filed herewith and
incorporated by reference from
Post-Effective Amendment Nos. 55,
60, and 61.
<PAGE>
INDEX TO EXHIBITS
(10) Opinion and Consent of Counsel
(11) Consent of Independent Accountants
(17) Financial Data Schedule
[7 SOLID SQUARE BULLETS]
- -------------------------------------------
LUTHERAN BROTHERHOOD
- -------------------------------------------
FAMILY OF FUNDS
- -------------------------------------------
[ART OF 3D SQUARE WITH TREE, ACORN AND LEAF
ON EACH OF ITS THREE VISIBLE FACETS.]
Cross bar reads:
GROWTH [DIAMOND] INCOME [DIAMOND] STABILITY
Prospectus
December 30, 1997
Annual Report
October 31, 1997
[LUTHERAN BROTHERHOOD LOGO HERE]
Table of Contents
Lutheran Brotherhood Family of Funds
Prospectus and Annual Report
Our Message To You Page 1
A Guide to Your Prospectus and Annual Report Page 2
Economic and Market Overview Page 3
Portfolio Management Reviews Pages 4-19
Choosing Investments That are Right for You Page 20
AssetMatchSM Questionnaire Pages 21-24
LB Family of Funds Prospectus Page P-1 through P-52
Refer to Page 3 of the prospectus for
a more detailed list of prospectus contents.
LB Family of Funds Annual Report Page A-1 through A-58
[ART OF 3D SQUARE WITH TREE, ACORN AND LEAF
ON EACH OF ITS THREE VISIBLE FACETS.]
Our Message to You
Dear Shareholder:
Enclosed is your December 30, 1997, Lutheran Brotherhood Family of
Funds Prospectus and Annual Report for the fiscal year ended
October 31, 1997.
In the past year, investors earned strong returns from stocks and
bonds -- which far outpaced their historical averages. The ride was
not always a smooth one, however. Frequently, market rallies were
followed by temporary set backs as investors second-guessed the
future of economic growth, inflation, and interest rates.
Fortunately, the markets rebounded quickly when investors saw that
U.S. economic fundamentals remained strong.
Perhaps most unnerving was the correction that took place late
in October of 1997 -- when currency and economic problems in the Far
East jolted investors around the globe. The 7% drop in the Dow Jones
Industrial Average on October 27 was eerily reminiscent of the 23%
price plunge of October ten years earlier. In 1997, as in 1987,
however, stock prices rapidly regained the ground they'd lost.
Investors who braved the record-setting correction of 1987 have been
well rewarded: From their low in October 1987 to their high in
August 1997, stock prices gained more than 350%. We've provided more
information on current market and economic conditions in the pages
that follow.
Lutheran Brotherhood has recently taken several steps to help you
make the most of your investments. You may now choose from two
classes of mutual fund shares. Class A Shares have a reduced maximum
sales charge of 4%, which you pay when you make your investment.
Class B Shares have no up-front sales charge, but have a contingent
deferred sales charge that you pay if you redeem your shares in the
first five years. The amount of this charge declines over time --
from 5% for shares you sell within a year, to 0% for shares you sell
after five years.
Having shares with different types of charges should make it easier
to tailor your investments to your individual time horizon.
We've also developed two computer software programs that will help
you take the guesswork out of your financial planning. With Lutheran
Brotherhood's AssetMatchSM, program, you and your LBSC registered
representative can create a diversified mix of mutual funds
appropriate for your particular objectives, time horizon, and
tolerance for risk. And with the Lutheran Brotherhood Retirement
Planner program, available from your LBSC registered representative,
you can determine the income you'll need when you retire. You'll
also be able to determine if you're on course to meet that
retirement goal and what steps you can take to assure your goal is
achieved.
For more information regarding AssetMatch, the Lutheran Brotherhood
Retirement Planner, or the new share classes of the Lutheran
Brotherhood Family of Funds, please contact your LBSC registered
representative, or call us toll free at 1-800-328-4552. We will also
be happy to answer any questions you might have about the Lutheran
Brotherhood Family of Funds Annual Report.
Sincerely,
Sincerely,
/s/ Rolf F. Bjelland
Rolf F. Bjelland
President and Chairman
Lutheran Brotherhood Family of Funds
This page does not constitute part of the prospectus or annual
report.
A Guide to Your LB Family of Funds Prospectus
At first glance, a prospectus might seem intimidating and
difficult to understand. To make sure you don't overlook key
information included in the prospectus, here are a few tips:
Mutual fund goals and
objectives
The investment objectives of the mutual funds, as well as the
strategies that back these objectives, are stated in the prospectus.
You can also learn more about the specific types of investments that
are included in each fund's portfolio. It's important to make sure
the fund's goals and objectives match your own.
Associated risks
Investing always involves some level of risk. The risk a fund is
willing to assume is referred to as "Investment Risks" in the
prospectus. Re-examine your financial goals and make sure the fund's
risk tolerance matches your own.
Performance record
To learn about past performance of your LB Family of Funds
investments, refer to "Total Investment Return at Net Asset Value"
in the section "Financial Highlights." You will find a 10-year track
record, except in the case of newer funds. Keep in mind, past
performance is no guarantee of future results.
Summary of fund expenses
To help investors monitor mutual fund expenses, locate the table
listing sales and management fees.
Tax information
The LB Family of Funds Prospectus also contains the
policy and tax status regarding each fund's distributions.
Shareholder services
This section describes shareholder services and
how they work. If you have questions, call LBSC toll free or contact
your LBSC registered representative.
A new prospectus is issued each year, and it's important to review
the updates for revisions that may affect you. After reviewing your
prospectus, file it with your other financial documents for future
reference.
Looking for specifics?
Read the annual report
(Pages A1-A58)
The LB Family of Funds prospectus describes the types of investments
and general policies that portfolio managers must use in the day-to-
day management of the funds. The annual and semi-annual reports
provide you with specifics on how the portfolio managers are going
about the task. Following are a few important things to review:
Portfolio of Investments
(Pages A3-A43)
Here's where you find out exactly what your fund owns. This section
lists the individual securities held in the portfolio along with
their value. The individual securities are grouped by investment
category.
Portfolio Manager Reviews
(Pages 4-19)
Overview
This section describes the economic climate and market environment
of the preceding six- or 12-month period, and how those factors
affected fund performance. Portfolio managers also discuss specific
strategies used to deal with these market factors, and any resulting
changes in the fund's portfolio.
A fund portfolio composition chart is provided, showing the
categories of securities owned, by percentage, at the end of the
perio D. Also provided is a summary of the fund's top
holdings or credit ratings of securities held in the portfolio.
Fund Performance and Benchmark Comparisons
How much has your investment grown? The 10-year performance of each
fund and its corresponding market index are charted for your review.
Included are one-, five- and 10-year annualized total returns. For
newer funds without five- or 10-year performance, returns since
inception are reported. Keep in mind, past performance is not an
indicator of future results.
This page does not constitute part of
the prospectus or annual report.
Economic and Market Overview October 31, 1997
Prices for stocks and bonds increased strongly in the 12 months
ended October 31, 1997. During that time, economic growth and
corporate earnings remained healthy, while inflation and interest
rates eased. Despite occasional volatility, the Standard & Poor's
500 Index earned a total return of 32.09%, and the Lehman Brothers
Aggregate Bond Index returned 8.89%.
For much of the year, investors worried that economic growth would
accelerate enough to push inflation and interest rates higher.
Instead, while growth remained strong, inflation and long-term
interest rates fell. The only Federal Reserve interest rate increase
during the period came in March of 1997 -- a modest increase of
0.25% in the federal funds rate. This caused bond prices to resume
their advance, and the yield on 30-year U.S. Treasury bonds declined
to 6.15% by the end of October.
Strength at Home, Weakness Abroad
For U.S. stocks, this was the third consecutive year of total
returns that nearly tripled their historical yearly average. Stocks
benefited from further corporate earnings growth as well as strong
demand and reduced supply. Despite an active initial public
offerings market, mergers and stock buyback programs helped shrink
the supply of outstanding stock.
Returns were more modest for stocks overseas. Although stocks in
Europe advanced strongly on continued economic growth, stocks in
Japan suffered from ongoing economic woes --
aggravated by currency problems among its trading partners in
the Far East. These divergent performances produced a 12-month total
return of 4.92% for the Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index.
Sector Performance
During the year, individual market sectors took somewhat different
paths. At the end of 1996, concerns about slower economic growth and
earnings drove investors to stocks of large companies with proven
earnings. However, by the second quarter of 1997, with prices for
large-company stocks quite expensive, investors saw that economic
growth was continuing and turned to the better values of small- and
medium-company stocks. By the third quarter, stocks of smaller firms
were outperforming large-company shares.
By the end October, prices for U.S. Treasury bonds had outperformed
prices for corporate and municipal bonds. With close ties to company
earnings, price gains for corporate bonds were limited by investor
doubts about the sustainability of the economy. After outperforming
Treasuries when interest rates were rising, municipals
underperformed when falling interest rates caused greater supply
relative to demand. Municipals and corporates also lagged as the
flight to quality during October's foreign currency crisis caused
heavy demand for U.S. Treasuries from investors worldwide.
More Moderate Gains Likely
Although exports to the Far East only account for about 5% of total
U.S. goods and services, many American companies may experience a
decrease in earnings if those exports recede. Earnings gains may
also decelerate from slower U.S. economic growth.
Overall, however, the investment picture looks bright. Modest
economic growth should mean reasonable inflation and interest rates
- -- which would help sustain the current economic expansion. With the
U.S. budget in balance for the first time in many years, there is
now more money available for the private capital investments needed
to keep an expansion alive. The extra wealth accumulated from the
strong investment returns of recent years should also help support
new growth.
Of course, stock prices remain high versus future earnings. With
weaker earnings, stock prices may advance less strongly and remain
vulnerable to periodic corrections. Given the positive economic
backdrop, however, this may simply mean that stock market returns
are closer to their historical average of 10%, instead of the 20% to
30% returns of recent years. Inflation fears may occasionally weaken
bond prices in the year to come. However, lower budget deficits and
slower growth should keep inflation at bay, and leave interest rates
at or below today's levels. As a result, U.S. bonds should remain
attractive to investors here and abroad.
This page is part of the annual report.
LB Opportunity Growth Fund
[GRAPHIC OMITTED: PHOTO OF Michael A. Binger]
Michael A. Binger is a Chartered Financial Analyst and was named
portfolio manager for the LB Opportunity Growth Fund in October
1994. He has been with Lutheran Brotherhood since 1987. Prior to
managing this fund, Mike served as portfolio manager for Lutheran
Brotherhood's Convertible Securities 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: 57,440
Total Assets
(in millions): $311.4
As stock prices rose in the past year, stocks of smaller companies
participated in the advance -- earning returns that were much higher
than their historical averages. Because investors were often
concerned about future earnings, however, they tended to favor
stocks of larger companies with proven earnings. This was especially
true late in 1996 and early in 1997. Then, as stocks of larger
companies grew more expensive, investors turned to the more
attractive values in stocks of smaller firms -- those with market
capitalizations of less than $1 billion. This helped the small-cap
sector rebound sharply.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Short-Term Securities 5.6%
Common Stocks 94.4%
[GRAPHIC OMITTED: Top 10 Holdings]
Top 10 Holdings % of Portfolio
FPA Medical Management, Inc. 2.2%
BMC Industries, Inc. 2.2%
Steiner Leisure Ltd. 2.0%
Cameron Ashley Building Products 2.0%
AXENT Technologies, Inc. 1.9%
Complete Management, Inc. 1.9%
ICN Pharmaceuticals, Inc. 1.7%
Signature Resorts, Inc. 1.7%
Atrix Laboratories, Inc. 1.6%
Memtec Ltd., ADR 1.5%
These holdings represent 18.7% of the Fund's total investment
portfolio.
While small-company stocks were out of favor, stocks with market
capitalizations under $250 million -- where the LB Opportunity
Growth Fund focuses its investments -- were hit especially hard. By
making minor adjustments to the Fund's portfolio to mitigate this
effect, while maintaining basic investment strategies that have
outperformed over time, we improved the Fund's performance
significantly in the second half of the reporting period.
Underperformance in the first half, however, caused the Fund to
underperform for the period as a whole.
For the 12 months ended October 31, 1997, the Fund had a total
return (based on NAV) of 7.52%. That compares to an average return
of 26.49% for small-company growth funds tracked by Lipper
Analytical Services and a return of 29.33% for the Russell 2000
Index.
Managing Volatility
During the year we continued to focus on industries with above-
average potential for long-term growth, and companies with unique
products, quality management and strong earnings. We also closely
re-examined every holding in the portfolio to assure none of these
companies were showing signs of long-term earnings problems. We
chose to remain overweighted in technology and health care stocks --
believing these sectors have among the best growth opportunities in
the American economy.
[GRAPHIC BAR CHART OMITTED: Top 10 Sectors]
Top 10 Sectors
Services 9.2%
Drug & Health Care 8.6%
Leisure & Entertainment 7.7%
Healthcare Management 7.1%
Real Estate Investment Trust 6.5%
Oil & Oil Service 6.1%
Computer Software 5.4%
Pollution Control 4.7%
Telecommunications Equipment 4.7%
Electronics 4.5%
These sectors represent 64.5% of the Fund's
total investment portfolio.
To further diversify the Fund in a volatile stock market, we traded
some technology and health care shares for stocks of financial and
energy firms. We made these purchases when prices were especially
attractive, concentrating on real estate investment trusts in the
financial sector and oil exploration and production companies in the
energy sector.
We also added investments in firms with market capitalizations over
$500 million, which should help further reduce the Fund's
volatility. This is a natural evolution for a small-company stock
fund with growing assets and should have little effect on the Fund's
potential for long-term growth.
[GRAPHIC WORM CHART OMITTED: Performance Through October 31, 1997]
Growth of $10,000 Invested Since 1/31/93
INSET BOX ON CHART READS:
LB Opportunity Growth Fund
Annualized Total Returns*
- -----------------------------------------------------
Net Asset Value
Since Inception
1/8/93 17.11%
1 Year 7.52%
Public Offering Price
Since Inception
1/8/93 16.13%
1 Year 3.20%
*See accompanying notes to Portfolio Management Reviews.
Lipper
Average
Small Co.
Growth
LBOGF Russell 2000 Stocks CPI
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 10,288
3/31/94 11,043 11,197 11,014 10,323
4/30/94 11,121 11,263 11,016 10,337
5/31/94 10,699 11,137 10,778 10,344
6/30/94 10,078 10,762 10,388 10,379
7/31/94 10,433 10,938 10,451 10,407
8/31/94 11,343 11,547 11,048 10,449
9/30/94 11,509 11,508 11,285 10,477
10/31/94 11,942 11,462 11,275 10,484
11/30/94 11,698 10,999 10,848 10,498
12/31/94 11,998 11,295 11,265 10,498
1/31/95 11,476 11,153 11,229 10,540
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 10,863
3/31/96 17,698 15,267 15,450 10,919
4/30/96 19,393 16,084 16,600 10,961
5/31/96 20,759 16,717 17,262 10,982
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 11,066
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 11,157
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 11,227
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
As you compare performance, please note that the LB Opportunity
Growth Fund's performance reflects the maximum 4% sales charge. The
performance of the Russell 2000 index does not reflect any such
charges. If you were to purchase any of the individual stocks
represented in this index, any sales charges you would pay would
reduce your total return as well.
Positioned for Further Market Fluctuations
If economic growth slows, or accelerates enough to drive interest
rates higher, smaller companies could find it especially hard to
meet their sales and earnings forecasts. The small-cap stock sector
could thus experience more volatility in the months ahead than the
stock market as a whole.
With its focus on buying positions at reasonable prices of quality
companies with niche products, we believe the LB Opportunity Growth
Fund is well positioned to weather such fluctuations. As the Fund
continues to grow, and adds holdings in larger firms for added
liquidity, it should be even better prepared for volatility. We will
continue to take advantage of any weakness in prices to add stocks
of companies with superior growth rates and low price-to-earnings
ratios.
LB Mid Cap Growth Fund
[GRAPHIC OMITTED: PHOTO OF Brian L. Thorkelson]
Brian L. Thorkelson is portfolio manager for the Lutheran Brotherhood
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.
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: 4,204
Total Assets
(in millions): $14.6
As the Fund was launched on May 30, 1997, stocks of medium-sized
companies were ending a period of lackluster performance and
beginning a strong rally that would take them through the summer and
early autumn. Strong economic factors such as growth in corporate
profits, low inflation and moderate interest rates combined with
healthy investor demand to push up prices of medium-capitalization
issues. Though the October market correction dealt a blow to
returns, the Fund still produced strong returns in its first five
months of operation.
From the inception date of May 30, 1997, through October 31, 1997,
the Fund had a total return (based on NAV) of 11.68%. That compares
to an average return of 13.20% for mid-cap growth funds tracked by
Lipper Analytical Services and a return of 14.15% for the Standard &
Poor's 400 Mid-Cap Index.
[GRAPHIC OMITTED: Top 10 Holdings]
Top 10 Holdings % of Portfolio
Outdoor Systems, Inc. 1.8%
MedPartners, Inc. 1.7%
Clear Channel Communications, Inc. 1.5%
Cambridge Technology Partners, Inc. 1.4%
Forest Laboratories, Inc. 1.4%
Southwest Airlines Co. 1.4%
PMI Group 1.3%
Adaptec, Inc. 1.3%
Borders Group, Inc. 1.3%
Avery Dennison Corp. 1.3%
These holdings represent 14.4% of the Fund's total investment
portfolio.
Strong Mid-Cap Sectors
In the second half of the period, energy, financial and technology
holdings performed particularly well for the Fund. Energy firms such
as Diamond Offshore and Cooper Cameron, which specialize in the
construction and servicing of offshore oil drilling rigs, were
especially strong, benefiting from new technology that is taking
exploration into deeper water in search of additional oil deposits.
The Fund's financial holdings, particularly those of regional banks
such as TCF Financial and Summit Bancorp, benefited from lower bond
yields and industry consolidation. Certain technology holdings were
also strong performers, especially computer software and services
holdings, such as Cambridge Technology Partners. Other segments of
the technology sector were somewhat lackluster, especially producers
of semi-conductors, who were negatively impacted by the currency
crisis in Asian countries. These countries represent a major market
for U.S. semi-conductors and should continue to be primary buyers of
exported U.S. technology when the crisis is resolved.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Short-Term Securities 14.4%
Common Stocks 85.6%
Strategies for a Young Fund
The Fund focuses on companies with strong growth in revenues and
earnings, market leadership positions within their industry, and
seasoned management teams. We'll maintain diversification across
most industries and stay relatively sector-neutral to our
competitive universe of mid-cap equity funds. We continue to like
sectors such as technology and health care because the United States
is the leading developer and exporter in these areas, representing
good potential for long-term growth.
If the U.S. economy continues to be strong and greater weakness
surfaces in foreign markets, we may give slightly more emphasis to
retail issues, which are not exposed to foreign economic woes.
However, a quick resolution to the economic problems in the Asian
markets might lead us to give greater emphasis to technology issues,
which would benefit from a healthy economy in the Pacific Rim.
[GRAPHIC BAR CHART OMITTED: Top 10 Sectors]
Top 10 Sectors
Services 13.1%
Bank & Finance 10.6%
Electronics 5.6%
Drugs & Health Care 5.5%
Retail 5.5%
Computers & Office Equipment 4.8%
Healthcare Management 4.6%
Mining & Metals 3.5%
Chemicals 3.5%
Media 3.3%
These sectors represent 60% of the Fund's
total investment portfolio.
A Good Source of Diversification
The Fund is comprised of leading medium-sized U.S. companies, such
as those represented by the Standard & Poor's 400 Mid-Cap index.
Historically, mid-cap stocks have provided somewhat less-volatile
returns than small-cap stocks, but greater return potential than
large-cap stocks. When used in conjunction with a variety of other
asset classes, the Fund should provide an excellent means of
diversification for the long-term, growth investor.
The LB Mid Cap Growth Fund was introduced on May 30, 1997.
Given its limited performance history, the growth of a $10,000
investment in the Fund is not illustrated in this report.
LB World Growth Fund
[GRAPHIC OMITTED: PHOTO OF MARTIN G. WADE]
Martin G. Wade is president of Rowe Price-Fleming, the investment
subadvisor for the LB World Growth Fund. He leads a team of 12
portfolio managers who have managed the assets of the LB World Growth
Fund since its inception in September of 1995. Martin has been
working in research and investment management since 1968 and has been
with Rowe Price Fleming since 1979.
Investment Objective:
To seek long-term growth of capital by investing primarily in common
stocks of established companies outside the United States.
Fund Facts
Inception Date: 9/5/95
Shareholder
Accounts: 17,312
Total Assets
(in millions): $75.1
Stock markets overseas had significantly divergent returns in the
year ended October 31, 1997. Although stocks advanced strongly in
Europe, they fell sharply in Japan and the Far East. This discrepancy
persisted for most of the year, but became greater near the end --
when foreign currency problems in Asia sent stocks tumbling there.
During the period, we underweighted the LB World Growth Fund in
Japanese stocks versus the Morgan Stanley Capital International
Europe, Australia, Far East (EAFE) Index. This -- plus positive
contributions from Latin American stocks, which are not represented
in the Index -- helped the Fund outperform its market benchmark.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Short-Term Securities 6.4%
Common Stocks & Warrants 93.1%
Preferred Stocks 0.5%
For the 12 months ended October 31, 1997, the LB World Growth Fund
had a total return (based on NAV) of 7.38%, compared with a return of
4.92% for the EAFE Index. The Fund underperformed the average return
for international funds tracked by Lipper Analytical Services, which
was 10.40% for the period. This was partly because the Fund had
somewhat higher positions in Southeast Asia than its peers. In
addition, whereas the Fund held growth stocks that lagged after a
long period of outperformance, other international funds focused on
stocks with strong ties to economic growth cycles -- many of which
performed well during the year.
[GRAPHIC OMITTED: Top 10 Holdings]
% of
Top 10 Holdings Country Portfolio
Royal Dutch Petroleum Netherlands 2.6%
National Westminster Bank United Kingdom 2.1%
Novartis AG Switzerland 2.1%
Wolters Kluwer Netherlands 2.0%
SmithKline Beecham plc United Kingdom 1.7%
Telecomunicacoes Brasilias
ADR (USD) Brazil 1.5%
Reed International plc United Kingdom 1.5%
Shell Transport & Trading United Kingdom 1.4%
Elsevier Netherlands 1.4%
Roche Holdings Switzerland 1.4%
These holdings represent 17.7% of the Fund's total investment portfolio.
Out of Harm's Way
When the reporting period began, Japanese stocks accounted for 22.6%
of Fund assets, versus 35% of the EAFE Index. Japanese stocks
performed well early in the period, helped by a boom in exports and a
strong service sector. However, an increase in Japan's sales tax
significantly weakened its economy and stock prices in the months
that followed. During this time we favored Japanese technology
companies and firms with strong export exposure.
Throughout the year, we invested a portion of the Fund's assets in
stocks from Latin America. Although these Latin American holdings
suffered during the October downturn in emerging markets, they
performed extremely well earlier in the year. During the period we
focused the Fund's Latin American investments in Brazil, with an
emphasis on large utility stocks like Telecomunicacoes Brasilias that
are at the center of national privatization reforms.
[GRAPHIC OMITTED: Top 10 Countries]
Top 10 Countries
Japan 21.3%
United Kingdom 16.6%
Netherlands 11.0%
France 7.9%
Switzerland 6.5%
Germany 5.0%
Italy 3.2%
Sweden 3.2%
Hong Kong 2.6%
Brazil 2.4%
These countries represent 79.7% of the
Fund's total investment portfolio.
For most of the period the Fund's weighting in Europe was similar to
the representation of European stocks in the EAFE Index. While
economies in the Far East faltered, economies in Europe made steady
progress -- helping European stocks perform strongly. As in the
United States, stocks in Europe have also benefited from a wave of
mergers and acquisitions. During the period, we continued to find
European stocks with strong potential for earnings growth at
attractive valuations, which added to the Fund's performance.
[GRAPHIC WORM CHART OMITTED: Performance Through October 31, 1997]
Growth of $10,000 Invested Since 9/30/95
INSET BOX ON CHART READS:
LB World Growth Fund
Annualized Total Returns*
- -----------------------------------------------------
Net Asset Value
Since Inception
9/5/95 8.79%
1 Year 7.38%
Public Offering Price
Since Inception
9/5/95 6.80%
1 Year 3.04%
*See accompanying notes to Portfolio Management Reviews.
Morgan
Stanley Lipper
Capital Average
International International
International Stocks
LBWGF EAFE Index Fund CPI
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 10,026
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 10,228
7/31/96 10,298 10,582 10,581 10,248
8/31/96 10,444 10,607 10,691 10,268
9/30/96 10,679 10,892 10,919 10,300
10/31/96 10,612 10,783 10,829 10,333
11/30/96 11,093 11,214 11,290 10,352
12/31/96 11,135 11,073 11,320 10,352
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 10,463
7/31/97 12,705 12,533 13,039 10,477
8/31/97 11,531 11,599 12,078 10,496
9/30/97 12,299 12,251 12,839 10,522
10/31/97 11,395 11,311 11,862 10,548
As you compare performance, please note that the LB World Growth
Fund's performance reflects the maximum 4% sales charge. The
performance of the EAFE index does not reflect any such charges. If
you were to purchase any of the individual stocks represented in this
index, any sales charges you would pay would reduce your total return
as well.
A Good Balance
It is important for international investors to look past the market
turbulence of recent months to the long-term prospects for foreign
economies and stock prices. We believe that the LB World Growth Fund
has a good balance between established economies with quality
companies at reasonable valuations, and less-developed markets with
a higher ratio of risk and reward.
With improving growth, rising exports and stable currencies, we
believe stock valuations in Europe remain reasonable. We expect,
therefore, to maintain a large exposure to stock markets there. While
economic prospects in the Far East are less certain, attractive
valuations are beginning to emerge there. This may be especially true
in Japan, which hosts some of the world's most globally-competitive
companies, such as Sony, Canon and Mitsubishi. However, the long-term
outlook for economic growth and stock gains in that region remains
quite strong.
LB Fund
[GRAPHIC OMITTED: PHOTO OF JAMES M. WALLINE]
James M. Walline is a Chartered Financial Analyst and portfolio
manager for the LB Fund. He is a vice president of Lutheran
Brotherhood and has managed the Fund since 1994. He has been with
Lutheran Brotherhood Research Corp. since its inception in 1970.
Investment Objective:
To seek long-term growth of capital by investing in the stocks
of leading U.S. companies.
Fund Facts
Inception Date: 6/2/70
Shareholder
Accounts: 90,042
Total Assets
(in millions): $989.8
With strong gains in stock prices and changing outlooks for the
economy in the past year, investors were cautious, favoring stocks
with solid historical earnings. By maintaining a core group of
companies that dominate their respective industries, and a mix of
investments that could thrive in varying economic climates, the LB
Fund earned healthy returns for the 12 months ended October 31, 1997,
which was comparable with other funds in its class.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Short-Term Securities 1.7%
Common Stocks 98.3%
During that period, the Fund had a total return (based on NAV) of
26.99%. This compared to an average return of 28.26% for growth and
income funds tracked by Lipper Analytical Services. With a sizable
representation in stocks of smaller companies, which performed
especially well in the third quarter of 1997, the S&P 500 Index had a
return of 32.09% for the period.
[GRAPHIC OMITTED: Top 10 Holdings]
Top 10 Holdings % of Portfolio
Halliburton Co. 2.0%
Cisco Systems, Inc. 2.0%
Exxon Corp. 2.0%
Sara Lee Corp. 2.0%
U.S. Bancorp 2.0%
Merck & Co., Inc. 2.0%
Ameritech Corp. 2.0%
SBC Communications, Inc. 2.0%
Dover Corp. 2.0%
Amoco Corp. 2.0%
These holdings represent 20% of the Fund's total investment portfolio.
Strong Performers
For much of the year investors favored stocks of larger firms for
their more reliable earnings and greater liquidity. In the first half
of the period, the LB Fund enjoyed strong performances from leading
financial stocks like MBNA, major health care stocks like Abbott
Laboratories and Johnson & Johnson, and large technology stocks like
Microsoft. As stock prices rose, we traded stocks that had already
met our growth expectations for issues in the same industry sectors
that we believed to have better value.
In the second half of the period, the Fund earned strong returns from
energy stocks like Halliburton, drug stocks like Eli Lilly, Pfizer
and Warner Lambert, and technology stocks like Lucent Technologies.
With stock prices reaching record levels, we took several steps to
limit the Fund's risk. While this somewhat restrained the Fund's
advance during the summer, it helped fulfill the Fund's investment
objectives. We continued to emphasize stocks with attractive values.
With this in mind, we sold shares of Halliburton and Boeing and
bought shares of Household International -- a financial services firm
with a broad range of operations. When stock prices weakened in
August and October, we took the opportunity to add to many existing
positions whose long-term prospects remained strong.
[GRAPHIC BAR CHART OMITTED: Top 10 Sectors]
Top 10 Sectors
Bank & Finance 15.3%
Oil & Oil Service 10.1%
Drugs & Health Care 9.9%
Conglomerates 6.9%
Leisure & Entertainment 5.9%
Household Products 5.8%
Telecommunications Equipment 5.1%
Food & Beverage 5.0%
Retail 5.0%
Telephone & Telecommunications 5.0%
These sectors represent 74% of the Fund's
total investment portfolio.
Growth at a Reasonable Price
With sustained economic growth and low inflation, stock prices for
large companies should continue to rise -- even though they are now
quite high. We expect, therefore, to remain fully invested and
maintain industry sector weightings that are similar to those for the
S&P 500 Index. To achieve those weightings, we will periodically
rebalance the Fund's holdings as some sectors outperform others.
As before, we will focus on companies that provide good value to the
Fund. We will also maintain our emphasis on leading companies within
industry sectors -- looking for firms with excellent long-term growth
prospects that can be purchased at a reasonable price.
[GRAPHIC WORM CHART OMITTED: Performance Through October 31, 1997]
Growth of $10,000 Invested Since 4/30/87
INSET BOX ON CHART READS:
LB Fund
Annualized Total Returns*
- -----------------------------------------------------
Net Asset Value
10 Years 14.26%
5 Years 15.81%
1 Year 26.99%
Public Offering Price
10 Years 13.80%
5 Years 14.87%
1 Year 21.92%
*See accompanying notes to Portfolio Management Reviews.
Lipper
Average
S & P 500 Growth &
LBF Stock Index Income CPI
Month End Total Total Total Total
Date Value Value Value Value
-------- ------- ------- ------- -------
10/31/87 $10,000 $10,000 $10,000 $10,000
11/30/87 9,025 9,173 9,434 10,014
12/31/87 9,649 9,872 10,039 10,012
1/31/88 9,867 10,300 10,447 10,038
2/29/88 10,189 10,761 10,929 10,064
3/31/88 9,858 10,434 10,763 10,107
4/30/88 9,893 10,564 10,852 10,159
5/31/88 9,907 10,632 10,864 10,194
6/30/88 10,300 11,129 11,368 10,237
7/31/88 10,182 11,100 11,292 10,281
8/31/88 9,897 10,708 11,019 10,324
9/30/88 10,281 11,167 11,401 10,393
10/31/88 10,512 11,491 11,595 10,428
11/30/88 10,351 11,308 11,429 10,437
12/31/88 10,541 11,508 11,625 10,454
1/31/89 11,275 12,362 12,293 10,506
2/28/89 11,021 12,034 12,122 10,549
3/31/89 11,314 12,321 12,371 10,610
4/30/89 11,853 12,977 12,877 10,680
5/31/89 12,265 13,475 13,310 10,740
6/30/89 12,158 13,409 13,243 10,766
7/31/89 13,292 14,634 14,139 10,792
8/31/89 13,742 14,905 14,437 10,810
9/30/89 13,700 14,845 14,371 10,844
10/31/89 12,883 14,513 13,959 10,896
11/30/89 13,313 14,794 14,168 10,923
12/31/89 13,345 15,150 14,363 10,940
1/31/90 12,376 14,147 13,545 11,053
2/28/90 12,485 14,304 13,719 11,105
3/31/90 12,839 14,692 14,012 11,165
4/30/90 12,618 14,340 13,670 11,183
5/31/90 13,976 15,708 14,731 11,209
6/30/90 14,061 15,615 14,713 11,270
7/31/90 13,989 15,576 14,598 11,313
8/31/90 12,846 14,153 13,441 11,417
9/30/90 12,168 13,467 12,785 11,512
10/31/90 12,160 13,424 12,588 11,582
11/30/90 12,798 14,276 13,325 11,608
12/31/90 13,086 14,674 13,712 11,608
1/31/91 13,728 15,328 14,377 11,677
2/28/91 14,611 16,397 15,316 11,695
3/31/91 14,877 16,801 15,671 11,712
4/30/91 14,958 16,857 15,684 11,729
5/31/91 15,643 17,559 16,312 11,764
6/30/91 14,772 16,763 15,622 11,799
7/31/91 15,533 17,564 16,277 11,816
8/31/91 16,003 17,959 16,650 11,851
9/30/91 15,736 17,661 16,500 11,903
10/31/91 16,069 17,921 16,752 11,920
11/30/91 15,484 17,176 16,092 11,955
12/31/91 17,374 19,142 17,684 11,964
1/31/92 17,115 18,807 17,680 11,981
2/28/92 17,294 19,026 17,979 12,024
3/31/92 16,855 18,657 17,668 12,085
4/30/92 16,975 19,228 17,945 12,102
5/31/92 17,132 19,294 18,057 12,120
6/30/92 16,722 19,011 17,694 12,163
7/31/92 17,232 19,812 18,285 12,189
8/31/92 16,917 19,386 17,939 12,224
9/30/92 17,154 19,612 18,153 12,259
10/31/92 17,489 19,703 18,267 12,302
11/30/92 18,234 20,345 18,941 12,319
12/31/92 18,381 20,600 19,227 12,311
1/31/93 18,735 20,790 19,444 12,371
2/28/93 18,795 21,051 19,588 12,415
3/31/93 19,339 21,497 20,094 12,458
4/30/93 19,012 21,002 19,726 12,493
5/31/93 19,486 21,529 20,187 12,510
6/30/93 19,551 21,599 20,250 12,528
7/31/93 19,381 21,535 20,232 12,528
8/31/93 19,953 22,331 20,972 12,562
9/30/93 19,920 22,159 20,960 12,588
10/31/93 20,123 22,640 21,257 12,640
11/30/93 19,600 22,400 20,968 12,649
12/31/93 19,978 22,680 21,425 12,649
1/31/94 20,689 23,467 22,094 12,684
2/28/94 20,125 22,808 21,663 12,727
3/31/94 19,147 21,818 20,755 12,770
4/30/94 19,192 22,117 20,950 12,788
5/31/94 19,407 22,442 21,152 12,796
6/30/94 18,875 21,892 20,669 12,840
7/31/94 19,442 22,634 21,238 12,875
8/31/94 20,145 23,547 22,049 12,927
9/30/94 19,805 22,967 21,559 12,961
10/31/94 20,101 23,503 21,792 12,970
11/30/94 19,282 22,631 20,990 12,987
12/31/94 19,296 22,963 21,213 12,987
1/31/95 19,764 23,576 21,516 13,039
2/28/95 20,323 24,477 22,323 13,091
3/31/95 20,687 25,209 22,897 13,135
4/30/95 21,294 25,963 23,458 13,178
5/31/95 21,993 26,962 24,215 13,204
6/30/95 22,714 27,590 24,724 13,230
7/31/95 23,725 28,526 25,535 13,230
8/31/95 23,461 28,583 25,680 13,265
9/30/95 24,345 29,786 26,474 13,291
10/31/95 24,391 29,700 26,180 13,334
11/30/95 25,519 30,980 27,332 13,326
12/31/95 25,479 31,578 27,810 13,317
1/31/96 26,195 32,673 28,567 13,395
2/29/96 26,516 32,954 28,947 13,438
3/31/96 26,652 33,277 29,317 13,508
4/30/96 27,172 33,783 29,745 13,560
5/31/96 27,642 34,618 30,304 13,586
6/30/96 27,481 34,753 30,262 13,595
7/31/96 26,154 33,230 28,967 13,621
8/31/96 26,861 33,922 29,758 13,647
9/30/96 28,263 35,825 31,126 13,690
10/31/96 28,686 36,835 31,755 13,733
11/30/96 30,775 39,605 33,880 13,759
12/31/96 29,867 38,821 33,460 13,759
1/31/97 31,746 41,270 34,882 13,803
2/28/97 31,693 41,572 35,087 13,846
3/31/97 30,455 39,859 33,817 13,881
4/30/97 32,311 42,254 35,068 13,898
5/31/97 33,926 44,794 37,218 13,890
6/30/97 35,365 46,805 38,666 13,907
7/31/97 37,980 50,531 41,570 13,924
8/31/97 35,850 47,691 40,027 13,950
9/30/97 37,536 50,319 42,049 13,985
10/31/97 36,428 48,658 40,539 14,020
As you compare performance, please note that the LB Fund's
performance reflects the maximum 4% sales charge. The performance of
the S&P 500 index does not reflect any such charges. If you were to
purchase any of the individual stocks represented in this index, any
sales charges you would pay would reduce your total return as well.
LB High Yield Fund
[GRAPHIC OMITTED: PHOTO OF THOMAS N. HAAG]
Thomas N. Haag, an assistant vice president of Lutheran Brotherhood,
is a Chartered Financial Analyst and portfolio manager for the LB
High Yield Fund. He has managed the Fund since January 1992, and has
been with Lutheran Brotherhood since 1986.
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: 57,840
Total Assets
(in millions): $862.9
In an environment of falling interest rates and positive economic
growth, the returns for high-yield corporate bonds far outpaced those
of other income-oriented securities in the past year.
High-yielding corporate bonds performed strongly during most of the
year, though they were hit hard when bond prices fell from February
to April, and when foreign economic problems rocked U.S. stocks in
October.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Common Stocks and Stock Warrants 3.0%
Short-Term Securities 2.7%
Corporate Bonds 80.9%
Convertible Preferred Stocks 4.5%
Non-Convertible Preferred Stocks 8.9%
Among the best performers were zero-coupon bonds and bonds of media
and telecommunications companies, where the LB High Yield Fund has
been heavily invested for some time. By holding these issues, and
keeping the average maturity of its investments on the long side, the
Fund earned a competitive return for the 12 months ended October 31,
1997.
Over that time the Fund earned a total return (based on NAV) of
14.43%. That compares with an average return of 14.47% for high-yield
bond funds tracked by Lipper Analytical Services, and a return of
13.72% for the Lehman Brothers High-Yield Index.
Adding Stability
We've invested a large part of the Fund in media and
telecommunications issues because we believe deregulation in that
industry offers these securities the potential for strong
performance. The somewhat lower average credit quality and longer
average maturities of these issues make them more vulnerable to price
corrections, but also give them stronger upside price potential.
[GRAPHIC OMITTED: Top 10 Industries]
Top 10 Industries
Broadcasting 10.7%
Telecommunications 8.8%
Bank & Finance 8.3%
Telephone &
Telecommunications 8.2%
Oil & Gas 5.4%
Paper & Forest Products 3.8%
Publishing & Printing 2.9%
Leisure & Entertainment 2.9%
Hospital Management 2.8%
Retail (Food) 2.7%
These industries represent 56.5% of the Fund's total
investment portfolio.
During the spring and summer, we took advantage of rebounding prices
in the bond market to trim the Fund's media and telecommunications
issues. This, we hoped, would reduce volatility in the Fund's share
price if the outlook for interest rates and the broader financial
markets remained uncertain. In order to give the Fund added
stability, we purchased debt of firms with higher credit ratings and
slightly shorter maturities. This included issues of financial and
energy companies, as well as companies whose earnings are tied to
economic growth. Despite these changes, the Fund remained heavily
committed to the media and telecommunications sectors, as well as to
investments with longer maturities.
Good Returns With Less Volatility
If the economy remains healthy and inflation and interest rates
remain stable, we believe the LB High Yield Fund should perform well
in the coming year. High-yield corporate bonds should thrive in this
environment -- especially those of firms with earnings tied to the
economy. We've recently added debt from firms in "light cyclical"
industries that can benefit even if economic growth slows.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: MOODY'S BOND QUALITY
RATING DISTRIBUTION]
Moody's Bond Quality
Rating Distribution
Aaa 0.0%
Aa 0.0%
A 0.0%
Baa 2.9%
Ba 13.1%
B 63.0%
Caa 11.5%
Ca 0.0%
C 0.0%
Not Rated 9.5%
We continue to favor the extra return potential from media and
telecommunications issues and may add investments there if prices
become more attractive. Conversely, if their prices rise
significantly, we may take further profits in those issues. In the
meantime, we will maintain positions in higher-quality issues. We
think these investments, combined with a continued emphasis on
yields, should help the Fund earn healthy returns with somewhat less
volatility.
[GRAPHIC WORM CHART OMITTED: Performance Through October 31, 1997]
Growth of $10,000 Invested Since 4/30/87
INSET BOX ON CHART READS:
LB High Yield Fund
Annualized Total Returns*
- -----------------------------------------------------
Net Asset Value
10 Years 11.44%
5 Years 12.09%
1 Year 14.43%
Public Offering Price
10 Years 10.98%
5 Years 11.18%
1 Year 9.90%
*See accompanying notes to Portfolio Management Reviews.
Lipper
Lehman High Average
LBHYLD Yield Index High Current CPI
Month End Total Total Total Total
Date Value Value Value Value
- ---------- ------- ----------- ------------ -------
10/31/87 $10,000 $10,000 $10,000 $10,000
11/30/87 9,901 10,288 10,234 10,014
12/31/87 10,080 10,536 10,322 10,012
1/31/88 10,452 10,888 10,641 10,038
2/28/88 10,788 11,241 10,934 10,064
3/31/88 10,663 11,124 10,890 10,107
4/30/88 10,678 11,208 10,956 10,159
5/31/88 10,649 11,225 10,985 10,194
6/30/88 10,897 11,389 11,208 10,237
7/31/88 10,965 11,464 11,320 10,281
8/31/88 10,931 11,447 11,332 10,324
9/30/88 11,045 11,591 11,434 10,393
10/31/88 11,160 11,731 11,574 10,428
11/30/88 11,160 11,801 11,589 10,437
12/31/88 11,324 11,856 11,649 10,454
1/31/89 11,551 12,065 11,851 10,506
2/28/89 11,614 12,091 11,900 10,549
3/31/89 11,519 11,997 11,860 10,610
4/30/89 11,442 12,047 11,853 10,680
5/31/89 11,697 12,281 12,023 10,740
6/30/89 11,992 12,433 12,224 10,766
7/31/89 11,950 12,417 12,241 10,792
8/31/89 12,022 12,459 12,249 10,810
9/30/89 11,773 12,250 12,056 10,844
10/31/89 11,288 11,960 11,700 10,896
11/30/89 11,219 11,936 11,642 10,923
12/31/89 11,020 11,955 11,558 10,940
1/31/90 10,683 11,698 11,261 11,053
2/28/90 10,425 11,457 10,987 11,105
3/31/90 10,469 11,757 11,115 11,165
4/30/90 10,471 11,737 11,108 11,183
5/31/90 10,816 11,964 11,352 11,209
6/30/90 10,949 12,253 11,581 11,270
7/31/90 11,143 12,583 11,821 11,313
8/31/90 10,717 11,867 11,338 11,417
9/30/90 10,241 11,001 10,767 11,512
10/31/90 9,880 10,423 10,304 11,582
11/30/90 10,038 10,748 10,345 11,608
12/31/90 10,200 10,808 10,377 11,608
1/31/91 10,258 11,106 10,523 11,677
2/28/91 11,008 12,321 11,278 11,695
3/31/91 11,532 13,046 11,840 11,712
4/30/91 11,952 13,581 12,294 11,729
5/31/91 12,059 13,606 12,371 11,764
6/30/91 12,402 14,008 12,632 11,799
7/31/91 12,748 14,457 13,008 11,816
8/31/91 12,935 14,789 13,253 11,851
9/30/91 13,140 14,995 13,475 11,903
10/31/91 13,613 15,496 13,905 11,920
11/30/91 13,821 15,576 14,034 11,955
12/31/91 13,881 15,800 14,157 11,964
1/31/92 14,524 16,357 14,719 11,981
2/28/92 14,930 16,761 15,070 12,024
3/31/92 15,201 16,968 15,304 12,085
4/30/92 15,333 17,033 15,414 12,102
5/31/92 15,573 17,273 15,639 12,120
6/30/92 15,662 17,435 15,797 12,163
7/31/92 15,933 17,699 16,080 12,189
8/31/92 16,151 17,931 16,284 12,224
9/30/92 16,316 18,113 16,452 12,259
10/31/92 16,020 17,858 16,177 12,302
11/30/92 16,300 18,083 16,417 12,319
12/31/92 16,674 18,289 16,635 12,311
1/31/93 17,358 18,821 17,087 12,371
2/28/93 17,568 19,153 17,417 12,415
3/31/93 17,907 19,400 17,762 12,458
4/30/93 17,978 19,568 17,902 12,493
5/31/93 18,283 19,801 18,185 12,510
6/30/93 18,847 20,217 18,607 12,528
7/31/93 18,997 20,413 18,791 12,528
8/31/93 19,149 20,585 18,930 12,562
9/30/93 19,141 20,638 18,989 12,588
10/31/93 19,741 21,055 19,414 12,640
11/30/93 19,814 21,156 19,539 12,649
12/31/93 20,153 21,419 19,828 12,649
1/31/94 20,747 21,883 20,300 12,684
2/28/94 20,675 21,826 20,261 12,727
3/31/94 19,909 21,001 19,609 12,770
4/30/94 19,604 20,859 19,324 12,788
5/31/94 19,681 20,869 19,369 12,796
6/30/94 19,693 20,934 19,342 12,840
7/31/94 19,533 21,112 19,307 12,875
8/31/94 19,677 21,262 19,318 12,927
9/30/94 19,585 21,264 19,318 12,961
10/31/94 19,648 21,315 19,299 12,970
11/30/94 19,175 21,046 19,041 12,987
12/31/94 19,087 21,202 19,063 12,987
1/31/95 19,174 21,490 19,218 13,039
2/28/95 19,904 22,227 19,741 13,091
3/31/95 20,108 22,467 19,920 13,135
4/30/95 20,594 23,038 20,406 13,178
5/31/95 21,012 23,683 20,859 13,204
6/30/95 21,126 23,842 20,924 13,230
7/31/95 21,791 24,142 21,292 13,230
8/31/95 21,883 24,217 21,350 13,265
9/30/95 22,071 24,515 21,604 13,291
10/31/95 22,188 24,667 21,777 13,334
11/30/95 22,454 24,884 21,922 13,326
12/31/95 22,787 25,275 22,256 13,317
1/31/96 23,333 25,720 22,719 13,395
2/29/96 23,932 25,740 22,912 13,438
3/31/96 23,699 25,722 22,827 13,508
4/30/96 23,822 25,779 23,007 13,560
5/31/96 24,049 25,933 23,187 13,586
6/30/96 23,862 26,149 23,217 13,595
7/31/96 23,675 26,269 23,342 13,621
8/31/96 24,065 26,553 23,713 13,647
9/30/96 24,857 27,193 24,335 13,690
10/31/96 24,772 27,402 24,466 13,733
11/30/96 25,009 27,942 24,919 13,759
12/31/96 25,284 28,143 25,215 13,759
1/31/97 25,584 28,419 25,467 13,803
2/28/97 25,913 28,888 25,923 13,846
3/31/97 25,099 28,457 25,407 13,881
4/30/97 25,096 28,756 25,613 13,898
5/31/97 26,059 29,371 26,271 13,890
6/30/97 26,769 29,780 26,697 13,907
7/31/97 27,689 30,599 27,391 13,924
8/31/97 27,773 30,528 27,446 13,950
9/30/97 28,618 31,133 28,088 13,985
10/31/97 28,347 31,161 27,979 14,020
As you compare performance, please note that the LB High Yield Fund's
performance reflects the maximum 4% sales charge. The performance of
the Lehman High Yield index does not reflect any such charges. If you
were to purchase any of the individual bonds represented in this
index, any sales charges you would pay would reduce your total return
as well.
LB Income Fund
[GRAPHIC OMITTED: PHOTO OF CHARLES E. HEEREN]
Charles E. Heeren, a vice president of Lutheran Brotherhood, is a
Chartered Financial Analyst and portfolio manager for the LB Income
Fund. He has managed the Fund since January 1986, and has been with
LB since 1976.
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: 55,281
Total Assets
(in millions): $778.0
When economic expectations change, and interest rates fluctuate, the
spreads between yields of different fixed-income securities
alternately shrink and widen. Over the past year, we realigned the
mix of securities in the LB Income Fund to make the most of these
changes -- adding sizable investments in corporate bonds. This, plus
an emphasis on longer maturities, helped the Fund earn a solid return
that was comparable to returns for its market benchmark and other
funds with similar investment objectives.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
U.S. Government 7.5%
Common Stocks 0.5%
Preferred Stocks 1.8%
Short-Term Securities 9.0%
Mortgage-Backed Securities 13.7%
Corporate Bonds 47.8%
Asset-Backed Securities 15.2%
Foreign Government Bonds 4.5%
For the 12 months ended October 31, 1997, the LB Income Fund earned a
total return (based on NAV) of 8.05%. That compares with an average
return of 8.52% for high-quality corporate bond funds tracked by
Lipper Analytical Services. Over the same time, the Lehman Aggregate
Bond Index had a return of 8.89%.
[GRAPHIC OMITTED: Top 10 Holdings]
% of
Top 10 Holdings Security Portfolio
Government National
Mortgage Association Mortgage-backed 5.4%
Federal National Mortgage
Association Mortgage-backed 4.4%
U.S. Treasury Bonds U.S. Government 3.4%
U.S. Treasury Bonds U.S. Government 2.9%
Deutsche Floorplan
Receivables Master Trust,
Series 1994-1-A Asset-backed 2.5%
Chase Manhattan Credit
Card, Series
1996-4, Class A Asset-backed 2.4%
General Electric Capital
Corp., Debentures Corporate bonds 2.2%
World Omni Auto Lease Trust Asset-backed 2.1%
World Financial Network
Credit Card
Master Trust, Series 1996-B Asset-backed 1.9%
Associates Corp. of North
America, Sr. Notes Corporate bonds 1.8%
These holdings represent 29% of the Fund's total investment
portfolio.
Seizing Opportunities in Corporates
At the start of the period, the Fund benefited from large investments
in shorter-term, asset-backed securities, which provided attractive
yields while interest rates were falling. When new inflation concerns
made bond prices more attractive between December 1996 and February
1997, we traded some of the Fund's U.S. Treasury bonds for longer-
term corporate securities -- whose prices were especially appealing.
Although we trimmed corporate bond holdings in March and April, when
it looked like bond prices might fall further, we purchased
additional corporates in the months that followed.
Throughout this time we favored the debt of financial firms and
utilities. At times, we bought corporate issues with lower credit
ratings, whose prices were particularly attractive, feeling these
issues could benefit from rating upgrades as economic growth
continued. As always, we maintained a well-diversified portfolio in
terms of credit quality, asset mix, and maturities.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: MOODY'S BOND QUALITY
RATING DISTRIBUTION]
Moody's Bond Quality
Rating Distribution
Aaa 43.7%
Aa 9.4%
A 24.6%
Baa 20.5%
Ba 1.8%
B 0.0%
Caa 0.0%
Ca 0.0%
C 0.0%
Not Rated 0.0%
Until October, the corporates that we bought greatly enhanced the
Fund's return. Because their performance is linked to returns for
stocks, however, corporates were hit hard when foreign economic
troubles sent U.S. stock prices lower. As often happens, even
corporates with good prospects were hurt in the decline. Believing
corporates of higher quality were oversold and should soon recover,
we recently added these to the portfolio as we found attractive
investment opportunities.
[GRAPHIC WORM CHART OMITTED: Performance Through October 31, 1997]
Growth of $10,000 Invested Since 4/30/87
INSET BOX ON CHART READS:
LB Income Fund
Annualized Total Returns*
- -----------------------------------------------------
Net Asset Value
10 Years 8.96%
5 Years 6.76%
1 Year 8.05%
Public Offering Price
10 Years 8.52%
5 Years 5.90%
1 Year 3.77%
*See accompanying notes to Portfolio Management Reviews.
LUTHERAN BROTHERHOOD INCOME FUND
Lehman Agg. Lipper Average
LBINC Bond Index Corp. Debt A CPI
Month End Total Total Total Total
Date Value Value Value Value
- ---------- ------- ----------- -------------- -------
10/31/87 $10,000 $10,000 $10,000 $10,000
11/30/87 9,753 10,080 10,119 10,014
12/31/87 9,951 10,217 10,249 10,012
1/31/88 10,318 10,577 10,603 10,038
2/29/88 10,447 10,703 10,742 10,064
3/31/88 10,347 10,602 10,624 10,107
4/30/88 10,306 10,545 10,566 10,159
5/31/88 10,241 10,474 10,502 10,194
6/30/88 10,547 10,727 10,734 10,237
7/31/88 10,506 10,670 10,699 10,281
8/31/88 10,577 10,697 10,719 10,324
9/30/88 10,828 10,940 10,944 10,393
10/31/88 11,029 11,146 11,120 10,428
11/30/88 10,948 11,010 11,014 10,437
12/31/88 11,035 11,022 11,077 10,454
1/31/89 11,215 11,181 11,220 10,506
2/28/89 11,105 11,100 11,153 10,549
3/31/89 11,140 11,148 11,195 10,610
4/30/89 11,365 11,381 11,388 10,680
5/31/89 11,646 11,680 11,656 10,740
6/30/89 12,065 12,035 11,997 10,766
7/31/89 12,253 12,292 12,200 10,792
8/31/89 12,097 12,110 12,040 10,810
9/30/89 12,148 12,172 12,082 10,844
10/31/89 12,355 12,471 12,333 10,896
11/30/89 12,436 12,589 12,420 10,923
12/31/89 12,407 12,623 12,438 10,940
1/31/90 12,245 12,473 12,264 11,053
2/28/90 12,286 12,513 12,275 11,105
3/31/90 12,283 12,522 12,283 11,165
4/30/90 12,132 12,407 12,141 11,183
5/31/90 12,442 12,774 12,484 11,209
6/30/90 12,603 12,980 12,681 11,270
7/31/90 12,737 13,159 12,836 11,313
8/31/90 12,506 12,982 12,615 11,417
9/30/90 12,540 13,090 12,660 11,512
10/31/90 12,652 13,256 12,797 11,582
11/30/90 12,922 13,541 13,083 11,608
12/31/90 13,112 13,753 13,287 11,608
1/31/91 13,272 13,923 13,423 11,677
2/28/91 13,465 14,042 13,568 11,695
3/31/91 13,578 14,138 13,661 11,712
4/30/91 13,772 14,291 13,829 11,729
5/31/91 13,886 14,374 13,897 11,764
6/30/91 13,870 14,367 13,872 11,799
7/31/91 14,036 14,567 14,046 11,816
8/31/91 14,336 14,881 14,382 11,851
9/30/91 14,655 15,183 14,696 11,903
10/31/91 14,756 15,352 14,826 11,920
11/30/91 14,876 15,493 14,957 11,955
12/31/91 15,373 15,953 15,492 11,964
1/31/92 15,195 15,736 15,251 11,981
2/28/92 15,259 15,838 15,327 12,024
3/31/92 15,251 15,750 15,250 12,085
4/30/92 15,312 15,863 15,329 12,102
5/31/92 15,603 16,163 15,639 12,120
6/30/92 15,856 16,386 15,867 12,163
7/31/92 16,236 16,720 16,285 12,189
8/31/92 16,383 16,889 16,415 12,224
9/30/92 16,603 17,090 16,619 12,259
10/31/92 16,333 16,863 16,336 12,302
11/30/92 16,337 16,866 16,333 12,319
12/31/92 16,603 17,134 16,606 12,311
1/31/93 16,942 17,463 16,963 12,371
2/28/93 17,301 17,769 17,346 12,415
3/31/93 17,360 17,844 17,408 12,458
4/30/93 17,478 17,969 17,523 12,493
5/31/93 17,481 17,992 17,529 12,510
6/30/93 17,810 18,318 17,918 12,528
7/31/93 17,968 18,422 18,052 12,528
8/31/93 18,320 18,744 18,467 12,562
9/30/93 18,381 18,795 18,523 12,588
10/31/93 18,463 18,865 18,608 12,640
11/30/93 18,212 18,704 18,372 12,649
12/31/93 18,284 18,805 18,451 12,649
1/31/94 18,521 19,059 18,729 12,684
2/28/94 18,103 18,727 18,317 12,727
3/31/94 17,559 18,265 17,837 12,770
4/30/94 17,406 18,119 17,637 12,788
5/31/94 17,356 18,117 17,583 12,796
6/30/94 17,242 18,077 17,523 12,840
7/31/94 17,613 18,437 17,835 12,875
8/31/94 17,604 18,459 17,838 12,927
9/30/94 17,277 18,188 17,560 12,961
10/31/94 17,205 18,171 17,511 12,970
11/30/94 17,218 18,131 17,476 12,987
12/31/94 17,396 18,256 17,600 12,987
1/31/95 17,737 18,618 17,901 13,039
2/28/95 18,124 19,061 18,307 13,091
3/31/95 18,246 19,177 18,432 13,135
4/30/95 18,525 19,446 18,683 13,178
5/31/95 19,319 20,198 19,465 13,204
6/30/95 19,467 20,346 19,598 13,230
7/31/95 19,323 20,301 19,510 13,230
8/31/95 19,587 20,547 19,755 13,265
9/30/95 19,760 20,746 19,955 13,291
10/31/95 20,048 21,016 20,236 13,334
11/30/95 20,362 21,331 20,550 13,326
12/31/95 20,670 21,629 20,856 13,317
1/31/96 20,778 21,772 20,954 13,395
2/29/96 20,297 21,393 20,520 13,438
3/31/96 20,075 21,244 20,352 13,508
4/30/96 19,947 21,125 20,199 13,560
5/31/96 19,912 21,082 20,159 13,586
6/30/96 20,168 21,365 20,395 13,595
7/31/96 20,207 21,423 20,436 13,621
8/31/96 20,099 21,386 20,387 13,647
9/30/96 20,481 21,758 20,747 13,690
10/31/96 20,962 22,241 21,202 13,733
11/30/96 21,372 22,622 21,594 13,759
12/31/96 21,127 22,411 21,363 13,759
1/31/97 21,192 22,481 21,401 13,803
2/28/97 21,257 22,537 21,464 13,846
3/31/97 20,943 22,287 21,200 13,881
4/30/97 21,213 22,621 21,490 13,898
5/31/97 21,407 22,836 21,673 13,890
6/30/97 21,725 23,108 21,937 13,907
7/31/97 22,355 23,732 22,580 13,924
8/31/97 22,106 23,530 22,327 13,950
9/30/97 22,455 23,878 22,664 13,985
10/31/97 22,649 24,224 22,956 14,020
As you compare performance, please note that the LB Income Fund's
performance reflects the maximum 4% sales charge. The performance of
the Lehman Aggregate Bond index does not reflect any such charges. If
you were to purchase any of the individual bonds represented in this
index, any sales charges you would pay would reduce your total return
as well.
A More Defensive Approach
If economic growth slows in coming months, and inflation remains at
bay, interest rates should continue to fall. If the U.S. economy
remains healthy, as we expect, corporate bonds should perform well.
We expect, therefore, to maintain sizable holdings in that sector.
Given current conditions, we'll adopt a more defensive strategy in
the corporates we choose. With the recent turmoil abroad, we'll focus
on larger companies with less exposure to foreign economies. We may
also choose debt from industries whose performance is less dependent
on U.S. economic growth cycles. If it looks like economic growth is
slowing significantly, we would likely upgrade the quality of the
corporates we own while reducing the Fund's total corporate exposure.
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.
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: 21,806
Total Assets
(in millions): $591.9
Municipal bonds performed well in the past year, benefiting from positive
economic growth that improved the credit quality of issuers, as well as
from falling interest rates. By focusing on issues that offered a good
balance of price appreciation potential and yield, we helped the LB
Municipal Bond Fund earn strong returns that were competitive with its
market benchmark and other funds with similar objectives.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
General Obligation 16.9%
Health Care 10.7%
Utility 11.7%
Pollution Control 3.9%
Water & Sewer 8.2%
Housing 2.0%
Transportation 8.9%
Education 3.4%
Other 11.7%
Escrowed 22.6%
For the 12 months ended October 31, 1997, the Fund earned a total return
(based on NAV) of 8.28%. That compares to returns of 8.49% for the Lehman
Municipal Bond Index and an average return of 8.13% for municipal bond
funds tracked by Lipper Analytical Services.
[GRAPHIC OMITTED: TOP 10 STATES]
% of
Top 10 States Portfolio
California 10.8%
Texas 10.0%
New York 5.9%
Washington 5.7%
Colorado 5.4%
Ohio 4.7%
Minnesota 4.1%
Michigan 3.6%
New Jersey 3.5%
Florida 3.3%
These holdings represent 57% of the
Fund's total investment portfolio.
Adding Yield and Appreciation
In the first half of the period, when there was greater fluctuation in
market interest rates, municipal bonds outperformed U.S. Treasuries.
Demand for municipals was strong at this time, while municipal supplies
were shrinking. While continuing to focus on municipals with strong credit
quality, we added issues with higher coupons. These issues helped maintain
the Fund's tax-free income and performed well against other municipals
when interest rates rose.
After adding longer-term issues to pick up extra yield when rates fell at
the end of 1996, we reduced these positions at the start of 1997, when it
looked like rates would rise. As market fluctuations adjusted the spreads
between yields for different types of municipals, we traded holdings that
were becoming less attractive for others with better value. Since the
yields for lower-quality bonds were not strong enough to offset the added
risk involved with those issues, we continued to emphasize higher-quality
bonds.
In the second half of the period, falling rates spurred an increase in
municipal bond supply as many issuers took advantage of the low rates to
refinance older, higher-cost debt. The use of U.S. Treasury bonds for
these advanced refundings improved the credit quality of the issuers'
outstanding municipal debt, enhancing price appreciation for many of the
Fund's holdings. This was offset in part, however, by a degree of price
restraint resulting from increased supply of new municipal issues. Late in
the period, increased demand for Treasuries in the wake of foreign
economic concerns caused Treasuries to outpace municipals.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: MOODY'S BOND QUALITY
RATING DISTRIBUTION]
Moody's Bond Quality
Rating Distribution
Aaa 69.3%
Aa 14.0%
A 8.5%
Baa 8.2%
Ba 0.0%
B 0.0%
Caa 0.0%
Ca 0.0%
C 0.0%
Not Rated 0.0%
To make the most of this market, we took profits in certain refunded
municipals that had enjoyed strong price gains and purchased issues with
longer maturities that have yet to be refunded. Because prices for longer-
term issues tend to rise more when interest rates fall, our emphasis on
longer maturities improved the price gains of Fund shares. While
continuing to emphasize issues of good credit quality, we looked for
individual issues whose yields were especially attractive.
Continued Focus on Value
If the economy grows moderately in coming months, and we find attractive
opportunities, we may add issues of slightly lower credit quality to help
maintain the Fund's yield. If significantly slower growth seems likely,
and credit spreads remain tight, we would stick with the higher-quality
issues that currently dominate the Fund's portfolio.
Given the chance for further declines in interest rates, we plan to keep
the average investment maturity at, or slightly longer than, the Fund's
benchmark index. As before, we will be highly selective in choosing
investments and emphasize issues that provide especially strong long-term
value to the Fund.
[GRAPHIC WORM CHART OMITTED: Growth of $10,000]
(October 31, 1987 - October 31, 1997)
Lipper Average
LB Lehman General
Mumicipal Municipal Municipal Consumer
Month End Bond Bond Debts Price
Date Fund Index Funds Index
- ----------- --------- ----------- -------------- --------
10/31/87 10000 10000 10000 10000
11/30/87 9846 10261 10260 10014
12/31/87 10060 10410 10448 10012
1/31/88 10403 10780 10863 10038
2/29/88 10517 10895 10976 10064
3/31/88 10308 10768 10761 10107
4/30/88 10396 10850 10819 10159
5/31/88 10368 10819 10837 10194
6/30/88 10589 10977 11022 10237
7/31/88 10626 11048 11089 10281
8/31/88 10664 11058 11129 10324
9/30/88 10877 11258 11340 10393
10/31/88 11079 11456 11576 10428
11/30/88 10982 11351 11469 10437
12/31/88 11145 11467 11642 10454
1/31/89 11309 11704 11819 10506
2/28/89 11238 11570 11721 10549
3/31/89 11237 11543 11714 10610
4/30/89 11516 11816 11998 10680
5/31/89 11725 12062 12221 10740
6/30/89 11838 12226 12380 10766
7/31/89 11979 12392 12507 10792
8/31/89 11863 12271 12373 10810
9/30/89 11804 12234 12332 10844
10/31/89 11962 12383 12482 10896
11/30/89 12165 12600 12678 10923
12/31/89 12266 12703 12764 10940
1/31/90 12102 12644 12627 11053
2/28/90 12190 12756 12752 11105
3/31/90 12203 12760 12747 11165
4/30/90 12066 12668 12584 11183
5/31/90 12352 12944 12911 11209
6/30/90 12503 13058 13034 11270
7/31/90 12698 13250 13249 11313
8/31/90 12432 13058 12961 11417
9/30/90 12473 13066 12980 11512
10/31/90 12672 13302 13168 11582
11/30/90 12965 13570 13475 11608
12/31/90 13070 13624 13533 11608
1/31/91 13256 13807 13699 11677
2/28/91 13331 13927 13778 11695
3/31/91 13346 13932 13806 11712
4/30/91 13535 14118 14008 11729
5/31/91 13628 14243 14134 11764
6/30/91 13574 14229 14090 11799
7/31/91 13783 14403 14293 11816
8/31/91 13944 14593 14476 11851
9/30/91 14189 14782 14662 11903
10/31/91 14299 14915 14793 11920
11/30/91 14309 14957 14814 11955
12/31/91 14661 15279 15163 11964
1/31/92 14667 15314 15153 11981
2/28/92 14640 15319 15174 12024
3/31/92 14639 15325 15180 12085
4/30/92 14805 15461 15320 12102
5/31/92 15008 15644 15534 12120
6/30/92 15266 15906 15817 12163
7/31/92 15794 16384 16377 12189
8/31/92 15513 16223 16115 12224
9/30/92 15557 16328 16179 12259
10/31/92 15382 16168 15888 12302
11/30/92 15737 16458 16293 12319
12/31/92 15973 16626 16493 12311
1/31/93 16128 16819 16680 12371
2/28/93 16720 17427 17334 12415
3/31/93 16609 17243 17131 12458
4/30/93 16766 17417 17316 12493
5/31/93 16848 17514 17415 12510
6/30/93 17162 17807 17714 12528
7/31/93 17166 17830 17714 12528
8/31/93 17543 18201 18107 12562
9/30/93 17743 18408 18321 12588
10/31/93 17858 18443 18358 12640
11/30/93 17656 18281 18165 12649
12/31/93 18045 18667 18526 12649
1/31/94 18245 18880 18739 12684
2/28/94 17728 18391 18241 12727
3/31/94 16900 17642 17444 12770
4/30/94 16979 17792 17507 12788
5/31/94 17141 17947 17664 12796
6/30/94 17011 17837 17549 12840
7/31/94 17321 18164 17860 12875
8/31/94 17380 18227 17905 12927
9/30/94 17144 17959 17615 12961
10/31/94 16799 17640 17280 12970
11/30/94 16477 17320 16922 12987
12/31/94 16859 17701 17335 12987
1/31/95 17372 18208 17850 13039
2/28/95 17931 18738 18380 13091
3/31/95 18122 18953 18545 13135
4/30/95 18139 18976 18544 13178
5/31/95 18749 19581 19122 13204
6/30/95 18502 19411 18914 13230
7/31/95 18630 19595 19035 13230
8/31/95 18865 19844 19244 13265
9/30/95 19010 19969 19362 13291
10/31/95 19313 20259 19658 13334
11/30/95 19708 20595 20035 13326
12/31/95 19923 20793 20258 13317
1/31/96 20071 20951 20353 13395
2/29/96 19900 20808 20192 13438
3/31/96 19568 20542 19871 13508
4/30/96 19465 20484 19782 13560
5/31/96 19453 20476 19786 13586
6/30/96 19653 20699 19972 13595
7/31/96 19830 20888 20151 13621
8/31/96 19820 20883 20135 13647
9/30/96 20116 21176 20423 13690
10/31/96 20343 21415 20644 13733
11/30/96 20736 21807 21007 13759
12/31/96 20608 21715 20915 13759
1/31/97 20647 21757 20917 13803
2/28/97 20829 21957 21099 13846
3/31/97 20554 21665 20824 13881
4/30/97 20690 21847 20995 13898
5/31/97 20997 22175 21295 13890
6/30/97 21206 22412 21525 13907
7/31/97 21833 23033 22173 13924
8/31/97 21577 22816 21909 13950
9/30/97 21914 23088 22174 13985
10/31/97 22028 23235 22310 14020
Footnote reads:
As you compare performance, please note that the LB Municipal Bond Fund's
performance reflects the maximum 4% sales charge. The performance of the
Lehman Municipal Bond index does not reflect any such charges. If you were
to purchase any of the individual bonds represented in this index, any
sales charges you would pay would reduce your total return as well.
INSET BOX ON CHART READS:
LB Municipal Bond Fund
Annualized Total Returns*
Net Asset Value
10 Years 8.66%
5 Years 7.45%
1 Year 8.28%
Public Offering Price
10 Years 8.22%
5 Years 6.57%
1 Year 3.93%
*See accompanying notes to Portfolio Management Reviews.
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.
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: 52,814
Total Assets
(in millions): $469.2
Unlike other sectors of the fixed-income market, money market fund yields
trended upward over the past year but fluctuated with economic
uncertainty. However, Treasury bills, which are a very visible indicator
of short-term rates, but a small portion of most money market funds,
bucked that trend. Having started the period at 5.20%, the annualized
yield for three-month U.S. Treasury bills rose to 5.44% after the Federal
Reserve raised short-term interest rates in March, then trended downward
- -- ending the period almost unchanged at 5.21% on October 31, 1997.
[GRAPHIC PIE CHART OMITTED: Portfolio Composition (% of Portfolio)]
Portfolio Composition
(% of Portfolio)
Commercial Paper 82.8%
Certificates of Deposit 4.1%
Medium Term Notes 1.1%
Variable Rate Notes 10.9%
Bank Notes 1.1%
During this time we adjusted the asset mix and maturities of the LB Money
Market Fund to take advantage of the changes in yields and changes in the
spreads between yields of different money market instruments. These
strategies helped the Fund earn a total return of 4.74% for the 12 months
ended October 31, 1997.
Staying Limber
For the first half of the period, the possibility of rising short-term
interest rates encouraged us to select shorter maturities -- keeping
liquidity high so that we might invest more quickly in higher-yielding
issues as they came to market. We achieved this flexibility, without
losing yield, by balancing issues having maturities of 30 days or less
with those having maturities of six to 12 months. We also used floating-
rate issues, whose coupons reset frequently, decreasing the Fund's
exposure to interest rate risk.
To further enhance yield, we bought taxable municipal paper issued by
state and local governments for commercial projects with credit
enhancements from major banks. Because fewer analysts track these short-
term instruments, they are often available at prices and yields that are
particularly attractive.
As the year progressed, we added more taxable paper to the portfolio.
Although interest rates remained stable, we did not increase investments
in longer maturities -- feeling they did not offer enough additional yield
to compensate for the additional interest rate risk. Toward the end of the
period, as the average maturity of our market benchmark lengthened, we
allowed the Fund's maturities to shorten. We felt this would let us take
advantage of opportunities to add yield that typically occur at the end of
a calendar year. As part of our strategy, we allowed investments in asset-
backed commercial paper to mature, so that we might emphasize year-end
opportunities in that sector.
[GRAPHIC OMITTED: TOP 10 COMMERCIAL PAPER HOLDINGS]
Top 10 Commercial % of
Paper Holdings Industry Portfolio
Harvard University Education 3.6%
Oyster Creek Fuel Corp. Banking-Foreign 2.0%
General Electric Capital Corp. Finance-Commercial 1.9%
United Parcel Service of America, Inc. Transportation 1.6%
Port of Corpus Christi Authority of
Nueces County, Texas U.S. Municipal 1.5%
Cargill, Inc. Food & Beverage 1.5%
Yale University Education 1.5%
City of New York Government Bonds,
Fiscal 1995, Series B U.S. Municipal 1.5%
Du Pont (E.I.) de Nemours and Co. Industrial 1.4%
U.S. Prime Property, Inc. Banking-Foreign 1.1%
Footnote reads:
These holdings represent 17.6% of the Fund's total investment portfolio.
Throughout the year we enjoyed strong returns from U.S. dollar-denominated
investments of foreign issuers, which were available in good supply at
attractive prices and yields. However, none of these instruments
represented issuers in the Far East, assuring that the Fund had no
exposure to the currency problems occurring there in October.
[GRAPHIC OMITTED: LB MONEY MARKET FUND PERFORMANCE]
LB Money Market Fund
Performance as of October 31, 1997
Annualized Total Returns*
Net Asset Value
10 Years 5.11%
5 Years 3.88%
1 Year 4.74%
Seven-Day Yields ***
Current 4.74%
Effective 4.85%
Locking in Higher Yields
As we approach the end of the calendar year, we will add longer maturities
to the Fund's portfolio to enhance its yield. This should provide stronger
yields in early 1998 if interest rates continue unchanged. We expect to
keep the Fund's investment mix largely the same -- focusing on taxable
municipal paper, letters of credit, asset-backed commercial paper, and
foreign instruments related to issuers outside the Far East. As always, we
will keep the portfolio focused on very high-quality issues and well
diversified in terms of asset mix and maturities.
Footnotes
*The annualized total return reflects the change in share price, the
reinvestment of all dividends and capital gains, and the effect of
compounding. Since performance varies, the annualized total return, which
assumes a steady rate of growth, differs from the Fund's actual total
return for the years indicated. POP returns have been adjusted for the
maximum 4% sales charge. NAV returns do not include a sales charge. Sales
charges do not apply to the LB Money Market Fund. All returns represent
past performance. The value of an investment fluctuates so that shares,
when redeemed, may be worth more or less than the original investment.
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.
**Investments in the LB Money Market Fund are neither guaranteed nor
insured by the U.S. Government and there is no assurance that the Fund
will maintain a stable net asset value.
***Seven-day yields of the LB Money Market Fund refer to the income
generated by an investment in the Fund over a specified seven-day period.
Effective yields reflect the reinvestment of income. Yields are subject to
daily fluctuation and should not be considered an indication of future
results.
This report must be preceded or accompanied by a prospectus of the
Lutheran Brotherhood Family of Funds.
Choosing Investments That are Right for You
What's the best investment for you? Financial experts agree that the
answer doesn't lie in just one investment, but rather in a
diversified portfolio of investments based on your personal
financial needs and goals.
The remarkable growth of mutual funds over the years attests to the
fact that many consider mutual funds to be among the best
investments available today. By investing in a mutual fund, you're
automatically diversified among a number of different securities.
For example, if you buy shares of a stock mutual fund, you're
investing in the stocks of many different companies, representing
many different industries.
You can further diversify your portfolio by investing among
different asset classes, e.g., stocks, bonds and money market
instruments. This kind of diversification is often referred to as
portfolio or asset allocation.
Studies have shown that the performance of a portfolio depends
largely on how you allocate your assets.
Consult a professional
Determining the right asset allocation plan can be challenging, but
you can rely on the knowledge and experience of your LBSC registered
representative. He or she can walk you through Lutheran
Brotherhood's AssetMatchSM program, which is designed to help you
develop (or update) a personal investment strategy that's on track
with your needs and goals--at no cost to you.
Take the first step
To get your asset allocation program underway, complete the enclosed
AssetMatch questionnaire and forward it to your LBSC registered
representative. The AssetMatch questionnaire, which is confidential,
helps assess your risk tolerance, goals and time horizon. Your LBSC
registered representative uses these variables to help identify the
best way to reach each of your investment objectives.
This page does not constitute part of
the prospectus or annual report.
Lutheran Brotherhood
AssetMatchSM Questionnaire
Completing this confidential questionnaire is the first step in the
Lutheran Brotherhood AssetMatch program. The questions below help
assess your risk tolerance, liquidity needs, investment preferences
and time horizon. An LBSC registered representative uses the
AssetMatch software to analyze your information and presents a
diversified mix of investments.
This proposal serves as a starting point for you and your
representative, helping to determine a mix of investments that best
matches your investment style and helps to achieve your investment
objective. Since every investment objective requires its own
investment strategy, you should complete a separate questionnaire
for each of your investment objectives (e.g., college funding,
retirement, etc.).
Questionnaire and scoring system developed in conjunction with
Ibbotson Associates, Chicago.
Name Date Investment Objective
-------------- ---------- ---------------
Mark your answers by checking the appropriate boxes.
Risk Tolerance
1. The risk of an investment suffering a decline in value (having a
negative return) is often a primary concern for investors. To
achieve higher returns, however, an investor must be willing to
accept greater short-term risk. The following table illustrates
five hypothetical $10,000 investments. For each investment, the
expected value at the end of one year is shown along with the
probability of suffering a decline in that year. Given your
investment objective, in which of the five hypothetical
investments would you be most comfortable investing?
Probability of
Expected value investment value
of $10,000 being less than
Investment after one year $10,000 after one year
[] A $10,600 0.5%
[] B $10,800 5%
[] C $11,000 12%
[] D $11,200 17%
[] E $11,400 21%
2. Inflation can greatly erode the return on your investments. For
example, in a typical year with a 3.5% inflation rate, an
investment with a 6% return before inflation would have a real
return of only 2.5%. Please specify which of the following best
summarizes your attitude regarding investments and inflation.
[] A. I prefer investment returns that are expected to be
substantially higher than inflation over the long run, and I
am willing to accept large short-term fluctuations in
investment value (and a greater potential for loss) to achieve
this goal.
[] B. I prefer an investment that is expected to moderately exceed
inflation over the long run, and I am willing to accept
moderate short-term fluctuations in investment value (and a
moderate potential for loss) to achieve this goal.
[] C. I prefer to minimize short-term fluctuations in investment
value and potential for loss as much as possible, even if it
means that my investment is expected to only keep pace with or
slightly exceed inflation.
This page does not constitute part of
the prospectus or annual report.
3. To achieve higher-than-average returns, an investor must be
willing to accept significant short-term volatility in investment
value. However, when making investment decisions, investors
should consider that holding investments over longer time periods
tends to lessen the impact of short-term volatility.
The graph below shows the probable best and worst case annualized
returns for four hypothetical investments over both one- and
five-year holding periods. Which of the following would you be
most comfortable holding for your current investment goal?
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
[GRAPHIC OMITTED: VERTICAL BAR CHART
PROBABLE BEST AND WORST CASE ANNUALIZED RETURNS]
Probable Best and Worst Case Annualized Returns
!!!!!!!!!!!!!!PLOT POINTS TO COME!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
[] A. Investment A
[] B. Investment B
[] C. Investment C
[] D. Investment D
4. If my investments are declining in value, and similar investments
in the marketplace are also declining in value, I would move my
money into investments that are currently experiencing better
performance.
[] A. Strongly agree
[] B. Agree
[] C. Not sure
[] D. Disagree
[] E. Strongly disagree
5. Which of the following best describes your attitude toward
declines in investment value?
[] A. I check the prices of my investments at least several times a
month so I can sell quickly if they begin to decline in value.
[] B. Although daily declines in the value of my investments make me
uncomfortable, I will not immediately sell. If my investments
suffer a substantial decline over a full quarter, however, I
am likely to sell.
[] C. I realize there may be substantial day-to-day changes in the
value of my investments. Although I focus on quarterly
performance trends, I usually wait an entire year before
making any changes.
[] D. Even if my investment suffered significant declines over a
given year (in a down market), I would continue to follow a
consistent, long-term investment plan and retain my
investment.
This page does not constitute part of
the prospectus or annual report.
6. The graph below shows the returns of a hypothetical mutual fund
over the past 20 years. Its recent losses have been largely
consistent with the overall market. If you owned this mutual
fund, given its historical and current return (in year 20), what
action would you now take?
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
[GRAPHIC OMITTED: VERTICAL BAR CHART]
Hypothetical mutual fund over the past 20 years
!!!!!!!!!!!!!!PLOT POINTS TO COME!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
[] A. Although it would cause me to realize a loss, I would
immediately pull out of the investment to prevent further
declines.
[] B. I would sell some of the investment to protect myself from
further declines.
[] C. Based on its previous long-term performance, I would continue
to hold the investment with the expectation of higher future
returns.
[] D. I would contribute more funds to the investment now that the
price per share is lower.
7. Which of the following best describes your attitude toward
long-term investing?
[] A. I am primarily concerned with protecting the value of my
account. Therefore, I am willing to accept the lower returns
of conservative investments which have minimal chance for
loss.
[] B. I am willing to bear some risk in an effort to achieve higher
returns, but prefer the majority of my investments to be
invested in low-risk assets.
[] C. I am concerned with minimizing risk and achieving higher
returns because they are of equal importance to me. Therefore,
I am willing to accept moderate volatility in the value of my
investments in order to achieve moderate returns.
[] D. I wish to achieve moderately high returns on my investments.
Therefore, I am willing to accept significant short-term
volatility.
[] E. I am primarily concerned with maximizing investment returns.
Therefore, I am willing to accept large and sometimes dramatic
fluctuations in the value of my investments.
8. You have acquired $20,000 to invest toward your investment
objective and have only two investment options. Which of the
following would you be more likely to select given the likely
performance of your $20,000 investment after one year?
[] A. Investment X:
70% chance of gaining $3,000
30% chance of losing $1,000
[] B. Investment Y:
100% chance of gaining $1,500
This page does not constitute part of
the prospectus or annual report.
Time Horizon
9. Given your investment objective, when do you expect to begin
making withdrawals?
[] A. Under 3 years
[] B. 3-5 years
[] C. 6-8 years
[] D. 9-11 years
[] E. 12-15 years
[] F. 16 or more years
10. Once withdrawals begin, over how long of a period do you expect
the withdrawals to continue?
[] A. Lump-sum withdrawal
[] B. 1-3 years
[] C. 4-6 years
[] D. 7-9 years
[] E. 10-15 years
[] F. 16 or more years
Taxes
The following question only needs to be answered if your investment
will be subject to current taxation.
11. Income from municipal bonds is exempt from federal, and
possibly, state and local taxes. Investors with a federal
marginal tax rate of 28% or higher can receive significant
benefits by investing in municipal bonds rather than fully taxed
government or corporate bonds. For example, a tax-free yield of
6% in a 31% tax bracket is equivalent to a fully taxable yield
of 8.7%.
Given your federal marginal tax rate (15%, 28%, 31%, 36% or
39.6%), which would you prefer to invest in?
[] A. Municipal bonds
[] B. Government or corporate bonds
Thank you for taking the time to complete this confidential
questionnaire. To continue the AssetMatch process, either:
(bullet) Call an LBSC registered representative to set up an
appointment, or
(bullet) Mail your completed questionnaire to an
LBSC registered representative for an AssetMatch analysis.
(To be contacted about a no-cost consultation, complete the
following)
I can be reached at:----------------------------------
Best time to call:--------------------- [] AM [] PM
Determining the right mix of assets to achieve your investment
objective can be a difficult task. But it doesn't have to be. The
answers you've provided, along with the help of AssetMatch and an
LBSC registered representative, can make things easier and eliminate
the guesswork.
LBSC registered representative name, address and phone number
Investment products are distributed by Lutheran Brotherhood
Securities Corp., 625 Fourth Avenue South, Minneapolis, MN 55415.
This page does not constitute part of
the prospectus or annual report.
[LUTHERAN BROTHERHOOD LOGO HERE]
LUTHERAN BROTHERHOOOD
A Family of Financial Services for Lutherans
[7 SOLID SQUARE BULLETS]
- -------------------------------------------
LUTHERAN BROTHERHOOD
- -------------------------------------------
FAMILY OF FUNDS
- -------------------------------------------
[ART OF 3D SQUARE WITH TREE, ACORN AND LEAF
ON EACH OF ITS THREE VISIBLE FACETS.]
Cross bar reads:
GROWTH [DIAMOND] INCOME [DIAMOND] STABILITY
Annual Report
October 31, 1997
[LUTHERAN BROTHERHOOD LOGO HERE]
LUTHERAN BROTHERHOOOD
SECURITIES CORP.
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, MN 55402-3795
Price Waterhouse LLP
[GRAPHIC OMITTED: Price Waterhouse logo]
Report of Independent Accountants
To the Trustees and Shareholders of the
Lutheran Brotherhood Family of Funds
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Lutheran Brotherhood Opportunity Growth Fund, Lutheran Brotherhood 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 Lutheran
Brotherhood Family of Funds) at October 31, 1997, the results of their
operations for the year or period 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, 1997 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.
/s/ Price Waterhouse LLP
December 12, 1997
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
Portfolio of Investments
October 31, 1997
Shares Value
- -------------- ------------
<S> <C>
COMMON STOCKS - 94.4% (a)
Automotive - 0.5%
30,200 Aftermarket Technology Corp. $ 611,550(b)
39,500 Group 1 Automotive, Inc. 515,969(b)
20,300 Stoneridge, Inc. 329,875(b)
------------
1,457,394
------------
Bank & Finance - 4.1%
92,700 Annaly Mortgage Management, Inc. 1,100,813(b)
415 Charter One Financial, Inc. 24,122
138,900 Cityscape Financial Corp. 212,691(b)
44,700 Delta Financial Corp. 815,775(b)
51,200 Dime Bancorp, Inc. 1,228,800
53,600 IMC Mortgage Co. 931,300(b)
90,000 Imperial Credit Commercial
Mortgage Investment Corp. 1,485,000(b)
82,500 New Century Financial Corp. 1,320,000(b)
9,000 PAULA Financial 227,250(b)
93,900 Resource Bancshares Mortgage Group, Inc. 1,255,913
266,300 Southern Pacific Funding Corp. 3,495,188(b)
27,400 Sovereign Bancorp, Inc. 486,350
24,800 Sterling Financial Corp. 527,000(b)
------------
13,110,202
------------
Broadcasting - 0.4%
18,600 Emmis Broadcasting Corp.,
Class A 823,050(b)
40,300 Four Media Co. 357,663(b)
------------
1,180,713
------------
Building Products & Materials - 4.0%
361,700 Cameron Ashley Building Products 6,284,538(b)
188,300 Dayton Superior Corp., Class A 3,318,788(b)
128,000 Watsco, Inc. 3,008,000(b)
------------
12,611,326
------------
Computer Software - 5.4%
81,800 Activision, Inc. 1,196,325(b)
263,300 AXENT Technologies, Inc. 6,154,638(b)
57,000 Cognicase, Inc. 719,625(b)
37,000 Electronic Arts, Inc. 1,253,375(b)
103,400 Infinity Financial Technology, Inc. 1,589,775
10,000 Logility, Inc. 146,250(b)
93,600 Macromedia, Inc. 971,100(b)
20,200 Mercury Interactive Corp. 454,500(b)
86,100 MicroProse, Inc. 559,650(b)
13,800 Midway Games, Inc. 288,938(b)
52,900 Rational Software Corp. 482,713(b)
180,800 Softquad International, Inc. 361,600(b)
73,700 Summit Design, Inc. 1,068,650(b)
41,200 Viasoft, Inc. 1,689,200(b)
------------
16,936,339
------------
Computers & Office
Equipment - 1.2%
52,100 Harbinger Corp. 1,549,975(b)
34,400 Premiere Technologies, Inc. 1,169,600(b)
30,100 Stratus Computer, Inc. 1,064,788(b)
------------
3,784,363
------------
Containers & Packaging - 0.1%
12,000 Ivex Packaging Corp. 253,500(b)
------------
Drugs & Health Care - 8.6%
85,400 ADAC Labs, Inc. 1,665,300(b)
270,600 Atrix Laboratories, Inc. 5,107,575(b)
265,700 DepoTech Corp. 3,686,588(b)
287,700 Eclipse Surgical
Technologies, Inc. 2,571,319(b)
111,600 ICN Pharmaceuticals, Inc. 5,370,750
177,300 IRIDEX Corp. 1,795,163(b)
86,300 Isis Pharmaceuticals, Inc. 1,418,556(b)
103,200 Kendle International, Inc. 1,548,000(b)
291,400 Matritech, Inc. 1,966,950(b)
31,550 Miravant Medical Technologies 1,514,400(b,d)
16,200 STERIS Corp. 643,950(b)
------------
27,288,551
------------
Electrical Equipment - 0.5%
80,600 OSI Systems, Inc. 1,047,800(b)
23,000 Power-One, Inc. 428,375(b)
------------
1,476,175
------------
Electronics - 4.5%
111,800 Cypress Semiconductor Corp. 1,257,750(b)
111,000 ESS Technology, Inc. 1,345,875(b)
143,100 Faroudja, Inc. 1,287,900(b)
162,500 FSI International, Inc. 2,803,125(b)
145,600 Integrated Silicon Solution 1,456,000(b)
43,600 International Manufacturing
Services, Inc. 474,150(b)
70,500 Kulicke & Soffa Industries, Inc. 1,815,375(b)
192,500 S3, Inc. 1,708,438(b)
37,600 Semitool, Inc. 648,600(b)
38,000 Speedfam International, Inc. 1,410,750(b)
------------
14,207,963
------------
Food & Beverage - 0.1%
9,200 American Italian Pasta Co. 193,200(b)
------------
Healthcare Management - 7.1%
77,400 American Oncology
Resources, Inc. 1,131,975(b)
20,000 AmeriPath, Inc. 330,000(b)
103,300 Capstone Pharmacy
Services, Inc. 1,097,563(b)
342,600 Complete Management, Inc. 5,952,675(b)
291,600 FPA Medical Management, Inc. 7,034,850(b)
305,300 Home Health Corp. of
America, Inc. 3,281,975(b)
122,200 Renex Corp. 947,050(b)
417,300 U.S. Diagnostic Labs, Inc. 2,764,613(b)
------------
22,540,701
------------
Hospital Management - 1.8%
180,950 Horizon Health Corp. 4,229,706(b)
103,100 PhyMatrix Corp. 1,520,725(b)
------------
5,750,431
------------
Industrial - 0.9%
48,200 Innovative Valve
Technologies, Inc. 843,500(b)
84,800 TETRA Technologies, Inc. 1,955,700(b)
------------
2,799,200
------------
Leisure & Entertainment - 7.7%
195,100 Cannondale Corp. 4,316,587(b)
106,150 Fairfield Communities, Inc. 4,663,966(b)
201,450 Signature Resorts, Inc. 5,262,881(b)
174,500 Silverleaf Resorts, Inc. 3,795,375(b)
235,200 Steiner Leisure Ltd. 6,350,400(b)
------------
24,389,209
------------
Machinery & Equipment - 1.4%
141,100 Denison International plc 2,663,262(b)
12,300 Industrial Distribution
Group, Inc. 238,312(b)
153,700 Miller Industries, Inc. 1,556,212(b)
------------
4,457,786
------------
Manufacturing - 3.0%
212,000 BMC Industries, Inc. 6,823,750
198,200 Zomax Optical Media, Inc. 2,700,475(b)
------------
9,524,225
------------
Mining & Metals - 1.9%
169,300 Battle Mountain Gold Co. 1,036,962
80,600 Cambior, Inc. 634,725
201,500 Dayton Mining Corp. 503,750(b)
20,500 Getchell Gold Corp. 738,000(b)
84,600 Greenstone Resources Ltd. 676,800(b)
76,600 Homestake Mining Co. 947,925
161,200 Meridian Gold, Inc. 654,875(b)
60,400 Placer Dome, Inc. 936,200
------------
6,129,237
------------
Natural Gas - 0.9%
80,300 The Meridian Resource Corp. 1,048,919(b)
19,300 TransTexas Gas Corp. 366,700(b)
44,000 United Meridian Corp. 1,493,250(b)
------------
2,908,869
------------
Oil & Oil Service - 6.1%
62,500 Barrett Resources Corp. 2,199,219(b)
162,200 Domain Energy Corp. 2,797,950(b)
84,100 Eagle Geophysical, Inc. 1,471,750(b)
123,300 Forcenergy, Inc. 4,022,663(b)
159,700 Lomak Petroleum, Inc. 2,964,431
40,400 Nuevo Energy Co. 1,674,075(b)
27,500 Ocean Energy, Inc. 1,698,125(b)
61,160 Swift Energy Co. 1,586,337(b)
44,600 Vintage Petroleum, Inc. 1,020,225
------------
19,434,775
------------
Paper & Forest Products - 0.2%
58,500 Stone Container Corp. 705,656(c)
------------
Pollution Control - 4.7%
117,500 Allied Waste Industries, Inc. 2,394,062(b)
322,400 IDM Environmental Corp. 2,176,200(b)
147,600 Memtec Ltd., ADR 4,870,800(d)
321,900 Recycling Industries, Inc. 1,931,400(b)
89,600 U.S. Filter Corp. 3,595,200(b)
------------
14,967,662
------------
Real Estate Investment
Trusts - 6.5%
76,200 American General
Hospitality Corp. 2,076,450
39,100 Apartment Investment &
Management Co. 1,385,606
63,200 First Industrial Realty
Trust, Inc. 2,188,300
61,500 Glimcher Realty Trust 1,364,531(b)
68,600 Great Lakes REIT, Inc. 1,286,250
32,000 Highwoods Properties, Inc. 1,104,000
126,300 InnKeepers USA Trust 2,107,631
105,200 Kilroy Realty Corp. 2,787,800
135,810 Patriot American Hospitality, Inc. 4,481,730
22,000 SL Green Realty Corp. 551,375
61,400 Sunstone Hotel Investors, Inc. 1,078,338
------------
20,412,011
------------
Restaurants - 1.4%
139,000 Apple South, Inc. 2,588,875
116,700 Buffets, Inc. 1,225,350(b)
228,000 New World Coffee 527,250(b)
------------
4,341,475
------------
Retail - 4.1%
28,000 Gadzooks, Inc. 696,500(b)
34,300 Hot Topic, Inc. 578,812(b)
258,700 Lithia Motors, Inc. 4,494,912(b)
164,400 Movie Gallery, Inc. 637,050(b)
71,800 Paul Harris Stores, Inc. 1,319,325(b)
169,600 Sunglass Hut International 1,356,800(b)
72,900 The Children's Place Retail
Stores, Inc. 437,400(b)
164,300 Travis Boats & Motors, Inc. 3,142,237(b)
184,700 West Coast Entertainment Corp. 404,031(b)
------------
13,067,067
------------
Services - 9.2%
131,300 Alternative Resources Corp. 3,249,675(b)
124,500 Coach USA, Inc. 3,703,875(b)
8,900 CORESTAFF, Inc. 220,275(b)
191,500 Corporate Express, Inc. 2,812,656(b)
115,700 Cotelligent Group, Inc. 2,371,850(b)
100,000 F.Y.I., Inc. 2,575,000(b)
106,600 Gartner Group, Inc. 3,011,450
25,000 Mac-Gray Corp. 368,750(b)
49,100 OfficeMax, Inc. 656,712(b)
23,900 Personal Group of
America, Inc. 829,031(b)
95,000 PMT Services, Inc. 1,531,875(b)
106,000 Professional Staff plc 1,656,250(b)
46,700 SPR, Inc. 805,575(b)
25,000 Syntel, Inc. 350,000(b)
129,700 US Office Products Company 4,053,125(b)
50,000 Vestcom International, Inc. 906,250(b)
------------
29,102,349
------------
Telecommunications
Equipment - 4.7%
84,800 Aspect Telecommunications
Corp. 2,035,200(b)
100,000 DSC Communications Corp. 2,437,500(b)
41,000 Gilat Satellite Networks Ltd. 1,332,500(b)
169,500 Larscom, Inc. 1,695,000(b)
207,600 Orckit Communications Ltd. 3,684,900(b)
128,900 Pairgain Technologies, Inc. 3,641,425(b)
------------
14,826,525
------------
Telephone &
Telecommunications - 2.9%
155,900 Aerial Communications, Inc. 1,325,150(b)
28,800 American Communications 324,000(b)
16,000 ITC DeltaCom, Inc. 308,000(b)
51,800 LCC International, Inc., Class A 971,250(b)
124,800 LCI International, Inc. 3,229,200(b)
84,600 STAR Telecommunications, Inc. 1,956,375(b)
67,600 STARTEC Global
Communications Corp. 1,005,550(b)
------------
9,119,525
------------
Textiles & Apparel - 0.5%
155,300 Chaus (Bernard), Inc. 106,768(b)
52,500 Cutter & Buck, Inc. 938,437(b)
30,800 Tefron Ltd. 590,975(b)
------------
1,636,180
------------
Total Common Stocks
(cost $270,674,159) 298,612,609
------------
Principal
Amount
- --------------
SHORT-TERM SECURITIES - 5.6% (a)
Commercial Paper - 1.9%
$6,200,000 Disney (Walt) Co., 5.67%,
Due 11/3/1997 6,198,047
------------
U. S. Government Agency - 3.7%
11,700,000 Federal Home Loan Bank
Consolidated Discount Notes,
5.63%, Due 11/3/1997 11,696,340
------------
Total Short-Term Securities
(at amortized cost) 17,894,387
------------
Total Investments
(cost $288,568,546) $316,506,996(e)
============
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, 1997.
(d) At October 31, 1997, securities valued at $6,382,800 were held in
escrow to cover open call options written as follows:
Number of Exercise Expiration
Issue Contracts Price Date Value
- ---------------- ------------ --------- ---------- ---------
Memtec Ltd., ADR 1,476 $30 11/22/97 $387,450
Miravant Medical
Technologies 136 50 11/22/97 30,600
Miravant Medical
Technologies 179 60 11/22/97 16,222
--------- --------
Total 1,791 $434,272
========= ========
(e) At October 31, 1997, the aggregate cost of securities for federal
income tax purposes was $289,569,868 and the net unrealized
appreciation of investments based on that cost was $26,937,128 which
is comprised of $52,612,193 aggregate gross unrealized appreciation
and $25,675,065 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, 1997
Shares Value
- -------------- ------------
<S> <C>
COMMON STOCKS - 85.6% (a)
Aerospace - 1.4%
1,770 Precision Castparts Corp. $ 104,098(c)
1,920 Sunstrand Corp. 104,400
------------
208,498
------------
Airlines - 1.4%
6,450 Southwest Airlines Co. 210,431
------------
Automotive - 1.4%
3,590 AutoZone, Inc. 106,129(b)
2,410 Tower Automotive, Inc. 100,919(b)
------------
207,048
------------
Bank & Finance - 10.6%
5,730 City National Corp. 172,258
1,530 Crestar Financial Corp. 72,388(c)
1,550 Donaldson, Lufkin &
Jenrette, Inc. 108,888
5,080 Firstar Corp. 183,515(c)
2,300 Long Island Bancorp, Inc. 102,350
920 Mercantile Bancorporation, Inc. 44,678
3,400 PMI Group 205,488
4,325 Reinsurance Group of America 169,486
1,380 Salomon, Inc. 107,209
4,410 Summit Bancorp 188,252
2,870 TCF Financial Corp. 163,231
2,190 UNUM Corp. 106,763
------------
1,624,506
------------
Chemicals - 3.5%
4,850 Avery Dennison Corp. 193,091
7,150 Crompton & Knowles Corp. 180,538
3,230 Cytec Industries, Inc. 157,463(b)
------------
531,092
------------
Computer Software - 2.8%
2,200 Adobe Systems, Inc. 105,050
4,900 Autodesk, Inc. 181,300
2,300 BMC Software, Inc. 138,863(b)
------------
425,213
------------
Computers & Office
Equipment - 4.8%
6,370 Boise Cascade Office
Products Corp. 121,030(b)
3,030 Digital Equipment Corp. 151,689(b)
3,950 Security Dynamics
Technologies, Inc. 133,806(b)
2,720 Shared Medical Systems Corp. 148,920
4,100 Waters Corp. 180,400(b)
------------
735,845
------------
Conglomerates - 1.2%
7,070 Whitman Corp. 185,588
------------
Drugs & Health Care - 5.5%
1,200 Arrow International, Inc. 43,200
4,700 Forest Laboratories, Inc. 217,375(b)
8,020 Rexall Sundown, Inc. 175,438(b)
3,250 Spine-Tech, Inc. 101,156(b)
3,100 STERIS Corp. 123,225(b)
5,610 Watson Pharmaceuticals, Inc. 178,118(b)
------------
838,512
------------
Electric Utilities - 0.9%
4,410 Pacific Enterprises 144,152(c)
------------
Electronics - 5.6%
4,050 Adaptec, Inc. 196,172(b)
2,650 Adtran, Inc. 95,400(b)
5,760 Anixter International, Inc. 108,720(b)
3,290 Thermo Instrument
Systems, Inc. 118,646(b)
2,620 Unitrode Corp. 70,249(b)
6,810 Vishay Intertechnology, Inc. 163,014(b)
3,560 VLSI Technology, Inc. 105,465(b)
------------
857,666
------------
Healthcare Management - 4.6%
7,610 Humana, Inc. 159,810(b)
10,010 MedPartners, Inc. 254,629(b)
3,130 Pediatrix Medical Group, Inc. 132,243(b)
5,097 Total Renal Care Holdings, Inc. 157,041(b)
------------
703,723
------------
Hospital Management - 1.6%
5,720 Health Management
Associates, Inc. 139,425(b)
2,350 Universal Health Services, Inc. 103,547(b)
------------
242,972
------------
Leisure & Entertainment - 1.9%
2,930 Mattel, Inc. 113,904
4,550 Promus Hotel Corp. 178,587(b)
------------
292,491
------------
Machinery & Equipment - 0.9%
3,000 Lear Corp. 144,187(b)
------------
Media - 3.3%
3,570 Clear Channel
Communications, Inc. 235,620(b)
8,750 Outdoor Systems, Inc. 269,062(b)
------------
504,682
------------
Mining & Metals - 3.5%
3,450 British Steel plc (ADR) 93,581
4,840 Homestake Mining Co. 59,895
4,050 Mueller Industries, Inc. 178,959(b)
1,640 Newmont Mining, Inc. 57,400
3,570 Titanium Metals Corp. 111,562(b)
710 UCAR International, Inc. 26,625(b)
------------
528,022
------------
Oil & Oil Service - 1.6%
1,170 Cooper Cameron Corp. 84,532(b)
1,270 Diamond Offshore
Drilling, Inc. 79,057
1,820 Reading & Bates Corp. 77,122(b)
------------
240,711
------------
Pollution Control - 1.3%
5,200 USA Waste Services, Inc. 192,400(b)
------------
Publishing & Printing - 0.8%
4,740 Banta Corp. 123,833
------------
Real Estate Investment
Trusts - 1.5%
3,460 First Industrial Realty Trust, Inc. 119,803
4,730 Glimcher Realty Trust 104,947
------------
224,750
------------
Restaurants - 1.4%
5,690 Outback Steakhouse, Inc. 153,986(b)
1,960 Papa John's International, Inc. 57,942(b)
------------
211,928
------------
Retail - 5.5%
7,520 Borders Group, Inc. 195,050(b)
2,350 Consolidated Stores Corp. 93,706(b)
1,700 Dayton Hudson Corp. 107,100
3,780 General Nutrition Companies 119,070(b)
700 Lands' End, Inc. 22,094(b)
5,130 Office Depot, Inc. 105,806(b)
1,560 Tiffany & Co. 61,620
4,350 US Office Products Company 135,937(b)
------------
840,383
------------
Services - 13.1%
4,620 ABR Information Services, Inc. 108,570(b)
6,360 AccuStaff, Inc. 181,657(b)
4,580 Budget Group, Inc. 160,300(b)
5,970 Cambridge Technology
Partners, Inc. 217,905(b)
3,570 Coach USA, Inc. 106,207(b)
4,320 Culligan Water
Technologies, Inc. 184,140(b)
5,040 Equifax, Inc. 156,555
2,790 Galileo International, Inc. 70,099
3,000 Norrell Corp. 87,375
5,310 Sterling Commerce, Inc. 176,226(b)
2,650 Stewart Enterprises, Inc. 109,975
8,160 SunGard Data Systems, Inc. 192,780(b)
3,860 Sylvan Learning Systems, Inc. 162,602(b)
3,300 Wackenhut Corrections Corp. 94,875(b)
------------
2,009,266
------------
Telecommunications
Equipment - 3.2%
4,910 ADC Telecommunications, Inc. 162,644(b)
2,700 ANTEC Corp. 42,525(b)
7,490 DSC Communications Corp. 182,569(b)
3,750 Pairgain Technologies, Inc. 105,937(b)
------------
493,675
------------
Telephone &
Telecommunications - 2.3%
1,220 Century Telephone Enterprises 51,774
7,040 LCI International, Inc. 182,160 (b)
2,810 Telephone and Data
Systems, Inc. 119,425
------------
353,359
------------
Total common Stocks
(cost $13,182,639) 13,074,933
------------
Principal
Amount
- --------------
SHORT-TERM SECURITIES - 14.4% (a)
$2,210,000 Federal Home Loan Mortgage,
Discount Notes, 5.65%,
Due 11/3/1997 2,209,306
------------
Total Investments
(cost $15,391,945) $ 15,284,239(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, 1997.
(d) At October 31, 1997, the aggregate cost of securities for
federal income tax purposes was $15,405,178 and the net
unrealized depreciation of investments based on that cost was
$120,939 which is comprised of $436,548 aggregate gross
unrealized appreciation and $557,487 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, 1997
<S> <C> <C>
Shares Value
-------------- --------------
ARGENTINA - 1.0% (a)
COMMON STOCKS
2,003 Banco de Galicia Buenos
Aires "B" ADR (USD) $ 48,541
2,600 Banco Frances del Rio de la
Plata ADR (USD) 64,025
19,286 Naviera Perez "B" 120,803
910 Telecom Argentina Stet "B" 4,553
460 Telecom Argentina Stet "B"
ADR (USD) 11,644
4,690 Telefonica de Argentina
ADR (USD) 131,906
10,287 YPF Sociedad Anonima
ADR (USD) 329,184
--------------
Total Argentina 710,656
--------------
AUSTRALIA - 2.0% (a)
COMMON STOCKS
27,343 Australia Gas & Light 182,675
8,000 Australia & New Zealand
Banking Group Ltd. 55,810
17,318 Boral Ltd. 45,549
2,000 Brambles Industries Ltd. 38,454
14,936 Broken Hill Proprietary 148,103
548 Commonwealth Bank of
Australia 6,301
14,000 Commonwealth Instalment
Receipt Trustee Ltd. 103,476
31,000 John Fairfax Holdings Ltd. 68,454
5,252 Lend Lease Corp. 107,554
6,151 National Australia Bank Ltd. 84,135
19,358 National Mutual Holdings Ltd. 33,353
27,076 News Corp. 129,671
17,000 Publishing & Broadcasting 98,631
10,342 St. George Bank Ltd. 62,650
12,000 Western Mining 42,617
16,000 Westpac Banking 93,167
14,500 Woodside Petroleum 122,468
--------------
1,423,068
--------------
PREFERRED STOCKS
8,667 News Corp. 38,460
--------------
Total Australia 1,461,528
--------------
AUSTRIA - 0.01% (a)
COMMON STOCKS
60 EVN Energie-Versorgung
Niederoesterreich AG 6,963
--------------
BELGIUM - 1.3% (a)
COMMON STOCKS
601 Credit Communal
Holding/Dexia 65,668
530 Generale de Banque S.A. 216,791
35 Generale de Banque S.A.,
VVPR (reduced tax) Strips 15
1,350 Kredietbank 566,460
25 UCB 86,384
--------------
Total Belgium 935,318
--------------
BRAZIL - 2.4% (a)
COMMON STOCKS
470 Brazil Fund (USD) 10,134
7,270 Centrais Eletricas Brasileiras S.A.
ADR (USD) 147,218
2,950 Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar GDR (USD) 54,575
500 Companhia Energetica Brasilia
(USD) 19,875
450 Companhia Energetica de Sao
Paulo ADR (USD) 8,550(b)
5,828 Companhia Energetica Minas
Gerais ADR (USD) 231,663
1,000 Companhia Siderurgica
Nacional (ADR) 36,250
10,883 Telecomunicacoes Brasilias
ADR (USD) 1,104,625
29,910 Usinas Siderurgicas de Minas
Gerais ADR (USD) 211,613
--------------
Total Brazil 1,824,503
--------------
CANADA - 0.3% (a)
COMMON STOCKS
4,980 Alcan Aluminum 141,695
1,870 Royal Bank of Canada 100,045
--------------
Total Canada 241,740
--------------
CHILE - 0.4% (a)
COMMON STOCKS
1,950 Chilectra ADR (USD) 50,700
1,516 Chilgener ADR (USD) 41,311
1,912 Compania de
Telecomunicaciones de Chile
(ADR) 53,058
3,695 Empresa Nacional de Electric
ADR (USD) 74,362
2,039 Enersis S.A. ADR (USD) 67,287
1,160 Santa Isabel (ADR) 21,460
--------------
Total Chile 308,178
--------------
CHINA - 0.2% (a)
COMMON STOCKS
7,400 Huaneng Power International
"N" ADR (USD) 162,800(b)
--------------
CZECH REPUBLIC - 0.04% (a)
COMMON STOCKS
250 SPT Telecom a.s. 28,820(b)
--------------
DENMARK - 0.3% (a)
COMMON STOCKS
1,020 Den Danske Bank 115,166
190 Tele Danmark "B" 11,161
930 Unidanmark "A" 62,861
--------------
Total Denmark 189,188
--------------
FINLAND - 0.3% (a)
COMMON STOCKS
2,670 Oy Nokia "A" 233,285
--------------
FRANCE - 7.9% (a)
COMMON STOCKS
435 Accor 80,993
2,340 Alcatel Alsthom 282,346
1,520 Assurances Generales de
France 79,976
2,480 AXA 169,826
630 Canal Plus 109,655
407 Carrefour 212,382
2,360 Cie de St. Gobain 338,765
1,638 Credit Commercial de France 92,801
190 Credit Local de France 19,072
457 Credit Local De France 45,872
690 Credit Local de France -
Dexia France 69,260
8,000 Eaux Cie Generale 933,385
630 GTM Entrepose 39,319
753 Guilbert S.A. 98,298
510 Havas S.A. 33,598
1,740 Lapeyre 101,656
649 Legrand 120,838
231 L'Oreal 81,856
503 Pathe S.A. 90,254
1,119 Pinault Printemps Redoute 511,753
760 Primagaz 56,655
3,393 Sanofi 322,345
6,112 Schneider S.A. 326,355
1,276 Societe Generale 174,757
3,030 Societe Nationale Elf Aquitaine 375,057
415 Sodexho 206,987
2,080 Television Francaise 193,639
6,723 Total "B" 745,932
--------------
Total France 5,913,632
--------------
GERMANY - 5.0% (a)
COMMON STOCKS
1,470 Allianz AG 327,463
6,618 Bayer 232,271
5,400 Bayerische Hypotheken - und
Wechse - Bank 223,982
1,476 Bayerische Vereinsbank AG 85,625
1,600 Bilfinger & Berger Bau AG 57,454
100 Buderas 48,498
2,410 Commerzbank AG 81,787
6,623 Deutsche Bank 433,388
6,785 Deutsche Telekom 127,135
7,322 Gehe AG 382,283
2,640 Hoechst AG 100,466
200 Hornbach Baumarkt 5,929
264 Mannesmann 111,493
1,470 Rhoen Klinikum 140,707
1,040 SAP AG 298,341
3,871 Siemens AG 238,260
8,330 Veba 464,389
110 Veba International, Finance
Warrants Expiring 4/6/98 37,011(b)
123 Volkswagen 72,710
--------------
3,469,192
--------------
PREFERRED STOCKS
610 Fielmann 14,332
410 Fresenius AG 69,213
710 Hornbach Holdings AG 47,778
40 Krones 13,575
524 SAP AG 156,094
--------------
300,992
--------------
Total Germany 3,770,184
--------------
HONG KONG - 2.6% (a)
COMMON STOCKS
14,000 China Light & Power Co. Ltd. 73,699
40,000 Doa Heng Bank Ltd. 92,091
149,217 First Pacific 94,087
44,000 Guoco Group 96,178
13,000 Henderson Land
Development Ltd. 71,965
102,625 Hong Kong Land Holdings
(USD) 233,985
73,000 Hutchison Whampoa 505,141
99,090 New World
Development Co. Ltd. 348,606
6,000 Sun Hung Kai Properties Ltd. 44,235
37,000 Swire Pacific "A" 197,646
84,000 Wharf Holdings 171,661
--------------
Total Hong Kong 1,929,294
--------------
ITALY - 3.2% (a)
COMMON STOCKS
4,000 Assicurazioni Generali 89,427
16,000 Banca Commerciale Italiana 43,662
13,842 Banca Fideuram 52,735
111,302 Credito Italiano 296,827
81,458 Ente Nazionale Idrocarburi 458,051
18,010 IMI SpA 161,058
3,278 Industrie Natuzzi SpA ADR
(USD) 73,345
14,000 Italgas 49,823
8,589 Mediolanum SpA 144,080
5,000 Rinascente 37,064
134,896 Telecom Italia Mobile 500,382
13,784 Telecom Italia Mobile RNC 28,252
72,983 Telecom Italia SpA 457,383
--------------
Total Italy 2,392,089
--------------
JAPAN - 21.3% (a)
COMMON STOCKS
1,210 Advantest Corp. 100,037
12,000 Alps Electric 134,607
17,000 Amada 90,403
37,000 Canon 897,715
10,000 Citizen Watch Co. 63,814
15,000 Dai Nippon Screen
Manufacturing Co. Ltd. 121,645
3,000 Daifuku 22,484
19,000 Daiichi Pharmaceutical 269,963
29,000 Daiwa House 279,518
39 DDI Corp. 130,270
57 East Japan Railway 277,067
5,300 Fanuc 214,026
37,000 Hitachi 284,379
22,000 Hitachi Zosen 48,442
2,000 Honda Motor Co. 67,304
7,000 Inax 30,478
8,000 Ishihara Sangyo Kaisha 16,419(b)
9,000 Ito-Yokado 447,196
16,000 Kao Corp. 223,349
10,000 Kokuyo 235,978
21,000 Komatsu 112,198
8,000 Komori 146,240
15,000 Kumagai Gumi 14,707
20,000 Kuraray 179,477
12,000 Kyocera 686,996
13,000 Makita 182,551
19,000 Marui 320,482
35,000 Matsushita Electric Industrial 587,453
19,000 Mitsubishi 162,609
96,000 Mitsubishi Heavy Industries 471,425
11,000 Mitsubishi Paper Mills 29,157
52,000 Mitsui Fudosan 587,619
6,000 Mitsui Petrochemical Industries 22,185
9,000 Murata Manufacturing 364,936
4,000 National House Industrial 43,540
66,000 NEC 723,889
31,000 Nippon Denso 669,713
4,000 Nippon Hodo 23,565
141,000 Nippon Steel 290,553
27 Nippon Telegraph & Telecom 228,833
35,000 Nomura Securities 407,146
11,000 Pioneer Electronic 180,972
2,000 Sangetsu Co. Ltd. 32,405
23,000 Sankyo 758,704
2,700 Sega Enterprises 66,406
31,000 Sekisui Chemical 243,930
19,000 Sekisui House 162,609
3,100 Seven-Eleven Japan 231,824
32,000 Sharp 248,608
19,350 Shin-Etsu Chemical 472,696
5,000 Shiseido Co. Ltd. 68,135
8,200 Sony 680,665
38,000 Sumitomo 271,541
51,000 Sumitomo Electric 673,785
10,000 Sumitomo Forestry 72,289
8,000 TDK 663,398
46,000 Teijin 150,976
8,000 Tokio Marine & Fire Insurance 79,767
4,300 Tokyo Electronics 214,375
8,000 Tokyo Steel Manufacturing 56,502
17,000 Toppan Printing 213,295
10,000 Uny Co. 162,027
3,150 Yurtec 21,253
--------------
Total Japan 15,936,530
--------------
MALAYSIA - 0.2% (a)
COMMON STOCKS
72,000 Commerce Asset Holdings
BHD 56,157
28,000 Time Engineering BHD 12,095
28,000 United Engineers 66,357
--------------
Total Malaysia 134,609
--------------
MEXICO - 1.5% (a)
COMMON STOCKS
15,620 Cementos de Mexico
ADR (USD) 121,055
13,267 Cemex "B" 58,226
9,857 Cifra "B" ADR (USD) 19,868
20,745 Gruma "B" 81,149(b)
3,561 Gruma S.A. GDR (USD) 55,196(b)
423 Grupo Financiero Banamex
Accival "L" 773
18,000 Grupo Financiero Banamex "B" 35,592
36,760 Grupo Industrial Maseca "B" 35,511
740 Grupo Televisa GDR (USD) 22,940(b)
23,799 Kimberly-Clark Mexico "A" 104,307
5,980 Panamerican Beverages "A"
ADR (USD) 185,381
7,920 Telefonos de Mexico "L"
ADR (USD) 342,540
4,800 TV Azteca S.A. ADR (USD) 91,800(b)
--------------
Total Mexico 1,154,338
--------------
NETHERLANDS - 11.0% (a)
COMMON STOCKS
22,156 ABN Amro Holdings N.V. 446,201
547 Akzo Nobel 96,384
1,370 Baan Co. N.V. 96,071(b)
2,507 Baan Co. N.V. 177,549(b)
6,439 CSM 293,842
66,004 Elsevier 1,036,890
6,620 Fortis Amev N.V. 260,163
2,408 Gucci Group N.V. (USD) 87,591
20,155 ING Groep N.V. 846,064
6,129 ING Groep N.V.,
Stock Warrants 63,105(b)
4,511 Koninklijke Ahold NV 115,476
5,480 Koninklijke Nutricia
Verenigde Bedrijven NV 156,652
1,942 Koninklijke PTT Nederland 74,219
940 Otra N.V. 15,009
7,390 Polygram 420,219
36,040 Royal Dutch Petroleum 1,906,417
11,480 Unilever NV 610,217
12,061 Wolters Kluwer 1,480,990
--------------
Total Netherlands 8,183,059
--------------
NEW ZEALAND - 0.4% (a)
COMMON STOCKS
23,000 Air New Zealand Ltd. 48,691
11,600 Carter Holt Harvey 20,224
18,550 Fletcher Challenge Building 56,018
11,250 Fletcher Challenge Energy 50,435
54,739 Fletcher Challenge Forests
Division 52,829
12,500 Fletcher Challenge Paper 20,547
17,000 Telecom Corp. of New Zealand 82,352
--------------
Total New Zealand 331,096
--------------
NORWAY - 2.1% (a)
COMMON STOCKS
1,200 Bergesen "A" 35,085
13,060 Norsk Hydro 721,562
8,540 Orkla "A" 787,001
1,460 Saga Petroleum "B" 25,947
--------------
Total Norway 1,569,595
--------------
PANAMA - 0.03% (a)
COMMON STOCKS
585 Banco Latinoamericano de
Exportaciones S.A. "E" 23,254
--------------
PERU - 0.1% (a)
COMMON STOCKS
1,320 Credicorp Ltd. 23,677
3,328 Telefonica de Peru S.A.
ADR (USD) 65,728
--------------
Total Peru 89,405
--------------
PORTUGAL - 0.5% (a)
COMMON STOCKS
5,479 Jeronimo Martins 358,308
--------------
RUSSIA - 0.02% (a)
COMMON STOCKS
860 Gazprom ADR (USD) 19,242
--------------
SINGAPORE - 0.8% (a)
COMMON STOCKS
7,000 City Developments Ltd. 29,333
42,000 DBS Land 71,467
4,800 Oversea - Chinese Banking
Corp. Ltd. 26,667
18,800 Overseas Union Bank 62,667
33,000 Singapore Land 93,867
15,000 Singapore Press 206,667
17,000 United Overseas Bank 93,905
--------------
Total Singapore 584,573
--------------
SOUTH KOREA - 0.2% (a)
COMMON STOCKS
15,643 Korea Equity Fund (USD) 128,077
--------------
SPAIN - 2.0% (a)
COMMON STOCKS
3,150 Banco Bilbao Vizcaya S.A. 84,234
2,880 Banco Popular Espanol S.A. 170,064
9,793 Banco Santander SA 274,328
2,131 Centros Comerciales Pryca 33,839
1,682 Corporacion Bancaria de
Espana S.A. 93,425
9,820 Endesa S.A. 184,964
2,179 Gas Natural SDG, S.A. 100,959
13,280 Iberdrola 158,845
3,124 Repsol S.A. 130,999
10,042 Telefonica de Espana 274,055
--------------
Total Spain 1,505,712
--------------
SWEDEN - 3.2% (a)
COMMON STOCKS
14,050 ABB AB 164,138
45,076 Astra AB 698,115
7,700 Atlas Copco "B" 228,741
4,020 Electrolux "B" 332,768
2,460 Esselte "B" 53,536
2,010 Granges AB 32,874(b)
11,400 Hennes & Mauritz AB 466,508
5,690 Nordbanken AB 178,527
660 Sandvik "A" 20,003
7,570 Sandvik "B" 230,438
1,370 Scribona "B" 18,108
--------------
Total Sweden 2,423,756
--------------
SWITZERLAND - 6.5% (a)
COMMON STOCKS
426 ABB AG 555,222
1,154 Adecco S.A. 366,742
1,210 Credit Suisse Group 170,450
655 Nestle 922,917
994 Novartis AG 1,556,752
116 Roche Holdings 1,019,375
1,120 Schwizerischer Bankverein 301,146
--------------
Total Switzerland 4,892,604
--------------
THAILAND - 0.1% (a)
COMMON STOCKS
4,100 Advanced Information Service
plc (Foreign Registered) 22,686
2,000 Siam Cement 16,673
--------------
Total Thailand 39,359
--------------
UNITED KINGDOM - 16.6% (a)
COMMON STOCKS
26,000 Abbey National 413,532
30,706 Argos plc 327,133
77,000 Asda Group 200,240
33,000 BG plc 145,058
19,000 British Petroleum 279,245
57,100 Cable & Wireless 456,006
40,400 Cadbury Schweppes 406,687
50,400 Caradon plc 160,661
21,000 Centrica plc 29,507(b)
18,000 Compass Group 190,257
26,000 David S. Smith 99,457
21,000 Electrocomponents 163,832
3,000 GKN 67,294
42,500 Glaxo Wellcome 911,270
5,000 Heywood Williams Group 20,133
16,000 Hillsdown Holdings 45,098
11,000 John Laing "A" 68,746
65,000 Kingfisher 935,682
111,000 National Westminster Bank 1,595,994
40,000 Rank Group plc 223,476
110,000 Reed International plc 1,087,938
22,000 Rolls Royce 78,988
23,800 RTZ 306,666
49,000 Safeway plc 319,179
10,000 Sears 9,899
149,000 Shell Transport & Trading 1,056,811
134,200 SmithKline Beecham plc 1,272,121
30,000 T & N 126,649
32,000 Tesco 256,226
113,000 Tomkins 580,133
44,500 United News & Media 559,949
--------------
Total United Kingdom 12,393,867
--------------
VENEZUELA - 0.1% (a)
COMMON STOCKS
1,290 Compania Anonima Nacional
Telefonos de Venezuela
ADR (USD) 56,438
--------------
Principal
Amount
--------------
SHORT-TERM
SECURITIES - 6.4% (a)
U.S. Government Agency
$4,800,000 Federal Home Loan Bank
Discount Notes, 5.63%,
due 11/3/1997 4,798,499
--------------
Total Investments $ 74,730,499(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 $64,371,323 $69,592,548 93.1%
Preferred Stocks 322,416 339,452 0.5%
Short-Term 4,798,499 4,798,499 6.4%
----------- ----------- ------
Total Investments $69,492,238 $74,730,499 100.0%
=========== =========== ======
(d) At October 31, 1997, the aggregate cost of securities for federal income tax purposes
was $69,676,427 and the net unrealized appreciation of investments based on that cost was
$5,054,072 which is comprised of $10,904,612 aggregate gross unrealized appreciation and
$5,850,540 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>
LUTHERAN BROTHERHOOD FUND
Portfolio of Investments
October 31, 1997
<TABLE>
<CAPTION>
Shares Value
- ------------ ------------
<S> <C> <C>
COMMON STOCKS - 98.3% (a)
Airlines - 1.0%
299,000 Southwest Airlines Co. $ 9,754,875
------------
Automotive - 0.9%
144,300 General Motors Corp. 9,262,256
------------
Bank & Finance - 15.3%
191,150 American International Group, Inc. 19,509,247
204,400 Bank of New York Co., Inc. 9,619,575
81,600 Chase Manhattan Corp. 9,414,600
149,700 Citicorp 18,721,856
264,700 Federal Home Loan Mortgage Corp. 10,025,513
200,500 Federal National Mortgage Association 9,711,719
87,000 Household International, Inc. 9,852,750
114,000 Lehman Brothers Holdings, Inc. 5,365,125
371,250 MBNA Corp. 9,768,516
164,400 MGIC Investment Corp. 9,915,375
316,900 NationsBank Corp. 18,974,388
194,300 U.S. Bancorp 19,757,881
------------
150,636,545
------------
Chemicals - 4.0%
131,000 Air Products & Chemicals, Inc. 9,956,000
172,900 E.I. du Pont de Nemours and Co. 9,833,688
228,100 Monsanto Co. 9,751,275
219,800 Praxair, Inc. 9,575,038
------------
39,116,001
------------
Computer Software - 3.9%
130,600 Computer Associates International, Inc. 9,737,863
74,700 Microsoft Corp. 9,711,000(b)
279,750 Oracle Corp. 10,009,805(b)
213,900 Parametric Technology Corp. 9,438,338(b)
------------
38,897,006
------------
Computers & Office Equipment - 2.0%
159,200 Hewlett Packard Co. 9,820,650
99,800 International Business Machines 9,786,638
------------
19,607,288
------------
Conglomerates - 6.9%
537,500 AlliedSignal, Inc. 19,350,000
290,700 Dover Corp. 19,622,250
275,800 Honeywell, Inc. 18,771,638
266,900 Thermo Electron Corp. 9,958,706(b)
------------
67,702,594
------------
Drugs & Health Care - 9.9%
155,800 Abbott Laboratories 9,552,488
422,800 Becton, Dickinson & Co. 19,475,225
111,200 Bristol-Myers Squibb Co. 9,757,800
144,800 Eli Lilly & Co. 9,683,500
173,100 Johnson & Johnson 9,931,613
221,200 Merck & Co., Inc. 19,742,100
137,100 Pfizer, Inc. 9,699,825
68,800 Warner-Lambert Co. 9,851,300
------------
97,693,851
------------
Electric Utilities - 2.4%
189,100 Entergy Corp. 4,621,131
190,700 FPL Group, Inc. 9,856,806
421,900 Southern Co. 9,677,331
------------
24,155,268
------------
Electrical Equipment - 2.0%
302,400 General Electric Co. 19,523,700
------------
Electronics - 3.9%
207,000 Adaptec, Inc. 10,026,562(b)
372,800 Atmel Corp. 9,646,200(b)
244,500 Intel Corp. 18,826,500
------------
38,499,262
------------
Food & Beverage - 5.0%
343,500 Coca-Cola Co. 19,407,750
270,600 PepsiCo, Inc. 9,961,462
390,900 Sara Lee Corp. 19,984,762
------------
49,353,974
------------
Healthcare Management - 0.1%
55,300 Oxford Health Plans, Inc. 1,427,431(b)
------------
Household Products - 5.8%
138,800 Avon Products, Inc. 9,091,400
144,600 Colgate Palmolive Co. 9,362,850
219,800 Gillette Co. 19,575,937
285,900 Procter & Gamble Co. 19,441,200
------------
57,471,387
------------
Leisure & Entertainment - 5.9%
203,600 Carnival Cruise Lines, Inc. 9,874,600
236,600 Disney (Walt) Co. 19,460,350
138,700 HFS, Inc. 9,778,350(b)
141,400 Marriot International, Inc. 9,862,650
249,100 Mattel, Inc. 9,683,762
------------
58,659,712
------------
Machinery & Equipment - 1.0%
183,800 Deere & Co. 9,672,475
------------
Mining & Metals - 1.0%
137,300 Aluminum Co. of America 10,022,900
------------
Oil & Oil Service - 10.1%
214,000 Amoco Corp. 19,621,125
121,400 Chevron Corp. 10,068,612
325,300 Exxon Corp. 19,985,619
335,400 Halliburton Co. 19,998,225
268,000 Mobil Corp. 19,513,750
245,600 Unocal Corp. 10,131,000
------------
99,318,331
------------
Restaurants - 1.0%
208,600 McDonald's Corp. 9,347,887
24,490 Tricon Global Restaurants, Inc. 742,353(b)
------------
10,090,240
------------
Retail - 5.0%
163,300 CVS Corp. 10,012,331
229,800 Federated Department Stores 10,111,200(b)
312,000 Kroger Co. 10,179,000(b)
168,200 Safeway, Inc. 9,776,625(b)
273,200 Wal-Mart Stores, Inc. 9,596,150
------------
49,675,306
------------
Services - 1.1%
348,800 First Data Corp. 10,137,000
------------
Telecommunications Equipment - 5.1%
243,700 Cisco Systems, Inc. 19,991,016(b)
119,074 Lucent Technologies, Inc. 9,816,163
159,400 Motorola, Inc. 9,842,950
189,000 Tellabs, Inc. 10,206,000(b)
------------
49,856,129
------------
Telephone & Telecommunications - 5.0%
303,700 Ameritech Corp. 19,740,500
308,700 SBC Communications, Inc. 19,641,037
288,500 WorldCom, Inc. 9,700,812(b)
------------
49,082,349
------------
Total Common Stock
(Cost $737,132,579) 969,615,880
------------
Principal
Amount
- ------------
SHORT-TERM SECURITIES - 1.7% (a)
Commercial Paper - 1.0%
$10,000,000 Associates Corp. of North America,
5.72%, Due 11/3/1997 $ 9,996,822
------------
U.S. Government Agency - 0.7%
4,000,000 U.S. Treasury Bills, 4.72%,
Due 11/13/1997 3,993,707
3,025,000 U.S. Treasury Bills, 5.135%,
Due 11/6/1997 3,022,843
------------
Total U.S. Government Agency 7,016,550
------------
Total Short-Term Securities
(at amortized cost) 17,013,372
------------
Total Investments
(cost $754,145,951) $986,629,252(c)
============
NOTES TO PORTFOLIO OF INVESTMENTS:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total
investments of the Lutheran Brotherhood Fund.
(b) Currently non-income producing.
(c) At October 31, 1997, the aggregate cost of securities for federal
income tax purposes was $754,415,106 and the net unrealized
appreciation of investments based on that cost was $232,214,146
which is comprised of $244,826,778 aggregate gross unrealized
appreciation and $12,612,632 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, 1997
<TABLE>
<CAPTION>
Principal Maturity
Amount Rate Date Value
- ------------- ---- -------- -------
CORPORATE BONDS - 80.9% (a)
Aerospace - 0.3%
<S> <C> <C> <C> <C>
$ 2,800,000 Stellex Industries, Inc., Sr. Subordinated Notes 9.5% 11/1/2007 $ 2,786,000
--------------
Airlines - 0.9%
2,800,000 Northwest Airlines, Inc., Notes 8.7% 3/15/2007 2,957,651
2,000,000 Northwest Airlines, Inc., Notes 8.375% 3/15/2004 2,070,874
2,000,000 U.S. Air, Inc., Sr. Secured Equipment Trust, Series 1993-A-3 10.375% 3/1/2013 2,225,000
--------------
7,253,525
--------------
Automotive - 0.7%
4,000,000 Chief Auto Parts, Inc., Sr. Notes 10.5% 5/15/2005 3,920,000
3,600,000 Exide Corp., Convertible Sr. Subordinated Notes 2.9% 12/15/2005 2,277,000
--------------
6,197,000
--------------
Bank & Finance - 8.3%
3,450,000 AmeriCredit Corp., Sr. Notes 9.25% 2/1/2004 3,467,250
3,250,000 Chevy Chase Savings Bank, Subordinated Debentures 9.25% 12/1/2005 3,298,750
3,200,000 Delta Financial Corp., Sr. Notes 9.5% 8/1/2004 3,216,000
5,200,000 Dollar Financial Group, Inc., Sr. Notes, Series A 10.875% 11/15/2003 5,590,000
4,400,000 Emergent Group, Inc., Sr. Notes 10.75% 9/15/2004 4,334,000
8,150,000 First Nationwide Holdings, Inc., Sr. Notes 12.5% 4/15/2003 9,250,250
2,598,000 HomeSide, Inc., Sr. Secured Second Priority Bonds, Series B 11.25% 5/15/2003 3,091,620
5,200,000 Integon Capital I, Capital Securities, Series B 10.75% 2/15/2027 6,630,000
4,700,000 Mego Mortgage Corp., Sr. Subordinated Notes 12.5% 12/1/2001 4,723,500
2,200,000 Residential Reinsurance Ltd., Notes Zero Coupon 12/15/2008 2,260,500
3,600,000 Riggs Capital Trust II, Trust Preferred Securities, Series C 8.875% 3/15/2027 3,838,324
3,200,000 Southern Pacific Funding, Sr. Notes 11.5% 11/1/2004 3,220,000
1,340,000 Trizec Finance Ltd., Sr. Notes 10.875% 10/15/2005 1,525,925
5,200,000 Veritas Holdings GMBH, Sr. Notes 9.625% 12/15/2003 5,408,000
5,000,000 Williams Scotsman, Inc., Sr. Notes 9.875% 6/1/2007 5,125,000
5,200,000 Wilshire Financial Services Group, Inc., Notes 13.0% 1/1/2004 5,421,000
--------------
70,400,119
--------------
Broadcasting - 10.7%
3,500,000 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 8/15/2005 1,207,500
2,000,000 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 6/15/2004 730,000
2,400,000 Australis Holdings Pty Ltd., Sr. Discount Notes Zero Coupon 11/1/2002 1,692,000
7,092,703 Australis Media Ltd., Sr. Discount Notes Zero Coupon 5/15/2003 5,177,673
5,100,000 Cablevision Industries, Debentures, Series B 9.25% 4/1/2008 5,536,193
4,000,000 CS Wireless Systems, Inc., Sr. Discount Notes, Series B Zero Coupon 3/1/2006 1,180,000
3,550,000 Diamond Cable Co., Sr. Discount Notes Zero Coupon 9/30/2004 3,106,250
1,600,000 Echostar DBS Corp., Sr. Secured Notes 12.5% 7/1/2002 1,708,000
5,200,000 EchoStar Satellite Broadcasting Corp., Sr.
Secured Discount Notes Zero Coupon 3/15/2004 4,134,000
6,455,298 Falcon Holdings Group L.P., Sr. Subordinated Notes, Series B 11.0% 9/15/2003 6,745,786
8,100,000 Groupo Televisa S.A., Sr. Notes 11.875% 5/15/2006 8,869,500
5,500,000 Intermedia Capital Partners, Sr. Notes 11.25% 8/1/2006 5,995,000
4,100,000 International CableTel, Inc., Convertible Subordinated Notes 7.0% 6/15/2008 3,992,375
400,000 International CableTel, Inc., Convertible Subordinated Notes 7.25% 4/15/2005 443,500
4,200,000 International CableTel, Inc., Sr. Notes, Series A Zero Coupon 4/15/2005 3,407,250
3,200,000 Jacor Communications, Inc., Convertible
Liquid Yield Option Notes Zero Coupon 6/12/2011 1,976,000
2,800,000 NTL, Inc., Sr. Notes, Series B 10.0% 2/15/2007 2,898,000
4,000,000 Olympus Communications, L.P., Sr. Notes 10.625% 11/15/2006 4,360,000
5,200,000 Rogers Cablesystems Ltd., Sr. Secured Second Priority Notes 9.625% 8/1/2002 5,473,000
1,100,000 Rogers Cantel, Inc., Sr. Secured Notes 8.3% 10/1/2007 1,091,750
500,000 Rogers Cantel, Inc., Sr. Subordinated Notes 8.8% 10/1/2007 496,250
6,000,000 Rogers Communications, Inc., Convertible Debentures 2.0% 11/26/2005 3,637,500
2,000,000 Rogers Communications, Inc., Sr. Notes 9.125% 1/15/2006 2,030,000
2,625,000 Scott Cable Communications, Debentures 15.0% 4/15/2001 2,454,375
583,887 Scott Cable Communications, Jr. Subordinated Notes,
Payment-In-Kind 16.0% 7/18/2002 102,180
4,600,000 Sinclair Broadcast Group, Sr. Subordinated Notes 9.0% 7/15/2007 4,600,000
700,000 UIH Australia/Pacific, Inc., Sr. Discount Notes Zero Coupon 5/15/2006 495,250
3,100,000 UIH Australia/Pacific, Inc., Sr. Discount Notes, Series B Zero Coupon 5/15/2006 2,193,250
4,800,000 United International Holdings, Inc., Sr. Discount Notes Zero Coupon 11/15/2099 3,960,000
3,100,000 Wireless One, Inc., Sr. Notes 13.0% 10/15/2003 1,565,500
--------------
91,258,082
--------------
Building Products & Materials - 1.4%
4,700,000 Atrium Companies, Inc., Sr. Subordinated Notes 10.5% 11/15/2006 4,923,250
4,400,000 CEMEX S.A. de C.V., Notes 12.75% 7/15/2006 4,939,000
2,400,000 Nortek, Inc., Sr. Notes 9.125% 9/1/2007 2,424,000
--------------
12,286,250
--------------
Chemicals - 0.4%
3,200,000 Sovereign Specialty Chemicals, Inc., Sr. Subordinated Notes 9.5% 8/1/2007 3,264,000
--------------
Computers & Office Equipment - 1.4%
3,250,000 Dictaphone Corp., Sr. Subordinated Notes 11.75% 8/1/2005 2,908,750
3,000,000 Unisys Corp., Sr. Notes 12.0% 4/15/2003 3,375,000
4,800,000 Unisys Corp., Sr. Notes 11.75% 10/15/2004 5,448,000
--------------
11,731,750
--------------
Construction & Home Building - 1.2%
6,400,000 Peters (J.M.) Co., Inc., Sr. Notes 12.75% 5/1/2002 6,624,000
3,600,000 The Fortress Group, Inc., Sr. Notes 13.75% 5/15/2003 4,014,000
--------------
10,638,000
--------------
Containers & Packaging - 1.3%
3,350,000 Radnor Holdings Corp., Sr. Notes 10.0% 12/1/2003 3,484,000
650,000 Radnor Holdings Corp., Sr. Notes, Series B 10.0% 12/1/2003 676,000
2,191,000 Silgan Holdings, Inc., Subordinated Debentures,
Payment-In-Kind 13.25% 7/15/2006 2,486,785
1,900,000 Vicap, S.A. de C.V., Sr. Guaranteed Notes 10.25% 5/15/2002 1,909,500
2,800,000 Vicap, S.A. de C.V., Sr. Guaranteed Notes 11.375% 5/15/2007 2,884,000
--------------
11,440,285
--------------
Drugs & Health Care - 0.7%
2,900,000 ICN Pharmaceuticals, Inc., Sr. Notes 9.25% 8/15/2005 3,059,500
2,450,000 Owens & Minor, Inc., Sr. Subordinated Notes 10.875% 6/1/2006 2,676,625
--------------
5,736,125
--------------
Electric Utilities - 2.3%
1,600,000 AES Corp., Sr. Subordinated Notes 8.5% 11/1/2007 1,580,000
1,400,000 CMS Energy Corp., Sr. Notes 7.625% 11/15/2004 1,400,315
4,800,000 CMS Energy Corp., Sr. Unsecured Notes 8.125% 5/15/2002 4,929,811
3,400,000 Espirito Santo Centrais Eletricas S.A.-ELCELSA, Sr. Notes 10.0% 7/15/2007 3,153,500
1,750,000 Midland Cogen Venture Fund II, Secured Lease Obligation
Bonds, Series A 11.75% 7/23/2005 2,088,475
3,000,000 Midland Cogen Venture Fund II, Subordinated Secured Lease
Obligation Bonds 13.25% 7/23/2006 3,787,533
2,800,000 Panda Global Energy Co., Sr. Secured Notes 12.5% 4/15/2004 2,702,000
--------------
19,641,634
--------------
Electrical Equipment - 2.0%
3,200,000 EV International, Inc., Sr. Subordinated Notes, Series A 11.0% 3/15/2007 3,216,000
2,000,000 Jordan Telecommunication Products, Sr. Notes 9.875% 8/1/2007 2,040,000
3,600,000 Protection One Alarm Monitoring, Convertible Sr.
Subordinated Notes 6.75% 9/15/2003 4,189,500
3,200,000 Protection One Alarm Monitoring, Sr. Subordinated
Discount Notes Zero Coupon 6/30/2005 3,408,000
4,000,000 Telex Communications, Inc., Unsecured Sr. Notes 10.5% 5/1/2007 3,980,000
--------------
16,833,500
--------------
Food & Beverage - 2.5%
3,200,000 Ameriserve Food Distribution, Inc., Sr. Notes 8.875% 10/15/2006 3,208,000
3,000,000 Cott Corp., Sr. Notes 8.5% 5/1/2007 3,045,000
6,000,000 Fresh Del Monte Corp., Sr. Notes, Series B 10.0% 5/1/2003 6,360,000
6,000,000 Gorges/Quik-to-Fix Foods, Sr. Subordinated Notes, Series B 11.5% 12/1/2006 6,285,000
2,400,000 Southern Foods Group, L.P., Sr. Subordinated Notes 9.875% 9/1/2007 2,484,000
--------------
21,382,000
--------------
Hospital Management - 2.8%
3,100,000 Integrated Health Services, Inc., Sr. Subordinated Notes 9.25% 1/15/2008 3,177,500
4,400,000 Merit Behavioral Care Corp., Sr. Subordinated Notes 11.5% 11/15/2005 5,082,000
2,800,000 PhyMatrix Corp., Convertible Subordinated Debentures 6.75% 6/15/2003 2,478,000
3,000,000 Rotech Medical Corp., Convertible Subordinated Debentures 5.25% 6/1/2003 2,996,250
2,700,000 Tenet Healthcare Corp., Sr. Subordinated Notes 8.625% 1/15/2007 2,774,250
4,800,000 Unison HealthCare Corp., Sr. Notes 13.0% 11/1/2006 4,056,000
3,600,000 Vencor, Inc., Sr. Subordinated Notes 8.625% 7/15/2007 3,519,000
--------------
24,083,000
--------------
Household Products - 1.7%
5,150,000 BPC Holding Corp., Sr. Secured Notes, Series B 12.5% 6/15/2006 5,690,750
5,200,000 E&S Holdings Corp., Sr. Subordinated Notes, Series B 10.375% 10/1/2006 4,446,000
4,000,000 Simmons Co., Sr. Subordinated Notes 10.75% 4/15/2006 4,140,000
--------------
14,276,750
--------------
Industrial - 0.7%
2,800,000 Allied Holdings, Inc., Sr. Notes 8.625% 10/1/2007 2,863,000
2,800,000 Navistar Financial Corp., Sr. Subordinated Notes, Series B 9.0% 6/1/2002 2,898,000
--------------
5,761,000
--------------
Leisure & Entertainment - 2.9%
7,800,000 AMF Group, Inc., Sr. Subordinated Discount Notes, Series B Zero Coupon 3/15/2006 5,928,000
2,000,000 CapStar Hotel Company, Sr. Subordinated Notes 8.75% 8/15/2007 2,022,500
2,000,000 CapStar Hotel Company, Convertible Subordinated Notes 4.75% 10/15/2004 2,062,500
4,800,000 HMH Properties, Inc., Sr. Notes 8.875% 7/15/2007 4,920,000
2,000,000 IMAX Corp., Sr. Notes 10.0% 3/1/2001 2,110,000
3,900,000 Lodgenet Entertainment, Sr. Notes 10.25% 12/15/2006 4,017,000
3,600,000 Signature Resorts, Inc., Sr. Subordinated Notes 9.75% 10/1/2007 3,654,000
--------------
24,714,000
--------------
Mining & Metals - 1.4%
3,150,000 Altos Hornos de Mexico, Bonds, Series B 11.875% 4/30/2004 3,220,875
5,000,000 CSN Iron Panama, Guaranteed Notes 9.125% 6/1/2007 4,225,000
4,400,000 Westmin Resources Ltd., Sr. Notes 11.0% 3/15/2007 4,686,000
--------------
12,131,875
--------------
Oil & Gas - 5.4%
6,800,000 Abraxas Petroleum Corp., Sr. Notes, Series B 11.5% 11/1/2004 7,412,000
3,800,000 Belden & Blake Corp., Sr. Subordinated Notes 9.875% 6/15/2007 3,895,000
3,900,000 Benton Oil & Gas, Sr. Notes 9.375% 11/1/2007 3,900,000
3,600,000 Coho Energy, Inc., Sr. Subordinated Notes 8.875% 10/15/2007 3,555,000
2,800,000 Cross Timbers Oil Co., Sr. Subordinated Notes 8.75% 11/1/2009 2,814,000
3,200,000 National Energy Group, Inc., Sr. Notes 10.75% 11/1/2006 3,328,000
2,750,000 National Energy Group, Inc., Sr. Notes, Series C 10.75% 11/1/2006 2,860,000
2,750,000 Perez Companc S.A., Notes 8.125% 7/15/2007 2,509,375
3,850,000 Petroleum Heat & Power Co., Inc., Subordinated Debentures 12.25% 2/1/2005 3,850,000
3,400,000 Pride Petroleum Services, Inc., Sr. Notes 9.375% 5/1/2007 3,638,000
4,000,000 Snyder Oil Corp., Sr. Subordinated Notes 8.75% 6/15/2007 4,000,000
4,000,000 Southwest Royalties, Inc., Sr. Notes 10.5% 10/15/2004 3,990,000
--------------
45,751,375
--------------
Paper & Forest Products - 3.8%
3,900,000 Ainsworth Lumber Co. Ltd., Sr. Secured Notes,
Payment-In-Kind 12.5% 7/15/2007 3,958,500
2,800,000 APP Finance (II) Mauritius Ltd., Guaranteed Preferred
Securities, Series B 12.0% 2/15/2004 2,611,000
3,100,000 APP International Finance, Guaranteed Secured Notes 11.75% 10/1/2005 3,107,750
5,200,000 Fonda Group, Inc., Sr. Subordinated Notes, Series B 9.5% 3/1/2007 4,966,000
3,950,000 FSW International Finance Co. B.V., Guaranteed Secured Notes 12.5% 11/1/2006 3,495,750
5,400,000 National Fiberstock Corp., Sr. Notes Series B 11.625% 6/15/2002 5,697,000
2,800,000 Pindo Deli Finance Mauritius, Guaranteed Sr. Notes 10.75% 10/1/2007 2,604,000
3,950,000 Tembec Finance Corp., Sr. Notes 9.875% 9/30/2005 4,167,250
2,000,000 Tjiwi Kimia Financial Mauritius, Guaranteed Sr. Notes 10.0% 8/1/2004 1,805,000
--------------
32,412,250
--------------
Pollution Control - 0.4%
3,000,000 Norcal Waste Systems, Inc., Sr. Notes, Series B 13.25% 11/15/2005 3,450,000
--------------
Publishing & Printing - 2.9%
1,800,000 ITT PubliMedia BV, Sr. Subordinated Notes 9.375% 9/15/2007 1,845,000
2,500,000 K-III Communications Corp., Sr. Notes 10.25% 6/1/2004 2,675,000
5,500,000 MDC Communications Corp., Sr. Subordinated Notes 10.5% 12/1/2006 5,898,750
7,200,000 Neodata Services, Inc., Sr. Notes, Series B 12.0% 5/1/2003 7,830,000
3,500,000 News America Holdings, Inc., Convertible
Liquid Yield Option Notes Zero Coupon 3/11/2013 1,566,250
750,000 News America Holdings, Inc., Subordinated Notes Zero Coupon 3/31/2002 536,250
4,150,000 Sullivan Graphics, Inc., Sr. Subordinated Notes 12.75% 8/1/2005 4,170,750
--------------
24,522,000
--------------
Retail - 1.4%
2,600,000 County Seat Stores, Inc., Units 12.75% 11/1/2004 2,639,000
2,250,000 F & M Distributors, Inc., Sr. Subordinated Notes 11.5% 4/15/2003 33,750
2,600,000 J Crew Group, Sr. Discount Notes Zero Coupon 10/15/2008 1,417,000
4,000,000 Lifestyle Furnishings International Ltd., Sr. Subordinated Notes 10.875% 8/1/2006 4,440,000
3,200,000 TravelCenters of America, Inc., Sr. Subordinated Notes 10.25% 4/1/2007 3,344,000
--------------
11,873,750
--------------
Retail: Food - 2.7%
4,000,000 Fleming Companies, Inc., Sr. Subordinated Notes 10.625% 7/31/2007 4,240,000
1,200,000 Jitney-Jungle Stores of America, Sr. Subordinated Notes 10.375% 9/15/2007 1,242,000
2,700,000 Jitney-Jungle Stores of America, Sr. Notes 12.0% 3/1/2006 3,037,500
4,100,000 Pueblo Xtra International, Inc., Sr. Notes, Series C 9.5% 8/1/2003 3,997,500
4,750,000 Ralphs Grocery Co., Sr. Notes 10.45% 6/15/2004 5,225,000
5,000,000 Smith's Food & Drug Centers, Pass Through Certificates 8.64% 7/2/2012 5,375,000
--------------
23,117,000
--------------
Services - 1.3%
2,000,000 Discovery Zone, Inc., Units 13.5% 8/1/2002 2,120,000
5,900,000 KinderCare Learning Centers, Inc., Sr. Subordinated Notes 9.5% 2/15/2009 5,826,250
2,800,000 Unicco Service/Finance, Sr. Subordinated Notes 9.875% 10/15/2007 2,786,000
--------------
10,732,250
--------------
Telecommunications - 8.8%
6,400,000 Clearnet Communications, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 4,928,000
4,000,000 Comcast Cellular Holdings, Inc., Sr. Notes 9.5% 5/1/2007 4,140,000
2,000,000 GST Equipment Funding, Inc., Sr. Secured Notes 13.25% 5/1/2007 2,280,000
1,060,000 GST Telecommunications, Inc., Sr. Subordinated Notes Zero Coupon 12/15/2005 1,060,000
3,850,000 GST USA, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 2,752,750
4,600,000 Hyperion Telecommunications, Sr. Discount Notes, Series B Zero Coupon 4/15/2003 3,151,000
3,950,000 IntelCom Group (U.S.A.), Inc., Sr. Discount Notes Zero Coupon 5/1/2006 2,918,063
6,000,000 Ionica plc, Sr. Notes 13.5% 8/15/2006 6,450,000
3,900,000 IXC Communications, Inc., Sr. Notes, Series B 12.5% 10/1/2005 4,446,000
6,800,000 Microcell Telecommunications, Inc., Sr. Discount Notes Zero Coupon 6/1/2006 4,556,000
8,400,000 Millicom International Cellular, Sr. Discount Notes Zero Coupon 6/1/2006 6,363,000
3,200,000 NEXTLINK Communications LLC, Sr. Discount Notes 12.5% 4/15/2006 3,648,000
2,400,000 ORBCOMM Global, L.P., Sr. Notes 14.0% 8/15/2004 2,526,000
6,000,000 PageMart Nationwide, Inc., Sr. Discount Exchange Notes Zero Coupon 2/1/2005 5,040,000
3,500,000 Phonetel Technologies, Inc., Sr. Notes 12.0% 12/15/2006 3,596,250
6,000,000 RSL Communications Ltd., Units 12.25% 11/15/2006 6,570,000
3,100,000 USA Mobile Communications, Inc., Sr. Notes 14.0% 11/1/2004 3,425,500
6,800,000 Viatel, Inc., Sr. Discount Notes Zero Coupon 1/15/2005 5,202,000
2,500,000 WinStar Communications, Inc., Sr. Discount Notes Zero Coupon 10/15/2005 1,787,500
--------------
74,840,063
--------------
Telephone & Telecommunications - 8.2%
3,200,000 American Communications Services, Inc., Sr. Notes 13.75% 7/15/2007 3,600,000
2,400,000 Globalstar LP/Capital Corp., Sr. Notes 10.75% 11/1/2004 2,322,000
2,750,000 Hermes Europe Railtel B.V., Sr. Notes 11.5% 8/15/2007 2,956,250
2,700,000 HighwayMaster Communications, Inc., Units 13.75% 9/15/2005 2,659,500
1,600,000 Hyperion Telecommunications, Inc., Sr. Secured Notes 12.25% 9/1/2004 1,704,000
3,000,000 Intermedia Communication, Sr. Notes 8.875% 11/1/2007 2,955,000
800,000 Iridium LLC/Capital Corp., Sr. Notes 11.25% 7/15/2005 748,000
2,800,000 Iridium LLC/Capital Corp., Sr. Notes, Series A 13.0% 7/15/2005 2,842,000
3,150,000 Iridium LLC/Capital Corp., Sr. Notes, Series B 14.0% 7/15/2005 3,323,250
2,750,000 James Cable Partners, L.P., Sr. Notes 10.75% 8/15/2004 2,880,625
5,600,000 Knology Holdings, Inc., Units Zero Coupon 10/15/2007 2,996,000
5,600,000 McCaw International Ltd., Sr. Discount Notes Zero Coupon 4/15/2007 3,444,000
4,000,000 MGC Communications, Inc., Units 13.0% 10/1/2004 3,960,000
2,400,000 Netia Holdings BV, Sr. Discount Notes Zero Coupon 11/1/2007 1,362,000
3,600,000 Nextel Communications, Inc., Sr. Discount Notes Zero Coupon 9/15/2007 2,106,000
4,000,000 Nextel Communications, Inc., Sr. Discount Notes Zero Coupon 10/31/2007 2,230,000
2,000,000 NEXTLINK Communications, Inc., Sr. Notes 9.625% 10/1/2007 2,010,000
1,950,000 Price Communications Wireless, Sr. Subordinated Notes 11.75% 7/15/2007 2,101,125
3,200,000 Primus Telecommunications Group, Inc., Units 11.75% 8/1/2004 3,408,000
2,400,000 Telegroup, Inc., Sr. Discount Notes Zero Coupon 11/1/2004 1,878,000
3,550,000 Teletrac, Inc., Units 14.0% 8/1/2007 3,603,250
9,600,000 UNIFI Communications, Inc., Sr. Notes 14.0% 3/1/2004 9,072,000
4,800,000 USN Communications, Inc., Units Zero Coupon 8/15/2004 3,504,000
2,000,000 Winstar Communications, Inc., Unsecured Sr. Notes Zero Coupon 10/15/2005 2,350,000
--------------
70,015,000
--------------
Textiles & Apparel - 1.5%
2,700,000 Anvil Knitwear, Inc., Sr. Notes, Series B 10.875% 3/15/2007 2,781,000
1,700,000 Brazos Sportswear, Inc., Sr. Notes 10.5% 7/1/2007 1,683,000
2,800,000 CMI Industries, Inc., Sr. Subordinated Notes 9.5% 10/1/2003 2,744,000
2,800,000 Delta Mills, Inc., Sr. Notes 9.625% 9/1/2007 2,828,000
2,800,000 Dyersburg Corp., Sr. Subordinated Notes 9.75% 9/1/2007 2,870,000
--------------
12,906,000
--------------
Transportation - 0.9%
6,150,000 Equimar Shipholdings Ltd., First Priority Mortgage Notes 9.875% 7/1/2007 5,934,750
3,000,000 TFM, S.A. de C.V., Sr. Discount Debentures Zero Coupon 6/15/2009 1,837,500
--------------
7,772,250
--------------
Total Corporate Bonds (cost $667,272,410) 689,206,833
--------------
Shares
--------
PREFERRED STOCKS - 13.4% (a)
Convertible - 4.5%
41,000 AES Trust II, Convertible Preferred Stock 1,968,000
34,000 Big Flower Trust I, Convertible Preferred Stock 1,670,250
40,000 CalEnergy Capital Trust III, Convertible Preferred Stock 1,930,000
85,000 Echostar Communications Corp., Convertible Preferred Stock, Series C 4,250,000
40,000 Evergreen Media Corp., Convertible Preferred Stock 2,475,000
114,500 Granite Broadcasting Corp., Convertible Preferred Stock 5,954,000
60,000 Host Marriott Financial Trust, Convertible Preferred Stock 3,915,000
30,000 Intermedia Communication, Convertible Preferred Stock 705,000
10,000 Lomak Financing Trust, Convertible Preferred Stock 508,750
58,500 Network Imaging Corp., Convertible Preferred Stock, Series A 416,813
39,000 Sinclair Broadcast Group, Inc., Convertible Preferred Stock 1,945,125
36,000 TIMET Capital Trust I, Convertible Preferred Stock 1,899,000
100,000 USX Corp. (Marathon Group), Convertible Preferred Stock 2,175,000
74,600 WorldCom, Inc., Convertible Preferred Stock 8,728,200
--------------
38,540,138
--------------
Non-Convertible - 8.9%
2,300 American Communication Services, Payment-in-Kind Preferred Stock 2,173,500
27,000 Benedek Communications Corp., Sr. Exchangeable Preferred Stock 3,321,000
18,433 Cablevision Systems Corp., Preferred Stock 2,032,238
40,454 Cablevision Systems Corp., Redeemable Exchangeable Preferred Stock, Series H 4,581,416
28,000 California Federal Bank, Non-cumulative Preferred Stock 3,213,000
29,646 Chancellor Media Corp., Payment-In-Kind Preferred Stock 3,387,056
60,000 Chevy Chase Capital Corp., Non-cumulative Exchangeable Preferred Stock, Series A 3,127,500
36,616 Communications & Power Industries, Inc., Exchangeable Preferred Stock, Series B 3,872,142
5,150 Consolidated Hydro, Inc., Preferred Stock 518,863(b,d)
1,400 Echostar Communications Corp., Exchangeable Payment-In-Kind Preferred Stock 1,442,000
45,500 Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 0(b,d)
276,736 Harvard Industries, Inc., Exchangeable Payment-In-Kind Preferred Stock 345,920
2,000 Hyperion Telecommunications, Inc., Payment-In-Kind Preferred Stock 1,947,500
4,550 ICG Communications, Inc., Preferred Stock 5,198,375
2,008 Intermedia Communications, Inc., Preferred Stock 2,371,950
2,000 IXC Communications, Inc., Payment-In-Kind Preferred Stock 2,300,000
1,200 J Crew Group, Preferred Stock 1,188,000
10,000 Jitney-Jungle Stores of America, Sr. Exchangeable Preferred Stock, Class A 1,490,000
93,000 K-III Communications Corp., Exchangeable Preferred Stock 2,464,500
25,778 K-III Communications Corp., Exchangeable Preferred Stock, Series B 2,790,467
17,000 K-III Communications Corp., Preferred Stock 1,678,750
40,500 K-III Communications Corp., Preferred Stock, Series D 4,181,625
64,799 NEXTLINK Communications, Inc., Payment-In-Kind Preferred Stock 4,017,538
3,033 Paxson Communications Corp., Payment-In-Kind Preferred Stock 3,199,815
160,000 Petroleum Heat & Power Co., Inc., Exchangeable Preferred Stock, Series B 3,880,000
122,500 River Bank America, Preferred Stock 2,909,375
28,000 SFX Broadcasting, Inc., Payment-In-Kind Preferred Stock 3,199,000
5,200,000 SIG Capital Trust I, Preferred Stock 5,148,000
--------------
75,979,530
--------------
Total Preferred Stocks (cost $114,974,405) 114,519,668
--------------
COMMON STOCKS & STOCK WARRANTS - 3.0% (a,b)
11,700 American Communications Services, Stock Warrants 994,500
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 953,125
2,400 Australis Holdings Pty Ltd., Stock Warrants 24
9,400 Australis Media Ltd., Stock Warrants 94
104,000 Bell & Howell Co., Common Stock 2,866,500
23,925 Clearnet Communications, Inc., Stock Warrants 143,550
1,890 Communications & Power Industries, Inc., Common Stock 283,500
9,270 Consolidated Hydro, Inc., Stock Warrants 0(d)
2,233 CS Wireless Systems, Inc., Common Stock 2
20,000 Echostar Communications Corp., Class A Common Stock 380,000
112,013 Gaylord Container Corp., Class A Common Stock 742,086
154,623 Gaylord Container Corp., Stock Warrants 1,034,041
29,811 Grand Union Co., Stock Warrants 298(d)
14,905 Grand Union Co., Stock Warrants 149(d)
70,000 Harvard Industries, Inc., Class B Common Stock 70,000
9,200 Hyperion Telecommunications, Stock Warrants 690,000
110,000 IntelCom Group Communications, Inc., Common Stock 2,530,000
50,335 IntelCom Group (U.S.A.), Inc., Stock Warrants 704,690
4,100 Intermedia Communications of Florida, Stock Warrants 287,000
10,200 Ionica plc, Stock Warrants 2,397,000
2,000 Iridium World Communications, Stock Warrants 250,000
32,180 JPS Textiles Group, Common Stock, Class A 322(d)
70,000 Magellan Health Services, Common Stock 2,016,875
5,600 McCaw International Ltd., Stock Warrants 1,400
143,834 Memorex Telex N.V., ADR, Common Stock 2,158
3,981 Memorex Telex N.V., ADR, Stock Warrants 0(d)
27,200 Microcell Telecommunications, Inc., Stock Warrants 272
27,200 Microcell Telecommunications, Inc., Stock Warrants 516,800
268,000 MobileMedia Corp., Class A Common Stock 120,600
1,500 NEXTEL Communications, Stock Warrants 1,500
3,086 NEXTEL Communications, Stock Warrants 370
80,000 NEXTLINK Communications, Inc., Stock Warrants 800
26,250 PageMart Nationwide, Inc., Common Stock 272,344
121,000 Pagemart Wireless, Inc., Class A Common Stock 1,179,750
39,500 Plantronics, Inc., Common Stock 1,456,563
105,000 Powertel, Inc., Common Stock 1,909,687
19,360 Protection One Alarm Monitoring, Stock Warrants 232,320
6,000 RSL Communications Ltd., Stock Warrants 540,000
20,000 Triangle Wire & Cable, Inc., Stock Warrants 0(d)
9,600 UNIFI Communications, Inc., Stock Warrants 192,000
87,000 United International Holdings, Inc., Class A Common Stock 1,076,625
20,100 United International Holdings, Inc., Stock Warrants 221,100
192,533 Viatel, Inc., Common Stock 1,275,531
4,545 Wherehouse Entertainment, Inc., Stock Warrants, Class B 11,362
4,545 Wherehouse Entertainment, Inc., Stock Warrants, Class C 6,817
26,181 Wherehouse Entertainment, Inc., Stock Warrants, Class A 248,719
92,000 Wireless One, Inc., Common Stock 310,500
13,800 Wireless One, Inc., Stock Warrants 138
--------------
Total Common Stocks & Stock Warrants (cost $27,673,541) 25,935,312
--------------
Principal Maturity
Amount Rate Date
--------- ------ ----------
SHORT-TERM SECURITIES - 2.7% (a)
Commercial Paper - 2.4%
$ 20,600,000 BP America, Inc. 5.67% 11/3/1997 20,593,511
--------------
U. S. Government Agency - 0.3%
1,800,000 Federal Home Loan Bank, Consolidated Discount Notes 5.63% 11/3/1997 1,799,437
--------------
Total Short-Term Securities (at amortized cost) 22,392,948
--------------
Total Investments (cost $832,313,304) $ 852,054,761(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, 1997,
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, 1997:
<CAPTION>
Acquisition
Security Date Cost
-------------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Consolidated Hydro, Inc., Preferred Stock 3/29/1994 $2,440,822
Consolidated Hydro, Inc., Stock Warrants 2/8/1994 22,776
Grand Union Co., Stock Warrants 6/20/1995 2,981
Grand Union Co., Stock Warrants 6/20/1995 5,962
Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 6/14/1993 5,218,975
JPS Textiles Group, Common Stock, Class A 1/13/1994 1,281,065
Memorex Telex N. W., ADR, Stock Warrants 3/25/1994 7,962
Triangle Wire & Cable, Inc., Stock Warrants 1/3/1992 1,998
(e) Includes stock rights that automatically traded with the stock and had no separate value at October 31, 1997.
(f) At October 31, 1997, the aggregate cost of securities for federal income tax purposes was $833,374,672 and the net
unrealized appreciation of investments based on that cost was $18,680,089 which is comprised of $59,562,658 aggregate
gross unrealized appreciation and $40,882,569 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
LUTHERAN BROTHERHOOD INCOME FUND
Portfolio of Investments
October 31, 1997
<TABLE>
<CAPTION>
Principal Maturity
Amount Rate Date Value
- ----------- ------- ---------- ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 47.8% (a)
Aerospace - 0.7%
$ 6,000,000 Raytheon Company, Notes 6.45% 8/15/2002 $ 6,028,074
------------
Automotive - 2.1%
5,000,000 Ford Motor Credit Co., Notes 6.375% 10/6/2000 5,039,495
6,000,000 General Motors Acceptance Corp., Medium Term Notes 7.625% 5/5/2003 6,368,706
5,000,000 General Motors Acceptance Corp., Unsecured Notes 7.125% 5/1/2003 5,180,040
------------
16,588,241
------------
Bank & Finance - 19.6%
3,500,000 Aon Capital A, Capital Securities 8.205% 1/1/2027 3,825,462
14,000,000 Associates Corp. of North America, Sr. Notes 9.125% 4/1/2000 14,939,414
4,000,000 Banc One Corp., Subordinated Debentures 8.0% 4/29/2027 4,435,760
3,000,000 Chase Manhattan Corp., Subordinated Notes 10.375% 3/15/1999 3,168,762
3,500,000 Chase Manhattan Corp., Subordinated Notes 9.375% 7/1/2001 3,864,074
7,000,000 Chemical New York Corp., Debentures 9.75% 6/15/1999 7,399,049
13,000,000 Equitable Life Assurance Society of the United States, Surplus Notes 6.95% 12/1/2005 13,243,932
7,000,000 GenAmerica Capital I, Capital Securities 8.525% 6/30/2027 7,355,628
15,500,000 General Electric Capital Corp., Debentures 8.85% 4/1/2005 17,812,833
10,000,000 Mellon Capital I, Capital Trust Preferred Securities 7.72% 12/1/2026 10,198,170
9,000,000 Metropolitan Life Insurance Co., Surplus Notes 7.7% 11/1/2015 9,534,186
5,000,000 National Westminster Bank plc, Subordinated Notes 9.45% 5/1/2001 5,516,960
8,000,000 New York Life Insurance Co., Surplus Notes 6.4% 12/15/2003 8,008,368
4,000,000 Prudential Insurance Co. of America, Capital Notes 6.875% 4/15/2003 4,029,468
8,000,000 Prudential Insurance Co., Surplus Notes 8.3% 7/1/2025 8,730,680
5,000,000 Riggs Capital Trust, Capital Trust Preferred Securities, Series A 8.625% 12/31/2026 5,221,895
7,000,000 Societe-Generale- New York, Subordinated Notes 9.875% 7/15/2003 8,119,706
6,000,000 Societe-Generale- New York, Subordinated Notes 7.4% 6/1/2006 6,287,280
7,500,000 Societe General Real Estate Investment Trust, LIBOR Bonds, Series A 7.64% 12/29/2049 7,566,442
7,500,000 Wells Fargo Capital, Capital Trust Preferred Securities 7.73% 12/1/2026 7,648,485
------------
156,906,554
------------
Broadcasting - 1.2%
4,000,000 Continental Cablevision, Inc., Sr. Debentures 8.875% 9/15/2005 4,453,072
5,000,000 TCI Communications, Inc., Sr. Notes 10.125% 8/1/2001 5,566,985
------------
10,020,057
------------
Computers & Office Equipment - 0.7%
6,000,000 International Business Machines Corp., Debentures 7.125% 12/1/2096 6,048,102
------------
Drugs & Health Care - 1.3%
5,000,000 Allegiance Corp., Debentures 7.8% 10/15/2016 5,348,920
4,500,000 McKesson Finance Company of Canada, Sr. Notes 6.55% 11/1/2002 4,524,588
1,500,000 Roche Holdings, Inc., Convertible Notes Zero Coupon 4/20/2010 753,750
------------
10,627,258
------------
Electric Utilities - 3.5%
4,000,000 Commonwealth Edison Co., Notes 7.625% 1/15/2007 4,164,820
7,000,000 Empresa Electrica Pehuienche S.A., Notes 7.3% 5/1/2003 7,138,831
10,000,000 Korea Electric Power Corp., Debentures 6.75% 8/1/2027 9,229,740
4,000,000 NRG Energy, Inc., Sr. Notes 7.5% 6/15/2007 4,147,000
3,500,000 Texas Utilities Electric Company, Debentures 7.17% 8/1/2007 3,551,814
------------
28,232,205
------------
Electronics - 0.1%
1,000,000 Motorola, Inc., Convertible Liquid Yield Option Notes Zero Coupon 9/27/2013 795,000
------------
Household Products - 1.6%
10,000,000 Procter & Gamble, Guaranteed ESOP Debentures 9.36% 1/1/2021 12,673,610
------------
Leisure & Entertainment - 0.7%
5,000,000 Time Warner, Inc., Debentures 9.125% 1/15/2013 5,897,770
------------
Natural Gas - 1.4%
11,000,000 Columbia Gas Systems, Inc., Series A Notes 6.39% 11/28/2000 11,035,189
------------
Oil Drilling & Oil Service - 0.2%
1,000,000 Baker Hughes, Inc., Convertible Liquid Yield Option Notes Zero Coupon 5/5/2008 900,000
350,000 Diamond Offshore Drilling, Inc., Convertible Subordinated Notes 3.75% 2/15/2007 566,563
------------
1,466,563
------------
Petroleum - 1.8%
4,994,730 Mobil Oil Corp., ESOP Sinking Fund Debentures 9.17% 2/29/2000 5,194,554
9,500,000 Petroliam Nasional BHD, Notes 7.75% 8/15/2015 9,093,219
------------
14,287,773
------------
Pollution Control - 0.2%
1,500,000 USA Waste Services, Inc., Convertible Subordinated Notes 4.0% 2/1/2002 1,586,250
------------
Publishing & Printing - 1.5%
7,000,000 Belo (A.H.) Corp., Sr. Notes 7.125% 6/1/2007 7,257,551
5,000,000 Belo (A.H.) Corp., Sr. Notes 6.875% 6/1/2002 5,107,150
------------
12,364,701
------------
Railroads - 1.9%
4,000,000 CSX Corp., Sr. Notes 7.25% 5/1/2004 4,141,092
3,000,000 CSX Corp., Sr. Notes 7.25% 5/1/2027 3,239,514
4,500,000 Norfolk Southern Corp., Notes 6.875% 5/1/2001 4,588,110
3,000,000 Norfolk Southern Corp., Notes 6.95% 5/1/2002 3,068,271
------------
15,036,987
------------
Retail - 6.3%
1,000,000 Costco Companies, Inc., Convertible Subordinated Notes Zero Coupon 8/19/2017 541,250
10,000,000 Dayton Hudson Corp., Notes 6.4% 2/15/2003 10,015,500
3,000,000 Federated Department Stores, Inc., Sr. Debentures 6.79% 7/15/2027 3,052,737
4,000,000 Federated Department Stores, Inc., Sr. Notes 8.5% 6/15/2003 4,353,580
500,000 Home Depot, Inc., Convertible Subordinated Notes 3.25% 10/01/2001 644,375
2,500,000 Kroger Co. (The), Sr. Notes 8.15% 7/15/2006 2,743,017
4,000,000 Penney (J.C.) Co., Inc., Notes 6.95% 4/1/2000 4,083,708
1,500,000 Rite Aid Corp., Capital Notes 5.25% 9/15/2002 1,616,250
9,000,000 Safeway, Inc., Sr. Debentures 7.45% 9/15/2027 9,361,278
4,000,000 Sears Roebuck Acceptance Corp., Medium Term Notes, Series III 7.03% 6/4/2003 4,128,416
10,000,000 Sears Roebuck Acceptance Corp., Medium Term Notes, Series II 6.86% 7/3/2001 10,214,780
------------
50,754,891
------------
Services - 0.3%
750,000 CUC International, Inc., Convertible Subordinated Notes 3.0% 2/15/2002 853,125
750,000 Interpublic Group of Companies, Convertible Subordinated Debentures 1.80% 9/16/2004 613,125
1,000,000 Omnicom Group, Inc., Convertible Subordinated Debentures 4.25% 1/3/2007 1,257,500
------------
2,723,750
------------
Telephone - 1.8%
4,000,000 New York Telephone Co., Debentures 9.375% 7/15/2031 4,516,408
10,000,000 US West Capital Funding, Inc., Notes 6.85% 1/15/2002 10,163,730
------------
14,680,138
------------
Textiles & Apparel - 0.9%
7,000,000 Levi Strauss & Co., Notes 6.8% 11/01/2003 7,141,204
------------
Total Corporate Bonds (cost $363,088,829) 384,894,317
------------
FOREIGN GOVERNMENT BONDS - 4.5% (a,c)
7,000,000 British Columbia Hydro & Power, Debentures 12.5% 9/1/2013 7,649,180
7,500,000 Korea Development Bank, Bonds 7.25% 5/15/2006 6,892,320
5,000,000 Korea Development Bank, Bonds 7.125% 9/17/2001 4,857,850
3,000,000 Korea Development Bank, Unsecured Bonds 6.625% 11/21/2003 2,779,470
7,500,000 Ontario Province, Canada, Debentures 11.75% 4/25/2013 8,069,100
4,500,000 Ontario Province, Canada, Sr. Bonds 7.375% 1/27/2003 4,746,190
2,000,000 Republic Of Poland, Unsecured Bonds 4.0% 10/27/2014 1,640,000(b)
------------
Total Foreign Government Bonds (cost $52,158,168) 36,634,110
------------
ASSET-BACKED SECURITIES - 15.2% (a)
8,000,000 AESOP Funding II L.L.C., Rental Car Notes, Series 1997-1-A2 6.4% 10/20/2003 8,121,680
19,000,000 Chase Manhattan Credit Card, Series 1996-4, Class A 6.73% 2/15/2002 19,283,480
3,635,061 Chase Manhattan Grantor Trust, Series 1996-B-A 6.61% 9/15/2002 3,676,755
5,000,000 CS First Boston Mortgage Security Corp., Series 1996-2-A4 6.62% 9/25/2009 5,051,050
5,000,000 CS First Boston Mortgage Security Corp., Series 1997-1-A3 6.91% 5/25/2007 5,067,300
5,000,000 CS First Boston Mortgage Security Corp., Series 1997-1-A4 7.15% 5/25/2010 5,133,350
20,000,000 Deutsche Floorplan Receivables Master Trust, Series 1994-1-A 5.825% 2/15/2001 20,054,200(b)
10,000,000 Discover Card Master Trust I, Series 1996-3-A 6.05% 8/18/2008 9,860,700
13,000,000 Standard Credit Master Trust 1, Credit Card Participation
Certificates, Series 1995-9-A 6.55% 10/7/2007 13,233,220
15,000,000 World Financial Network Credit Card Master Trust, Series 1996-B 6.95% 4/15/2006 15,607,275
17,000,000 World Omni Auto Lease Trust 6.9% 6/25/2003 17,362,100
------------
Total Asset-Backed Securities (cost $120,461,630) 122,451,110
------------
MORTGAGE-BACKED SECURITIES - 13.7% (a)
32,396,993 Federal Home Loan Mortgage Corp., Participation Certificates 6.0% 2011-2012 31,885,733(d)
36,000,000 Federal National Mortgage Association, Participation Certificates 6.5% 11/1/2027 35,403,768(d)
44,173,847 Government National Mortgage Association, Modified
Pass Through Certificates 6.5% 2/15/2027 43,736,526
------------
Total Mortgage-Backed Securities (cost $109,226,637) 111,026,027
------------
U.S. GOVERNMENT - 7.5% (a)
38,000,000 U.S. Treasury Bonds 8.75%-12.0% 2005-2020 50,810,028(e)
9,000,000 U.S. Treasury Notes 7.875% 11/15/2004 10,032,192
------------
Total U.S. Government (cost $60,186,016) 60,842,220
------------
Shares Value
- ----------- ------------
COMMON STOCKS - 0.5% (a)
20,000 Banc One Corp., Common Stock $ 1,042,500
10,000 CarrAmerica Realty Corp., Common Stock 298,125
6,000 Cresent Real Estate Equities, Common Stock 216,000
10,000 First Industrial Realty Trust, Common Stock 346,250
17,500 First Union Corp., Common Stock 858,594
5,000 Highwoods Properties, Inc., Common Stock 172,500
15,000 NationsBank Corp., Common Stock 898,125
2,284 Security Capital Group, Inc., Stock Warrants 10,992
10,000 Simon Debartolo Group, Inc., Common Stock 309,375
4,000 Spieker Properties, Inc., Common Stock 156,500
------------
Total Common Stocks (cost $4,397,049) 4,308,961
------------
PREFERRED STOCKS - 1.8% (a)
15,000 Aetna, Inc., Convertible Preferred Stock 1,076,250
20,000 AirTouch Communications, Inc., Convertible Preferred Stock 1,200,000
10,000 Corning Delaware, L.P., Convertible Preferred Stock 725,000
27,500 Houston Industries, Inc., Preferred Stock 1,505,625
10,000 McKesson Financing Trust, Convertible Preferred Stock 751,250
80,000 National Australia Banks, Preferred Stock 2,225,000
17,500 Security Capital Industrial Trust, Preferred Stock 553,437
17,500 Security Capital Pacific, Preferred Stock 535,937
100,000 SI Financing Trust I, Preferred Stock 2,712,500
100,000 TransCanada Pipelines, Ltd., Preferred Stock 2,606,250
15,000 Unocal Capital Trust, Preferred Stock 879,375
------------
Total Preferred Stocks (cost $13,838,428) 14,770,624
------------
Principal Maturity
Amount Rate Date
- ----------- ------- ----------
SHORT-TERM SECURITIES - 9.0% (a)
Commercial Paper
$ 12,800,000 Associates Corp. of North America 5.72% 11/3/1997 12,795,932
14,200,000 AVCO Financial Services, Inc. 5.73% 11/3/1997 14,195,480
1,700,000 Coca-Cola Co. 5.5% 11/14/1997 1,696,624
5,000,000 CPC International, Inc. 5.53% 11/6/1997 4,996,160
10,000,000 Ford Motor Credit Co. 5.67% 11/5/1997 9,993,700
11,000,000 General Electric Capital Corp. 5.75% 11/3/1997 10,996,486
8,000,000 Pemex Capital, Inc. 5.52% 11/14/1997 7,984,053
10,000,000 St. Paul Companies, Inc. 5.48% 11/13/1997 9,981,733
------------
Total Short-Term Securities (at amortized cost) 72,640,168
------------
Total Investments (cost $795,996,925) $807,567,537(f)
============
NOTES TO PORTFOLIO OF INVESTMENTS:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total
investments of the Lutheran Brotherhood Income Fund.
(b) Denotes variable rate obligations for which current yield is shown.
(c) Denominated in U.S. dollars.
(d) Denotes investments purchased on a when-issued basis.
(e) At October 31, 1997, U.S. Treasury Bonds valued at $1,022,189 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>
U.S. Treasury Bond Futures 400 $119 11/15/1997 $318,750
========
(f) At October 31, 1997, the aggregate cost of securities for federal
income tax purposes was $796,176,379 and the net unrealized
appreciation of investments based on that cost was $11,391,158
which is comprised of $18,800,428 aggregate gross unrealized
appreciation and $7,409,270 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
Portfolio of Investments
October 31, 1997
<TABLE>
<CAPTION>
Principal Maturity
Amount Rate Date Value
---------- ------ ----------- -----------
<S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES - 99.6% (a)
Alabama - 0.4%
$ 2,500,000 City of Mobile, Alabama, General Obligation Refunding
Warrants, Series 1996, Insured by AMBAC 5.0% 2/15/2016 $ 2,455,725
------------
Arizona - 1.3%
1,700,000 Pima County, Arizona (Catalina Foothills Unified School District
#16), Unlimited Tax General Obligation Bonds, Series A,
Insured by MBIA 8.9% 7/1/2005 2,191,215
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 1,067,910
2,500,000 Salt River Project, Arizona, Electric System, Revenue Bonds,
Series 1992-C 6.0% 1/1/2016 2,642,950
1,500,000 Tucson, Arizona, Unlimited Tax General Obligation Refunding Bonds,
Insured by FGIC 6.1% 7/1/2012 1,598,595
------------
7,500,670
------------
Arkansas - 1.3%
1,340,000 Arkansas Development Finance Authority, Correctional
Facilities Construction Revenue Bonds, Insured by MBIA 7.125% 11/15/2010 1,477,993(b)
1,000,000 Arkansas Housing Development Agency, Single Family
Mortgage Bonds,Series A 8.375% 7/1/2010 1,257,430(b)
3,000,000 City of Jonesboro, Arkansas, Residential Housing and Health Care
Facilities Board, Hospital Revenue Refunding& Construction
Bonds, (St. Bernards Regional Medical Center), Series 1996-B,
Insured by AMBAC 5.8% 7/1/2011 3,211,530
875,000 Pope County, Arkansas, Pollution Control Revenue Refunding Bonds,
Series 1994 (ArkansasPower and Light Company Project),
Insured by FSA 6.3% 12/1/2016 948,605
750,000 Sebastian County, Arkansas, Junior College, Unlimited General
Obligation Refunding and Improvement Bonds,
Insured by AMBAC. 5.6% 4/1/2017 769,027
------------
7,664,585
------------
California - 10.8%
2,500,000 Alameda, California, Unified School District, Alameda County,
Crossover Refunding Bonds, Series A, Insured by AMBAC 6.1% 7/1/2013 2,666,475
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 3,830,431
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 956,650
2,500,000 Bakersfield, California, Certificates of Participation (Convention
Center Expansion - Arena Project, 1997), Insured by MBIA 5.8% 4/1/2017 2,604,925
3,000,000 California State Public Works Board, Department of Corrections,
Lease Revenue Bonds,State Prison, Series A 7.4% 9/1/2010 3,649,650
6,285,000 California State, Unlimited Tax General Obligation Bonds,
Insured by MBIA 6.0% 8/1/2016 6,656,506
1,000,000 California State, Unlimited Tax General Obligation Bonds, Veteran's
Series AT 9.5% 2/1/2010 1,420,680
2,000,000 California State, Various Purpose General Obligation Bonds,
Insured by AMBAC 6.3% 9/1/2010 2,276,360
1,400,000 Central Valley Financing Authority, California, Cogeneration
Project Revenue Bonds, (Carson Ice-Gen Project), Series 1993 6.0% 7/1/2009 1,469,874
3,135,000 County of Orange, California, 1996 Recovery Certificates of
Participation, Series A, Insured by MBIA 5.8% 7/1/2016 3,281,906
2,000,000 Los Angeles County, California, Transportation Commission Sales
Tax Revenue Bonds, Proposition C, Series A,
Insured by MBIA 6.25% 7/1/2013 2,149,020
2,000,000 Metropolitan Water District of Southern California, Unlimited
Tax General Obligation Bonds, Series G 6.625% 3/1/2009 2,077,880(b)
4,975,000 Palmdale, California, Civic Authority Revenue Bonds (Merged
Redevelopment Project Areas), Series A 6.6% 9/1/2034 5,458,421
1,000,000 Rio Linda, California, Union School District, Series 1992-A,
Insured by AMBAC 7.4% 8/1/2010 1,152,540(b)
2,815,000 Riverside County Transportation Commission, California, Sales
Tax Revenue Capital Appreciation Bonds, Insured by MBIA Zero Coupon 6/1/2004 2,101,144
1,000,000 Sacramento Cogeneration Authority, Cogeneration Project
Revenue Bonds,(Procter & Gamble Project), 1995 Series 6.375% 7/1/2010 1,084,850
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 1,774,905
15,000,000 San Joaquin Hills Transportation Corridor Agency, California,
Sr. Lien Convertible Toll Revenue Bonds Zero Coupon 1/1/2013 14,408,700(b)
1,500,000 State of California, General Obligation Bonds 7.0% 8/1/2006 1,767,150
2,490,000 University of California Revenue Bonds, Multiple Purpose
Projects, Series 1989-B, Insured by AMBAC 11.0% 9/1/1998 2,633,474
------------
63,421,541
------------
Colorado - 5.4%
1,000,000 Colorado Housing & Finance Authority, Single Family Program,
Revenue Bonds 7.0% 11/1/2016 1,121,680
615,000 Colorado Housing & Finance Authority, Single Family Residential
Housing Revenue Bonds, Series 1987-B 9.0% 9/1/2017 630,867
3,100,000 Colorado Springs, Colorado, Utilities System Refunding
Bonds, Series 1991-B 7.0% 11/15/2021 3,470,946(b)
1,945,000 Colorado State Colleges Board, Western State College,
Housing & Student Fee Revenue Bonds, Series 1992,
Insured by Connie Lee 6.625% 5/1/2015 2,159,942(b)
1,195,000 Colorado Water Resources Power Development Authority, Clean
Water Revenue Bonds, Series A, Insured by FSA 6.25% 9/1/2013 1,270,787
150,000 Douglas County, Colorado, School District No. 1, General
Obligation Bonds 6.5% 12/15/2016 166,941
3,350,000 Douglas County, Colorado, School District No. 1, General
Obligation Bonds 6.5% 12/15/2016 3,799,938(b)
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 1,103,940
1,885,000 Goldsmith Metropolitan District, Colorado, Unlimited Tax
General Obligation Bonds, Insured by MBIA Zero Coupon 12/1/2008 1,114,864
1,890,000 Goldsmith Metropolitan District, Colorado, Unlimited Tax
General Obligation Bonds, Insured by MBIA Zero Coupon 6/1/2008 1,144,641
1,890,000 Goldsmith Metropolitan District, Colorado, Unlimited Tax
General Obligation Bonds, Insured by MBIA Zero Coupon 6/1/2007 1,205,877
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 3,775,740
635,000 Regional Transportation District, Colorado, Sales Tax 6.25% 11/1/2012 679,844
3,850,000 Regional Transportation District, Colorado, Sales Tax 6.25% 11/1/2012 4,214,980(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 3,633,500
2,500,000 St. Vrain Valley School District, Boulder, Larimer & Weld
Counties, Colorado, General Obligation Refunding &
Improvement Bonds, Series 1990-A, Insured by MBIA Zero Coupon 12/15/2003 1,911,550
------------
31,406,037
------------
Connecticut - 0.8%
4,000,000 Connecticut Special Tax Obligation, Transportation Infrastructure
Revenue Bonds, Series B 6.5% 10/1/2010 4,623,200
------------
Florida - 3.3%
11,835,000 Broward County, Florida, Housing Finance Authority, Home
Mortgage Revenue Bonds, 1983 Series A Zero Coupon 4/1/2014 2,206,399
3,500,000 Florida State Board of Education, Public Education Capital
Outlay, General Obligation Bonds, Series B 5.875% 6/1/2020 3,649,275
5,000,000 Florida State Turnpike Authority, Turnpike Revenue Refunding
Bonds, (Department of Transportation), Series A,
Insured by FGIC 5.00% 7/1/2019 4,807,750
3,200,000 Hillsborough County, Florida, Industrial Development Authority
(Weyerhaeuser Company, Inc.), Industrial Development
Revenue Bonds, Series 1983 9.25% 6/1/2008 3,244,608
1,705,000 Hillsborough County, Florida, Industrial Development Authority,
Florida (Tampa Electric Project), Pollution Control Revenue
Bonds, Series 1991 7.875% 8/1/2021 1,958,840
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 3,542,315
------------
19,409,187
------------
Georgia - 2.9%
1,500,000 Brunswick, Georgia, Water & Sewer Revenue Refunding &
Improvement Bonds, Series A, Insured by MBIA 6.1% 10/1/2019 1,668,900
2,000,000 Brunswick, Georgia, Water & Sewer Revenue Refunding &
Improvement Bonds, Series 1992, Insured by MBIA 6.0% 10/1/2011 2,211,300
5,000,000 Cherokee County, Georgia, Water & Sewer Revenue Refunding &
Improvement Bonds, Insured by MBIA 5.5% 8/1/2018 5,175,600
2,000,000 Georgia State, Unlimited Tax General Obligation Bonds,
Series 1994-B 5.65% 3/1/2012 2,138,000
3,500,000 Georgia State, Unlimited Tax General Obligation Bonds,
Series 1994-D 5.0% 8/1/2012 3,528,840
1,000,000 Georgia State, Unlimited Tax General Obligation Bonds, Series B 6.3% 3/1/2010 1,131,240
1,000,000 Georgia State, Unlimited Tax General Obligation Bonds, Series B 6.3% 3/1/2009 1,132,570
------------
16,986,450
------------
Idaho - 0.6%
1,000,000 Idaho Falls, Idaho, General Obligation Electric Refunding
Bonds, Series 1991, Insured by MBIA Zero Coupon 4/1/2007 646,000
3,115,000 Idaho Falls, Idaho, General Obligation Electric Refunding
Bonds, Series 1991, Insured by MBIA Zero Coupon 4/1/2010 1,708,609
2,000,000 Idaho Falls, Idaho, General Obligation Electric Refunding
Bonds, Series 1991, Insured by MBIA Zero Coupon 4/1/2011 1,023,520
------------
3,378,129
------------
Illinois - 1.8%
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 1,027,950
2,500,000 Cook County, Illinois, Unlimited General Obligation Bonds,
Series A, Insured by MBIA 6.25% 11/15/2011 2,834,000
2,000,000 Illinois Health Facilities Authority Revenue Refunding Bonds,
Lutheran General Health, Insured by FSA 6.0% 4/1/2018 2,126,680
858,000 Illinois Health Facilities Authority (Community Provider Pooled
Loan Program), Revenue Bonds, Series 1988-B,
Insured by MBIA 7.9% 8/15/2003 870,698(b)
170,000 Illinois Health Facilities Authority (Community Provider
Pooled Loan Program), Revenue Bonds, Series 1988-B,
Insured by MBIA 7.9% 8/15/2003 195,097(b)
10,000,000 Metropolitan Pier & Expostion Authority, Illinois, McCormick
Place Expansion, Refunding Bonds, Series 1993-A Zero Coupon 6/15/2018 3,321,200
------------
10,375,625
------------
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 2,439,881
1,100,000 Indianapolis Airport Authority Refunding Revenue Bonds,
Series 1996-A, Insured by FGIC 5.6% 7/1/2015 1,120,229
------------
3,560,110
------------
Iowa - 0.4%
2,000,000 Iowa Finance Authority, Iowa State Revolving Fund Revenue
Bonds, Combined Series 1994 6.25% 5/1/2024 2,164,280
------------
Kansas - 1.7%
8,000,000 Kansas City, Kansas, Utility System Refunding and Improvement
Revenue Bonds, Series 1994, Insured by FGIC 6.375% 9/1/2023 8,801,360
920,000 Kansas City, Kansas, Utility System, Capital Appreciation
Refunding & Improvement Revenue Bonds,
Insured by AMBAC Zero Coupon 3/1/2007 592,839
1,255,000 Kansas City, Kansas, Utility System, Capital Appreciation
Refunding & Improvement Revenue Bonds,
Insured by AMBAC Zero Coupon 3/1/2007 809,437(b)
------------
10,203,636
------------
Kentucky - 0.8%
1,000,000 Kentucky Development Finance Authority, Refunding and
Improvement Revenue Bonds (Ashland Hospital, Kings
Daughter Project) 9.75% 8/1/2005 1,031,520
750,000 Kentucky Turnpike Authority, Economic Development Road
Revenue and Revenue Refunding Bonds, Series 1993,
Insured by AMBAC 5.5% 7/1/2009 799,155
5,345,000 Kentucky Turnpike Authority, Economic Development Road
Revenue Bonds, Insured by FGIC Zero Coupon 1/1/2010 2,908,215
------------
4,738,890
------------
Louisiana - 1.2%
6,500,000 New Orleans, Louisiana, General Obligation Bonds, Series 1991,
Insured by AMBAC Zero Coupon 9/1/2012 3,023,930
3,000,000 Orleans Parish School Board #87, Louisiana, Insured by MBIA 8.95% 2/1/2008 3,994,530(b)
------------
7,018,460
------------
Maine - 0.3%
1,250,000 Maine Health & Higher Education Facilities Authority, Revenue
Bonds, Series 1994, Insured by FSA 7.0% 7/1/2024 1,420,138
350,000 Regional Waste Systems, Inc., Maine, Solid Waste Resource
Recovery System Revenue Bonds, Series A-C 7.95% 7/1/2010 372,852
------------
1,792,990
------------
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 2,142,780
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 5,032,530
1,000,000 Prince George's County, Maryland, Dimensions Health Corp.,
Hospital Revenue Bonds, Series 1992 7.00% 7/1/2022 1,131,420(b)
------------
8,306,730
------------
Massachusetts - 2.3%
2,000,000 Commonwealth of Massachusetts, General Obligation Refunding
Bonds, Series B 6.5% 8/1/2008 2,289,760
1,800,000 Commonwealth of Massachusetts, Limited Tax General Obligation
Bonds, Construction Loan, Series C 7.375% 12/1/2008 1,901,484(b)
1,500,000 Massachusetts Health and Education Facilities Authority
(Newton - Wellesley Hospital) Revenue Bonds, Series C 8.0% 7/1/2018 1,570,560(b)
2,500,000 Massachusetts Health and Education Facilities Authority, Revenue
Bonds, Daughters of Charity National Health System,
The Carney Hospital, Series D 6.1% 7/1/2014 2,695,750
1,500,000 Massachusetts Health & Education Facilities Authority,
Revenue Bonds, Series F 6.5% 7/1/2012 1,639,065
3,000,000 Plymouth County, Massachusetts, Correctional Facility Certificates
of Participation Bonds 7.0% 4/1/2012 3,323,040
------------
13,419,659
------------
Michigan - 3.6%
4,000,000 Detroit, Michigan, Sewer Disposal Revenue Bonds, Series A,
Insured by MBIA 5.0% 7/1/2025 3,749,480
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 2,201,000
1,400,000 Kent County, Michigan, Limited Tax General Obligation Refuse
Disposal System Refunding Bonds 8.3% 11/1/2007 1,435,000
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 851,460
2,460,000 Michigan Municipal Bond Authority, Government Loan Revenue
Refunding Bonds, Series A, Insured by FGIC Zero Coupon 12/1/2005 1,694,719
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 115,154
390,000 Michigan State Hospital Finance Authority, Hospital Revenue and
Refunding Bonds, (Detroit Medical Center Obligated Group),
Series 1988-A 8.125% 8/15/2012 410,342(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 3,068,160
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 3,583,575
3,455,000 West Ottawa, Michigan, Public School District, Unlimited
Tax General Obligation Bonds, Insured by MBIA Zero Coupon 5/1/2004 2,585,135
1,860,000 West Ottawa, Michigan, Public School District, Unlimited
Tax General Obligation Bonds, Insured by MBIA Zero Coupon 5/1/2005 1,316,341
------------
21,010,366
------------
Minnesota - 4.1%
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 769,061
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 317,273(b)
7,685,000 Minneapolis, Minnesota, Community Development Agency, Tax
Increment Revenue Appreciation Bonds, Insured by MBIA Zero Coupon 3/1/2009 4,437,319
5,000,000 Minnesota Agricultural and Economic Development Board,
Health Care System Revenue Bonds, Series 1997-A
(Fairview Hospital and Healthcare Services), Insured by MBIA 5.75% 11/15/2026 5,166,650
2,000,000 Minnesota Agricultural and Economic Development Board,
Healthcare System Revenue Bonds, Series 97A,
(Fairview Hospital and Healthcare Services), Insured by MBIA 5.5% 11/15/2017 2,040,540
2,500,000 Minnesota Higher Education Facilities Authority, (Augsburg
College), Mortgage Revenue Bonds, Series Four-F1 Bonds 6.25% 5/1/2023 2,635,475
1,740,000 Stewartville, MN, Independent School District, Unlimited
Tax General Obligation Bonds, Series A 5.75% 2/1/2014 1,815,064
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 3,929,695(b)
1,000,000 St. Louis Park, Minnesota, (Methodist Hospital), Hospital Revenue
Bonds, Series C, Insured by AMBAC 7.25% 7/1/2018 1,096,370(b)
1,400,000 St. Louis Park, Minnesota, (Methodist Hospital), Hospital Revenue
Bonds, Series C, Insured by AMBAC 7.25% 7/1/2015 1,533,056(b)
------------
23,740,503
------------
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 3,031,770
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 2,132,540
1,500,000 Missouri Housing Development Commission, Single Family
Mortgage Revenue Bonds (Home Ownership Loan Program,
Series C-1 6.55% 9/1/2028 1,638,735
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 2,030,960
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 2,919,558(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 788,993
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 3,187,899
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 1,633,755
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 1,034,350
------------
18,398,560
------------
Montana - 0.8%
2,385,000 Montana State Board of Investments, Payroll Tax Revenue Bonds,
Series 1996, Insured by MBIA 6.875% 6/1/2020 2,609,739
775,000 Montana State Board of Investments, Payroll Tax Revenue Bonds,
Series 1996, Insured by MBIA 6.875% 6/1/2020 848,028(b)
1,240,000 Montana State Board of Investments, Payroll Tax Revenue Bonds,
Series 1996, Insured by MBIA 6.875% 6/1/2020 1,356,845(b)
------------
4,814,612
------------
Nebraska - 1.6%
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 987,190
4,000,000 Nebraska Public Power District, Power Supply System
Revenue Bonds, Insured by MBIA 6.125% 1/1/2015 4,250,280
3,455,000 Omaha Public Power District, Nebraska, Electric Revenue
Refunding Bonds, Series B 6.15% 2/1/2012 3,887,981
------------
9,125,451
------------
New Hampshire - 0.2%
1,100,000 New Hampshire Turnpike System, Residual Interest Bonds,
1991 Refunding, Series C, Insured by FGIC 9.703% 11/29/1997 1,429,461(c)
------------
New Jersey - 3.5%
665,000 Camden County, New Jersey, Municipal Utility Authority Sewer
Revenue Bonds, Insured by FGIC 8.25% 12/1/2017 680,435
1,250,000 East Orange, New Jersey, Unlimited Tax General Obligation Bonds,
Insured by FSA 8.4% 8/1/2006 1,580,250
1,000,000 Mercer County, New Jersey, Improvement Authority, Revenue Bonds,
Series 1991 6.6% 11/1/2014 1,085,880(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 2,801,235
1,000,000 New Jersey Health Care Facilities Financing Authority, Revenue
and Refunding Bonds, Series 1997A (AHS Hospital Corp. Issue),
Insured by AMBAC 5.0% 7/1/2027 956,760
3,000,000 New Jersey Transit Corp., (Raymond Plaza East, Inc.), Certificates
of Participation, Insured by FSA 6.375% 10/1/2006 3,397,050
1,240,000 New Jersey Turnpike Authority, Turnpike Revenue Bonds,
1984 Series 10.375% 1/1/2003 1,450,800(b)
4,700,000 New Jersey Turnpike Authority, Turnpike Revenue Bonds, Series C,
Insured by AMBAC 6.5% 1/1/2016 5,484,947
2,195,000 West New York, New Jersey, Municipal Utility Authority, Sewer
Revenue Refunding Bonds, Insured by FGIC Zero Coupon 12/15/2007 1,357,410
2,595,000 West New York, New Jersey, Municipal Utility Authority, Sewer
Revenue Refunding Bonds, Insured by FGIC Zero Coupon 12/15/2009 1,425,174
------------
20,219,941
------------
New Mexico - 2.1%
5,000,000 Farmington, New Mexico, Power Revenue Refunding Bonds,
Series 1983 9.875% 1/1/2013 6,624,200(b)
4,040,000 Farmington, New Mexico, Utility Systems Revenue Bonds,
Insured by AMBAC 9.875% 1/1/2008 5,415,862(b)
------------
12,040,062
------------
New York - 5.9%
2,500,000 Metropolitan Transit Authority, New York, Commuter Facilities
Revenue Bonds, Series 1996-A, Insured by FGIC 6.1% 7/1/2026 2,679,975
5,200,000 Metropolitan Transportation Authority, New York, Commuter
Facilities Revenue Bonds, Series A, Insured by MBIA 6.375% 7/1/2018 5,851,404(b)
4,250,000 Metropolitan Transportation Authority, New York, Transit Facilities
Revenue Bonds, Series O, Insured by MBIA 6.25% 7/1/2014 4,575,635
4,225,000 Metropolitan Transportation Authority, New York, Transit Facilities
Service Contract Bonds, Series O 5.75% 7/1/2013 4,441,320
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 2,201,640
5,000,000 New York State Dorm Authority, Revenue Refunding Bonds,
State University Educational Facilities, Series B 5.0% 5/15/2018 4,706,300
1,925,000 New York State Medical Care Facilities Finance Agency
(Ellis Hospital), Insured Mortgage Hospital Bonds, Series B,
Insured by FHA 8.0% 2/15/2008 2,016,861
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 3,038,035
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 1,844,287
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 1,744,173
1,000,000 Triborough Bridge & Tunnel Authority, New York, General Purpose
Revenue Bonds, Series Q 6.75% 1/1/2009 1,175,360
------------
34,274,990
------------
North Carolina - 1.8%
2,500,000 Charlotte, North Carolina, Water and Sewer Unlimited Tax General
Obligation Bonds 5.6% 5/1/2021 2,605,500
1,500,000 County of Pitt, North Carolina, Pitt County Memorial Hospital
Revenue Bonds, Series 1995 5.5% 12/1/2015 1,525,455
2,000,000 North Carolina Municipal Power Agency #1 Catawba
Electric Revenue Bonds, Insured by MBIA 5.0% 1/1/2018 1,909,400
4,000,000 North Carolina Municipal Power Agency #1, Catawba Electric
Revenue Refunding Bonds, Series 1992, Insured by MBIA 6.0% 1/1/2011 4,398,120
------------
10,438,475
------------
North Dakota - 0.8%
1,000,000 Mercer County, North Dakota, Pollution Control Revenue
Refunding Bonds, Ottertail Power Co. Project) 6.9% 2/1/2019 1,079,350
2,000,000 North Dakota Municipal Bond Bank, State Revolving Fund
Program Bonds, Series 1995-A 6.3% 10/1/2015 2,154,320
1,340,000 North Dakota State Water Commission (Southwest Pipeline),
Revenue Bonds, Series A, Insured by AMBAC 5.75% 7/1/2027 1,372,790
------------
4,606,460
------------
Ohio - 4.7%
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 1,166,161(b)
2,500,000 Akron, Ohio, Certificates of Participation, Series 1996, Akron
Municipal Baseball Stadium Project Zero Coupon 12/1/2016 2,124,725
1,000,000 Butler County, Ohio, Transportation Improvement District,
Highway Improvement Bonds, Series 1997-1 5.125% 4/1/2017 974,160
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 4,430,040(b)
1,000,000 Columbus, Ohio, Enlargment Unlimited Tax General
Obligation Bonds 6.0% 5/1/2014 1,071,200
1,630,000 Cuyahoga County, Ohio, (Deaconess Hospital), Hospital
Revenue Bonds, Series C 7.45% 10/1/2018 1,819,113(b)
1,470,000 Lorain County, Ohio, (Humility of Mary Health System), Hospital
Revenue Bonds 7.125% 12/15/2006 1,666,318(b)
2,000,000 Ohio Higher Educational Facility Commission (Case Western
Reserve University Project), Series B 6.5% 10/1/2020 2,345,580
1,500,000 Ohio Higher Educational Facility Commission, Higher Educational
Revenue Bonds, (Ohio Dominican College 1994 Project) 6.625% 12/1/2014 1,613,550
5,000,000 Ohio State Air Quality Development Authority, Cleveland Electric,
Pollution Control Revenue Bonds, Insured by FGIC 8.0% 12/1/2013 5,838,050
2,250,000 Ohio State Air Quality Development Authority, Columbus &
Southern Pollution Control Revenue Bonds, Insured by FGIC 6.375% 12/1/2020 2,442,082
1,795,000 Trumbull County, Ohio (Memorial Hospital), Hospital Revenue
Refunding & Improvement Bonds, Series 1991-B,
Insured by FGIC 6.9% 11/15/2012 1,968,810
------------
27,459,789
------------
Oklahoma - 1.7%
5,220,000 Bass, Oklahoma, Memorial Baptist Hospital 8.35% 5/1/2009 6,488,773(b)
1,500,000 Oklahoma Municipal Power Authority, Electric Revenue Refunding
Bonds, Series B, Insured by MBIA 5.75% 1/1/2024 1,637,550
1,500,000 Oklahoma Municipal Power Authority, Power Supply System
Revenue Bonds, Series 1992-B, Insured by MBIA 5.875% 1/1/2012 1,646,325
------------
9,772,648
------------
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 2,929,662
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 2,123,940
------------
5,053,602
------------
Pennsylvania - 2.8%
7,500,000 Allegheny County, Pennsylvania, Airport Revenue Refunding Bonds,
Series 1997B, Insured by MBIA 5.0% 1/1/2019 7,196,850
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 1,731,632
2,575,000 Allegheny County, Pennsylvania, Sanitary Authority, Sewer
Revenue Bonds, Series A, Insured by FGIC Zero Coupon 6/1/2008 1,548,270
3,170,000 Millcreek Township, Pennsylvania, School District, General
Obligation Bonds, Insured by FGIC Zero Coupon 8/15/2009 1,773,964
2,000,000 Monroeville, Pennsylvania, Hospital Authority, Forbes Health
System Revenue Bonds, Series 1992 7.0% 10/1/2003 2,175,620
3,000,000 Pennsylvania State, General Obligation Bonds, Second Series of
1992, Insured by AMBAC Zero Coupon 7/1/2006 2,010,120
------------
16,436,456
------------
Puerto Rico - 2.0%
4,000,000 Puerto Rico Commonwealth, Aqueduct & Sewer Revenue Bonds,
Series A 9.0% 7/1/2009 5,106,640(b)
3,000,000 Puerto Rico Commonwealth, Unlimited Tax General
Obligation Bonds 6.45% 7/1/2017 3,302,730
3,000,000 Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series T 6.0% 7/1/2016 3,139,770
------------
11,549,140
------------
South Carolina - 1.2%
2,000,000 Piedmont Municipal Power Agency, South Carolina, Electric
Revenue Refunding Bonds, Series 1991, Insured by FGIC 6.25% 1/1/2021 2,260,220
5,000,000 Piedmont Municipal Power Agency, South Carolina, Electric
Revenue Refunding Bonds, Insured by FGIC 5.0% 1/1/2022 4,750,900
------------
7,011,120
------------
Tennessee - 0.3%
1,750,000 Bristol, Tennessee, Health and Educational Facilities Authority, Bristol
Memorial Hospital Revenue Bonds, Insured by FGIC 7.0% 9/1/2021 1,933,680(b)
------------
Texas - 10.0%
2,165,000 Arlington, Texas, Independent School District, Unlimited Tax
Refunding & Improvement Bonds, Series 1992, Permanent
School Fund Guarantee Zero Coupon 2/15/2009 1,233,617
8,100,000 Austin, Texas, Utility System Refunding Revenue Bonds,
Series A, Insured by MBIA Zero Coupon 11/15/2009 4,461,642
7,000,000 Austin, Texas, Utility System Refunding Revenue Bonds,
Series A, Insured by MBIA Zero Coupon 11/15/2008 4,095,560
1,000,000 Austin, Texas, Utility System Revenue Refunding Bonds,
Insured by FGIC 6.0% 11/15/2013 1,103,510
2,500,000 Azle, Texas, Independant School District, Unlimited General
Obligation Bonds, Series A, Permanent School Fund
Guarantee 5.875% 2/15/2013 2,593,725(b)
1,575,000 Bexar County, Texas, Limited Tax General Obligation Bonds 5.0% 6/15/2015 1,562,164
1,000,000 Brazos River Authority, Texas, Collateralized Revenue
Refunding Bonds(Houston Lighting & Power Co.),
1988 Series B 8.25% 5/1/2015 1,038,980
2,000,000 Brazos River Authority, Texas, Houston Lighting
& Power Co., Revenue Refunding Bonds, Insured by MBIA 8.25% 5/1/2015 2,079,740
1,000,000 Cass County, Texas, Industrial Development Corporation,
Pollutions Control Revenue Refunding Bonds, International
Paper, Series 1997-B 5.35% 4/1/2012 1,010,970
1,310,000 City of Garland, Dallas County, Texas, Combination Tax and
Revenue Certificates of Obligation, Series 1996 5.25% 2/15/2015 1,311,454
1,390,000 City of Garland, Dallas County, Texas, Combination Tax and
Revenue Certificates of Obligation, Series 1996 5.25% 2/15/2016 1,385,024
2,000,000 Copperas Cove, Texas, Independent School District,
Unlimited Tax General Obligation Bonds, Permanent School
Fund Guarantee 6.9% 8/15/2014 2,290,100(b)
1,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding Bonds,
Insured by FGIC 7.375% 11/1/2009 1,170,890
2,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding Bonds,
Insured by FGIC 7.375% 11/1/2010 2,335,620
1,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding Bonds,
Insured by FGIC 7.375% 11/1/2008 1,173,970
4,000,000 Dallas-Fort Worth, Texas, Airport Joint Revenue Refunding Bonds
Series 1994-A, Insured by MBIA 6.0% 11/1/2012 4,255,280
2,285,000 Denton, Texas, Independent School District, Unlimited Tax
General Obligation Refunding Bonds, Permanent School
Fund Guarantee 6.25% 2/15/2009 2,570,762
1,000,000 Georgetown, Texas, Higher Education Finance Corp., Higher
Education Revenue Bonds, Series 1994 (Southwestern
University Project) 6.3% 2/15/2014 1,053,250
2,250,000 Harris County, Texas, Toll Road Sr. Lien Bonds, Series A,
Insured by MBIA 6.375% 8/15/2024 2,534,220
1,750,000 Harris County, Texas, Tollroad Unlimited Tax & Subordinated Lien,
Revenue Refunding Bonds, Series 1988 8.125% 8/1/2015 1,838,497(b)
5,315,000 Lewisville, Texas, Independent School District, Capital
Appreciation Refunding Bonds, Permanent School
Fund Guarantee Zero Coupon 8/15/2019 1,620,225
1,845,000 San Antonio, Texas, Airport Revenue Refunding Bonds,
Insured by AMBAC 7.375% 7/1/2010 2,133,798
1,000,000 San Antonio, Texas, Airport Revenue Refunding Bonds,
Insured by AMBAC 7.375% 7/1/2011 1,151,100
11,615,000 Southeastern Texas Housing Finance Corp., Single Family
Mortgage Revenue Bonds Zero Coupon 9/1/2017 3,886,495(b)
4,315,000 Texas State, Veterans Land Board General Obligation Bonds 0.05% 7/1/2010 2,256,486(b)
1,520,000 Travis County, Texas, Housing Finance Corporation, Single
Family Mortgage Revenue Refunding Bonds, Series 1994-A 6.75% 4/1/2014 1,650,933
3,210,000 Willis, Texas, Independent School District, Government
Obligation Bonds, Permanent School Fund Guarantee 6.5% 2/15/2016 3,482,978(b)
440,000 Willis, Texas, Independent School District, Government
Obligation Bonds, Permanent School Fund Guarantee 6.5% 2/15/2016 468,926
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 1,373,105
------------
59,123,021
------------
Utah - 2.5%
5,000,000 Intermountain Power Agency, Utah, Power Supply Revenue Bonds,
Series B, Insured by MBIA 5.75% 7/1/2019 5,149,500
3,405,000 Timpanogos Special Service District, Utah County, Utah, Sewer
Revenue Bonds, Series 1996-A, Insured by AMBAC 6.1% 6/1/2019 3,602,626
3,750,000 Utah Associated Municipal Power Systems, San Juan Project
Revenue Bonds, Series O, Insured by MBIA 6.25% 6/1/2014 4,057,275
1,580,000 West Valley City, Utah, Municipal Building Authority, Lease
Refunding Bonds, Insured by MBIA 6.0% 1/15/2010 1,668,354
------------
14,477,755
------------
Virginia - 1.7%
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 3,150,030
4,300,000 Virginia Housing Development Authority, Commonwealth
Mortgage Bonds, 1994 Series H, Subseries H-2 6.5% 1/1/2014 4,633,336
2,000,000 Virginia State, Unlimited Tax General Obligation Bonds 6.5% 6/1/2015 2,247,440(b)
------------
10,030,806
------------
Washington - 5.7%
1,655,000 Douglas County, Washington, Public Utility District #1,
Wells Hydroelectric Revenue Bonds, Series A 8.75% 9/1/2018 2,222,053(b)
1,395,000 Douglas County, Washington, Public Utility District #1,
Wells Hydroelectric Revenue Bonds, Series A 8.75% 9/1/2018 1,778,611
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 1,885,240
5,000,000 King County, Washington, Unlimited Tax General Obligation
Bonds, Series A 6.75% 12/1/2009 5,363,700(b)
1,500,000 Tacoma, Washington, Conservation System Project Revenue Bonds,
Tacoma Public Utilities Light Division 6.6% 1/1/2015 1,622,145
2,015,000 Tacoma, Washington, Utilities Refuse Revenue Bonds,
Insured by MBIA 6.625% 12/1/2011 2,213,074(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 3,120,990
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 2,093,960
1,000,000 Washington State Public Power Supply System, Nuclear
Project No. 3, Revenue Refunding Bonds, Insured by FGIC 7.25% 7/1/2015 1,079,790(b)
2,000,000 Washington State, Unlimited Tax General Obligation Bonds 6.0% 6/1/2012 2,202,940
2,400,000 Washington State, Unlimited Tax General Obligation Bonds 6.7% 6/1/2016 2,596,992(b)
3,000,000 Washington State, Unlimited Tax General Obligation Bonds,
Series 93A 5.75% 10/1/2012 3,231,000
1,500,000 Washington State, Unlimited Tax General Obligation Bonds,
Series A 6.25% 2/1/2011 1,686,030
2,500,000 Washington State, Various Purpose General Obligation Bonds 6.25% 6/1/2010 2,811,375
------------
33,907,900
------------
Wisconsin - 0.9%
1,000,000 Southeast Wisconsin, Professional Baseball Park District Sales
Tax Revenue Bonds, Insured by MBIA 5.8% 12/15/2026 1,028,150
4,315,000 State of Wisconsin, Clean Water Revenue Bonds, 1995 Series 1 5.8% 6/1/2015 4,456,057
------------
5,484,207
------------
Wyoming - 0.4%
2,500,000 State of Wyoming, Farm Loan Board, Capital Facilities Revenue
Bonds, Series 1994 6.1% 4/1/2024 2,622,275
------------
Total Long-Term Municipal Securities (cost $527,891,785) 583,387,184
------------
SHORT-TERM MUNICIPAL SECURITIES - 0.4% (a, c)
400,000 Illinois Development Finance Authority, (Amoco Oil Company
Project), Pollution Control Revenue Refunding Bonds,
Series 1994 4.2% 11/3/1997 400,000
400,000 Lake Charles, Louisiana, Harbor & Terminal Variable Rate
Demand Note 4.2% 11/3/1997 400,000
1,600,000 Maricopa County, Arizona Pollution Control Corp., Pollution Control
Revenue Refunding Bonds, (Arizona Public Service Co. Palo
Verde Project), 1994 Series E 4.2% 11/3/1997 1,600,000
------------
Total Short-Term Municipal Securities (at amortized cost) 2,400,000
------------
Total Investments (cost $530,291,785) $585,787,184(e)
============
NOTES TO PORTFOLIO OF INVESTMENTS:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of the Lutheran Brotherhood
Municipal Bond Fund.
(b) Denotes securities that have been pre-refunded or escrowed to maturity. Under such an arrangement,
money is deposited into an irrevocable escrow account and is used to purchase U.S. Treasury securities
or Government Agency securities with maturing principal and interest earnings sufficient to pay all debt
service requirements of the pre-refunded bonds. Because the original bonds assume a quality rating
equivalent to the escrowed U.S. Government securities, they are considered to be U.S. Government
securities for purposes of portfolio diversification requirements.
(c) Denotes variable rate obligations for which the current yield and next scheduled interest reset date are
shown.
(d) Denotes investments purchased on a when-issued basis.
(e) At October 31, 1997, the aggregate cost of securities for federal income tax purposes was $530,321,668
and the net unrealized appreciation of investments based on that cost was $55,465,516 which is comprised
of $55,480,864 aggregate gross unrealized appreciation and $15,348 aggregate gross unrealized
depreciation.
(f) Miscellaneous abbreviations:
AMBAC- AMBAC Indemnity Corp.
Connie Lee- Connie Lee Insurance Co.
FGIC- Financial Guaranty Insurance Co.
FHA- Federal Housing Administration
FSA- Federal Security Assurance, Inc.
MBIA- Municipal Bond Investors Assurance Corp.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD MONEY MARKET FUND
Portfolio of Investments
October 31, 1997
Principal Maturity
Amount Rate Date Value
- ---------------- ------ ----------- --------------
<S> <C> <C> <C> <C>
BANK NOTES - 1.1% (a)
$ 5,000,000 Wachovia Bank of Georgia, N.A. 6.20% 04/06/1998 $ 4,997,965
--------------
COMMERCIAL PAPER - 82.8% (a)
Banking-Domestic - 4.2%
5,000,000 Allegheny University Hospitals, (PNC Bank, N.A., Direct Pay
Letter of Credit) 5.58% 11/18/1997 4,986,943
5,000,000 Enterprise Funding Corp. (NationsBank, N.A.) 5.62% 12/30/1997 4,954,603
1,834,000 Enterprise Funding Corp. (NationsBank, N.A.) 5.61% 11/14/1997 1,830,324
5,000,000 Vehicle Services of America (NationsBank of Texas, N.A.
Direct Pay Letter of Credit) 5.63% 11/04/1997 4,997,688
3,000,000 Vehicle Services of America (NationsBank of Texas, N.A.
Direct Pay Letter of Credit) 5.63% 12/03/1997 2,985,067
--------------
19,754,625
--------------
Banking-Foreign - 16.5%
5,000,000 Banco Real S.A. Grand Cayman, (Barclays Bank plc, Direct Pay
Letter of Credit) 5.78% 04/20/1998 4,867,305
5,000,000 CEMEX S.A. de C.V., (Credit Suisse, Direct Pay Letter of Credit) 5.67% 01/16/1998 4,940,994
3,000,000 Alpargatas Funding Corp., (Union Bank of Switzerland,
Direct Pay Letter of Credit) 5.62% 12/19/1997 2,977,720
5,000,000 Banco de Columbia, S.A. (Barclays Bank plc, Direct Pay
Letter of Credit) 5.62% 11/10/1997 4,993,075
3,000,000 Banco de Columbia, S.A. (Barclays Bank plc, Direct Pay
Letter of Credit) 5.63% 12/11/1997 2,981,500
5,000,000 China Merchants (Cayman), Inc., (Credit Suisse, Direct
Pay Letter of Credit) 5.61% 12/05/1997 4,973,792
5,000,000 China Merchants (Cayman), Inc., (Credit Suisse, Direct
Pay Letter of Credit) 5.62% 11/10/1997 4,993,063
5,000,000 Comision Federal de Electricidad, Series A (Westdeutsche
Landesbank, Girozentrale, Direct Pay Letter of Credit) 5.63% 12/05/1997 4,973,697
5,000,000 Comision Federal de Electricidad, Series A (Westdeutsche
Landesbank, Girozentrale, Direct Pay Letter of Credit) 5.60% 11/17/1997 4,987,667
5,000,000 Fletcher Challenge Finance USA, Inc.(National Westminster
Bank plc, Direct Pay Letter of Credit) 5.60% 11/19/1997 4,986,200
5,000,000 Glencore Finance (Bermuda) Ltd., (Union Bank of Switzerland,
Direct Pay Letter of Credit) 5.71% 02/04/1998 4,926,507
2,100,000 Hyundai Motor Finance Co., (Bank of America N.T. & S.A.,
Direct Pay Letter of Credit) 5.54% 11/04/1997 2,099,034
9,396,000 Oyster Creek Fuel Corp., (Union Bank of Switzerland,
Direct Pay Letter of Credit) 5.70% 11/05/1997 9,390,049
5,000,000 Petroleo Brasileiro S.A., (Barclays Bank plc, Direct Pay
Letter of Credit) 5.63% 12/12/1997 4,968,453
100,000 River Fuel Funding Co. #3, Inc., (Union Bank of Switzerland,
Direct Pay Letter of Credit) 5.68% 01/09/1998 98,927
5,240,000 U.S. Prime Property, Inc., (ABN AMRO Bank N.V.,
Direct Pay Letter of Credit) 5.72% 02/12/1998 5,156,643
4,760,000 U.S. Prime Property, Inc., (ABN AMRO Bank N.V.,
Direct Pay Letter of Credit) 5.65% 03/09/1998 4,666,577
--------------
76,981,203
--------------
Computers & Office Equipment - 1.0%
5,000,000 IBM Credit Corp. 5.73% 03/09/1998 4,900,978
--------------
Education - 13.1%
5,000,000 Duke University 5.68% 01/27/1998 4,932,333
16,750,000 Harvard University 5.73% 11/03/1997 16,744,668
5,000,000 Leland H. Stanford Junior University 5.75% 04/02/1998 4,883,255
5,000,000 Leland H. Stanford Junior University 5.68% 11/18/1997 4,986,872
5,000,000 Leland H. Stanford Junior University 5.71% 04/23/1998 4,866,886
5,000,000 Leland H. Stanford Junior University 5.80% 12/09/1997 4,970,233
5,000,000 Yale University 5.59% 12/02/1997 4,976,276
5,000,000 Yale University 5.60% 12/16/1997 4,965,500
3,000,000 Yale University 5.65% 11/20/1997 2,991,197
7,000,000 Yale University 5.59% 12/22/1997 6,945,062
--------------
61,262,282
--------------
Finance-Automotive - 5.4%
1,000,000 Ford Motor Credit Co. 5.61% 12/19/1997 992,613
5,000,000 Ford Motor Credit Co. 5.67% 12/15/1997 4,966,206
2,000,000 Ford Motor Credit Co. 5.58% 12/23/1997 1,984,024
5,000,000 Ford Motor Credit Co. of Puerto Rico, Inc. (Guaranteed FMCC) 5.84% 12/01/1997 4,976,375
5,000,000 General Motors Acceptance Corp. 5.61% 11/25/1997 4,981,533
5,000,000 General Motors Acceptance Corp. 5.96% 11/10/1997 4,992,763
2,600,000 General Motors Acceptance Corp. 5.61% 11/05/1997 2,598,402
--------------
25,491,916
--------------
Finance-Commercial - 6.4%
5,000,000 General Electric Credit Capital Services of Puerto Rico, Inc.
(Guaranteed GECC) 5.76% 12/04/1997 4,974,242
1,000,000 General Electric Capital Corp. 5.61% 12/18/1997 992,767
5,000,000 General Electric Credit Capital Services of Puerto Rico, Inc.
(Guaranteed GECC) 5.71% 02/23/1998 4,911,650
9,100,000 General Electric Capital Corp. 5.75% 11/03/1997 9,097,093
5,000,000 Norwest Financial, Inc. 5.64% 01/29/1998 4,931,519
5,000,000 Norwest Financial, Inc. 5.70% 02/26/1998 4,909,163
--------------
29,816,434
--------------
Finance-Consumer - 3.3%
4,500,000 Associates Financial Services of Puerto Rico, Inc.
(Guaranteed Associates Corp. of North America) 5.59% 12/01/1997 4,479,225
900,000 Associates Financial Services of Puerto Rico, Inc.
(Guaranteed Associates Corp. of North America) 5.58% 12/02/1997 895,714
5,000,000 AVCO Financial Services, Inc. 5.59% 12/03/1997 4,975,467
5,000,000 Penney (J.C.) Funding Corp. 5.67% 01/30/1998 4,930,125
--------------
15,280,531
--------------
Finance-Retail - 2.1%
5,000,000 Sears Roebuck Acceptance Corp. 5.59% 11/26/1997 4,980,799
5,000,000 Sears Roebuck Acceptance Corp. 5.58% 11/03/1997 4,998,461
--------------
9,979,260
--------------
Finance-Structured - 6.3%
3,000,000 Asset Securitization Cooperative Corp. 5.54% 11/26/1997 2,988,542
3,309,000 Delaware Funding Corp 5.62% 12/22/1997 3,282,889
2,285,000 New Center Asset Trust 5.60% 11/19/1997 2,278,659
1,000,000 New Center Asset Trust 5.64% 12/17/1997 992,908
1,000,000 Preferred Receivables Funding Corp. 5.57% 11/10/1997 998,613
2,925,000 Preferred Receivables Funding Corp. 5.57% 12/22/1997 2,902,168
2,400,000 Preferred Receivables Funding Corp. 5.86% 11/18/1997 2,393,540
1,825,000 Preferred Receivables Funding Corp. 5.63% 2/11/1998 1,796,457
5,000,000 Triple-A One Funding Corp. (Guaranteed CapMAC) 5.63% 11/12/1997 4,991,521
349,000 Triple-A One Funding Corp. (Guaranteed CapMAC) 5.62% 12/04/1997 347,224
5,000,000 Triple-A One Funding Corp. (Guaranteed CapMAC) 5.69% 1/16/1998 4,941,100
1,945,000 Triple-A One Funding Corp. (Guaranteed CapMAC) 5.61% 11/07/1997 1,943,194
--------------
29,856,815
--------------
Financial Services - 3.9%
4,000,000 American Express Credit Corp. 5.60% 12/08/1997 3,977,266
5,000,000 American Express Credit Corp. 5.57% 12/29/1997 4,955,694
5,000,000 American Express Credit Corp. 5.57% 12/24/1997 4,959,367
3,100,000 USAA Capital Corp. 5.66% 11/06/1997 3,097,567
1,047,000 USAA Capital Corp. 5.65% 11/04/1997 1,046,507
--------------
18,036,401
--------------
Food & Beverage - 2.6%
7,000,000 Cargill, Inc. 5.55% 12/16/1997 6,951,875
5,000,000 CPC International, Inc. 5.58% 11/24/1997 4,982,431
--------------
11,934,306
--------------
Industrial - 8.1%
5,000,000 Chevron Transport Corp., (Guaranteed Chevron Corp.) 5.60% 12/18/1997 4,963,967
5,000,000 Chevron Transport Corp., (Guaranteed Chevron Corp.) 5.72% 2/20/1998 4,913,358
5,000,000 Chevron Transport Corp., (Guaranteed Chevron Corp.) 5.70% 3/19/1998 4,893,242
5,000,000 Chevron Transport Corp., (Guaranteed Chevron Corp.) 5.64% 12/08/1997 4,971,582
2,030,000 Du Pont (E.I.) de Nemours and Co. 5.69% 3/06/1998 1,990,880
7,000,000 Du Pont (E.I.) de Nemours and Co. 5.75% 6/02/1998 6,771,380
5,000,000 Monsanto Co. 5.68% 2/02/1998 4,928,313
5,000,000 Monsanto Co. 5.62% 2/04/1998 4,927,299
--------------
38,360,021
--------------
Insurance - 2.1%
5,000,000 A.I. Credit Corp. 5.67% 1/15/1998 4,942,396
5,000,000 Prudential Funding Corp. 5.54% 11/13/1997 4,990,817
--------------
9,933,213
--------------
Sovereign/Foreign Government - 1.1%
5,000,000 Kingdom Of Sweden 5.62% 12/08/1997 4,971,736
--------------
Transportation - 1.6%
7,500,000 United Parcel Service of America, Inc. 5.58% 11/07/1997 7,493,125
--------------
U.S. Municipal - 5.1%
5,000,000 California Pollution Control Finance Authority
(Guaranteed Shell Oil Co.) 5.64% 12/15/1997 5,000,000
6,900,000 City of New York Government Bonds, Fiscal 1995, Series B
(Guaranteed FGIC SPI) 5.77% 11/21/1997 6,900,000
7,000,000 Port of Corpus Christi Authority of Nueces County, Texas
(Guaranteed Koch Ind.) 5.62% 12/22/1997 7,000,000
5,000,000 City of Whiting, Indiana, Series 1995, Sewage & Waste Disposal
(Guaranteed Amoco Oil Co.) 5.59% 11/06/1997 5,000,000
--------------
23,900,000
--------------
Total Commercial Paper 387,952,846
--------------
CERTIFICATES OF DEPOSIT - 4.1% (a)
Domestic - 0.9%
4,000,000 Bankers Trust Co., N.A.- New York 6.00% 08/28/1998 3,999,057
--------------
Euro Dollar-Foreign - 3.2%
10,000,000 Morgan Guaranty Trust, London 5.55% 12/31/1997 10,000,136
5,000,000 Westdeutcshe Landesbank, London 5.83% 11/24/1997 5,000,004
--------------
15,000,140
--------------
Total Certificates of Deposit 18,999,197
--------------
MEDIUM TERM NOTES - 1.1% (a)
5,000,000 Abbey National Treasury Services plc 5.72% 04/02/1998 5,003,926
--------------
VARIABLE RATE NOTES - 10.9% (a,b)
8,000,000 Abbey National Treasury Services plc 5.51% 11/17/1997 7,996,052
8,000,000 Bankers Trust Co., N.A.- New York 5.64% 11/03/1997 7,999,572
10,000,000 Federal Home Loan Bank 5.42% 11/07/1997 9,993,285
10,000,000 IBM Credit Corp. 5.62% 11/17/1997 9,995,945
5,000,000 Illinois Student Assistance Commission, (Bank of America,
Illinois, Direct Pay Letter of Credit) 5.61% 11/06/1997 5,000,000
10,000,000 Illinois Student Assistance Commission, (Student Loan Mkt.
Association, Direct Pay Letter of Credit) 5.56% 11/07/1997 10,000,000
--------------
Total Variable Rate Notes 50,984,854
--------------
Total Investments (at amortized cost) $ 467,938,788(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, 1997
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $288,568,546) $316,506,996
Cash 984,715
Receivable for investment securities sold 903,847
Dividend receivable 23,180
--------------
Total assets 318,418,738
--------------
LIABILITIES:
Open options written, at value
(premium received $751,131) 434,272
Payable for investment securities purchased 6,384,041
Accrued expenses 176,834
--------------
Total liabilities 6,995,147
--------------
NET ASSETS $311,423,591
==============
NET ASSETS CONSIST OF:
Paid-in capital $273,656,885
Accumulated net investment loss (3,069)
Accumulated net realized gain from sale of
investments 9,514,466
Unrealized net appreciation of investments 28,255,309
--------------
NET ASSETS $311,423,591
==============
Class A Shares:
Net asset value and redemption price per share (based
on net assets of $307,919,974 and 23,734,675 shares of
beneficial interest outstanding) $12.97
======
Maximum public offering price per share (based on a
net asset value per share of $12.97 divided by 0.96
for a 4% sales charge) $13.51
======
Class B Shares:
Net asset value, redemption price and offering price
per share ( based on net assets of $25,000 and 1,928
shares of beneficial interest outstanding) $12.97
======
Institutional Class Shares:
Net asset value, redemption price and offering price
per share ( based on net assets of $3,478,617 and
268,205 shares of beneficial interest outstanding) $12.97
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $398,706
Interest income 1,471,469
------------
Total income 1,870,175
------------
Expenses --
Investment advisory fee 1,868,475
Transfer agent services 1,147,649
Custodian fee 132,943
Administrative personnel and services 55,875
Printing and postage 228,510
Trust share registration costs 56,534
Auditing fees 6,487
Legal fees 3,515
Trustees' fees 5,773
Amortization of organization costs 9,855
Miscellaneous 7,771
------------
Total expenses 3,523,387
------------
Net investment loss (1,653,212)
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 11,659,779
Net realized gain on closed or expired option
contracts written 330,904
------------
Net realized gain on investments 11,990,683
Net increase in unrealized appreciation of investments 13,347,891
------------
Net gain on investments 25,338,574
------------
Net increase in net assets resulting from
operations $23,685,362
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1997 and 1996
Year Ended Year Ended
10/31/97 10/31/96
------------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment loss $(1,653,212) $(2,076,149)
Net realized gain on investments 11,990,683 33,047,405
Net increase in unrealized appreciation or depreciation of investments 13,347,891 6,165,586
------------ ------------
Net increase in net assets resulting from operations 23,685,362 37,136,842
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net realized gain on investments (29,849,878) (33,356,556)
------------ ------------
NET TRUST SHARE TRANSACTIONS --
Class A 48,247,150 96,374,157
Class B 25,000 --
Institutional Class 3,478,617 --
------------ ------------
Net increase in net assets resulting from trust share transactions 51,750,767 96,374,157
------------ ------------
Net increase in net assets 45,586,251 100,154,443
NET ASSETS:
Beginning of period 265,837,340 165,682,897
------------ ------------
End of period $311,423,591 $265,837,340
============ ============
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, 1997
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $15,391,945) $15,284,239
Cash 6,893
Receivable for investment securities sold 247,660
Dividend receivable 6,427
Unamortized organization costs 25,166
------------
Total assets 15,570,385
------------
LIABILITIES:
Payable for investment securities purchased 951,538
Accrued expenses 16,207
------------
Total liabilities 967,745
------------
NET ASSETS $14,602,640
============
NET ASSETS CONSIST OF:
Paid-in capital $14,324,750
Accumulated net investment loss (26,047)
Accumulated net realized gain from sale of
investments 411,643
Unrealized net depreciation of investments (107,706)
------------
NET ASSETS $14,602,640
============
Class A Shares:
Net asset value and redemption price per share (based
on net assets of $14,044,262 and 1,359,069 shares of
beneficial interest outstanding) $10.33
======
Maximum public offering price per share (based on a
net asset value per share of $10.33 divided by 0.96
for a 4% sales charge) $10.76
======
Class B Shares:
Net asset value, redemption price and offering price
per share ( based on net assets of $25,000 and 2,420
shares of beneficial interest outstanding) $10.33
======
Institutional Class Shares:
Net asset value, redemption price and offering price
per share ( based on net assets of $533,378 and 51,634
shares of beneficial interest outstanding) $10.33
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period from May 30, 1997 (effective date)
through October 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $13,663
Interest income 20,419
------------
Total income 34,082
------------
Expenses --
Investment advisory fee 21,586
Transfer agent services 21,145
Custodian fee 1,542
Administrative personnel and services 617
Printing and postage 4,068
Trust share registration costs 12,116
Auditing fees 2,008
Trustees' fees 1,571
Amortization of organization costs 2,288
Miscellaneous 545
------------
Total expenses 67,486
Expense reimbursement from
investment advisor (7,357)
------------
Net expenses 60,129
------------
Net investment loss (26,047)
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 411,643
Net change in unrealized depreciation of investments (107,706)
------------
Net gain on investments 303,937
------------
Net increase in net assets resulting from
operations $277,890
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the period from
May 30, 1997
(effective date) to
October 31, 1997
---------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment loss $(26,047)
Net realized gain on investments 411,643
Net change in unrealized depreciation
of investments (107,706)
--------------
Net increase in net assets resulting from operations 277,890
--------------
NET TRUST SHARE TRANSACTIONS --
Class A 13,766,372
Class B 25,000
Institutional Class 533,378
--------------
Net increase in net assets resulting from trust share transactions 14,324,750
--------------
Net increase in net assets 14,602,640
NET ASSETS:
Beginning of period --
--------------
End of period $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, 1997
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $69,492,238) $74,730,499
Cash (including foreign currency holdings
of $317,490) 340,960
Receivable for investment securities sold 16,922
Dividend receivable 161,115
Unamortized organization costs 28,916
------------
Total assets 75,278,412
------------
LIABILITIES:
Payable for investment securities purchased 85,020
Accrued expenses 61,157
------------
Total liabilities 146,177
------------
NET ASSETS $75,132,235
------------
NET ASSETS CONSIST OF:
Paid-in capital $68,716,028
Undistributed net investment income 304,487
Accumulated net realized gain from sale of
investments and foreign currency transactions 868,953
Unrealized net appreciation of investments and on
translation of assetsand liabilities in foreign
currencies 5,242,767
------------
NET ASSETS $75,132,235
============
Class A Shares:
Net asset value and redemption price per share (based
on net assets of $67,805,208 and 6,722,657 shares of
beneficial interest outstanding) $10.09
======
Maximum public offering price per share (based on a
net asset value per share of $10.09 divided by 0.96
for a 4% sales charge) $10.51
======
Class B Shares:
Net asset value, redemption price and offering price
per share (based on net assets of $25,000 and 2,478
shares of beneficial interest outstanding) $10.09
======
Institutional Class Shares:
Net asset value, redemption price and offering price
per share ( based on net assets of $7,302,027 and
723,689 shares of beneficial interest outstanding) $10.09
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income (net of foreign taxes of $161,042) $1,170,362
Interest income 182,235
------------
Total income 1,352,597
------------
Expenses --
Investment advisory fee 682,203
Transfer agent services 311,027
Custodian fee 92,299
Administrative personnel and services 13,826
Printing and postage 63,442
Trust share registration costs 48,963
Auditing fees 1,475
Legal fees 759
Trustees' fees 5,148
Amortization of organization costs 10,220
Miscellaneous 4,436
------------
Total expenses 1,233,798
------------
Net investment income 118,799
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investment transactions 1,162,159
Net realized gain on foreign currency transactions 20,047
------------
Net realized gain on investments and foreign
currency transactions 1,182,206
------------
Net increase in unrealized appreciation of investments 2,468,156
Net increase in unrealized depreciation on translation
of assets and liabilities in foreign currencies 3,319
------------
Net increase in unrealized appreciation of investments
and on translation of assets and liabilities in
foreign currencies 2,471,475
------------
Net gain on investments and foreign currency 3,653,681
------------
Net increase in net assets resulting
from operations $3,772,480
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1997 and 1996
Year Ended Year Ended
10/31/97 10/31/96
------------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $118,799 $243,405
Net realized gain on investments and foreign currency transactions 1,182,206 204,436
Net increase in unrealized appreciation of investments and
on translation of assets and liabilities in foreign currencies 2,471,475 2,906,319
----------- -----------
Net increase in net assets resulting from operations 3,772,480 3,354,160
----------- -----------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income (257,604) (37,674)
Net realized gain on investments (247,812) --
----------- -----------
Total distributions (505,416) (37,674)
----------- -----------
NET TRUST SHARE TRANSACTIONS --
Class A 11,601,520 35,652,107
Class B 25,000 --
Institutional Class 7,302,027 --
----------- -----------
Net increase in net assets resulting from trust share transactions 18,928,547 35,652,107
----------- -----------
Net increase in net assets 22,195,611 38,968,593
NET ASSETS:
Beginning of period 52,936,624 13,968,031
----------- -----------
End of period (including undistributed net investment income of
$304,487 and $255,036, respectively) $75,132,235 $52,936,624
=========== ===========
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, 1997
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $754,145,951) $986,629,252
Cash 97,369
Receivable for investment securities sold 31,820,626
Dividend receivable 1,175,794
-----------------
Total assets 1,019,723,041
-----------------
LIABILITIES:
Payable for investment securities purchased 29,633,216
Accrued expenses 283,255
-----------------
Total liabilities 29,916,471
-----------------
NET ASSETS $989,806,570
=================
NET ASSETS CONSIST OF:
Paid-in capital $661,071,784
Undistributed net investment income 380,398
Accumulated net realized gain from sale of
investments 95,871,087
Unrealized net appreciation of investments 232,483,301
-----------------
NET ASSETS $989,806,570
=================
Class A Shares:
Net asset value and redemption price per share (based
on net assets of $975,154,021 and 36,146,769 shares of
beneficial interest outstanding) $26.98
======
Maximum public offering price per share (based on a
net asset value per share of $26.98 divided by 0.96
for a 4% sales charge) $28.10
======
Class B Shares:
Net asset value, redemption price and offering price
per share ( based on net assets of $25,000 and 926.6
shares of beneficial interest outstanding) $26.98
======
Institutional Class Shares:
Net asset value, redemption price and offering price
per share ( based on net assets of $14,627,549 and
542,163 shares of beneficial interest outstanding) $26.98
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $13,119,675
Interest income 1,686,216
--------------
Total income 14,805,891
--------------
Expenses --
Investment advisory fee 5,686,741
Transfer agent services 1,791,020
Custodian fees 185,522
Administrative personnel and services 184,583
Printing and postage 358,048
Trust share registration costs 67,750
Auditing fees 19,195
Legal fees 11,538
Trustees' fees 13,649
Miscellaneous 18,489
--------------
Total expenses before expense reimbursement 8,336,535
Expense reimbursement from
investment advisor (385,904)
--------------
Net expenses 7,950,631
--------------
Net investment income 6,855,260
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 122,431,480
Net realized gain on closed or expired option
contracts written 2,336
Net realized gain on closed futures contracts (22,447,731)
--------------
Net realized gain on investments 99,986,085
Net increase in unrealized appreciation of investments 101,725,926
--------------
Net gain on investments 201,712,011
--------------
Net increase in net assets resulting from
operations $208,567,271
==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1997 and 1996
Year Ended Year Ended
10/31/97 10/31/96
------------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $6,855,260 $6,672,089
Net realized gain on investments 99,986,085 62,729,282
Net increase in unrealized appreciation of investments 101,725,926 45,131,419
------------ ------------
Net increase in net assets resulting from operations 208,567,271 114,532,790
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income (7,140,586) (6,494,190)
Net realized gain on investments (58,599,470) (44,162,422)
------------ ------------
Total distributions (65,740,056) (50,656,612)
------------ ------------
NET TRUST SHARE TRANSACTIONS --
Class A 63,484,688 59,464,357
Class B 25,000 --
Institutional Class 14,627,549 --
------------ ------------
Net increase in net assets resulting from trust share transactions 78,137,237 59,464,357
------------ ------------
Net increase in net assets 220,964,452 123,340,535
NET ASSETS:
Beginning of period 768,842,118 645,501,583
------------ ------------
End of period (including undistributed net investment income of
$380,398 and $665,724, respectively) $989,806,570 $768,842,118
============ ============
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, 1997
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $832,313,304) $852,054,761
Cash 1,407,857
Receivable for investment securities sold 11,279,457
Interest and dividend receivable 16,528,457
------------
Total assets 881,270,532
------------
LIABILITIES:
Payable for investment securities purchased 18,100,425
Accrued expenses 220,404
------------
Total liabilities 18,320,829
------------
NET ASSETS $862,949,703
============
NET ASSETS CONSIST OF:
Paid-in capital $824,942,025
Undistributed net investment income 2,736,361
Accumulated net realized gain from sale of
investments 15,529,860
Unrealized net appreciation of investments 19,741,457
------------
NET ASSETS $862,949,703
============
Class A Shares:
Net asset value and redemption price per share (based
on net assets of $812,008,902 and 84,796,352 shares of
beneficial interest outstanding) $9.58
======
Maximum public offering price per share (based on a
net asset value per share of $9.58 divided by 0.96
for a 4% sales charge). $9.98
======
Class B Shares:
Net asset value, redemption price and offering price
per share (based on net assets of $25,000 and 2,610
shares of beneficial interest outstanding) $9.58
======
Institutional Class Shares:
Net asset value, redemption price and offering price
per share (based on net assets of $50,915,801 and
5,314,802 shares of beneficial interest outstanding) $9.58
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $70,520,468
Dividend income 6,791,034
------------
Total income 77,311,502
------------
Expenses --
Investment advisory fee 4,911,490
Transfer agent services 1,205,817
Custodian fee 177,370
Administrative personnel and services 158,365
Printing and postage 254,058
Trust share registration costs 80,915
Auditing fees 14,404
Legal fees 10,150
Trustees' fees 13,649
Miscellaneous 17,759
------------
Total expenses before expense reimbursement 6,843,977
Expense reimbursement from
investment advisor (328,810)
------------
Net expenses 6,515,167
------------
Net investment income 70,796,335
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 16,963,856
Net increase in unrealized appreciation of investments 17,585,438
------------
Net gain on investments 34,549,294
------------
Net increase in net assets resulting from
operations $105,345,629
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1997 and 1996
Year Ended Year Ended
10/31/97 10/31/96
------------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $70,796,335 $59,976,148
Net realized gain on investment transactions 16,963,856 16,240,947
Net change in unrealized appreciation or depreciation of investments 17,585,438 (5,314,640)
------------ ------------
Net increase in net assets resulting from operations 105,345,629 70,902,455
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income (71,372,708) (58,709,581)
Net realized gain on investments (2,451,356) --
------------ ------------
Total distributions (73,824,064) (58,709,581)
------------ ------------
NET TRUST SHARE TRANSACTIONS --
Class A 77,340,401 96,617,152
Class B 25,000 --
Institutional Class 50,915,801 --
------------ ------------
Net increase in net assets resulting from trust share transactions 128,281,202 96,617,152
------------ ------------
Net increase in net assets 159,802,767 108,810,026
NET ASSETS:
Beginning of period 703,146,936 594,336,910
------------ ------------
End of period (including undistributed net investment income of
$2,736,361 and $3,312,734, respectively) $862,949,703 $703,146,936
============ ============
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, 1997
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $795,996,925) $807,567,537
Cash 68,275
Receivable for investment securities sold 22,238,967
Interest and dividend receivable 11,452,031
------------
Total assets 841,326,810
------------
LIABILITIES:
Open options written, at value (premium
received $133,272) 318,750
Payable for investment securities purchased 62,791,027
Accrued expenses 199,447
------------
Total liabilities 63,309,224
------------
NET ASSETS $778,017,586
============
NET ASSETS CONSIST OF:
Paid-in capital $810,834,338
Undistributed net investment income 1,619,914
Accumulated net realized loss from sale
of investments (45,821,800)
Unrealized net appreciation of investments 11,385,134
------------
NET ASSETS $778,017,586
------------
Class A Shares:
Net asset value and redemption price per share (based
on net assets of $759,817,416 and 88,210,001
shares of beneficial interest outstanding) $8.61
======
Maximum public offering price per share (based on a
net asset value per share of $8.61 divided by 0.96
for a 4% sales charge) $8.97
======
Class B Shares:
Net asset value, redemption price and offering price
per share ( based on net assets of $25,000 and 2,904
shares of beneficial interest outstanding) $8.61
======
Institutional Class Shares:
Net asset value, redemption price and offering price
per share ( based on net assets of $18,175,170 and
2,110,937 shares of beneficial interest outstanding) $8.61
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $57,675,987
Dividend income 1,177,961
------------
Total income 58,853,948
------------
Expenses --
Investment advisory fee 4,799,245
Transfer agent services 1,275,325
Custodian fee 193,403
Administrative personnel and services 166,209
Printing and postage 272,422
Trust share registration costs 46,043
Auditing fees 23,670
Legal fees 12,335
Trustees' fees 13,649
Miscellaneous 22,417
------------
Total expenses before expense reimbursement 6,824,718
Expense reimbursement from
investment advisor (333,931)
------------
Net expenses 6,490,787
------------
Net investment income 52,363,161
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 3,378,655
Net realized gain on closed or expired option
contracts written 125,995
Net realized loss on closed futures contracts (175,489)
------------
Net realized gain on investments 3,329,161
Net increase in unrealized appreciation of investments 6,682,802
------------
Net gain on investments 10,011,963
------------
Net increase in net assets resulting
from operations $62,375,124
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1997 and 1996
Year Ended Year Ended
10/31/97 10/31/96
------------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $52,363,161 $59,871,426
Net realized gain (loss) on investment transactions 3,329,161 (8,854,736)
Net change in unrealized appreciation or depreciation of investments 6,682,802 (11,610,324)
------------ ------------
Net increase in net assets resulting from operations 62,375,124 39,406,366
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income (52,271,463) (63,354,789)
------------ ------------
NET TRUST SHARE TRANSACTIONS --
Class A (121,262,283) (47,217,230)
Class B 25,000 --
Institutional Class 18,175,170 --
------------ ------------
Net change in net assets resulting from trust share transactions (103,062,113) (47,217,230)
------------ ------------
Net change in net assets (92,958,452) (71,165,653)
NET ASSETS:
Beginning of period 870,976,038 942,141,691
------------ ------------
End of period (including undistributed net investment income of
$1,602,351 and $1,510,653, respectively) $778,017,586 $870,976,038
============ ============
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, 1997
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $530,291,785) $585,787,184
Cash 2,125
Receivable for investment securities sold 498,519
Receivable for capital stock sold 25,000
Interest receivable 9,227,046
------------
Total assets 595,539,874
------------
LIABILITIES:
Payable for investment securities purchased 3,583,503
Accrued expenses 93,947
------------
Total liabilities 3,677,450
------------
NET ASSETS $591,862,424
============
NET ASSETS CONSIST OF:
Paid-in capital $540,115,037
Undistributed net investment income 2,081,584
Accumulated net realized loss from sale
of investments (5,829,596)
Unrealized net appreciation of investments 55,495,399
------------
NET ASSETS $591,862,424
============
Class A Shares:
Net asset value and redemption price per share (based
on net assets of $587,654,326 and 66,387,642 shares
of beneficial interest outstanding) $8.85
=====
Maximum public offering price per share (based on a
net asset value per share of $8.85 divided by 0.96
for a 4% sales charge). $9.22
=====
Class B Shares:
Net asset value, redemption price and offering price
per share ( based on net assets of $25,000 and 2,825
shares of beneficial interest outstanding) $8.85
=====
Institutional Class Shares:
Net asset value, redemption price and offering price
per share ( based on net assets of $4,183,098 and
472,666 shares of beneficial interest outstanding) $8.85
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $34,821,828
------------
Expenses --
Investment advisory fee 3,424,258
Transfer agent services 492,743
Custodian fee 157,049
Administrative personnel and services 122,078
Printing and postage 114,759
Trust share registration costs 46,427
Auditing fees 16,331
Legal fees 8,738
Trustees' fees 13,648
Miscellaneous 16,715
------------
Total expenses before expense reimbursement 4,412,746
Expense reimbursement from
investment advisor (247,844)
------------
Net expenses 4,164,902
------------
Net investment income 30,656,926
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 2,734,887
Net realized gain on closed or expired option
contracts written 36,396
Net realized loss on closed futures contracts (619,118)
------------
Net realized gain on investments 2,152,165
Net increase in unrealized appreciation of investments 15,004,813
------------
Net gain on investments 17,156,978
------------
Net increase in net assets resulting
from operations $47,813,904
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1997 and 1996
Year Ended Year Ended
10/31/97 10/31/96
------------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $30,656,926 $31,876,162
Net realized gain on investment transactions 2,152,165 102,442
Net change in unrealized appreciation or depreciation of investments 15,004,813 (358,129)
------------ ------------
Net increase in net assets resulting from operations 47,813,904 31,620,475
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income (30,372,431) (30,660,042)
------------ ------------
NET TRUST SHARE TRANSACTIONS --
Class A (39,259,157) (20,186,392)
Class B 25,000 --
Institutional Class 4,183,098 --
------------ ------------
Net change in net assets resulting from trust share transactions (35,051,059) (20,186,392)
------------ ------------
Net change in net assets (17,609,586) (19,225,959)
NET ASSETS:
Beginning of period 609,472,010 628,697,969
------------ ------------
End of period (including undistributed net investment income of
$2,081,584 and $1,804,431, respectively) $591,862,424 $609,472,010
============ ============
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, 1997
<S> <C>
ASSETS:
Investments in securities, at amortized cost
and value $467,938,788
Cash 677,327
Interest receivable 1,113,669
------------
Total assets 469,729,784
------------
LIABILITIES:
Dividends payable 247,147
Accrued expenses 258,824
------------
Total liabilities 505,971
------------
NET ASSETS $469,223,813
============
NET ASSETS CONSIST OF:
Paid-in capital $469,223,813
============
Class A Shares:
Net asset value, redemption price and offering price
per share (based on net assets of $416,278,833 and
416,278,833 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 $25,000 and 25,000
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 $52,919,980 and
52,919,980 shares of beneficial interest
outstanding) $1.00
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended October 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $24,727,343
------------
Expenses --
Investment advisory fee 2,210,254
Transfer agent services 1,383,639
Custodian fee 383,212
Administrative personnel and services 90,172
Printing and postage 424,924
Trust share registration costs 108,517
Auditing fees 10,244
Legal fees 5,901
Trustees' fees 7,262
Miscellaneous 11,156
------------
Total expenses before expense reimbursement 4,635,281
Expense reimbursement from
investment advisor (435,799)
------------
Net expenses 4,199,482
------------
Net investment income $20,527,861
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended October 31, 1997 and 1996
Year Ended Year Ended
10/31/97 10/31/96
------------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $20,527,861 $17,421,840
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income (20,527,861) (17,421,840)
------------ ------------
NET TRUST SHARE TRANSACTIONS --
Class A (1,329,756) 76,524,322
Class B 25,000 --
Institutional Class 52,919,980 --
------------ ------------
Net increase in net assets resulting from trust share transactions 51,615,224 76,524,322
------------ ------------
Net increase in net assets 51,615,224 76,524,322
NET ASSETS:
Beginning of period 417,608,589 341,084,267
------------ ------------
End of period $469,223,813 $417,608,589
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
The Lutheran Brotherhood Family of Funds
Notes to Financial Statements
October 31, 1997
(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. Securities traded on the over-the-
counter market and listed securities for which no price is readily
available are valued at prices within the range of the current bid and
asked prices considered 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 effect
of changes in foreign exchange rates on realized and unrealized
security gains or losses are not segregated from gains and losses that
arise from changes in market prices of investments, and are included
with the net realized and unrealized gain or loss on investments.
Federal Income Taxes
It is the policy of each Fund to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and
to distribute to shareholders each year substantially all of their
taxable income on a timely basis, including any net realized gain on
investments each year. It is also the intention of the Funds to
distribute an amount sufficient to avoid imposition of any federal
excise tax. Accordingly, no provision for federal income tax is
necessary. Each Fund is treated as a separate taxable entity for
federal income tax purposes.
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.
Investment Income
Interest income is determined on the basis of interest or discount
earned on any short-term investments and interest earned on all other
debt securities, including accrual of original issue discount.
Interest earned on debt securities also includes amortization of
premium for the Opportunity Growth, Mid Cap Growth Fund, World Growth
Fund, LB Fund, High Yield and Municipal Bond Funds and the accrual of
market discount for the Opportunity Growth, Mid Cap Growth Fund, World
Growth, LB Fund and High Yield Funds. Market discount, if any, is
recognized for tax purposes when bonds are sold for the Income and
Municipal Bond Funds. Dividend income is recorded on the ex-dividend
date. For payment-in-kind securities, income is recorded on the ex-
dividend date in the amount of the value received.
Options, Financial Futures and
Forward Foreign Currency Contracts
All Funds except the Money Market Fund may buy put and call options,
write covered call options and buy and sell futures contracts.
The Funds intend to use such derivative instruments as hedges to
facilitate buying or selling securities or to provide protection
against adverse movements in security prices or interest rates. The LB
World Growth Fund may also enter into options and futures contracts on
foreign currencies and forward foreign currency contracts to protect
against adverse foreign exchange rate fluctuation.
Option contracts are valued daily and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon
expiration or closing of the option transaction. When an option is
exercised, the proceeds on sale for a written call option or the cost
of a security for purchased put and call options is adjusted by the
amount of premium received or paid.
Upon entering into a futures contract, the Fund is required to deposit
initial margin, either cash or securities in an amount equal to a
certain percentage of the contract value. Subsequent variation margin
payments are made or received by the Fund each day. The variation
margin payments are equal to the daily changes in the contract value
and are recorded as unrealized gains and losses. The Fund realizes a
gain or loss when the contract is closed or expires.
Foreign currency contracts are valued daily and unrealized
appreciation or depreciation is recorded daily as the difference
between the contract exchange rate and the closing forward rate
applied to the face amount of the contract. A realized gain or loss is
recorded at the time a forward contract is closed.
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 $1,392,147 from
such fees for the year ended October 31, 1997.
Organization Costs
Organization costs incurred in connection with the start up and
initial registration of the Funds are capitalized and amortized over a
period of 60 months from the date of commencement. If any initial
shares are redeemed during the amortization period, the redemption
proceeds will be reduced by a pro-rata portion of the unamortized
balance at the time of redemption, in the same proportion that the
number of initial shares being redeemed bears to the number of initial
shares outstanding at the time of redemption.
Distributions to Shareholders
Dividends from net investment income, if available, are declared and
paid annually for the Opportunity Growth, 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, 1997,
accumulated net realized gain or loss from the sale of investments was
increased (decreased) by ($2,025,853), ($238,256), ($3,890,000),
($500,000), ($17,563), and $7,342, respectively, for the Opportunity
Growth, World Growth, LB Fund, High Yield, Income and Municipal Bond
Funds; undistributed net investment income was increased (decreased)
by $1,650,853, $188,256, $17,563, and ($7,342), respectively, for the
Opportunity Growth, World Growth, Income and Municipal Bond Funds; and
net increases of $375,000, $50,000, $3,890,000, and $500,000,
respectively, for the Opportunity Growth, World 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.
Other
Investment transactions are accounted for on the date the investments
are purchased or sold. 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.
Each Fund is charged for the operating expenses that are directly
attributable to it. Fund operating expenses that cannot be directly
attributable to a Fund are either shared equally or allocated among
them based on the relative net assets of each Fund or via other
methodologies.
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. (LBRC), the Trust's
investment advisor, a fee for its advisory services. The fees are
accrued daily and paid monthly. The fees are based on the following
annual rates of average daily net assets: Opportunity Growth Fund,
0.75% for the first $100 million, 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.
LBRC has entered into a sub-advisory agreement with Rowe Price -
Fleming International, Inc. for the performance of various sub-
advisory services for the World Growth Fund. For these services, LBRC
pays an annual sub-advisory fee equal to 0.50% of all of the World
Growth Fund's annual average daily net assets.
Effective January 1, 1997, LBRC 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. Expense reimbursements amounted to $385,904, $328,810, $333,931
and $247,844 respectively, for the aforementioned Funds through
October 31, 1997. The Money Market Fund advisory fees totaled
$2,210,254 of which $435,799 were voluntarily waived by LBRC to limit
the Money Market Fund's expense ratio to 0.95% of its average daily
net assets. The Mid Cap Growth Fund advisory fees totaled $21,586 of
which $7,357 were voluntarily waived by LBRC to limit the Mid Cap
Growth Fund's expense ratio to 1.95% of its average daily net assets.
LBRC can terminate its voluntary waiver of expenses for these Funds at
any time at its discretion.
Sales Charges and Other Fees
For the year ended October 31, 1997, Lutheran Brotherhood Securities
Corp. (LBSC), the Trust's distributor, received sales charges paid by
purchasers of Fund shares of: Opportunity Growth Fund, $1,724,236; Mid
Cap Growth Fund, $278,924; World Growth Fund, $637,128; LB Fund,
$2,613,029; High Yield Fund, $3,716,291; Income Fund, $905,599; and
Municipal Bond Fund, $689,914. Sales charges are not an expense of the
Trust and are not reflected in the financial statements of any of the
Funds.
LBSC also received fees pursuant to an agreement to provide certain
administrative personnel and services to the Funds. Effective January
1, 1997, a new agreement went into effect whereby LBSC will receive an
annual fee equal to 0.02% of average daily net assets. LBSC received
the following compensation for the year ended October 31, 1997:
Opportunity Growth Fund, $55,875; Mid Cap Growth Fund, $617; World
Growth Fund, $13,826; LB Fund, $184,583; High Yield Fund, $158,365;
Income Fund, $166,209; Municipal Bond Fund, $122,078; and Money Market
Fund, $90,172.
In addition, LBSC provides the Funds with transfer agent services
pursuant to an agreement and received the following compensation:
Opportunity Growth Fund, $1,147,649; Mid Cap Growth Fund, $21,145;
World Growth Fund, $311,027; LB Fund, $1,791,020; High Yield Fund,
$1,205,817; Income Fund, $1,275,325; Municipal Bond Fund, $492,743;
and Money Market Fund, $1,383,639.
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 LBRC and LBSC; however, they receive no compensation
from the Funds.
(4) Securities Lending
To generate additional income, the Funds may participate in a
securities lending program administered by the Fund's custodian bank.
Securities are periodically loaned to brokers, banks or other
institutional borrowers of securities, for which collateral in the
form of cash, U.S. government securities, or letter of credit is
received by the custodian in an amount at least equal to the market
value of securities loaned. Collateral received in the form of cash is
invested in short-term investments by the custodian from which
earnings are shared between the borrower, the custodian and the Fund
at negotiated rates. The Fund bears the risk that it may experience
delays in recovery or even loss of rights in the collateral should the
borrower of securities fail financially. There were no security loans
during the year ended October 31, 1997.
(5) Distributions From Capital Gains
During the year ended October 31, 1997, distributions from net
realized capital gains of $29,849,878, $247,812, $58,599,470 and
$2,451,356, were paid by the LB Opportunity 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, 1996.
(6) Capital Loss Carryover
At October 31, 1997, the LB Income Fund and the LB Municipal Bond Fund
had accumulated net realized capital loss carryovers expiring as
follows:
Income Municipal Bond
Year Fund Fund
- ----- ----------- --------------
2002 $37,081,944 $3,461,322
2003 -- 134,719
2004 8,472,280 --
----------- ----------
Total $45,554,224 $3,596,041
=========== ==========
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 $1,001,322, $13,233, $184,189,
$323,286, $1,061,368, $267,574, and $2,233,555 existed between net
realized capital gains or losses for financial statement and tax
purposes as of October 31, 1997 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.
(7) Shareholder Notification of
Federal Income Tax Status
The LB Fund designates 100% of the dividends declared from net
investment income as dividends qualifying for the 70% corporate
dividends received deduction and the Municipal Bond Fund designates
100% of the dividends declared from net investment income as exempt
from federal income tax for the year ended October 31, 1997. The
Opportunity Growth Fund, World Growth Fund, LB Fund, and the High
Yield Fund designate $244,225, $70,859, $3,922,065, and $97,984,
respectively, as capital gain distributions resulting from earnings
and profits distributed to shareholders on redemption of fund shares
during the year.
(8) Investment Transactions
Purchases and Sales of Investment Securities
For the year ended October 31, 1997, 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 $368,184 $345,547
Mid Cap Growth Fund 19,153 6,382
World Growth Fund 27,303 10,814
LB Fund 475,292 494,770
High Yield 955,836 828,473
Income 462,932 478,979
Municipal Bond 107,111 142,768
Purchases and sales of U.S. Government securities were:
$(thousands)
------------------------------------
Fund Purchases Sales
- --------------------------------------------------------
LB Fund $12,361 $15,790
Income 265,304 441,228
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 $519,632 at October 31, 1997, which
represented 0.1% 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. These securities will typically be in the lower rating
categories or will be non-rated and generally will involve more risk
than securities in the higher rating categories. Lower rated or
unrated securities are more likely to react to developments affecting
market risk and credit risk than are more highly rated securities,
which react primarily to movements in the general level of interest
rates.
Investments in Options and Futures Contracts
The movement in the price of the instrument underlying an option or
futures contract may not correlate perfectly with the movement in the
prices of the portfolio securities being hedged. A lack of correlation
could render the Fund's hedging strategy unsuccessful and could result
in a loss to the Fund. In the event that a liquid secondary market
would not exist, the Fund could be prevented from entering into a
closing transaction which could result in additional losses to the
Fund.
Open Option Contracts
The number of contracts and premium amounts associated with call option
contracts written during the year ended October 31, 1997 were as follows:
<TABLE>
<CAPTION>
Opportunity Growth LB Fund Income Fund Municipal Bond
---------------------- ---------------------- ---------------------- ----------------------
Number of Premium Number of Premium Number of Premium Number of Premium
Contracts Amount Contracts Amount Contracts Amount Contracts Amount
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1996 -- -- -- -- 400 $142,648 -- --
Opened 3,899 $1,345,787 520 $81,896 2,734 982,191 200 $66,636
Closed (820) (271,674) (520) (81,896) (1,934) (737,882) (200) (66,636)
Expired (443) (102,228) -- -- (800) (253,685) -- --
Exercised (845) (220,754) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at October 31, 1997 1,791 $751,131 -- $-- 400 $133,272 -- $--
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
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.
(9) Shares of Beneficial Interest
The Master Trust Agreement permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest ($0.001
par value) of all of the Funds. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
Lutheran Brotherhood Opportunity Growth Fund
Class A Class B (*) Institutional Class (*)
----------------------------- ---------------------------- ----------------------------
Year Ended October 31, 1996 Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Sold 6,711,097 $89,874,940 -- -- -- --
Dividends and distributions
reinvested 2,801,319 33,057,094 -- -- -- --
Redeemed (1,973,395) (26,557,877) -- -- -- --
------------ ------------ ------------ ----------- ------------ -----------
Net Change 7,539,021 $96,374,157 -- -- -- --
============ ============ ============ =========== ============ ===========
Year Ended October 31, 1997
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
============ ============ ============ =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Mid Cap Growth Fund
For the period from May 30, 1997
(effective date) through October 31, 1997
Class A Class B (*) Institutional Class (*)
----------------------------- ---------------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
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
============ ============ ============ =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood World Growth Fund
Class A Class B (*) Institutional Class (*)
----------------------------- ---------------------------- ----------------------------
Year Ended October 31, 1996 Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Sold 4,309,447 $39,161,715 -- -- -- --
Dividends and distributions
reinvested 2,995 26,205 -- -- -- --
Redeemed (381,546) (3,535,813) -- -- -- --
------------ ------------ ------------ ----------- ------------ -----------
Net Change 3,930,896 $35,652,107 -- -- -- --
============ ============ ============ =========== ============ ===========
Year Ended October 31, 1997
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
============ ============ ============ =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Fund
Class A Class B (*) Institutional Class (*)
----------------------------- ---------------------------- ----------------------------
Year Ended October 31, 1996 Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Sold 3,864,306 $84,069,262 -- -- -- --
Dividends and distributions
reinvested 2,392,606 49,537,622 -- -- -- --
Redeemed (3,398,596) (74,142,527) -- -- -- --
------------ ------------ ------------ ----------- ------------ -----------
Net Change 2,858,316 $59,464,357 -- -- -- --
============ ============ ============ =========== ============ ===========
Year Ended October 31, 1997
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
============ ============ ============ =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood High Yield Fund
Class A Class B (*) Institutional Class (*)
----------------------------- ---------------------------- ----------------------------
Year Ended October 31, 1996 Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Sold 15,831,978 $145,880,542 -- -- -- --
Dividends and distributions
reinvested 4,373,177 40,091,272 -- -- -- --
Redeemed (9,697,248) (89,354,662) -- -- -- --
------------ ------------ ------------ ----------- ------------ -----------
Net change 10,507,907 $96,617,152 -- -- -- --
============ ============ ============ =========== ============ ===========
Year Ended October 31, 1997
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
============ ============ ============ =========== ============ ===========
(*) Transactions in Class B and Institutional Class shares recorded
by the Fund on October 31, 1997, the inception date of the new
offerings.
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Income Fund
Class A Class B (*) Institutional Class (*)
----------------------------- ---------------------------- ----------------------------
Year Ended October 31, 1996 Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Sold 6,482,945 $55,392,852 -- -- -- --
Dividends and distributions
reinvested 5,621,887 47,792,081 -- -- -- --
Redeemed (17,687,759) (150,402,163) -- -- -- --
------------ ------------ ------------ ----------- ------------ -----------
Net Change (5,582,927) $(47,217,230) -- -- -- --
============ ============ ============ =========== ============ ===========
Year Ended October 31, 1997
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
============ ============ ============ =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Lutheran Brotherhood Municipal Bond Fund
Class A Class B (*) Institutional Class (*)
----------------------------- ---------------------------- ----------------------------
Year Ended October 31, 1996 Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Sold 4,807,171 $41,275,499 -- -- -- --
Dividends and distributions
reinvested 2,755,029 23,551,470 -- -- -- --
Redeemed (9,927,341) (85,013,361) -- -- -- --
------------ ------------ ------------ ----------- ------------ -----------
Net Change (2,365,141) $(20,186,392) -- -- -- --
============ ============ ============ =========== ============ ===========
Year Ended October 31, 1997
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
============ ============ ============ =========== ============ ===========
</TABLE>
Lutheran Brotherhood Money Market Fund
<TABLE>
<CAPTION>
Class A Class B (*) Institutional Class (*)
----------------------------- ---------------------------- ----------------------------
Year Ended October 31, 1996 Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Sold 692,236,105 $692,236,105 -- -- -- --
Dividends and distributions
reinvested 17,063,037 17,063,037 -- -- -- --
Redeemed (632,774,820) (632,774,820) -- -- -- --
------------ ------------ ------------ ----------- ------------ -----------
Net Change 76,524,322 $76,524,322 -- -- -- --
============ ============ ============ =========== ============ ===========
Year Ended October 31, 1997
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
============ ============ ============ =========== ============ ===========
</TABLE>
(*) Transactions in Class B and Institutional Class shares recorded
by the Fund on October 31, 1997, the inception date of the new
offerings.
(10) Financial Highlights
"Financial highlights" showing per share data and selected information
is presented in the prospectus.
The Lutheran Brotherhood Family of Funds
Lutheran Brotherhood Opportunity Growth Fund
Lutheran Brotherhood 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
Charles W. Arnason
Herbert F. Eggerding, Jr.
Noel K. Estenson
Connie M. Levi
Bruce J. Nicholson
Ruth E. Randall
Officers
Rolf F. Bjelland Wade M. Voigt
Chairman and President Treasurer
James R. Olson Rand E. Mattsson
Vice President Assistant Treasurer
James M. Walline James M. Odland
Vice President Assistant Secretary
Otis F. Hilbert Randall L. Wetherille
Secretary and Vice President Assistant Secretary
Richard B. Ruckdashel
Vice President
This report is authorized for distribution to prospective
investors only when preceded or accompanied by the
current prospectuses.
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 1-800-328-4552.
[LUTHERAN BROTHERHOOD LOGO]
LUTHERAN BROTHERHOOD
SECURITIES CORP.
625 Fourth Avenue South
Minneapolis, MN 55415
[GRAPHIC OF RECYCLE LOGO OMITTED]
Printed with soy based inks on recycled
paper containing at least 10% fibers
from paper recycled by consumers.
#14042
Exhibit 10
The Lutheran Brotherhoof Family of Funds
625 Fourth Avenue South
Minneapolis, Minnesota 55415
May 13, 1998
The Lutheran Brotherhoof Family of Funds
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Gentlemen:
As counsel to the Lutheran Brotherhood Family of Funds, a business trust
organized under the laws of the State of Delaware (the "Trust"), I have been
asked to render an opinion in connection with Post-Effective Amendment No.
63 under the Securities Act of 1933 to the Registration Statement on Form N-
1A (Securities Act File No. 2-25984) to be filed by the Trust with the
Securities and Exchange Commission (as amended, the "Registration
Statement").
I wish to advise you that I have examined such documents and questions of
law as I have deemed necessary for purposes of this opinion. Based upon the
foregoing, I am of the opinion that:
1. The Trust has been duly organized and is validly existing pursuant to
the laws of the State of Delaware;
2. In its pre-effective Registration Statement, the Trust elected to
register an indefinite number of shares pursuant to the provision of Rule
24f-2; and
3. The shares of beneficial interest of the Funds which are described in
the foregoing Registration Statement will, when sold in accordance with the
terms of the Prospectus and Statement of Additional Information in effect at
the time of the sale, be legally issued, fully paid and non-assessable by
the Trust.
I consent to this opinion being filed as an exhibit to the foregoing
Registration Statement.
Sincerely,
/s/ John C. Bjork
John C. Bjork
Counsel
JCB:jkr\#20940
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-
Effective Amendment No. 63 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated December 12, 1997 relating to
the financial statements and financial highlights appearing in the October
31, 1997 Annual Report to Shareholders of the Lutheran Brotherhood Family of
Funds which is also incorporated by reference into the Registration
Statement. We also consent to the references to us under the headings
"Financial Highlights" and "Independent Accountants" in the Prospectus and
under the heading "Independent Accountants" in the Statement of Additional
Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Minneapolis, Minnesota
May 13, 1998
#20996
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<NAME> LUTHERAN BROTHERHOOD HIGH YIELD FUND
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<NAME> LUTHERAN BROTHERHOOD MONEY MARKET FUND
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<NAME> LUTHERAN BROTHERHOOD WORLD GROWTH FUND
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