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LUTHERAN BROTHERHOOD
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FAMILY OF FUNDS
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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
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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*
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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.
SC92SH
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 288,569
<INVESTMENTS-AT-VALUE> 316,507
<RECEIVABLES> 925
<ASSETS-OTHER> 987
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 318,419
<PAYABLE-FOR-SECURITIES> 6,384
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 611
<TOTAL-LIABILITIES> 6,995
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 273,657
<SHARES-COMMON-STOCK> 24,005
<SHARES-COMMON-PRIOR> 19,515
<ACCUMULATED-NII-CURRENT> (3)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,514
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28,256
<NET-ASSETS> 311,424
<DIVIDEND-INCOME> 399
<INTEREST-INCOME> 1,471
<OTHER-INCOME> 0
<EXPENSES-NET> 3,523
<NET-INVESTMENT-INCOME> (1,653)
<REALIZED-GAINS-CURRENT> 11,991
<APPREC-INCREASE-CURRENT> 13,348
<NET-CHANGE-FROM-OPS> 23,685
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 29,850
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,176
<NUMBER-OF-SHARES-REDEEMED> 4,241
<SHARES-REINVESTED> 2,556
<NET-CHANGE-IN-ASSETS> 45,586
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 29,400
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,868
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,523
<AVERAGE-NET-ASSETS> 273,913
<PER-SHARE-NAV-BEGIN> 13.62
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> 0.91
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 1.49
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.97
<EXPENSE-RATIO> 1.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> LUTHERAN BROTHERHOOD FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 754,146
<INVESTMENTS-AT-VALUE> 986,629
<RECEIVABLES> 32,996
<ASSETS-OTHER> 98
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,019,723
<PAYABLE-FOR-SECURITIES> 29,633
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 283
<TOTAL-LIABILITIES> 29,916
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 661,072
<SHARES-COMMON-STOCK> 36,690
<SHARES-COMMON-PRIOR> 33,322
<ACCUMULATED-NII-CURRENT> 380
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 95,871
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 232,483
<NET-ASSETS> 989,807
<DIVIDEND-INCOME> 13,120
<INTEREST-INCOME> 1,686
<OTHER-INCOME> 0
<EXPENSES-NET> 7,951
<NET-INVESTMENT-INCOME> 6,855
<REALIZED-GAINS-CURRENT> 99,986
<APPREC-INCREASE-CURRENT> 101,726
<NET-CHANGE-FROM-OPS> 208,567
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,141
<DISTRIBUTIONS-OF-GAINS> 58,599
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,750
<NUMBER-OF-SHARES-REDEEMED> 4,179
<SHARES-REINVESTED> 2,797
<NET-CHANGE-IN-ASSETS> 220,964
<ACCUMULATED-NII-PRIOR> 666
<ACCUMULATED-GAINS-PRIOR> 58,374
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,687
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,337
<AVERAGE-NET-ASSETS> 906,124
<PER-SHARE-NAV-BEGIN> 23.07
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 5.68
<PER-SHARE-DIVIDEND> 0.20
<PER-SHARE-DISTRIBUTIONS> 1.76
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.98
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> LUTHERAN BROTHERHOOD HIGH YIELD FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 832,313
<INVESTMENTS-AT-VALUE> 852,055
<RECEIVABLES> 27,808
<ASSETS-OTHER> 1,408
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 881,271
<PAYABLE-FOR-SECURITIES> 18,100
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 221
<TOTAL-LIABILITIES> 18,321
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 824,942
<SHARES-COMMON-STOCK> 90,114
<SHARES-COMMON-PRIOR> 76,324
<ACCUMULATED-NII-CURRENT> 2,736
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15,530
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,742
<NET-ASSETS> 862,950
<DIVIDEND-INCOME> 6,791
<INTEREST-INCOME> 70,520
<OTHER-INCOME> 0
<EXPENSES-NET> 6,515
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> LUTHERAN BROTHERHOOD INCOME FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
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<NUMBER-OF-SHARES-SOLD> 3,954
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<SHARES-REINVESTED> 2,700
<NET-CHANGE-IN-ASSETS> (17,610)
<ACCUMULATED-NII-PRIOR> 1,804
<ACCUMULATED-GAINS-PRIOR> (7,989)
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<AVERAGE-NET-ASSETS> 597,646
<PER-SHARE-NAV-BEGIN> 8.6
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<EXPENSE-RATIO> 0.70
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> LUTHERAN BROTHERHOOD MONEY MARKET FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 467,939
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<SHARES-COMMON-PRIOR> 417,609
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<PER-SHARE-NAV-BEGIN> 1.00
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<PER-SHARE-NAV-END> 1.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> LUTHERAN BROTHERHOOD WORLD GROWTH FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 69,492
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 5,585
<ACCUMULATED-NII-CURRENT> 304
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 869
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<ACCUM-APPREC-OR-DEPREC> 5,243
<NET-ASSETS> 75,132
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<EXPENSES-NET> 1,234
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<SHARES-REINVESTED> 46
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<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,234
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<PER-SHARE-NAV-BEGIN> 9.48
<PER-SHARE-NII> 0.02
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> LUTHERAN BROTHERHOOD MID CAP GROWTH FUND
</SERIES>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> MAY-30-1997
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<ACCUMULATED-NII-CURRENT> (26)
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<ACCUM-APPREC-OR-DEPREC> (108)
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<INTEREST-INCOME> 20
<OTHER-INCOME> 0
<EXPENSES-NET> 60
<NET-INVESTMENT-INCOME> (26)
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<APPREC-INCREASE-CURRENT> (108)
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<NUMBER-OF-SHARES-SOLD> 1,505
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</TABLE>
