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1933 Act File No. 33-3677
1940 Act File No. 811-4603
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____ X
Post-Effective Amendment No. __14__ X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. __16__ X
LB SERIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
625 Fourth Avenue South, Minneapolis, Minnesota 55415
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (612) 340-7215
Otis F. Hilbert, Secretary
LB Series Fund, Inc
625 Fourth Avenue South
Minneapolis, Minnesota 55415
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on (date) pursuant to paragraph (b) of Rule 485
_____ on (date) pursuant to paragraph (a)(i) of Rule 485
_____ on (date) pursuant to paragraph (a)(i) of Rule 485
__X__ 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
_____ on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:
__X__ filed the Notice required by that Rule on February 15, 1995; or
_____ intends to file the Notice required by that Rule on or about (date); or
_____ during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant
to Rule 24f-2(b)(2), need not file the Notice.
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LB SERIES FUND, INC.
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
Part A
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Item Number and Caption Location
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Information Summary
4. General Description of Registrant Summary; Investment Objectives and
Policies of the Portfolios
5. Management of the Fund Management of the Fund
5A. Management's Discussion of Fund Management's Discussion of Portfolio
Performance Performance; Annual Report to
Shareholders.
6. Capital Stock and Other Securities Other Information Concerning the
Fund -- Incorporation and Authorized
Stock; Dividends, Distributions and
Taxes
7. Purchase of Securities Being Purchase and Redemption of Shares;
Offered Determination of Net Asset Value
8. Redemption or Repurchase Purchase and Redemption of Shares
9. Legal Proceedings Not Applicable
PART B
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Fund
13. Investment Objectives and Policies Investment Objectives and Policies
14. Management of the Fund Management of the Fund -- Directors
and Officers of the Fund
15. Control Persons and Principal Control Persons and Principal
Holders of Securities Holders of Securities
16. Investment Advisory and Other Investment Advisory and Other
Services Services
17. Brokerage Allocation Portfolio Brokerage and Related
Practices
18. Capital Stock and Other Securities Capital Stock
19. Purchase, Redemption and Pricing Control Persons and Principal
of Securities Being Offered Holders of Securities; Capital
Stock; Determination of Net Asset
Value
20. Tax Status Tax Status
21. Underwriters Not Applicable
22. Calculations of Performance Data Calculation of Performance
23. Financial Statements To be filed by subsequent amendment.
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
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PROSPECTUS
LB SERIES FUND, INC.
625 Fourth Avenue South * Minneapolis, Minnesota 55415 * (612) 339-8091
LB Series Fund, Inc. (the "Fund") is a diversified, open-end management
investment company (commonly known as a "mutual fund") that is intended to
provide a range of investment alternatives through its four separate
Portfolios, each of which is in effect a separate fund. A separate class of
capital stock will be issued for each Portfolio.
Shares of the Fund are currently sold only to separate accounts (the
"Accounts") of Lutheran Brotherhood and Lutheran Brotherhood Variable
Insurance Products Company ("LBVIP") to fund benefits under variable life
insurance and variable annuity contracts issued by Lutheran Brotherhood and
LBVIP (the "Contracts"). The Accounts invest in shares of the Fund through
subaccounts that correspond to the Portfolios. The Accounts will redeem shares
of the Fund to the extent necessary to provide benefits under the Contracts or
for such other purposes as may be consistent with the Contracts.
The investment objectives of the Portfolios are:
Growth Portfolio. To achieve long-term growth of capital through
investment primarily in common stocks of established corporations that appear
to offer attractive prospects of a high total return from dividends and
capital appreciation.
Opportunity Growth Portfolio. To achieve long term growth of capital by
investing primarily in a professionally managed diversified portfolio of
smaller capitalization common stocks.
World Growth Portfolio. To achieve a high total return from long-term
growth of capital by investing primarily in a professionally managed
diversified portfolio of common stocks of established, non-U.S. companies.
High Yield Portfolio. To achieve a higher level of income through
investment in a diversified portfolio of high yield securities ("junk bonds")
which involve greater risks than higher quality investments. See the
description of such risks in the section of this Prospectus entitled, "High
Yield Portfolio". The Portfolio will also consider growth of capital as a
secondary objective.
Income Portfolio. To achieve a high level of income over the longer term
while providing reasonable safety of capital through investment primarily in
readily marketable intermediate and long-term fixed income securities.
Money Market Portfolio. To achieve the maximum current income that is
consistent with stability of capital and maintenance of liquidity through
investment in high-quality, short-term debt obligations.
Investments in the Money Market Portfolio are neither insured nor
guaranteed by the U.S. Government. There can be no assurance that the
Portfolio will be able to maintain a stable net asset value of $1.00 per
share.
There can be no assurance that the objectives of any Portfolio will be
realized.
This Prospectus sets forth concisely the information about the Fund that
a prospective investor ought to know before investing. This Prospectus should
be read and kept for future reference. Additional information about the Fund,
contained in a Statement of Additional Information dated January 15, 1996 has
been filed with the Securities and Exchange Commission and is available upon
request without charge by writing to LB Series Fund, Inc., 625 Fourth Avenue
South, Minneapolis, Minnesota 55415. The Statement of Additional Information
relating to the Fund having the same date as this Prospectus is incorporated
by reference into this Prospectus. The Statement of Additional Information is
not a Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
____________________________________________
The date of this Prospectus is January 15, 1996.
TABLE OF CONTENTS
Page
SUMMARY
The Fund
Financial Highlights
Management's Discussion of Portfolio Performance
The Accounts and the Contracts
Investment Objectives
Investment Adviser
Purchase and Redemption of Shares
Transfer Agent and Dividend Disbursing Agent
Certain Factors to Consider
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Money Market Portfolio
Income Portfolio
High Yield Portfolio
Growth Portfolio
Opportunity Growth Portfolio
World Growth Portfolio
Put and Call Options
Financial Futures and Options on Futures
Hybrid Investments
Risks of Transactions in Options and Futures
Investment Restrictions Applicable to the
Portfolios
PURCHASE AND REDEMPTION OF SHARES
DETERMINATION OF NET ASSET VALUE
DIVIDENDS, DISTRIBUTIONS AND TAXES
MANAGEMENT OF THE FUND
Directors of the Fund
Investment Adviser
OTHER INFORMATION CONCERNING THE FUND
Incorporation and Authorized Stock
Voting Rights
Calculation of Performance
Comparative Performance
Portfolio Reports
Transfer Agent and Dividend Disbursing Agent
Shareholder Inquiries
DESCRIPTION OF DEBT RATINGS
ADDITIONAL INFORMATION
No person is authorized to give any information or to make any
representations other than those contained in this Prospectus or the
accompanying prospectus relating to the Contracts and, if given or made, such
information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the registered
securities to which it relates. This Prospectus does not constitute an offer
or solicitation in any circumstances in which such offer or solicitation would
be unlawful.
SUMMARY
The Fund
LB Series Fund, Inc. (the "Fund"), a diversified open-end management
investment company, is a Minnesota corporation organized on February 24, 1986.
Prior to January 31, 1994, the Fund was known as LBVIP Series Fund, Inc. The
Fund is made up of six separate Portfolios: the Money Market Portfolio, the
Income Portfolio, the High Yield Portfolio, the Growth Portfolio, the
Opportunity Growth Portfolio, and the World Growth Portfolio. Each Portfolio
is in effect a separate investment fund, and a separate class of capital stock
will be issued with respect to each Portfolio.
Financial Highlights
[Financial Highlights tables to be added by subsequent amendment.]
Management's Discussion of Portfolio Performance
The discussion by management of the performance of each of the Fund's
Portfolio's is contained in the Fund's Annual Report to Shareholders, which
may be obtained without charge by writing to LB Series Fund, Inc., 625 Fourth
Avenue South, Minneapolis, Minnesota 55415.
The Accounts and the Contracts
Shares in the Fund are currently sold only to separate accounts of
Lutheran Brotherhood and Lutheran Brotherhood Variable Insurance Products
Company ("LBVIP") (the "Accounts"), to fund benefits under variable life
insurance and variable annuity contracts issued by Lutheran Brotherhood and
LBVIP (the "Contracts"). Each Contract owner allocates the premiums and the
assets relating to his or her Contract, within the limitations described in
the Contract, among the six subaccounts of that Contract's Account, which in
turn invests in the corresponding Portfolios of the Fund. A prospectus for one
type of Contract accompanies this Prospectus and describes that type of
Contract and the relationship between changes in the value of shares of each
Portfolio and changes in the benefits payable under that type of Contract. The
rights of the Accounts as shareholders should be distinguished from the rights
of Contract owners which are described in the Contracts. The terms
"shareholder" or "shareholders" as used in this Prospectus refer to the
Accounts.
The Fund is designed to provide an investment vehicle for variable life
insurance and variable annuity contracts. Therefore, shares of the Fund will
be sold to more than one insurance company separate accounts of Lutheran
Brotherhood and LBVIP or any of their affiliates. It is conceivable that in
the future it may be disadvantageous for both variable life insurance separate
accounts and variable annuity separate accounts to invest simultaneously in
the Fund, although Lutheran Brotherhood and LBVIP do not foresee any such
disadvantage to either variable life insurance or variable annuity contract
owners. The management of the Fund intends to monitor events in order to
identify any material conflicts between such Contract owners and to determine
what action, if any, should be taken in response. In addition, if Lutheran
Brotherhood and LBVIP believe the Fund's response to any such events or
conflicts insufficiently protects Contract owners, they will take appropriate
action of their own.
Investment Objectives
The investment objective of each of the six Portfolios is set forth on
the cover page of this Prospectus. See also "Investment Objectives and
Policies of the Portfolios".
Investment Adviser
Lutheran Brotherhood (the "Adviser") is the investment adviser of the
Fund. The Adviser was founded in 1917 as a fraternal benefit society, owned by
and operated for its members, under the laws of Minnesota The Adviser has
been engaged in the investment advisory business since 1970, either directly
or through the indirect ownership of Lutheran Brotherhood Research Corp.
("LBRC"), the Fund's investment adviser prior to January 31, 1994. LBVIP is an
indirect subsidiary of Lutheran Brotherhood.
For its services, the Adviser receives from the Fund a daily investment
advisory fee equal to an annual rate of .40% of the aggregate average daily
net assets of the Money Market, Income, High Yield, Growth, and Opportunity
Growth Portfolios. Lutheran Brotherhood also receives an annual investment
advisory fee from the Fund equal to .85% of the aggregate average daily net
assets of the World Growth Portfolio.
Lutheran Brotherhood has engaged Rowe Price-Fleming International, Inc.,
("Price-Fleming") as investment sub-advisor for the World Growth Portfolio.
Price-Fleming was founded in 1979 as a joint venture between T. Rowe Price
Associates, Inc. and Robert Fleming Holdings Limited. Price-Fleming is one of
the world's largest international mutual fund asset managers with
approximately $17 billion under management as of December 31, 1994 in its
offices in Baltimore, London, Tokyo and Hong Kong. Price-Fleming has an
investment advisory group that has day-to-day responsibility for managing the
World Growth Portfolio and developing and executing the Portfolio's investment
program.
Lutheran Brotherhood pays the Sub-advisor for the World Growth Portfolio
an annual sub-advisory fee for the performance of sub-advisory services. The
fee payable is equal to a percentage of the that Portfolio's average daily net
assets. The percentage varies with the size of Portfolio's net assets,
decreasing as the Portfolio's assets increase. The formula for determining the
sub-advisory fee is described fully in the section of the Prospectus entitled,
"Management of the Fund--Investment Adviser".
The Porfolio managers of the Money Market, Income, High Yield, Growth and
Opportunity Growth Portfolios, as well as the members of the Price-Fleming
advisory group for the World Growth Portfolio are listed in the "Management of
the Fund--Investment Adviser" section of the Prospectus.
Purchase and Redemption of Shares
Shares are currently offered, without sales charge, at prices equal to
the respective per share net asset values of the Portfolios. The Fund is
required to redeem all full and fractional shares of the Fund at the net asset
value per share next determined after the initial receipt of proper notice of
redemption. See "Purchase and Redemption of Shares".
Transfer Agent and Dividend Disbursing Agent
State Street Bank and Trust Company is the Fund's transfer agent and
dividend disbursing agent, and is also custodian of the assets of the Fund.
See "Other Information Concerning the Fund-- "Transfer Agent and Dividend
Disbursing Agent".
Certain Factors to Consider
Certain investment practices that may, to a limited extent, be employed
by the Fund in support of its basic investment objectives may involve certain
special risks. See, for example, the discussion of repurchase agreements,
reverse repurchase agreements and when-issued and delayed delivery securities
under "Investment Objectives and Policies of the Portfolios--Money Market
Portfolio"; certain other risks that may be associated with investments by the
Fund are described in the Statement of Additional Information.
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Each of the six Portfolios seeks to achieve a different investment
objective. Accordingly, each Portfolio can be expected to have different
investment results and to be subject to different financial and market risks.
Financial risk refers to the ability of an issuer of a debt security to pay
principal and interest, and to the earnings stability and overall financial
soundness of an issuer of an equity security. Market risk refers to the degree
to which the price of a security will react to changes in conditions in
securities markets in general, and, with particular reference to debt
securities, to changes in the overall level of interest rates.
The investment objectives of each Portfolio are fundamental and may not
be changed without the approval of the holders of a majority of the
outstanding shares of the Portfolio affected (which for this purpose and under
the Investment Company Act of 1940 means the lesser of (a) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (b) more than 50% of the outstanding shares). The policies by
which a Portfolio seeks to achieve its investment objectives, however, are not
fundamental. They may be changed by the Board of Directors of the Fund without
the approval of the shareholders. The investment objectives of the Portfolios
are discussed below.
Money Market Portfolio
The objective of this Portfolio is to achieve, through investment in
high-quality, short-term debt obligations, the maximum current income that is
consistent with stability of capital and maintenance of liquidity.
The Money Market Portfolio seeks to achieve this objective by following
the policy of investing primarily in money market instruments denominated in
U.S. dollars that mature in one year or less from the date the Portfolio
acquires them. Money market instruments include short-term obligations of the
U.S. Government, its agencies or instrumentalities, foreign governments, their
agencies and instrumentalities, and of banks and corporations. They include
certificates of deposit, commercial paper and other obligations, including
variable amount demand master notes. This Portfolio may also enter into
repurchase and reverse repurchase agreements and may purchase and sell
securities on a when-issued and delayed delivery basis; these securities are
described in detail below. A detailed description of the money market
instruments in which this Portfolio may invest and of the risks associated
with those instruments may be found in the Statement of Additional
Information. The dollar-weighted average life to maturity of the securities
held by the Portfolio will not exceed 90 days.
Variable amount demand master notes purchased by the Money Market
Portfolio are issued by domestic or foreign governments, their agencies and
instrumentalities, and corporations which, at the date of investment, either
(a) have an outstanding senior long-term debt issue rated "Aa" or better by
Moody's Investors Service, Inc. ("Moody's") or "AA" or better by Standard &
Poor's Corporation ("S&P"), or (b) do not have rated long-term debt
outstanding but have commercial paper rated at least Prime-2 by Moody's or A-2
by S&P. The Money Market Portfolio may also invest in variable amount demand
master notes if (a) such securities have a high quality short-term debt rating
from an unaffiliated, nationally recognized statistical rating organization
or, if not rated, such securities are of comparable quality as determined by
management of the Fund, and (b) the demand feature of such securities
described below is unconditional, that is, exercisable even in the event of a
default in the payment of principal or interest on the underlying securities.
Variable amount demand master notes are unsecured obligations with no stated
maturity date that permit the investment by the Portfolio of amounts that may
fluctuate daily, at varying rates of interest pursuant to direct arrangements
between the Portfolio and the issuer. The Portfolio may, on demand, require
the issuer to redeem the notes; however, these obligations are not readily
marketable to third parties. They will not be purchased unless the Adviser has
determined that the issuer's liquidity is such as to enable it to pay the
principal and interest immediately upon demand. These notes generally will not
be backed by bank letters of credit, and will be valued by the Adviser on an
amortized cost basis (see "Determination of Net Asset Value"). The liquidity
of the issuers of such notes held by the Portfolio will be continually
assessed by the Adviser for purposes of determining whether the Portfolio
should continue to hold such notes.
When the Money Market Portfolio purchases money market securities of the
types described above, it may on occasion enter into a repurchase agreement
with the seller wherein the seller and the buyer agree at the time of sale to
a repurchase of the security at a mutually agreed upon time and price. The
period of maturity is usually quite short, possibly overnight or a few days,
although it may extend over a number of months. The resale price is in excess
of the purchase price, reflecting an agreed-upon market rate of interest
effective for the period of time the Portfolio's money is invested in the
security, and is not related to the coupon rate of the purchased security.
Repurchase agreements may be considered loans of money to the seller of the
underlying security, which are collateralized by the securities underlying the
repurchase agreements. The Fund will not enter into a repurchase agreement
unless the agreement is "fully collateralized", i.e., the value of the
securities is, and during the entire term of the agreement remains, at least
equal to the amount of the "loan" including accrued interest. The Portfolio
will take possession of the securities underlying the agreement and will value
them periodically to assure that this condition is met. Possession may include
entries made in favor of the Portfolio in a book-entry system. The Fund has
adopted standards for the parties with whom it will enter into repurchase
agreements which it believes are reasonably designed to assure that such a
party presents no serious risk of becoming involved in bankruptcy proceedings
within the time frame contemplated by the repurchase agreement. In the event
that a seller defaults on a repurchase agreement, the Fund may incur a loss on
disposition of the collateral; and, if a party with whom the Fund had entered
into a repurchase agreement becomes involved in bankruptcy proceedings, the
Fund's ability to realize on the collateral may be limited or delayed. The
Fund will not enter into repurchase agreements with the Adviser or its
affiliates. This will not affect the Fund's ability to maximize its
opportunities to engage in repurchase agreements.
The Portfolio may enter into reverse repurchase agreements, which
agreements have the characteristics of borrowing and involve the sale of
securities held by the Portfolio with an agreement to repurchase the
securities at an agreed-upon price and date, which reflect a rate of interest
paid for the use of funds for the period. Generally, the effect of such a
transaction is that the Portfolio can recover all or most of the cash invested
in the securities involved during the term of the reverse repurchase
agreement, while in many cases it will be able to keep some of the interest
income associated with those securities. Such transactions are only
advantageous if the Portfolio has an opportunity to earn a greater rate of
interest on the cash derived from the transaction than the interest cost of
obtaining that cash. The Portfolio may be unable to realize a return from the
use of the proceeds equal to or greater than the interest required to be paid.
Opportunities to achieve this advantage may not always be available, and the
Portfolio intends only to use the reverse repurchase technique when it appears
to be to its advantage to do so. The use of reverse repurchase agreements may
magnify any increase or decrease in the value of the Portfolio's securities.
When effecting reverse repurchase agreements and delayed delivery transactions
(see the following paragraph), assets of the Fund in a dollar amount
sufficient to make payment for the obligations to be purchased are segregated
on the Fund's records at the trade date and maintained until the transaction
is settled. The value of the securities subject to reverse repurchase
agreements will not exceed 10% of the value of the Portfolio's net assets.
From time to time, in the ordinary course of business, the Money Market
Portfolio may purchase securities on a when-issued or delayed delivery basis,
i.e., delivery and payment can take place as much as a month or more after the
date of transaction. The purchase price and the interest rate payable on the
securities are fixed on the transaction date. The securities so purchased are
subject to market fluctuation, and no interest accrues to the Portfolio until
delivery and payment take place. At the time the Portfolio makes the
commitment to purchase securities on a when-issued or delayed delivery basis,
it will record the transaction and thereafter reflect the value, each day, of
such securities in determining its net asset value. The Portfolio will make
commitments for when-issued transactions with the intention of actually
acquiring the securities or for the purpose of generating incremental income.
In some instances, the third party seller of the when-issued or delayed-
delivery securities may determine prior to the settlement date that it will be
unable or unwilling to meet its existing transaction commitments without
borrowing securities. If advantageous from a yield perspective, the Portfolio
may, in that event, agree to resell its purchase commitment to a third-party
seller at the current market price on the date of sale and concurrently enter
into another purchase commitment for such securities at a later date. As an
inducement for the Portfolio to "roll over" its purchase commitment, the
Portfolio may receive a negotiated fee. If the Portfolio chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it
could, as with the disposition of any other obligation, incur a gain or loss
due to market fluctuation. No when-issued commitments will be made if, as a
result, more than 15% of the Portfolio's net assets would be so committed.
The Portfolio may as a hedge engage in certain options and financial
futures transactions (see "Put and Call Options" and "Financial Futures and
Options on Futures").
Because of the high-quality, short-term nature of the Money Market
Portfolio's holdings, increases in the value of an investment in this
Portfolio will be derived almost entirely from interest on the securities held
by it.
Income Portfolio
The objective of this Portfolio is to achieve a high level of income over
the longer term while providing reasonable safety of capital through
investment primarily in readily marketable intermediate and long-term fixed
income securities.
The Income Portfolio seeks to achieve this objective by purchasing
primarily investment grade debt securities or, if not rated, securities of
comparable quality in the opinion of the Adviser. Investment grade debt
securities are bonds, notes, debentures, mortgage-backed securities, and other
debt obligations rated "Baa" or higher by Moody's, "BBB" or higher by S&P, or
a similar rating by a nationally-recognized statistical rating organization. A
description of the ratings that are given to debt securities by Moody's and
S&P and the standards applied by them in assigning these ratings may be found
at the end of this Prospectus.
The Income Portfolio may also invest, without limitation, in obligations
of the U.S. Government and its agencies and instrumentalities.
The Portfolio may from time to time invest in debt securities that are not
rated as investment grade. For a description of the risks of investing in such
securities, see the section of this Prospectus entitled "High Yield Securities
Investment Risks." It may also invest in convertible debt securities,
preferred stock, or convertible preferred stock. Occasionally, debt securities
are offered in units together with common stock or warrants for the purchase
of common stock. These securities may be purchased for this Portfolio, but
only when the debt security meets the Portfolio's investment criteria and the
value of the warrants is relatively small. If a warrant becomes valuable, it
will ordinarily be sold rather than exercised. The Portfolio may, however,
occasionally acquire some common stock through the conversion of convertible
securities, the exercise of warrants, or as part of an offering of units which
include both debt securities and common stocks. No more than 10% of the value
of the total assets of this Portfolio will be held in common stocks, and those
will usually be sold as soon as favorable opportunity is available.
Furthermore, no more than 25% of the value of the total assets of this
Portfolio will be held in securities described in this paragraph.
The Portfolio may engage in repurchase agreements, reverse repurchase
agreements, and when-issued and delayed delivery transactions in pursuit of
its investment objectives. (See the section above on the investment objectives
and policies of the Money Market Portfolio for a description of such
transactions.)
The Portfolio may also invest in common stocks, warrants to purchase
stocks, bonds or preferred stock convertible into common stock, and other
equity securities. Investments in such securities will be made in pursuit of
the income and preservation of capital objectives of the Portfolio, but at no
time will the Portfolio invest more than 20% of its total assets in equity
securities.
The Portfolio may as a hedge engage in certain options and financial
futures transactions (see "Put and Call Options" and "Financial Futures and
Options on Futures").
From time to time the Portfolio may invest in short-term debt obligations
of the kind held in the Money Market Portfolio in order to make effective use
of cash reserves pending investment in other securities or as a defensive
investment strategy to protect the value of portfolio assets during periods of
rising interest rates.
The annual portfolio turnover rates for the Portfolio for the fiscal years
ended December 31, 1994 and December 31, 1993 were 139% and 153%,
respectively.
In order to help minimize credit risk, the Portfolio diversifies its
holdings among many issuers. As of December 31, 1994, the Portfolio held
securities of 53 corporate and government issuers, and the Portfolio's
holdings had the following credit quality characteristics:
Percent of
Investment Net Assets
Short-term securities--
Aaa equivalent................................ 17.1%
Government obligations............................... 46.2
Corporate obligations
AAA/Aaa....................................... 17.6
AA/Aa......................................... 10.1
A/A........................................... 8.2
BBB/Baa....................................... 4.5
BB/Ba......................................... 2.6
B/B........................................... 4.2
CCC/Caa....................................... --
CC/Ca......................................... --
D/D........................................... --
Not rated..................................... --
Other Net Assets/Liabilities..................-10.5
Total 100.0%
High Yield Portfolio
The primary objective of this Portfolio is to achieve a higher level of
income by investing primarily in a diversified portfolio of high yield
securities, many of which involve greater risks than higher quality
investments. The Portfolio will also consider growth of capital as a secondary
objective.
The High Yield Portfolio seeks to achieve its objectives by investing
primarily in high yield bonds, notes, debentures, and other income producing
debt obligations and dividend paying preferred stock. The Portfolio will
ordinarily invest in securities that are rated "Ba" or lower by Moody's, "BB"
or lower by S&P, a similar rating by any other nationally-recognized
statistical rating organization, or, if not rated, securities having
comparable quality in the opinion of the Advisor. The Portfolio will use no
minimum quality rating. Securities having a quality rating of BB or Ba and
lower are considered to be speculative and have a greater degree of risk than
investment grade securities. See "High Yield Portfolio Investment Risks"
below. A description of the ratings that are given to debt securities by
Moody's and S&P and the standards applied by them in assigning these ratings
may be found at the end of this Prospectus.
The Portfolio may also invest in common stocks, warrants to purchase
stocks, bonds or preferred stock convertible into common stock, and other
equity securities. Investments in such securities will be made in pursuit of
the income and capital growth objectives of the Portfolio, but at no time will
the Portfolio invest more than 20% of its total assets in equity securities.
When, in the opinion of the investment adviser, economic or market
conditions are such that high yield investments do not offer the most
attractive means of achieving the Portfolio's objectives of producing income
or growth of capital, the Portfolio may, without limitation, make temporary
defensive investments in cash, obligations of the U.S. Government, debt
obligations that may be rated higher than "Ba" or "BB", or short-term money
market obligations.
The Portfolio may invest in cash and short-term money market obligations
on a temporary basis, when awaiting the availability of suitable high yield
securities.
The Portfolio may also invest without limit in short-term money market
instruments when, in the opinion of the investment adviser, such investments
provide a better opportunity for achieving the Portfolio's objectives than do
longer term investments.
When making short-term money market investments for the defensive purpose
of avoiding the high yield investment market, the Portfolio will use
instruments rated A-1 or A-2 by Standard & Poor's Corporation, Prime-1 or
Prime-2 by Moody's Investors Service, Inc., or F-1 or F-2 by Fitch Investors
Service, or unrated instruments that are determined by the Board of Directors
or its designee to be of a comparable level of quality. When making short-term
money market investments for other purposes described above, the Portfolio
will not be limited to a minimum quality level and may use unrated
instruments.
Types of short-term money market instruments may include repurchase
agreements, certificates of deposit, Eurodollar certificates of deposit,
commercial paper and bankers' acceptances. The Fund's Board of Directors or
their designee will evaluate the creditworthiness of the parties before
entering into repurchase agreements.
The Portfolio may as a hedge engage in certain options and financial
futures transactions (see "Put and Call Options" and "Financial Futures and
Options on Futures").
The Portfolio may also engage in repurchase agreements, reverse
repurchase agreements, and when-issued and delayed delivery transactions in
pursuit of its investment objectives. (See the section above on the investment
objectives and policies of the Money Market Portfolio for a description of
such transactions.)
The Portfolio may make investments in a particular industry that would
result in up to 25% of its total assets being invested in such industry.
The Portfolio does not intend to engage in short-term trading but may
dispose of securities held for a short period if the Fund's investment adviser
believes such disposition to be advisable.
The Portfolio may purchase securities having maturities that are short
term (one year or less), intermediate term (one year to ten years), or long
term (more than ten years). The Portfolio will not be limited in the amount of
assets it may hold at any level of maturity. As market interest rates rise,
the market value of fixed rate debt obligations drops; as market interest
rates drop, the market value of such obligations rise. Debt obligations with
longer maturities will be subject to greater changes in market value if market
interest rates change, than will debt obligations with relatively shorter
maturities.
Changes in the market value of securities owned by the Portfolio will not
affect cash income but will affect the net asset value of the Portfolio's
shares.
The annual portfolio turnover rates for the Portfolio for the fiscal
years ended December 31, 1994 and December 31, 1993 were 44% and 68%,
respectively.
In order to help minimize credit risk, the Portfolio diversifies its
holdings among many issuers. As of December 31, 1994, the Portfolio held
securities of 134 corporate issuers, and the Portfolio's holdings had the
following credit quality characteristics:
Percent of
Investment Net Assets
Short-term securities--
Aaa equivalent.............................. 8.7%
Government obligations............................ --
Corporate obligations
AAA/Aaa..................................... --
AA/Aa....................................... --
A/A......................................... --
BBB/Baa..................................... --
BB/Ba....................................... 8.5
B/B......................................... 46.7
CCC/Caa..................................... 11.3
CC/Ca....................................... 0.8
D/D......................................... --
Not rated................................... 7.4
Other Net Assets............................ 16.6
Total 100.0%
High Yield Portfolio Investment Risks
Investment in high yield securities (sometimes referred to as "junk
bonds") involves a greater degree of risk than investment in high quality
securities. Investment in high yield securities involves increased financial
risk due to the higher risk of default by the issuers of bonds and other debt
securities having quality ratings of "Ba" or lower by Moody's or "BB" or lower
by Standard & Poor's. The higher risk of default may be due to higher debt
leverage ratios, a history of low profitability or losses, or other
fundamental factors that weaken the ability of the issuer to service its debt
obligations.
In addition to the factors of issuer creditworthiness described above,
high yield securities generally involve a number of additional market risks.
These risks include:
Youth and Growth of High Yield Market. The high yield bond market is
relatively new and many of the high yield issues currently outstanding have
not endured a major business recession. In terms of total return on
investment, high yields from lower-rated bonds in diversified portfolios have
usually more than compensated for the higher default rates of such securities.
However, there can be no assurance that this will be true in the event of
increased interest rates or widespread defaults brought about by a sustained
economic downturn.
Sensitivity to Interest Rate and Economic Changes. The market value of high
yield securities has been found to be less sensitive to interest rate changes
on a short-term basis than higher-rated investments, but more sensitive to
adverse economic developments or individual corporate developments. During an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may be more likely to experience financial stress which
would impair their ability to service their principal and interest payment
obligations or obtain additional financing. In the event the issuer of a bond
defaults on payments, the Portfolio may incur additional expenses in seeking
recovery. In periods of economic change and uncertainty, market values of high
yield securities and the Portfolio's asset value may become more volatile.
Furthermore, in the case of zero coupon or payment-in-kind high yield
securities, market values tend to be more greatly affected by interest rate
changes than securities which pay interest periodically and in cash.
Payment Expectations. High yield securities may contain redemption or call
provisions, which allow the issuer to redeem a security in the event interest
rates drop. In this event, the Fund would have to replace the issue with a
lower yielding security, resulting in a decreased yield for investors.
Liquidity and Valuation. High Yield securities tend to be more thinly traded
and are less likely to have an estimated retail secondary market than
investment grade securities. This may adversely impact the Portfolio's ability
to dispose of particular issues and to accurately value securities in the
Portfolio. Also, adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease market values and liquidity,
especially on thinly traded issues.
Taxation. High yield securities structured as zero coupon or payment-in-kind
issues may require the Portfolio to report interest on such securities as
income even though the Portfolio receives no cash interest on such securities
until the maturity or payment date. An investor (in this case a separate
account investing in the Portolfio) would be taxed on this interest even
though the Portfolio may not have received a cash payment or made a cash
distribution.
Reducing Risks of Lower-Rated Securities: The Portfolio's investment adviser
believes that the risks of investing in high yield securities can be reduced
by the use of professional portfolio management techniques including:
Credit Research. The Portfolio's investment adviser will perform its own
credit analysis in addition to using recognized rating agencies and other
sources, including discussions with the issuer's management, the judgment of
other investment analysts and its own judgment. The adviser's credit analysis
will consider such factors as the issuer's financial soundness, its
responsiveness to changes in interest rates and business conditions, its
anticipated cash flow, asset values, interest or dividend coverage and
earnings.
Diversification. The Portfolio invests in a widely diversified portfolio
of securities to minimize the impact of a loss in any single investment and to
reduce portfolio risk.
Economic and Market Analysis. The Portfolio's investment adviser will
analyze current developments and trends in the economy and in the financial
markets. The Portfolio may invest in higher quality securities in the event
that investment in high yield securities is deemed to present unacceptable
market or financial risk.
Growth Portfolio
The objective of this Portfolio is to achieve long-term growth of capital
through investment primarily in common stocks of established corporations that
appear to offer attractive prospects of a high total return from dividends and
capital appreciation.
The Growth Portfolio seeks to achieve this objective by following the
policy of investing primarily in common stocks listed on the New York Stock
Exchange and on other national securities exchanges and, to a lesser extent,
in stocks that are traded over the counter. These stocks will be selected
principally for their potential appreciation over the longer term. The effort
to achieve a higher return necessarily involves accepting a greater risk of
declining values than does participation in certain of the other Portfolios.
During periods when stock prices decline generally, it can be expected that
the value of this Portfolio will also decline.
A portion of the Growth Portfolio may be invested in short-term debt
obligations of the kind held in the Money Market Portfolio as described in the
Statement of Additional Information in order to make effective use of cash
reserves pending investment in common stocks.
The Portfolio may as a hedge engage in certain options and financial
futures transactions (see "Put and Call Options" and "Financial Futures and
Options on Futures").
The annual portfolio turnover rates for the Portfolio for the fiscal
years ended December 31, 1994 and December 31, 1993 were 135% and 243%,
respectively.
Opportunity Growth Portfolio
The investment objective of this Portfolio is to achieve long-term growth
of capital.
The Opportunity Growth Portfolio seeks to achieve this objective
principally by seeking realized and unrealized capital gains through the
active management of a portfolio consisting primarily of common stocks. Such
active management may involve a high level of portfolio turnover. The
Portfolio will invest primarily in common stocks of domestic and foreign
companies that in the opinion of Lutheran Brotherhood have a potential for
above average sales and earnings growth that is expected to lead to capital
appreciation. The Portfolio's investment adviser believes that over a long
period of time, smaller companies that have a competitive advantage will be
able to grow faster than larger companies, leading to a higher rate of growth
in capital. A description of the risks associated with investments in such
companies is set forth below.
The Portfolio may also invest in bonds and preferred stocks, convertible
bonds, convertible preferred stocks, warrants, American Depository Receipts
(ADR's) and other debt or equity securities. In addition, the Portfolio may
invest in U.S. Government securities or cash. The Portfolio will not use any
minimum level of credit quality. At no time will the Portfolio invest more
than 5% of its net assets in debt obligations. Debt obligations may be rated
less than investment grade, which is defined as having a quality rating below
"Baa", as rated by Moody's Investors Service, Inc. ("Moody's"), or below
"BBB", as rated by Standard & Poor's Corporation ("S&P"). For a description of
Moody's and S&P's ratings, see "Description of Debt Ratings". Securities rated
below investment grade are considered to be speculative and involve certain
risks, including a higher risk of default and greater sensitivity to interest
rate and economic changes.
Lutheran Brotherhood will use fundamental investment research techniques
to seek out those companies that have a competitively superior product or
service in an unsaturated market with large potential for growth. These will
often be companies with shorter histories and less seasoned operations. Many
of such companies will have market capitalizations that are less than $1
billion, with lower daily trading volume in their stocks and less overall
liquidity than larger, more well established companies. Lutheran Brotherhood
anticipates that the common stocks of such companies may increase in market
value more rapidly than the stocks of other companies.
The Portfolio will focus primarily on companies that possess superior
earnings prospects over a three to five year time horizon. The stocks that the
Portfolio invests in may be traded on national exchanges or in the
over-the-counter market ("OTC"). There will be no limit on the proportion of
the
Portfolio's investment portfolio that may consist of OTC stocks.
The Portfolio may dispose of securities held for a short period if the
Portfolio's investment adviser believes such disposition to be advisable.
While Lutheran Brotherhood does not intend to select portfolio securities for
the specific purpose of trading them within a short period of time, it does
intend to use an active method of management which will result in the sale of
some securities after a relatively brief holding period. This method of
management necessarily results in higher cost to the Portfolio due to the fees
associated with portfolio securities transactions. A higher portfolio turnover
rate may also result in taxes on realized capital gains to be borne by
shareholders. However, it is Lutheran Brotherhood's belief that this method of
management can produce added value to the Portfolio and its shareholders that
exceeds the additional costs of such transactions.
The Portfolio may also engage in repurchase agreements, reverse
repurchase agreements, and when-issued and delayed delivery transactions in
pursuit of its investment objectives. (See the section above on the investment
objectives and policies of the Money Market Portfolio for a description of
such transactions.)
The portfolio turnover rate for the Opportunity Growth Portfolio is
expected to be no higher than 100% in its first year of operation.
Opportunity Growth Portfolio Investment Risks
The Opportunity Growth Portfolio is aggressively managed and invests
primarily in the stocks of smaller, less seasoned companies many of which are
traded on an over-the-counter basis, rather than on a national exchange. These
companies represent a relatively higher degree of risk than do the stocks of
larger, more established companies. The companies the Opportunity Growth
Portfolio invests in also tend to be more dependent on the success of a single
product line and have less experienced management. They tend to have smaller
market shares, smaller capitalization, and less access to sources of
additional capital. As a result, these companies tend to have less ability to
cope with problems and market downturns and their shares of stock tend to be
less liquid and more volatile in price.
World Growth Portfolio
The investment objective of this Portfolio is to achieve high total
return from long-term growth of capital.
The World Growth Portfolio seeks to achieve this objective principally
through investments in common stocks of established, non-U.S. companies. Total
return consists of capital appreciation or depreciation, dividend income, and
currency gains or losses. The Portfolio intends to diversify investments
broadly among countries and to normally have at least three different
countries represented in the Portfolio. The Portfolio may invest in countries
of the Far East and Western Europe as well as South Africa, Australia, Canada
and other areas (including developing countries). As a temporary defensive
measure, the Portfolio may invest substantially all of its assets in one or
two countries.
In seeking its objective, the Portfolio will invest primarily in common
stocks of established foreign companies which have the potential for growth of
capital. In order to increase total return, the Portfolio may also invest in
bonds and preferred stocks, convertible bonds, convertible preferred stocks,
warrants, American Depository Receipts (ADR's) and other debt or equity
securities. In addition, the Portfolio may invest in U.S. Government
securities or cash. The Portfolio will not use any minimum level of credit
quality. At no time will the Portfolio invest more than 5% of its net assets
in debt obligations or other securities that may be converted to debt
obligations. Debt obligations may be rated less than investment grade, which
is defined as having a quality rating below "Baa", as rated by Moody's
Investors Service, Inc. ("Moody's"), or below "BBB", as rated by Standard &
Poor's Corporation ("S&P"). Debt obligations rated "Baa" or "BBB" are
considered to have speculative characteristics. For a description of Moody's
and S&P's ratings, see "Description of Debt Ratings". Securities rated below
investment grade are considered to be speculative and involve certain risks,
including a higher risk of default and greater sensitivity to interest rate
and economic changes.
In determining the appropriate distribution of investments among various
countries and geographic regions, the Sub-advisor considers the following
factors: prospects for relative economic growth between foreign countries;
expected levels of inflation; government policies influencing business
conditions; the outlook for currency relationships; and the range of
individual investment opportunities available to international investors.
In analyzing companies for investment, the Sub-advisor looks for one or
more of the following characteristics: an above-average earnings growth per
share; high return on invested capital; healthy balance sheet; sound financial
and accounting policies and overall financial strength; strong competitive
advantages; effective research and product development and marketing;
efficient service; pricing flexibility; strength of management; and general
operating characteristics which will enable the companies to compete
successfully in their market place. While current dividend income is not a
prerequisite in the selection of portfolio companies, the companies in which
the Portfolio invests normally will have a record of paying dividends, and
will generally be expected to increase the amounts of such dividends in future
years as earnings increase.
The Portfolio's investments also may include, but are not limited to,
European Depository Receipts ("EDRs"), other debt and equity securities of
foreign issuers, and the securities of foreign investment funds or trusts
(including passive foreign investment companies). A discussion of the risks
involved in foreign investing is located below.
The Portfolio may hold up to 100% of its assets in cash or short-term
debt securities for temporary defensive position when, in the opinion of the
Investment Adviser or the Sub-advisor such a position is more likely to
provide protection against unfavorable market conditions than adherence to the
Portfolio's other investment policies. The types of short-term instruments in
which the Portfolio may invest for such purposes include short-term money
market securities such as repurchase agreements and securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, Eurodollar certificates of deposit, commercial paper
and banker's acceptances issued by domestic and foreign corporations and
banks. When investing in short-term money market obligations for temporary
defensive purposes, the Portfolio will invest only in securities rated at the
time of purchase Prime-1 or Prime-2 by Moody's, A-1 or A-2 by S&P, F-1 or F-2
by Fitch Investors Service, Inc., or unrated instruments that are determined
by the Investment Adviser or the Sub-advisor to be of a comparable level of
quality. When the Portfolio adopts a temporary defensive position its
investment objective may not be achieved.
The Portfolio may engage in certain forms of options and futures
transactions that are commonly known as derivative securities transactions.
These derivative securities transactions are identified and described in the
sections of this Prospectus entitled "Put and Call Options" and "Financial
Futures and Options on Futures."
The Portfolio may use foreign currency exchange-related securities
including foreign currency warrants, principal exchange rate linked
securities, and performance indexed paper. The Portfolio does not expect to
hold more than 5% of its total assets in foreign currency exchange-related
securities.
The Portfolio will normally conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or through entering into forward
contracts to purchase or sell foreign currencies. The Portfolio will generally
not enter into a forward contract with a term of greater than one year.
The Portfolio will generally enter into forward foreign currency exchange
contracts only under two circumstances. First, when the Portfolio enters into
a contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
Second, when Sub-advisor believes that the currency of a particular foreign
country may suffer or enjoy a substantial movement against another currency,
it may enter into a forward contract to sell or buy the former foreign
currency (or another currency which acts as a proxy for that currency)
approximating the value of some or all of the Portfolio's securities
denominated in such foreign currency. Under certain circumstances, the
Portfolio may commit a substantial portion of the entire value of its
portfolio to the consummation of these contracts. Sub-advisor will consider
the effect such a commitment of its portfolio to forward contracts would have
on the investment program of the Portfolio and the flexibility of the
Portfolio to purchase additional securities. Although forward contracts will
be used primarily to protect the Portfolio from adverse currency movements,
they also involve the risk that anticipated currency movements will not be
accurately predicted and the Portfolio's total return could be adversely
affected as a result. A discussion of foreign currency contracts and the risks
involved therein is set forth below.
The Portfolio may also engage in repurchase agreements, reverse
repurchase agreements, and when-issued and delayed delivery transactions in
pursuit of its investment objectives. (See the section above on the investment
objectives and policies of the Money Market Portfolio for a description of
such transactions.)
The Portfolio will not generally trade in securities for short-term
profits, but, when circumstances warrant, securities may be purchased and sold
without regard to the length of time held. The annual portfolio turnover rate
of the Portfolio is expected to be no more than 50%.
World Growth Portfolio Investment Risks
Special risks are associated with investments in the World Growth
Portfolio, beyond the standard level of risks. These risks are described
below. An investor should take into account his or her investment objectives
and ability to absorb a loss or decline in his or her investment when
considering an investment in the Portfolio. Investors in the Portfolio assume
an above average risk of loss, and should not consider an investment the
Portfolio to be a complete investment program.
The Portfolio, may invest in stocks of foreign issuers and in "ADRs"
"EDRs" of foreign stocks. When investing in foreign stocks, ADRs and EDRs, the
Portfolio assumes certain additional risks that are not present with
investments in stocks of domestic companies. These risks include political and
economic developments such as possible expropriation or confiscatory taxation
that might adversely affect the market value of such stocks, ADRs and EDRs. In
addition, there may be less publicly available information about such foreign
issuers than about domestic issuers, and such foreign issuers may not be
subject to the same accounting, auditing and financial standards and
requirements as domestic issuers.
Foreign Securities: Investments in securities of foreign issuers may involve
risks that are not present with domestic investments. While investments in
foreign securities are intended to reduce risk by providing further
diversification, such investments involve sovereign risk in addition to credit
and market risks. Sovereign risk includes local political or economic
developments, potential nationalization, withholding taxes on dividend or
interest payments, and currency blockage (which would prevent cash from being
brought back to the United States). Compared to United States issuers, there
is generally less publicly available information about foreign issuers and
there may be less governmental regulation and supervision of foreign stock
exchanges, brokers and listed companies. Fixed brokerage commissions on
foreign securities exchanges are generally higher than in the United States.
Foreign issuers are not generally subject to uniform accounting and auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic issuers. Securities of some foreign issuers are
less liquid and their prices are more volatile than securities of comparable
domestic issuers. In some countries, there may also be the possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets, difficulty in enforcing contractual and other obligations,
political or social instability or revolution, or diplomatic developments
which could affect investments in those countries. Settlement of transactions
in some foreign markets may be delayed or less frequent than in the United
States, which could affect the liquidity of investments. For example,
securities which are listed on foreign exchanges or traded in foreign markets
may trade on days (such as Saturday) when the Portfolio does not compute its
price or accept orders for the purchase, redemption or exchange of its shares.
As a result, the net asset value of the Portfolio may be significantly
affected by trading on days when shareholders cannot make transactions.
Further, it may be more difficult for the Fund's agents to keep currently
informed about corporate actions which may affect the price of portfolio
securities. Communications between the U.S. and foreign countries may be less
reliable than within the U.S., increasing the risk of delayed settlements or
loss of certificates for portfolio securities.
Investments by the Portfolio in foreign companies may require the
Portfolio to hold securities and funds denominated in a foreign currency.
Foreign investments may be affected favorably or unfavorably by changes in
currency rates and exchange control regulations. Thus, the Portfolio's net
asset value per share will be affected by changes in currency exchange rates.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders of the Portfolio. They generally are determined by the forces of
supply and demand in foreign exchange markets and the relative merits of
investment in different countries, actual or perceived changes in interest
rates or other complex factors, as seen from an international perspective.
Currency exchange rates also can be affected unpredictably by intervention by
U.S. or foreign governments or central banks or the failure to intervene, or
by currency controls or political developments in the U.S. or abroad. In
addition, the Portfolio may incur costs in connection with conversions between
various currencies. Investors should understand and consider carefully the
special risks involved in foreign investing. These risks are often heightened
for investments in emerging or developing countries.
Developing Countries: Investing in developing countries involves certain risks
not typically associated with investing in U.S. securities, and imposes risks
greater than, or in addition to, risks of investing in foreign, developed
countries. These risks include: the risk of nationalization or expropriation
of assets or confiscatory taxation; currency devaluations and other currency
exchange rate fluctuations; social, economic and political uncertainty and
instability (including the risk of war); more substantial government
involvement in the economy; higher rates of inflation; less government
supervision and regulation of the securities markets and participants in those
markets; controls on foreign investment and limitations on repatriation of
invested capital and on the Portfolio's ability to exchange local currencies
for U.S. dollars; unavailability of currency hedging techniques in certain
developing countries; the fact that companies in developing countries may be
smaller, less seasoned and newly organized companies; the difference in, or
lack of, auditing and financial reporting standards, which may result in
unavailability of material information about issuers; the risk that it may be
more difficult to obtain and/or enforce a judgment in a court outside the
United States; and greater price volatility, substantially less liquidity and
significantly smaller market capitalization of securities markets.
American Depository Receipts (ADRs) and European Depository Receipts (EDRs):
ADRs are dollar-denominated receipts generally issued by a domestic bank that
represents the deposit of a security of a foreign issuer. ADRs may be publicly
traded on exchanges or over-the-counter in the United States. EDRs are
receipts similar to ADRs and are issued and traded in Europe. ADRs and EDRs
may be issued as sponsored or unsponsored programs. In sponsored programs, the
issuer makes arrangements to have its securities traded in the form of ADRs or
EDRs. In unsponsored programs, the issuer may not be directly involved in the
creation of the program. Although regulatory requirements with respect to
sponsored and unsponsored programs are generally similar, the issuers of
unsponsored ADRs or EDRs are not obligated to disclose material information in
the United States and, therefore, the import of such information may not be
reflected in the market value of such securities.
Currency Fluctuations: Investment in securities denominated in foreign
currencies involves certain risks. A change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S.
dollar value of a Portfolio's assets denominated in that currency. Such
changes will also affect a Portfolio's income. Generally, when a given
currency appreciates against the dollar (the dollar weakens) the value of a
Portfolio's securities denominated in that currency will rise. When a given
currency depreciates against the dollar (the dollar strengthens) the value of
a Portfolio's securities denominated in that currency would be expected to
decline.
Put and Call Options
Selling ("Writing") Covered Call Options: The Portfolios may from time to
time sell ("write") covered call options on any portion of their portfolios as
a hedge to provide partial protection against adverse movements in the prices
of securities in such Portfolio and, subject to the limitations described
below, for the non-hedging purpose of attempting to create additional income.
A call option gives the buyer of the option, upon payment of a premium, the
right to call upon the writer to deliver a specified amount of a security on
or before a fixed date at a predetermined ("strike") price. As the writer of a
call option, the Portfolio assumes the obligation to deliver the underlying
security to the holder of the option on demand at the strike price.
If the price of a security hedged by a call option falls below or remains
below the strike price of the option, the Portfolio will generally not be
called upon to deliver the security. The Portfolio will, however, retain the
premium received for the option as additional income, offsetting all or part
of any decline in the value of the security. If the price of a hedged security
rises above or remains above the strike price of the option, the Portfolio
will generally be called upon to deliver the security. In this event the
Portfolio limits its potential gain by limiting the value it can receive from
the security to the strike price of the option plus the option premium.
Buying Call Options: The Portfolios may also from time to time purchase
call options on securities in which such Portfolio may invest. As the holder
of a call option, the Fund has the right to purchase the underlying security
or currency at the exercise price at any time during the option period
(American style) or at the expiration of the option (European style). The
Portfolio generally will purchase such options as a hedge to provide
protection against adverse movements in the prices of securities which the
Portfolio intends to purchase. In purchasing a call option, the Portfolio
would realize a gain if, during the option period, the price of the underlying
security increased by more than the amount of the premium paid. The Portfolio
would realize a loss equal to all or a portion of the premium paid if the
price of the underlying security decreased, remained the same, or did not
increase by more than the premium paid. In instances involving the purchase of
call options, the Portfolio will hold cash or cash equivalents in its
portfolio in an amount equal to the exercise value of the options. "Cash or
cash equivalents" may include cash, government securities, or liquid high
quality debt obligations.
Buying Put Options: The Portfolios may from time to time purchase put
options on any portion of their portfolios. A put option gives the buyer of
the option, upon payment of a premium, the right to deliver a specified amount
of a security to the writer of the option on or before a fixed date at a
predetermined ("strike") price. The Portfolio generally will purchase such
options as a hedge to provide protection against adverse movements in the
prices of securities in the Portfolio. In purchasing a put option, the
Portfolio would realize a gain if, during the option period, the price of the
security declined by an amount in excess of the premium paid. The Portfolio
would realize a loss equal to all or a portion of the premium paid if the
price of the security increased, remained the same, or did not decrease by
more than the premium paid.
OPTIONS ON FOREIGN CURRENCIES: The Fund may also write covered call
options and purchase put and call options on foreign currencies as a hedge
against changes in prevailing levels of currency exchange rates.
Selling Put Options: The Portfolios may not sell put options, except in
the case of a closing purchase transaction (see "Closing Transactions").
Index Options: As part of their options transactions, The Portfolios may
also purchase and sell call options and purchase put options on stock and bond
indices. Options on securities indices are similar to options on a security
except that, upon the exercise of an option on a securities index, settlement
is made in cash rather than in specific securities.
Closing Transactions: The Portfolios may dispose of an option which it
has written by entering into a "closing purchase transaction". A Portfolio may
dispose of an option which it has purchased by entering into a "closing sale
transaction". A closing transaction terminates the rights of a holder, or the
obligation of a writer, of an option and does not result in the ownership of
an option.
The Portfolio realizes a profit from a closing purchase transaction if
the premium paid to close the option is less than the premium received by the
Portfolio from writing the option. The Portfolio realizes a loss if the
premium paid is more than the premium received. The Portfolio may not enter
into a closing purchase transaction with respect to an option it has written
after it has been notified of the exercise of such option.
The Portfolio realizes a profit from a closing sale transaction if the
premium received to close out the option is more than the premium paid for the
option. The Portfolio realizes a loss if the premium received is less than the
premium paid.
Spreads and Straddles: Certain of the Portfolios may also engage in
"straddle" and "spread" transactions in order to enhance return which is a
speculative, non-hedging purpose. A straddle is established by buying both a
call
and a put option on the same underlying security, each with the same exercise
price and expiration date. A spread is a combination of two or more call
options
or put options on the same security with differing exercise prices or times to
maturity. The particular strategies employed by a Portfolio will depend on
Lutheran Brotherhood's or the Sub-advisor's perception of anticipated market
movements.
Negotiated Transactions: The Growth Portfolio, the Opportunity Growth
Portfolio, and the World Growth Portfolio will generally purchase and sell
options traded on a national securities or options exchange. Those Portfolios
may also purchase and sell options in negotiated transactions. The High Yield
Portfolio, the Income Portfolio and the Money Market Portfolio will generally
purchase and sell options in negotiated transactions. The High Yield
Portfolio, the Income Portfolio and the Money Market Portfolio may also
purchase and sell options traded on a national securities or options exchange.
A Portfolio will effect negotiated transactions only with investment dealers
and other financial institutions deemed creditworthy by its Investment Adviser
or Sub-advisor. Despite the investment adviser's or sub-advisor's best efforts
to enter into negotiated options transactions with only creditworthy parties,
there is always a risk that the opposite party to the transaction may default
in its obligation to either purchase or sell the underlying security at the
agreed upon time and price, resulting in a possible loss by the Fund. This
risk is described more completely in the section of this Prospectus entitled,
"Risks of Transactions in Options and Futures". Options written or purchased
by the Portfolios in negotiated transactions are illiquid and there is no
assurance that the Portfolios will be able to effect a closing purchase or
closing sale transaction at a time when the Fund's Investment Adviser believes
it would be advantageous to do so. In the event the Portfolios are unable to
effect a closing purchase transaction with the holder of a call option written
by the Portfolios, the Portfolios may not sell the security underlying the
option until the call written by the Portfolios expires or is exercised.
Negotiated options transactions are subject to a 10% illiquid securities
limitation.
Limitations: A Portfolio will not purchase any option if, immediately
thereafter, the aggregate cost of all outstanding options purchased and held
by such Portfolio would exceed 5% of the market value of the Portfolio's total
assets. A Portfolio will not write any option if, immediately thereafter, the
aggregate value of the Portfolio's securities subject to outstanding options
would exceed 30% of the market value of the Portfolio's total assets.
Financial Futures and Options on Futures
Selling Futures Contracts: The Portfolios may sell the financial futures
contracts ("futures contracts") as a hedge against adverse movements in the
prices of securities in such Portfolio. Such contracts may involve futures on
items such as U.S. Government Treasury bonds, notes and bills; government
mortgage-backed securities; corporate and municipal bond indices; and stock
indices. A futures contract sale creates an obligation for the Portfolio, as
seller, to deliver the specific type of instrument called for in the contract
at a specified future time for a specific price. In selling a futures
contract, the Portfolio would realize a gain on the contract if, during the
contract period, the price of the securities underlying the futures contract
decreased. Such a gain would be expected to approximately offset the decrease
in value of the same or similar securities in the Portfolio. The Portfolio
would realize a loss if the price of the securities underlying the contract
increased. Such a loss would be expected to approximately offset the increase
in value of the same or similar securities in the Portfolio.
Futures contracts have been designed by and are traded on boards of trade
which have been designated "contract markets" by the Commodity Futures Trading
Commission ("CFTC"). These boards of trade, through their clearing
corporations, guarantee performance of the contracts. Although the terms of
some financial futures contracts specify actual delivery or receipt of
securities, in most instances these contracts are closed out before the
settlement due date without the making or taking of delivery of the
securities. Other financial futures contracts, such as futures contracts on a
securities index, by their terms call for cash settlements. The closing out of
a futures contract is effected by entering into an offsetting purchase or sale
transaction.
When the Portfolio sells a futures contract, or a call option on a
futures contract, it is required to make payments to the commodities broker
which are called "margin" by commodities exchanges and brokers. The payment of
"margin" in these transactions is different than purchasing securities "on
margin". In purchasing securities "on margin" an investor pays part of the
purchase price in cash and receives an extension of credit from the broker, in
the form of a loan secured by the securities, for the unpaid balance. There
are two categories of "margin" involved in these transactions: initial margin
and variation margin. Initial margin does not represent a loan between the
Portfolio and its broker, but rather is a "good faith deposit" by the
Portfolio to secure its obligations under a futures contract or an option.
Each day during the term of certain futures transactions, the Portfolio will
receive or pay "variation margin" equal to the daily change in the value of
the position held by the Portfolio.
Buying Futures Contracts: The Portfolios may also purchase financial
futures contracts as a hedge against adverse movements in the prices of
securities which such Portfolio intends to purchase. A futures contract
purchase creates an obligation by the Portfolio, as buyer, to take delivery of
the specific type of instrument called for in the contract at a specified
future time for a specified price. In purchasing a futures contract, the
Portfolio would realize a gain if, during the contract period, the price of
the securities underlying the futures contract increased. Such a gain would
approximately offset the increase in cost of the same or similar securities
which the Portfolio intends to purchase. The Portfolio would realize a loss if
the price of the securities underlying the contract decreased. Such a loss
would approximately offset the decrease in cost of the same or similar
securities which the Portfolio intends to purchase.
Options on Futures Contracts: The Portfolios may also sell ("write")
covered call options on futures contracts and purchase put and call options on
futures contracts in connection with hedging strategies. The Portfolios may
not sell put options on futures contracts. An option on a futures contract
gives the buyer of the option, in return for the premium paid for the option,
the right to assume a position in the underlying futures contract (a long
position if the option is a call and a short position if the option is a put).
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of securities underlying the futures contract to the
extent of the premium received for the option. The purchase of a put option on
a futures contract constitutes a hedge against price declines below the
exercise price of the option and net of the premium paid for the option. The
purchase of a call option constitutes a hedge, net of the premium, against an
increase in cost of securities which the Portfolio intends to purchase.
Currency Futures Contracts and Options: The Fund may also sell and
purchase currency futures contracts (or options thereon) as a hedge against
changes in prevailing levels of currency exchange rates. Such contracts may be
traded on U.S. or foreign exchanges. The Fund will not use such contracts or
options for leveraging purposes.
Limitations: The Portfolios may engage in futures transactions, and
transactions involving options on futures, only on regulated commodity
exchanges or boards of trade. A Portfolio will not enter into a futures
contract or purchase or sell related options if immediately thereafter (a) the
sum of the amount of initial margin deposits on the Portfolio's existing
futures and related options positions and premiums paid for options with
respect to futures and options used for non-hedging purposes would exceed 5%
of the market value of the Portfolio's total assets or (b) the sum of the then
aggregate value of open futures contracts sales, the aggregate purchase prices
under open futures contract purchases, and the aggregate value of futures
contracts subject to outstanding options would exceed 30% of the market value
of the Portfolio's total assets. In addition, in instances involving the
purchase of futures contracts or call options thereon, the Portfolio will
maintain cash or cash equivalents, less any related margin deposits, in an
amount equal to the market value of such contracts. "Cash and cash
equivalents" may include cash, government securities, or liquid high quality
debt obligations and will be held in a segregated account maintained solely
for such purpose.
Hybrid Investments
As part of its investment program and to maintain greater flexibility, the
Fund may invest in hybrid instruments (a potentially high risk derivative)
which have the characteristics of futures, options and securities. Such
instruments may take a variety of forms, such as debt instruments with
interest or principal payments determined by reference to the value of a
currency, security index or commodity at a future point in time. The risks of
such investments would reflect both the risks of investing in futures,
options, currencies and securities, including volatility and illiquidity.
Under certain conditions, the redemption value of a hybrid instrument could be
zero. The Fund does not expect to hold more than 5% of its total assets in
hybrid instruments. For a discussion of hybrid investments and the risks
involved therein, see the Trust's Statement of Additional Information under
"Additional Information Concerning Certain Investment Techniques".
Risks of Transactions in Options and Futures
There are certain risks involved in the use of futures contracts, options
on securities and securities index options, and options on futures contracts
as hedging devices. There is a risk that the movement in the prices of the
index or instrument underlying an option or futures contract may not correlate
perfectly with the movement in the prices of the assets being hedged. The lack
of correlation could render the Fund's hedging strategy unsuccessful and could
result in losses. The loss from investing in futures transactions is
potentially unlimited.
There is a risk that the Fund's Investment Adviser or Sub-advisor could
be incorrect in its expectations about the direction or extent of market
factors such as interest rate movements. In such a case the Fund would have
been better off without the hedge. In addition, while the principal purpose of
hedging is to limit the effects of adverse market movements, the attendant
expense may cause the Fund's return to be less than if hedging had not taken
place. The overall effectiveness of hedging therefore depends on the expense
of hedging and the Fund's Investment Adviser's or Sub-advisor's accuracy in
predicting the future changes in interest rate levels and securities price
movements.
The Fund will generally purchase and sell options traded on a national
securities or options exchange. Where options are not readily available on
such exchanges the Fund may purchase and sell options in negotiated
transactions. When the Fund uses negotiated options transactions it will seek
to enter into such transactions involving only those options and futures
contracts for which there appears to be an active secondary market. There is
nonetheless no assurance that a liquid secondary market such as an exchange or
board of trade will exist for any particular option or futures contract at any
particular time. If a futures market were to become unavailable, in the event
of an adverse movement, the Fund would be required to continue to make daily
cash payments of maintenance margin if it could not close a futures position.
If an options market were to become unavailable and a closing transaction
could not be entered into, an option holder would be able to realize profits
or limit losses only by exercising an option, and an option writer would
remain obligated until exercise or expiration. In addition, exchanges may
establish daily price fluctuation limits for options and futures contracts,
and may halt trading if a contract's price moves upward or downward more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a Fund
to enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
potentially could require a Fund to continue to hold a position until delivery
or expiration regardless of changes in its value. As a result, a Fund's access
to other assets held to cover its options or futures positions could also be
impaired.
When conducting negotiated options transactions there is a risk that the
opposite party to the transaction may default in its obligation to either
purchase or sell the underlying security at the agreed upon time and price. In
the event of such a default, the Fund could lose all or part of benefit it
would otherwise have realized from the transaction, including the ability to
sell securities it holds at a price above the current market price or to
purchase a security from another party at a price below the current market
price.
The Fund intends to continue to meet the requirements of federal tax law
to be treated as a regulated investment company. One of these requirements is
that the Fund realize less than 30% of its annual gross income from the sale
of securities held for less than three months. Accordingly, the extent to
which the Fund may engage in futures contracts and related options may be
materially limited by this 30% test. Options activities of the Fund may
increase the amount of gains from the sale of securities held for less than
three months, because gains from the expiration of, or from closing
transactions with respect to, call options written by the fund will be treated
as short term gains and because the exercise of call options written by the
Fund would cause it to sell the underlying securities before it otherwise
might.
Finally, if a broker or clearing member of an options or futures clearing
corporation were to become insolvent, the Fund could experience delays and
might not be able to trade or exercise options or futures purchased through
that broker or clearing member. In addition, the Fund could have some or all
of its positions closed out without its consent. If substantial and
widespread, these insolvencies could ultimately impair the ability of the
clearing corporations themselves.
Investment Restrictions Applicable to the Portfolios
None of the Portfolios will:
1. Purchase securities on margin or otherwise borrow money or issue
senior securities except that a Portfolio, in accordance with its investment
objectives and policies, may enter into reverse repurchase agreements and
purchase securities on a when-issued and delayed delivery basis, within the
limitations set forth under "Money Market Portfolio". The Fund may also obtain
such short-term credit as it needs for the clearance of securities
transactions, and may borrow from a bank, for the account of any Portfolio, as
a temporary measure to facilitate redemptions (but not for leveraging or
investment) an amount that does not exceed 5% of the value of the Portfolio's
total assets (including the amount borrowed) less liabilities (not including
the amount owed as a result of borrowing) at the time the borrowing is made.
Investment securities will not be purchased while borrowings are outstanding.
Interest paid on borrowings will not be available for investment. The deposit
or payment by a Portfolio of initial or variation margin in connection with
financial futures contracts or related options transactions is not considered
the purchase of a security on margin.
2. Enter into reverse repurchase agreements if, as a result, the
Portfolio's obligations with respect to reverse repurchase agreements would
exceed 10% of the Portfolio's net assets (defined to mean total assets at
market value less liabilities other than reverse repurchase agreements).
Reverse repurchase agreements are further discussed under "Money Market
Portfolio."
3. Pledge or mortgage assets, except that not more than 10% of the value
of any Portfolio may be pledged (taken at the time the pledge is made) to
secure borrowings made in accordance with paragraph 1 above, and the Portfolio
may enter into reverse repurchase agreements in accordance with paragraph 2
above. Margin deposits for the purchase and sale of financial futures
contracts and related options are not deemed to be a pledge.
4. Lend money, except that loans of up to 10% of the value of each
Portfolio may be made through the purchase of privately placed bonds,
debentures, notes and other evidences of indebtedness of a character
customarily acquired by institutional investors that may or may not be
convertible into stock or accompanied by warrants or rights to acquire stock.
Repurchase agreements and the purchase of publicly traded debt obligations are
not considered to be "loans" for this purpose and may be entered into or
purchased by a Portfolio in accordance with its investment objectives and
policies.
5. Make an investment unless, when considering all its other
investments, 75% of the value of a Portfolio's assets would consist of cash,
cash items, obligations of the U.S. Government, its agencies or
instrumentalities, and other securities. For purposes of this restriction,
"other securities" are limited for each issuer to not more than 5% of the
value of a Portfolio's assets and to not more than 10% of the issuer's
outstanding voting securities held by the Fund as a whole.
6. Invest in securities (including repurchase agreements maturing in
more than seven days) that are subject to legal or contractual restrictions on
resale or for which no readily available market exists, or in the securities
of issuers (other than U.S. Government agencies or instrumentalities) having a
record, together with predecessors, of less than three years' continuous
operation, if, regarding all such securities, more than 10% of the Portfolio's
total assets would be invested in them.
All of the investment restrictions set forth above are fundamental to the
operations of the Fund and may not be changed except with the approval of a
majority vote (as defined above in the second paragraph under "Investment
Objectives and Risks of the Portfolios") of the persons participating in the
affected Portfolio.
PURCHASE AND REDEMPTION OF SHARES
Shares in the Fund are currently offered continuously, without sales
charge, at prices equal to the respective per share net asset values of the
Portfolios (based on the next calculation of net asset value after the order
is placed), only to the Accounts to fund benefits payable under the Contracts.
The Fund may at some later date also offer its shares to other separate
accounts of LBVIP, Lutheran Brotherhood (the parent of LBVIP) or other
subsidiaries of Lutheran Brotherhood.
The Fund is required to redeem all full and fractional shares of the Fund
for cash within seven days of receipt of proper notice of redemption. The
redemption price is the net asset value per share next determined after the
initial receipt of proper notice of redemption.
The right to redeem shares or to receive payment with respect to any
redemption may be suspended only for any period during which trading on the
New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission or when such exchange is closed (other than customary
weekend and holiday closings), for any period during which an emergency exists
as defined by the Securities and Exchange Commission as a result of which
disposal of a Portfolio's securities or determination of the net asset value
of each Portfolio is not reasonably practicable, and for such other periods as
the Securities and Exchange Commission may by order permit for the protection
of shareholders of each Portfolio.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Portfolio is determined once
daily by the Adviser, immediately after the declaration of dividends, if any,
at 4:00 P.M., Eastern time, on each day during which the New York Stock
Exchange is open for business, and on any other day in which there is a
sufficient degree of trading in the Portfolio's securities such that the
current net asset value of its shares might be materially affected, excluding
in each case July 5 1996, the day after Thanksgiving and the day before
Christmas. The net asset value per share of each Portfolio except the Money
Market Portfolio is computed by adding the sum of the value of the securities
held by that Portfolio plus any cash or other assets it holds, subtracting all
its liabilities, and dividing the result by the total number of shares
outstanding of that Portfolio at such time. Expenses, including the investment
advisory fee payable to the Adviser, are accrued daily. The assets belonging
to any Portfolio will be charged with the liabilities in respect to such
Portfolio, and will also be charged with their shares of the general
liabilities of the Fund in proportion to the asset values of the respective
Portfolios.
In determining the net asset value of the Income, High Yield, Growth,
Opportunity Growth, and World Growth Portfolios, securities are generally
valued based on market quotations. Securities or assets for which market
quotations are not readily available will be valued at fair value as
determined by the Adviser under the direction of the Board of Directors of the
Fund. The amortized cost accounting method of valuation will be used for
short-term investments maturing in 60 days or less that are held by the
Income, High Yield, Growth, Opportunity Growth, or World Growth Portfolios.
The net asset value of shares of the Money Market Portfolio will normally
remain at $1.00 per share, because the net investment income of this Portfolio
(including realized gains and losses on Portfolio holdings) will be declared
as a dividend each time the Portfolio's net income is determined (see
"Dividends, Distributions and Taxes"). If, in the view of the Board of
Directors of the Fund, it is inadvisable to continue to maintain the net asset
value of the Money Market Portfolio at $1.00 per share, the Board reserves the
right to alter the procedure. The Fund will notify shareholders of any such
alteration.
The Fund values all short-term debt obligations in the Money Market
Portfolio on an amortized cost basis.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a Regulated Investment Company under
certain provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). Under such provisions, the Fund will not be subject to Federal income
tax on the part of its net ordinary income and net realized capital gains that
it distributes to the Account. Generally, each Portfolio will be treated as a
separate corporation for Federal income tax purposes. This means that the
investment results of each Portfolio will determine whether the Portfolio
qualifies as a Regulated Investment Company and will determine the net
ordinary income (or loss) and net realized capital gains (or losses) of the
Portfolio.
The Fund intends to distribute as dividends substantially all the net
investment income, if any, of each Portfolio. For dividend purposes, net
investment income of each Portfolio, other than the Money Market Portfolio,
will consist of all payments of dividends (other than stock dividends) or
interest received by such Portfolio less the estimated expense of such
Portfolio (including fees payable to the Adviser). Net investment income of
the Money Market Portfolio consists of (i) interest accrued and/or discount
earned (including both original issue and market discount), (ii) plus or minus
all realized gains and losses, (iii) less the expenses of the Portfolio
(including the fees payable to the Adviser).
Dividends on each of the Portfolios will be declared and reinvested in
additional full and fractional shares of that Portfolio. Shares will begin
accruing dividends on the day following the date on which they are issued.
Dividends will be declared and reinvested daily on the Income Portfolio, on
the High Yield Portfolio and on the Money Market Portfolio, quarterly on the
Growth Portfolio, and annually on the Opportunity Growth Portfolio and the
World Growth Portfolio, although the Fund may make distribution of dividends
on any Portfolio more frequently.
The Fund will also declare and distribute annually all net realized
capital gains of the Fund, other than short-term gains of the Money Market
Portfolio, which are declared as dividends daily. A capital gain distribution
will usually be made in February.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury Regulations promulgated thereunder. The Code and these
Regulations are subject to change by legislative or administrative actions.
MANAGEMENT OF THE FUND
Directors of the Fund
The business and affairs of the Fund are managed under the direction of
its Board of Directors.
Investment Adviser
Lutheran Brotherhood (the "Adviser") has served as the investment adviser
of the Fund since January, 1994. The Adviser, founded in 1917 as a fraternal
benefit society, is owned by and operated for its members, under the laws of
Minnesota The Adviser has been engaged in the investment advisory business
since 1970, either directly or through the indirect ownership of Lutheran
Brotherhood Research Corp. ("LBRC"), the Fund's investment adviser prior to
January 31, 1994. Lutheran Brotherhood has managed its own portfolio of
investment assets since its inception in 1917. Lutheran Brotherhood's assets
as of December 31, 1994 were $9.4 billion. Additionally, through an indirect
subsidiary, Lutheran Brotherhood Research Corp., Lutheran Brotherhood also
manages $2.9 billion of assets of seven other mutual funds. LBVIP is also an
indirect subsidiary of Lutheran Brotherhood. Lutheran Brotherhood's principal
business address is 625 Fourth Avenue South, Minneapolis, Minnesota 55415.
Prior to the time Lutheran Brotherhood was named investment adviser to
the Fund, Lutheran Brotherhood Research Corp. (LBRC), an indirect subsidiary
of Lutheran Brotherhood, served as investment adviser to the Fund. All of the
personnel employed by Lutheran Brotherhood to perform investment advisory
services for the Fund are substantially the same as the personnel that
performed such services on behalf of LBRC. The Fund's Portfolio Managers and
their experience and qualifications are described as follows:
Scott A. Vergin, Portfolio Manager of Lutheran Brotherhood, has been the
Portfolio Manager of the Growth Portfolio of the Fund since October 31, 1994.
Mr. Vergin has been with Lutheran Brotherhood since 1984.
Thomas N. Haag, Assistant Vice President of Lutheran Brotherhood, has
been the Portfolio Manager of the Fund's High Yield Portfolio Fund since 1992.
Mr. Haag has been with Lutheran Brotherhood since 1986.
Charles E. Heeren, Vice President and Manager of the Lutheran Brotherhood
Bond Department, has been the Portfolio Manager of the Fund's Income Fund
since 1987. Mr. Heeren has been with Lutheran Brotherhood since 1976.
Gail R. Onan, Portfolio Manager of Lutheran Brotherhood, has been the
portfolio manager of the Fund's Money Market Portfolio since January, 1994.
Ms.
Onan has been with Lutheran Brotherhood since 1986.
Lutheran Brotherhood has engaged Rowe Price-Fleming International, Inc.
("Price-Fleming") as investment sub-advisor for the World Growth Portfolio.
Price-Fleming was founded in 1979 as a joint venture between T. Rowe Price
Associates, Inc. and Robert Fleming Holdings Limited. Price-Fleming is one of
the world's largest international mutual fund asset managers with
approximately $17 billion under management as of December 31, 1994 in its
offices in Baltimore, London, Tokyo and Hong Kong. Price-Fleming has an
investment advisory group that has day-to-day responsibility for managing the
World Growth Portfolio and developing and executing the Portfolio's investment
program. The members of the advisory group are listed below.
Martin G. Wade, Christopher Alderson, Peter Askew, David Boardman,
Richard J. Bruce, Mark T.J. Edwards, John R. Forde, Robert C. Howe, James B.M.
Seddon, Benedict R.F. Thomas, and David J.L. Warren.
Martin Wade joined Price-Fleming in 1979 and has 26 years of experience
with Fleming Group (Fleming Group includes Robert Fleming Holdings Ltd. and/or
Jardine Fleming International Holdings Ltd.) in research, client service and
investment management, including assignments in the Far East and the United
States.
Peter Askew joined Price-Fleming in 1988 and has 20 years of experience
managing multicurrency fixed income portfolios. Christopher Alderson joined
Price-Fleming in 1988, and has eight years of experience with the Fleming
Group in research and portfolio management, including an assignment in Hong
Kong. David Boardman joined Price-Fleming in 1988 and has 20 years experience
in managing multicurrency fixed income portfolios. Richard J. Bruce joined
Price-Fleming in 1991 and has six years of experience in investment management
with the Fleming Group in Tokyo. Mark J.T. Edwards joined Price-Fleming in
1986 and has 14 years of experience in financial analysis, including three
years in Fleming European research. John R. Ford joined Price-Fleming in 1982
and has 15 years of experience with Fleming Group in research and portfolio
management, including assignments in the Far East and the United States.
Robert C. Howe joined Price-Fleming in 1986 and has 15 years of experience in
economic research in Japan. James B.M. Seddon joined Price-Fleming in 1987 and
has eight years of experience in investment management. Benedict R.F. Thomas
joined Price-Fleming in 1988 and has six years of portfolio management
experience, including assignments in London and Baltimore. David J.L. Warren
joined Price-Fleming in 1984 and has 15 years experience in equity research,
fixed income research and portfolio management, including an assignment in
Japan.
The Fund has entered into an Investment Advisory Agreement with the
Adviser under which the Adviser will, subject to the direction of the Board of
Directors of the Fund, carry on the day-to-day management of the Fund, and
provide advice and recommendations with respect to investments and the
purchase and sale of securities in accordance with the Fund's investment
objectives, policies and restrictions. The Adviser also furnishes at its own
expense all necessary administrative services, office space, equipment and
clerical personnel for servicing the investments of the Fund and maintaining
its organization, and investment advisory facilities and executive and
supervisory personnel for managing the investments and effecting the portfolio
transactions of the Fund. The Investment Advisory Agreement provides that the
Fund will pay, or provide for the payment of, all of its own expenses
including, without limitation, the compensation of the directors who are not
affiliated with Lutheran Brotherhood or LBVIP, governmental fees, interest
charges, taxes, membership dues in the Investment Company Institute allocable
to the Fund, fees and expenses of the independent auditors, of legal counsel
and of any transfer agent, registrar and dividend disbursing agent of the
Fund, expenses of preparing, printing and mailing prospectuses, shareholders'
reports, notices, proxy statements and reports to governmental officers and
commissions, expenses connected with the execution, recording and settlement
of portfolio security transactions, insurance premiums, fees and expenses of
the Fund's custodian for all services to the Fund, including safekeeping of
funds and securities and keeping of books and calculating the net asset value
of the shares of the Portfolios of the Fund, expenses of shareholders'
meetings and expenses relating to the issuance, registration and qualification
of shares of the Fund. Lutheran Brotherhood and LBVIP have agreed with the
Fund to pay, or to reimburse the Fund for the payment of, all of the foregoing
expenses.
The Adviser receives an investment advisory fee as compensation for its
services to the Fund. The fee is a daily charge equal to an annual rate of
.40% of the aggregate average daily net assets of the Portfolios, except for
the World Growth Portfolio. Each daily charge for the fee is divided among the
Portfolios in proportion to their net assets on that day.
The Adviser receives an annual investment advisory fee from the Fund for
the World Growth Portfolio equal to 1.25% of the Portfolio's average daily net
assets up to $20 million, 1.10% of the Portfolio's average daily net assets
over $20 million but not over $50 million, and 1.00% of the Portfolio's
average daily net assets over $50 million.
Lutheran Brotherhood pays the Sub-advisor for the World Growth Portfolio
an annual sub-advisory fee for the performance of sub-advisory services. The
fee payable is equal to a percentage of the that Portfolio's average daily net
assets. The percentage decreases as the Portfolio's assets increase. For
purposes of determining the percentage level of the sub-advisory fee for the
Portfolio, the assets of the Portfolio are combined with the assets of the
Lutheran Brotherhood World Growth Fund, another fund with investment
objectives and policies that are similar to the World Growth Porfolio and for
which the Sub-advisor also provides sub-advisory services. The sub-advisory
fee Lutheran Brotherhood pays the Sub-advisor is equal to the World Growth
Portfolio's pro rata share of the combined assets of the Portfolio and the
Lutheran Brotherhood World Growth Fund and is equal to .75% of combined
average daily net assets up to $20 million, .60% of combined average daily net
assets over $20 million but not over $50 million, and .50% of combined average
daily net assets over $50 million. When the combined assets of the World
Growth Portfoio and the Lutheran Brotherhood World Growth Fund exceed $200
million, the sub-advisory fee for the World Growth Portfolio is equal to .50%
of all of the Portfolio's average daily net assets.
OTHER INFORMATION CONCERNING THE FUND
Incorporation and Authorized Stock
The Fund was incorporated under Minnesota law on February 24, 1986. The
authorized capital stock of the Fund consists of 2,000,000,000 shares. The
shares of capital stock are divided into four classes: Money Market Portfolio
Capital Stock (400,000,000 shares), Income Portfolio Capital Stock
(400,000,000 shares), High Yield Portfolio Capital Stock (200,000,000 shares),
Growth Portfolio Capital Stock (600,000,000 shares), Opportunity Growth
Portfolio Capital Stock (200,000,000 shares), and World Growth Portfolio
Capital Stock (200,000,000 shares). Unissued shares of any of the classes of
capital stock may be reallocated to any new or existing class or classes as
determined by the Fund's Board of Directors. The Fund may in the future issue
shares of additional classes through the creation of one or more new
portfolios.
Each share of stock will have a pro rata interest in the assets of the
Portfolio to which the stock of that class relates and will have no interest
in the assets of any other Portfolio. Holders of shares of any Portfolio are
entitled to redeem their shares as set forth under "Purchase and Redemption of
Shares".
Voting Rights
The voting rights of Contract owners, and limitations on those rights,
are explained in the accompanying prospectus relating to the Contracts.
Lutheran Brotherhood and LBVIP, as the owners of the assets in the Accounts,
are entitled to vote all of the shares of the Fund held to fund the benefits
under the Contracts, but it will generally do so in accordance with the
instructions of Contract owners. Any such shares of a Portfolio attributable
to a Contract for which no timely voting instructions are received, and any
shares of that Portfolio held by Lutheran Brotherhood, LBVIP or any of their
affiliates for their own account, will be voted by Lutheran Brotherhood or
LBVIP in proportion to the voting instructions that are received with respect
to all Contracts participating in that Portfolio. Under certain circumstances
described in the accompanying Contract prospectus, however, Lutheran
Brotherhood and LBVIP may disregard voting instructions received from Contract
owners.
Shareholders are entitled to one vote for each share held. Because the
per share purchase price of shares of different Portfolios will not,
generally, be the same (initial purchase price for shares of the Growth
Portfolio, the High Yield Portfolio and the Income Portfolio was $10 per
share, as compared to $1 per share for the Money Market Portfolio), the number
of votes obtained as a result of a particular amount invested will generally
vary depending on which Portfolio's shares are purchased (for example, using
the initial purchase prices set forth above, a $100 investment in the Money
Market Portfolio would result in 100 votes, whereas the same investment in any
one of the other Portfolios would result in only 10 votes).
The Fund's Bylaws provide that regular meetings of the shareholders of
the Fund may be held on an annual or less frequent basis as determined by the
Board of Directors of the Fund; provided, however, that if a regular meeting
has not been held during the immediately preceding 15 months, a shareholder or
shareholders holding 3% or more of the voting power of all shares entitled to
vote may demand a regular meeting of shareholders by written demand given to
the Chief Executive Officer or Chief Financial Officer of the Fund.
Calculation of Performance
From time to time the Fund advertises the Money Market Portfolio's
"yield" and "effective yield". Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of
the Portfolio refers to the income generated by an investment in the Portfolio
over a seven-day period (which period will be stated in the advertisement).
This income is then "annualized". That is, the, amount of income generated by
the investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in the Portfolio is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding effect of
this assumed reinvestment. The annualized current yield and effective yield
for the seven-day base period ended March 31, 1995, was 5.77% and 5.93%,
respectively. For more information, see the Statement of Additional
Information.
Also, the Fund may advertise for the Portfolios other than the Money
Market Portfolio a yield quotation based on a 30-day (or one month) period
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period.
The current yield for the 30-day base period ended March 31, 1995 for the High
Yield Portfolio was 10.65%. The current yield for the same 30-day base period
for the Income Portfolio was 7.09%. For more information, see the Statement of
Additional Information.
From time to time, the Fund advertises the average annual total return
quotations for the Portfolios for the 1, 3, 5 and 10-year periods (or such
shorter time period during which the Fund's shares have been offered),
computed by finding the average annual compounded rates of return over the 1,
3, 5 and 10-year periods (or such shorter time period during which the Fund's
shares have been offered) that would equate the initial amount invested to the
ending redeemable value of a hypothetical $1,000 payment made at the beginning
of the 1, 3, 5 or 10-year periods (or such shorter time period during which
the Fund's shares have been offered).
The average annual total returns for the 1-year, 3-year and 5-year
periods ended March 31, 1995, and for the period from the Fund's effective
date through March 31, 1995 for the Portfolios are as follows:
<TABLE>
<CAPTION>
From
1 Year 3 Years 5 Years Inception
<S> <C> <C> <C> <C>
Growth Portfolio (1/9/87) 9.08% 8.06% 12.00% 9.51%
High Yield Portfolio (11/2/87) 1.84% 10.91% 14.79% 12.37%
Income Portfolio (1/9/87) 4.02% 6.65% 9.36% 8.00%
Money Market Portfolio (1/9/87) 4.69% 3.60% 4.73% 5.85%
</TABLE>
Average annual total return quotations assume a steady rate of growth.
Actual performance fluctuates and will vary from the quoted results for
periods of time within the quoted periods. For more information, see the
Statement of Additional Information.
Quotations of yield or total return for the Fund will not take into
account charges or deductions against any Account to which the Fund shares are
sold or charges and deductions against the Contracts issued by Lutheran
Brotherhood or LBVIP. The Portfolios' yield and total return should not be
compared with mutual funds that sell their shares directly to the public since
the figures provided do not reflect charges against the Account or the
Contract. Performance information for any Portfolio reflects only the
performance of a hypothetical investment in the Portfolio during the
particular time period on which the calculations are based. Performance
information should be considered in light of the Portfolios' investment
objectives and policies, characteristics and quality of the portfolios, and
the market conditions during the given time period, and should not be
considered as a representation of what may be achieved in the future. For a
description of the methods used to determine yield and total return for the
Portfolios, see the Statement of Additional Information.
Comparative Performance
The Portfolios' performance reported from time to time in advertisements
and sales literature may be compared to generally accepted indices or analyses
such as those provided by Lipper Analytical Service, Inc., Standard & Poor's
and Dow Jones. Performance ratings reported periodically in financial
publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, FORTUNE, FINANCIAL
PLANNING and the WALL STREET JOURNAL will be used.
Portfolio Reports
The Fund will send each shareholder, at least annually, reports showing
as of a specified date the number of shares in each Portfolio credited to the
shareholder. The Fund will also send Contract owners' reports semiannually
showing the financial condition of the Portfolios and the investments held in
each. The annual report may take the form of an updated copy of this
Prospectus.
Transfer Agent and Dividend Disbursing Agent
State Street Bank and Trust Company, Boston, Massachusetts, is the
transfer agent and dividend disbursing agent for the Fund. The Bank is also
custodian of the assets of the Fund.
Shareholder Inquiries
Shareholder inquiries with respect to the Fund should be addressed to LB
Series Fund, Inc., 625 Fourth Avenue South, Minneapolis, Minnesota 55415,
attention: Secretary.
DESCRIPTION OF DEBT RATINGS
Moody's Investors Service, Inc. describes grades of corporate debt securities
and "Prime-1" and "Prime-2" commercial paper as follows:
Bonds:
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Commercial Paper:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics:
* Leading market positions in well-established industries.
* High rates of return of funds employed.
* Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
* Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
* Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earning trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Standard & Poor's Corporation describes grades of corporate debt
securities and "A" commercial paper as follows:
Bonds:
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB,B,
CCC,
CC,C Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Commercial Paper: Commercial paper rated A by Standard & Poor's Corporation
has the following characteristics: liquidity ratios are better than the
industry average; long-term senior debt rating is "A" or better (however, in
some cases BBB credits may be acceptable); the issuer has access to at least
two additional channels of borrowing; basic earnings and cash flow have an
upward trend with allowances made for unusual circumstances. Also, the
issuer's industry typically is well established, the issuer has a strong
position within its industry and the reliability and quality of management is
unquestioned. Issuers rated A are further referred to by use of numbers 1, 2
and 3 to denote relative strength within this classification.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information included in the
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 with respect to the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The Registration
Statement including the exhibits filed therewith may be examined at the office
of the Securities and Exchange Commission in Washington, D.C.
Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, each such statement being qualified in all respects
by such reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
LB SERIES FUND, INC.
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Prospectus for LB Series Fund, Inc. (the "Fund")
dated January 15, 1996. Much of the information contained in this Statement of
Additional Information expands upon subjects discussed in the Prospectus. No
investment in shares of the Fund should be made without first reading the
Prospectus for the Fund. A copy of the Prospectus for the Fund may be obtained
from LB Series Fund, Inc., 625 Fourth Avenue South, Minneapolis, Minnesota
55415.
_________________________________
Table of Contents
PAGE
THE FUND
INVESTMENT OBJECTIVES AND POLICIES
Securities in Which the Portfolios May
Currently Invest
Additional Investment Restrictions Applicable
to the Portfolios
Loans of Portfolio Securities
Portfolio Turnover Policy
FOREIGN FUTURES AND OPTIONS - WORLD GROWTH PORTFOLIO
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
HYBRID INSTRUMENTS
INVESTMENT RISKS - WORLD GROWTH PORTFOLIO
MANAGEMENT OF THE FUND
Directors and Officers of the Fund
COMPENSATION OF DIRECTORS AND OFFICERS
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
Custodian
Independent Accountants
PORTFOLIO BROKERAGE AND RELATED PRACTICES
ROWE PRICE-FLEMING AFFILIATED TRANSACTIONS
CAPITAL STOCK
DETERMINATION OF THE NET ASSET VALUE
CALCULATION OF PERFORMANCE
TAX STATUS
ADDITIONAL INFORMATION
REPORT OF INDEPENDENT ACCOUNTANTS AND
FINANCIAL STATEMENTS
_________________________________
The date of this Statement of Additional
Information is January 15, 1996.
THE FUND
LB Series Fund, Inc. (the "Fund"), a diversified open-end management
investment company, is a Minnesota corporation organized on February 24, 1986.
Prior to January 31, 1994, the Fund was known as LBVIP Series Fund, Inc. The
Fund is made up of six separate Portfolios: the Money Market Portfolio, the
Income Portfolio, the High Yield Portfolio, the Growth Portfolio, the
Opportunity Growth Portfolio, and the World Growth Portfolio. Each Portfolio
is in effect a separate investment fund, and a separate class of capital stock
is issued with respect to each Portfolio.
Investment Objectives and Policies
The following information supplements the discussion under "Investment
Objectives and Policies of the Portfolios" in the Fund's Prospectus.
Securities in Which the Portfolios May Currently Invest
The Money Market Portfolio, and the other Portfolios to the extent their
investment policies so provide, as discussed in the Prospectus, may invest in
the following liquid, short-term debt securities regularly bought and sold by
financial institutions:
1. U.S. Treasury Bills and other obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. These are debt securities
(including bills, certificates of indebtedness, notes and bonds) issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S.
Government that is established under the authority of an act of Congress. Such
agencies or instrumentalities include, but are not limited to, the Federal
National Mortgage Association, the Export--Import Bank, the Federal Farm
Credit Bank and the Federal Home Loan Bank. Although all obligations of
agencies and instrumentalities are not direct obligations of the U.S.
Treasury, payment of the interest and principal of them is generally backed
directly or indirectly by the U.S. Government. This support can range from the
backing of the full faith and credit of the United States, to U.S. Treasury
guarantees, or to the backing solely of the issuing instrumentality itself.
2. U.S. dollar denominated obligations (including certificates of
deposit, bankers' acceptances, letters of credit and time deposits) of any
United States bank, savings and loan association or savings bank or foreign
branches thereof, or U.S. dollar denominated obligations of banks organized
under the laws of Australia, Canada, France, Germany, Japan, the Netherlands,
Switzerland or the United Kingdom, provided that such bank or savings and loan
association has, at the time of the Portfolio's investment, total assets of at
least $1 billion or the equivalent. The term "certificates of deposit"
includes both Eurodollar certificates of deposit, which are traded in the
over--the--counter market, and Eurodollar time deposits, for which there is
generally not a market. "Eurodollars" are dollars deposited in banks outside
the United States. Also included within the term "certificates of deposit" are
U.S. dollar denominated certificates of deposit issued by U.S. branches of
foreign banks held in the United States (Yankee-Dollar Certificates of
Deposit).
"Certificates of deposit" are certificates evidencing the indebtedness of
a commercial bank to repay funds deposited with it for a definite period of
time (usually from 14 days to one year). "Bankers' acceptances" are credit
instruments evidencing the obligation of a bank to pay a draft which has been
drawn on it by a customer. These instruments reflect the obligation both of
the bank and of the drawer to pay the face amount of the instrument upon
maturity. "Time deposits" are non-negotiable deposits in a bank for a fixed
period of time.
3. Commercial paper issued by domestic corporations which at the date of
investment has been found by the Portfolio's Adviser to have minimal credit
risk and is rated "high quality" by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P"), provided that in no
event will the Portfolio invest in commercial paper rated lower than Prime-2
by Moody's or A-2 by S&P or, if not rated, issued by domestic corporations
which have an outstanding senior long-term debt issue rated Baa or better by
Moody's or BBB or better by S&P. In the case where commercial paper has
received different ratings from different services, such commercial paper is
an acceptable investment so long as at least one rating is a top quality
rating and provided the commercial paper presents minimal credit risk. The
Portfolio will not invest more than 5% of its assets in securities that have
received different ratings from different services, and will invest no more
than 1% of its assets in the securities of one issuer, when such securities
have received different ratings. See "Description of Debt Ratings" for an
explanation of the ratings issued by Moody's and S&P. "Commercial paper"
consists of short-term (usually from one to 270 days) unsecured promissory
notes issued by corporations in order to finance their current operations.
4. Other corporate obligations issued by domestic corporations which at
the date of investment are rated Baa or better by Moody's or BBB or better by
S&P, except that the High Yield Portfolio may invest in corporate obligations
that are rated Ba or lower by Moody's, BB or lower by S&P, rated similarly by
any other nationally-recognized statistical rating organization, or, if not
rated, such securities may be of comparable quality in the opinion of the
Fund's investment adviser. See "Description of Debt Ratings" for rating
information. "Corporate obligations" are bonds and notes issued by
corporations and other business organizations, including business trusts, in
order to finance their long-term credit needs.
5. Variable amount demand master notes issued by domestic corporations
which, at the date of investment, either (a) have an outstanding senior long-
term debt issue rated Baa or better by Moody's (Aa or better if purchased by
the Money Market Portfolio) or BBB or better by S&P (AA or better if purchased
by the Money Market Portfolio), or (b) do not have rated long-term debt
outstanding but have commercial paper rated at least Prime-2 by Moody's or A-2
by S&P. Additionally, ratings on such variable amount demand master notes held
by the High Yield Portfolio may carry a long term rating of Ba or lower by
Moody's or BB or lower by S&P. The Money Market Portfolio may also invest in
variable amount demand master notes if (a) such securities have a high quality
short-term debt rating from an unaffiliated, nationally-recognized statistical
rating organization or, if not rated, such securities are of comparable
quality as determined by management of the Fund, and (b) the demand feature of
such securities described below is unconditional, that is, exercisable even in
the event of a default in the payment of principal or interest on the
underlying securities. Variable amount demand master notes are unsecured
obligations that permit the investment by the Portfolio of amount that may
fluctuate daily, at varying rates of interest pursuant to direct arrangements
between the Portfolio and the issuing corporation. Although callable on demand
by the Portfolio, these obligations are not marketable to third parties. They
will not be purchased unless the Fund's investment adviser (the "Adviser") has
determined that the issuer's liquidity is such as to enable it to pay the
principal and interest immediately upon demand.
The Money Market Portfolio, in accordance with the requirements of the
Securities and Exchange Commission rule that permits the use of the amortized
cost accounting method of valuation (see "Determination of Net Asset Value"),
will limit its investments to those U.S. dollar-denominated instruments which
management of the Fund determines present minimal credit risks and which are
of "high quality" as determined by any major rating service (Aa or better by
Moody's, AA or better by S&P for corporate debt securities; Prime-2 or better
by Moody's, A-2 or better by S&P for commercial paper; see the preceding
paragraph with regard to variable amount demand master notes) or, in the case
of any instrument that is not rated, of comparable quality as determined by
management of the Fund.
A description of repurchase agreements, reverse repurchase agreements and
when-issued and delayed delivery securities appears in the Fund's Prospectus
under "Investment Objectives and Policies of the Prospectus--Money Market
Portfolio".
The Fund may invest in the securities of foreign issuers including, as
noted above, certain obligations of foreign banks and foreign branches of U.S.
banks. Investments in such securities involve risks that are different in some
respects from an investment in obligations of domestic issuers, including
future political and economic developments such as possible expropriation or
confiscatory taxation that might adversely affect the payment of principal and
interest on such securities. In addition, there might be less publicly
available information about such foreign issuers than about domestic issuers,
and such foreign issuers may not be subject to the same accounting, auditing
and financial standards and requirements as domestic issuers. Finally, in the
event of default, judgments against a foreign issuer might be difficult to
obtain or enforce. Additional information concerning the risks of foreign
investing that applies to the World Growth Portfolio is stated below.
Additional Investment Restrictions Applicable to the Portfolios
In addition to the investment restrictions applicable to the Portfolios
described in the Prospectus, none of the Portfolios will:
1. Buy or sell real estate, mortgages, commodities or commodity
contracts, although the Portfolios may buy and sell securities which are
secured by real estate and securities of real estate investment trusts and of
other issuers that engage in real estate operations, and except that the
Portfolios may enter into financial futures contracts, may purchase put
options on financial futures contracts and may purchase and sell call options
on financial futures contract, if such transactions are for purposes of
hedging the Fund's portfolio.
2. Acquire securities for the purpose of exercising control or
management of any company except in connection with a merger, consolidation,
acquisition or reorganization.
3. Make short sales.
4. Purchase securities on margin or otherwise borrow money or issue
senior securities except that a Portfolio, in accordance with its investment
objectives and policies, may enter into reverse repurchase agreements and
purchase securities on a when-issued and delayed delivery basis, within the
limitations set forth in the Prospectus under "Investment Objectives and
Policies of the Portfolios--Money Market Portfolio".
5. Lend money, except that loans of up to 10% of the value of each
Portfolio may be made through the purchase of privately placed bonds,
debentures, notes and other evidences of indebtedness of a character
customarily acquired by institutional investors that may or may not be
convertible into stock or accompanied by warrants or rights to acquire stock.
Repurchase agreements and the purchase of publicly trade debt obligations are
not considered to be "loans" for this purpose and may be entered into or
purchased by a Portfolio in accordance with its investment objectives and
policies.
6. Underwrite the securities of other issuers, except where the Fund may
be deemed to be an underwriter for purposes of certain federal securities laws
in connection with the disposition of portfolio securities and with loans that
a Portfolio may make pursuant to paragraph 5 above.
7. Purchase securities of a company in any industry if as a result of
the purchase a Portfolio's holdings of securities issued by companies in that
industry would exceed 25% of the value of the Portfolio, except that this
restriction does not apply to purchases of obligations issued or guaranteed by
the U.S. Government, its agencies and instrumentalities, or issued by domestic
banks. For purposes of this restriction, neither finance companies as a group
nor utility companies as a group are considered to be a single industry and
will be grouped instead according to their services; for example, gas,
electric, and telephone utilities will each be considered a separate industry.
8. Buy or sell the securities of other investment companies, except by
purchases in the open market involving only customary brokerage commissions,
or except as part of a merger, consolidation or other acquisition.
Certain additional investment restrictions are applicable only to the
Money Market Portfolio. That Portfolio will not:
1. Invest in oil and gas interests, common stock, preferred stock,
warrants or other equity securities.
2. Invest in any security with a remaining maturity in excess of one
year, except that securities held pursuant to repurchase agreements may have a
remaining maturity of more than one year.
All of the investment restrictions set forth above are fundamental to the
operations of the Fund and may not be changed except with the approval of the
holders of a majority of the outstanding shares of the Portfolio affected
(which for this purpose and under the Investment Company Act of 1940 means the
lesser of (a) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented, or (b) more than 50% of the
outstanding shares). The policies by which a Portfolio seeks to achieve its
investment objectives, however, are not fundamental. They may be changed by
the Board of Directors of the Fund without the approval of the shareholders.
Investment limitations may also arise under the insurance laws and
regulations of certain states which may impose additional restrictions on the
Portfolios.
Loans of Portfolio Securities
The Income, High Yield, Growth, Opportunity Growth, and World Growth
Portfolios may from time to time lend the securities they hold to broker-
dealers, provided that such loans are made pursuant to written agreements and
are continuously secured by collateral in the form of cash, U.S. Government
securities, or irrevocable standby letters of credit in an amount at all times
equal to at least the market value of the loaned securities plus the accrued
interest and dividends. During the time securities are on loan, the lending
Portfolio will continue to receive the interest and dividends, or amounts
equivalent thereto, on the loaned securities while receiving a fee from the
borrower or earning interest on the investment of the cash collateral. The
right to terminate the loan will be given to either party subject to
appropriate notice. Upon termination of the loan, the borrower will return to
the lender securities identical to the loaned securities. The lending
Portfolio will not have the right to vote securities on loan, but would likely
terminate the loan and retain the right to vote if that were considered
important with respect to the investment.
The primary risk in lending securities is that the borrower may become
insolvent on a day on which the loaned security is rapidly advancing in price.
In such event, if the borrower fails to return the loaned securities, the
existing collateral might be insufficient to purchase back the full amount of
the security loaned, and the borrower would be unable to furnish additional
collateral. The borrower would be liable for any shortage, but the lending
Portfolio would be an unsecured creditor with respect to such shortage and
might not be able to recover all or any thereof. However, this risk may be
minimized by a careful selection of borrowers and securities to be lent and by
monitoring collateral.
No Portfolio will lend securities to broker-dealers affiliated with the
Adviser. This will not affect a Portfolio's ability to maximize its securities
lending opportunities.
Portfolio Turnover Policy
The portfolio turnover rate is, generally, the percentage computed by
dividing the lesser of portfolio purchases or sales by the average value of
the portfolio, in each case excluding securities with maturities of one year
or less. A higher portfolio turnover rate generally indicates a greater number
of purchases or sales by a portfolio, resulting in greater expense to the
portfolio in the form of brokerage commissions and underwriters' concessions.
For a description of how each of the portfolios conducts sale and purchase
transactions see the section below entitled, "Portfolio Brokerage and Related
Practices."
The annual portfolio turnover rates for the Income Portfolio, High Yield
Portfolio, and Growth Portfolio for the fiscal years ended December 31, 1993
and 1994 are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended December 31, 1993 1994
<S> <C> <C>
Income Portfolio 153% 139%
High Yield Portfolio 68% 44%
Growth Portfolio 243% 135%
</TABLE>
The portfolio turnover rates for the Opportunity Growth Portfolio and the
World Growth Portfolio are expected to be no higher than 100% in their first
year of operation.
FOREIGN FUTURES AND OPTIONS - WORLD GROWTH PORTFOLIO
Participation in foreign futures and foreign options transactions
involves the execution and clearing of trades on or subject to the rules of a
foreign board of trade. Neither the National Futures Association nor any
domestic exchange regulates activities of any foreign boards of trade,
including the execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked
to a domestic market so that a position taken on the market may be liquidated
by a transaction on another market. Moreover, such laws or regulations will
vary depending on the foreign country in which the foreign futures or foreign
options transaction occurs. For these reasons, customers who trade foreign
futures or foreign options contracts may not be afforded certain of the
protective measures provided by the Commodity Exchange Act, the CFTC's
regulations and the rules of the National Futures Association and any domestic
exchange, including the right to use reparations proceedings before the
Commission and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. In particular, funds received
from customers for foreign futures or foreign options transactions may not be
provided the same protections as funds received in respect of transactions on
United States futures exchanges. In addition, the price of any foreign futures
or foreign options contract and, therefore, the potential profit and loss
thereon may be affected by any variance in the foreign exchange rate between
the time your order is placed and the time it is liquidated, offset or
exercised.
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
FOREIGN CURRENCY WARRANTS. Foreign currency warrants are warrants which
entitle the holder to receive from their issuer an amount of cash (generally,
for warrants issued in the United States, in U.S. dollars) which is calculated
pursuant to a predetermined formula and based on the exchange rate between a
specified foreign currency and the U.S. dollar as of the exercise date of the
warrant. Foreign currency warrants generally are exercisable upon their
issuance and expire as of a specified date and time. Foreign currency warrants
have been issued in connection with U.S. dollar-denominated debt offerings by
major corporate issuers in an attempt to reduce the foreign currency exchange
risk which, from the point of view of prospective purchasers of the
securities, is inherent in the international fixed-income marketplace. Foreign
currency warrants may attempt to reduce the foreign exchange risk assumed by
purchasers of a security by, for example, providing for a supplemental payment
in the event that the U.S. dollar depreciates against the value of a major
foreign currency such as the Japanese Yen or German Deutschmark. The formula
used to determine the amount payable upon exercise of a foreign currency
warrant may make the warrant worthless unless the applicable foreign currency
exchange rate moves in a particular direction (e.g., unless the U.S. dollar
appreciates or depreciates against the particular foreign currency to which
the warrant is linked or indexed). Foreign currency warrants are severable
from the debt obligations with which they may be offered, and may be listed on
exchanges. Foreign currency warrants may be exercisable only in certain
minimum amounts, and an investor wishing to exercise warrants who possesses
less than the minimum number required for exercise may be required either to
sell the warrants or to purchase additional warrants, thereby incurring
additional transaction costs. In the case of any exercise of warrants, there
may be a time delay between the time a holder of warrants gives instructions
to exercise and the time the exchange rate relating to exercise is determined,
during which time the exchange rate could change significantly, thereby
affecting both the market and cash settlement values of the warrants being
exercised. The expiration date of the warrants may be accelerated if the
warrants should be delisted from an exchange or if their trading should be
suspended permanently, which would result in the loss of any remaining "time
value" of the warrants (i.e., the difference between the current market value
and the exercise value of the warrants), and, in the case the warrants were
"out-of-the-money," in a total loss of the purchase price of the warrants.
Warrants are generally unsecured obligations of their issuers and are not
standardized foreign currency options issued by the Options Clearing
Corporation ("OCC"). Unlike foreign currency options issued by OCC, the terms
of foreign exchange warrants generally will not be amended in the event of
governmental or regulatory actions affecting exchange rates or in the event of
the imposition of other regulatory controls affecting the international
currency markets. The initial public offering price of foreign currency
warrants is generally considerably in excess of the price that a commercial
user of foreign currencies might pay in the interbank market for a comparable
option involving significantly larger amounts of foreign currencies. Foreign
currency warrants are subject to significant foreign exchange risk, including
risks arising from complex political or economic factors.
PRINCIPAL EXCHANGE RATE LINKED SECURITIES. Principal exchange rate linked
securities are debt obligations the principal on which is payable at maturity
in an amount that may vary based on the exchange rate between the U.S. dollar
and a particular foreign currency at or about that time. The return on
"standard" principal exchange rate linked securities is enhanced if the
foreign currency to which the security is linked appreciates against the U.S.
dollar, and is adversely affected by increases in the foreign exchange value
of the U.S. dollar; "reverse" principal exchange rate linked securities are
like the "standard" securities, except that their return is enhanced by
increases in the value of the U.S. dollar and adversely impacted by increases
in the value of foreign currency. Interest payments on the securities are
generally made in U.S. dollars at rates that reflect the degree of foreign
currency risk assumed or given up by the purchaser of the notes (i.e., at
relatively higher interest rates if the purchaser has assumed some of the
foreign exchange risk, or relatively lower interest rates if the issuer has
assumed some of the foreign exchange risk, based on the expectations of the
current market). Principal exchange rate linked securities may in limited
cases be subject to acceleration of maturity (generally, not without the
consent of the holders of the securities), which may have an adverse impact on
the value of the principal payment to be made at maturity.
PERFORMANCE INDEXED PAPER. Performance indexed paper is U.S. dollar-
denominated commercial paper the yield of which is linked to certain foreign
exchange rate movements. The yield to the investor on performance indexed
paper is established at maturity as a function of spot exchange rates between
the U.S. dollar and a designated currency as of or about that time (generally,
the index maturity two days prior to maturity). The yield to the investor will
be within a range stipulated at the time of purchase of the obligation,
generally with a guaranteed minimum rate of return that is below, and a
potential maximum rate of return that is above, market yields on U.S. dollar-
denominated commercial paper, with both the minimum and maximum rates of
return on the investment corresponding to the minimum and maximum values of
the spot exchange rate two business days prior to maturity.
HYBRID INSTRUMENTS
Hybrid Instruments (a type of potentially high risk derivative) have
recently been developed and combine the elements of futures contracts or
options with those of debt, preferred equity or a depository instrument
(hereinafter "Hybrid Instruments"). Often these Hybrid Instruments are indexed
to the price of a commodity, particular currency, or a domestic foreign debt
or equity securities index. Hybrid Instruments may take a variety of forms,
including, but not limited to, debt instruments with interest or principal
payments or redemption terms determined by reference to the value of a
currency or commodity or securities index at a future point in time, preferred
stock with dividend rates determined by reference to the value of a currency,
or convertible securities with the conversion terms related to a particular
commodity.
The risks of investing in Hybrid Instruments reflect a combination of the
risks from investing in securities, options, futures and currencies, including
volatility and lack of liquidity. Reference is made to the discussion of
futures, options, and forward contracts herein for a discussion of these
risks. Further, the prices of the Hybrid Instrument and the related commodity
or currency may not move in the same direction or at the same time. Hybrid
Instruments may bear interest or pay preferred dividends at below market (or
even relatively nominal) rates. Alternatively, Hybrid Instruments may bear
interest at above market rates but bear an increased risk of principal loss
(or gain). In addition, because the purchase and sale of Hybrid Instruments
could take place in an over-the-counter market or in a private transaction
between the Fund and the seller of the Hybrid Instrument, the creditworthiness
of the contra party to the transaction would be a risk factor which the Fund
would have to consider. Hybrid Instruments also may not be subject to
regulation of the Commodities Futures Trading Commission ("CFTC"), which
generally regulates the trading of commodity futures by U.S. persons, the SEC,
which regulates the offer and sale of securities by and to U.S. persons, or
any other governmental regulatory authority.
INVESTMENT RISKS - WORLD GROWTH PORTFOLIO
There are special risks in investing in the World Growth Portfolio, as
discussed in the Prospectus. Certain of these risks are inherent in any
international mutual fund while others relate more to the countries in which
the Portfolio will invest ("Portfolio Companies"). Many of the risks are more
pronounced for investments in developing or emerging countries. Although there
is no universally accepted definition, a developing country is generally
considered to be a country which is in the initial stages of its
industrialization cycle with a per capita gross national product of less than
$5,000.
Investors should understand that all investments have a risk factor.
There can be no guarantee against loss resulting from an investment in the
Portfolio, and there can be no assurance that the Portfolio's investment
policies will be successful, or that its investment objective will be
attained. The Portfolio is designed for individual and institutional investors
seeking to diversify beyond the United States in an actively researched and
managed portfolio, and is intended for long-term investors who can accept the
risks entailed in investment in foreign securities. In addition to the general
risks of foreign investing described in the Fund's Prospectus, other risks
include:
INVESTMENT AND REPATRIATION RESTRICTIONS. Foreign investment in the securities
markets of certain foreign countries is restricted or controlled in varying
degrees. These restrictions may at times limit or preclude investment in
certain of such countries and may increase the cost and expenses of a Fund.
Investments by foreign investors are subject to a variety of restrictions in
many developing countries. These restrictions may take the form of prior
governmental approval, limits on the amount or type of securities held by
foreigners, and limits on the types of companies in which foreigners may
invest. Additional or different restrictions may be imposed at any time by
these or other countries in which a Fund invests. In addition, the
repatriation of both investment income and capital from several foreign
countries is restricted and controlled under certain regulations, including in
some cases the need for certain government consents. Although these
restrictions may in the future make it undesirable to invest in these
countries, the Advisor and Sub-advisor do not believe that any current
repatriation restrictions would affect its decision to invest in these
countries.
MARKET CHARACTERISTICS. Foreign securities may be purchased in over-the-
counter markets or on stock exchanges located in the countries in which the
respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as, and may be more volatile than,
those in the United States. While growing in volume, they usually have
substantially less volume than U.S. markets and a Fund's portfolio securities
may be less liquid and more volatile than securities of comparable U.S.
companies. Equity securities may trade at price/earnings multiples higher than
comparable United States securities and such levels may not be sustainable.
Fixed commissions on foreign stock exchanges are generally higher than
negotiated commissions on United States exchanges, although a Fund will
endeavor to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
foreign stock exchanges, brokers and listed companies than in the United
States. Moreover, settlement practices for transactions in foreign markets may
differ from those in United States markets, and may include delays beyond
periods customary in the United States.
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy
in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. The internal politics of certain foreign countries are not as stable
as in the United States. For example, the Philippines' National Assembly was
dissolved in 1986 following a period of intense political unrest and the
removal of President Marcos. During the 1960's, the high level of communist
insurgency in Malaysia paralyzed economic activity, but by the 1970's these
communist forces were suppressed and normal economic activity resumed. In
1991, the existing government in Thailand was overthrown in a military coup.
In addition, significant external political risks currently affect some
foreign countries. Both Taiwan and China still claim sovereignty of one
another and there is a demilitarized border between North and South Korea.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economics. Action by these governments could have a significant
effect on market prices of securities and payment of dividends. The economies
of many foreign countries are heavily dependent upon international trade and
are accordingly affected by protective trade barriers and economic conditions
of their trading partners. The enactment by these trading partners of
protectionist trade legislation could have a significant adverse effect upon
the securities markets of such countries.
INFORMATION AND SUPERVISION. There is generally less publicly available
information about foreign companies comparable to reports and ratings that are
published about companies in the United States. Foreign companies are also
generally not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to United
States companies.
TAXES. The dividends and interest payable on certain of a Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Fund's
shareholders. A shareholder otherwise subject to United States federal income
taxes may, subject to certain limitations, be entitled to claim a credit or
deduction for U.S. federal income tax purposes for his or her proportionate
share of such foreign taxes paid by the Fund.
COSTS. Investors should understand that the expense ratio of the World Growth
Portfolio can be expected to be higher than investment companies investing in
domestic securities since the cost of maintaining the custody of foreign
securities and the rate of advisory fees paid by the Portfolio are higher.
OTHER. With respect to certain foreign countries, especially developing and
emerging ones, there is the possibility of adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation,
limitations on the removal of funds or other assets of the Portfolio,
political or social instability, or diplomatic developments which could affect
investments by U.S. persons in those countries.
EASTERN EUROPE. Changes occurring in Eastern Europe and Russia today could
have long-term potential consequences. As restrictions fall, this could result
in rising standards of living, lower manufacturing costs, growing consumer
spending, and substantial economic growth. However, investment in the
countries of Eastern Europe and Russia is highly speculative at this time.
Political and economic reforms are too recent to establish a definite trend
away from centrally-planned economies and state owned industries. In many of
the countries of Eastern Europe and Russia, there is no stock exchange or
formal market for securities. Such countries may also have government exchange
controls, currencies with no recognizable market value relative to the
established currencies of western market economies, little or no experience in
trading in securities, no financial reporting standards, a lack of a banking
and securities infrastructure to handle such trading, and a legal tradition
which does not recognize rights in private property. In addition, these
countries may have national policies which restrict investments in companies
deemed sensitive to the country's national interest. Further, the governments
in such countries may require governmental or quasi-governmental authorities
to act as custodian of the Fund's assets invested in such countries and these
authorities may not qualify as a foreign custodian under the Investment
Company Act of 1940 and exemptive relief from such Act may be required. All of
these considerations are among the factors which could cause significant risks
and uncertainties to investment in Eastern Europe and Russia. The Fund will
only invest in a company located in, or a government of, Eastern Europe or
Russia, if the Sub-advisor believes the potential return justifies the risk.
To the extent any securities issued by companies in Eastern Europe and Russia
are considered illiquid, the Portfolio will be required to include such
securities within its 15% restriction on investing in illiquid securities.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in
which the respective principal offices of the issuers of the various
securities are located, if that is the best available market.
The Portfolio may invest in investment portfolios which have been
authorized by the governments of certain countries specifically to permit
foreign investment in securities of companies listed and traded on the stock
exchanges in these respective countries. The Portfolio's investment in these
portfolios is subject to the provisions of the 1940 Act discussed below. If
the Portfolio invests in such investment portfolios, the Portfolio's
shareholders will bear not only their proportionate share of the expenses of
the Portfolio (including operating expenses and the fees of the Investment
Manager), but also will bear indirectly similar expenses of the underlying
investment portfolios. In addition, the securities of these investment
portfolios may trade at a premium over their net asset value.
Apart from the matters described herein, the Fund is not aware at this
time of the existence of any investment or exchange control regulations which
might substantially impair the operations of the Fund as described in the
Fund's Prospectus and this Statement. It should be noted, however, that this
situation could change at any time.
FOREIGN CURRENCY TRANSACTIONS. The World Growth Portfolio will generally enter
into forward foreign currency exchange contracts under two circumstances.
First, when the Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the
U.S. dollar price of the security.
Second, when the Sub-advisor believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, including the U.S. dollar, it may enter into a forward contract to
sell or buy the amount of the former foreign currency, approximating the value
of some or all of the Portfolio's portfolio securities denominated in such
foreign currency. Alternatively, where appropriate, the Portfolio may hedge
all or part of its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currency or currencies act as an
effective proxy for other currencies. In such a case, the Portfolio may enter
into a forward contract where the amount of the foreign currency to be sold
exceeds the value of the securities denominated in such currency. The use of
this basket hedging technique may be more efficient and economical than
entering into separate forward contracts for each currency held in the
Portfolio. The precise matching of the forward contract amounts and the value
of the securities involved will not generally be possible since the future
value of such securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain. Other than as set forth
above, and immediately below, the Portfolio will also not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Portfolio to deliver an
amount of foreign currency in excess of the value of the Portfolio's portfolio
securities or other assets denominated in that currency. The Portfolio,
however, in order to avoid excess transactions and transaction costs, may
maintain a net exposure to forward contracts in excess of the value of the
Portfolio's portfolio securities or other assets to which the forward
contracts relate (including accrued interest to the maturity of the forward on
such securities) provided the excess amount is "covered" by liquid, high-grade
debt securities, denominated in any currency, at least equal at all times to
the amount of such excess. For these purposes "the securities or other assets
to which the forward contracts relate may be securities or assets denominated
in a single currency, or where proxy forwards are used, securities denominated
in more than one currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the Sub-advisor believes that it is important to have the flexibility
to enter into such forward contracts when it determines that the best
interests of the Portfolio will be served.
At the maturity of a forward contract, the Portfolio may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute precision
the market value of portfolio securities at the expiration of the forward
contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of
foreign currency the Portfolio is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency the Portfolio is obligated to deliver.
However, as noted, in order to avoid excessive transactions and transaction
costs, the Portfolio may use liquid, high-grade debt securities denominated in
any currency, to cover the amount by which the value of a forward contract
exceeds the value of the securities to which it relates.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as
described below) to the extent that there has been movement in forward
contract prices. If the Portfolio engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between the Portfolio's
entering into a forward contract for the sale of a foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, the Portfolio will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Portfolio will suffer a loss
to the extent of the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell.
The Portfolio's dealing in forward foreign currency exchange contracts
will generally be limited to the transactions described above. However, the
Portfolio reserves the right to enter into forward foreign currency contracts
for different purposes and under different circumstances. Of course, the
Portfolio is not required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Sub-advisor. It also should be realized that this method of
hedging against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes
a rate of exchange at a future date. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result from an increase in the value of that currency.
Although the Portfolio values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Portfolio at one rate, while offering a lesser rate of
exchange should the Portfolio desire to resell that currency to the dealer.
In addition to the restrictions described above, some foreign countries
limit, or prohibit, all direct foreign investment in the securities of their
companies. However, the governments of some countries have authorized the
organization of investment portfolios to permit indirect foreign investment in
such securities. For tax purposes these portfolios may be known as Passive
Foreign Investment Companies. The Portfolio is subject to certain percentage
limitations under the 1940 Act and certain states relating to the purchase of
securities of investment companies, and may be subject to the limitation that
no more than 10% of the value of the Portfolio's total assets may be invested
in such securities.
For an additional discussion of certain risks involved in foreign
investing, see this Statement and the Fund's Prospectus under "World Growth
Portfolio Investment Risks".
MANAGEMENT OF THE FUND
Directors and Officers of The Fund
The names of all directors and officers of the Fund, the position each
holds with the Fund and the principal occupation of each are shown below.
Name and Address, Position with the Fund, Age, Principal Occupation During
Past 5 Years
Rolf F. Bjelland*, President, Director and Chairman, 625 Fourth Ave. S.,
Minneapolis, MN, Age 57
Investment Officer, Lutheran Brotherhood; President and Director, Lutheran
Brotherhood Research Corp.; Director and Vice President--Investments, Lutheran
Brotherhood Variable Insurance Products Company; Director and Executive Vice
President, Lutheran Brotherhood Financial Corporation; Director, Lutheran
Brotherhood Securities Corp.; Director, Lutheran Brotherhood Real Estate
Products Company; President, Trustee and Chairman of The Lutheran Brotherhood
Family of Funds Funds**.
Charles W. Arnason, Director, 101 Judd Street, Suite 1, Marine-On-St. Croix,
MN, Age 67
Attorney-At-Law; formerly Partner, Head, Hempel, Seifert & Vander Weide;
formerly Executive Director of Minnesota Technology Corridor; formerly Senior
Vice President, Secretary and General Counsel of Cowles Media Company; Trustee
of The Lutheran Brotherhood Family of Funds**.
Herbert F. Eggerding, Jr., Director, 12587 Glencroft Dr., St. Louis, MO, Age
58
Retired Executive Vice President and Chief Financial Officer, Petrolite
Corporation; Director, Wheat Ridge Foundation; Director, Lutheran Charities
Association; Trustee of the Lutheran Brotherhood Family of Funds**.
Connie M. Levi, Director, 50 Peninsula Rd., Dellwood, MN, Age 56
Retired President of the Greater Minneapolis Chamber of Commerce; Directors or
member of numerous governmental, public service and non-profit boards and
organizations; Trustee of The Lutheran Brotherhood Family of Funds**.
Bruce J. Nicholson*, Director, 625 Fourth Ave. S., Minneapolis, MN, Age 48
Executive Vice President and Chief Financial Officer, Lutheran Brotherhood;
Director, Executive Vice President and Chief Financial Officer, Lutheran
Brotherhood Financial Corporation; Director, Lutheran Brotherhood Research
Corp; Director, Lutheran Brotherhood Securities Corp.; Director and Chief
Financial Officer, Lutheran Brotherhood Variable Insurance Products Company;
Director, Lutheran Brotherhood Real Estate Products Company; Trustee, The
Lutheran Brotherhood Family of Funds**.
Ruth E. Randall, Director, University of Nebraska-Lincoln, Clifford Hardin
Nebraska Center for Continuing Education, Room 340 P.O. Box 839300, Lincoln,
NE, Age 66
Interim Dean, Division of Continuing Studies, University of Nebraska-Lincoln ;
formerly Associate Dean and Professor, Department of Educational
Administration, Teachers College, University of Nebraska-Lincoln; Commissioner
of Education for the State of Minnesota; formerly Superintendent of Schools,
Independent School District #196, Rosemount, Minnesota; Director or member of
numerous governmental, public service and non-profit boards and organizations;
Trustee of The Lutheran Brotherhood Family of Funds**.
James M. Walline, Vice President, 625 Fourth Ave. S., Minneapolis, MN, Age 50
Vice President, Lutheran Brotherhood; Vice President, Lutheran Brotherhood
Research Corp.; Vice President, Lutheran Brotherhood Variable Insurance
Products Company; Vice President of The Lutheran Brotherhood Family of
Funds**.
Richard B. Ruckdashel, Vice President, 625 Fourth Ave. S., Minneapolis, MN,
Age 40
Assistant Vice President, Lutheran Brotherhood; Vice President of The Lutheran
Brotherhood Family of Funds**.
Wade M. Voigt, Treasurer, 625 Fourth Ave. S., Minneapolis, MN, Age 39
</R
>
Manager, Mutual Fund Accounting, Lutheran Brotherhood; Treasurer of The
Lutheran Brotherhood Family of Funds**.
Otis F. Hilbert, Vice President and Secretary, 625 Fourth Ave. S.,
Minneapolis, MN, Age 58
Vice President, Lutheran Brotherhood; Director, Counsel, Vice President and
Secretary, Lutheran Brotherhood Securities Corp.; Counsel and Secretary of
Lutheran Brotherhood Research Corp.; Vice President and Secretary, Lutheran
Brotherhood Real Estate Products Company; Vice President and Assistant
Secretary, Lutheran Brotherhood Variable Insurance Products Company; Vice
President and Secretary of The Lutheran Brotherhood Family of Funds**.
James R. Olson, Vice President, 625 Fourth Ave. S., Minneapolis, MN, Age 53
Vice President, Lutheran Brotherhood; Vice President, Lutheran Brotherhood
Securities Corp.; Vice President, Lutheran Brotherhood Research Corp.; Vice
President, Lutheran Brotherhood Variable Insurance Products Company; Vice
President of The Lutheran Brotherhood Family of Funds**.
__________________________________
*The Investment Company Act of 1940 provides that no registered
investment company shall have a board of directors more than 60% of the
members of which are persons who are interested persons of the Adviser or the
Fund. The membership of the Board complies with this requirement. Certain
actions of the Board, including the annual continuance of the Investment
Advisory Agreement between the Fund and the Adviser, must be approved by a
majority of the members of the Board who are not interested persons of the
Adviser or the Fund. Mr. Bjelland and Mr. Nicholson are the only two of the
six members of the Board who are interested persons of the Adviser or the Fund
as that term is defined in the Investment Company Act of 1940.
** The Lutheran Brotherhood Family of Funds is a series mutual fund that
incudes the following separate funds: Lutheran Brotherhood Opportunity Growth
Fund, Lutheran Brotherhood World Growth Fund, Lutheran Brotherhood Fund,
Lutheran Brotherhood High Yield Fund, Lutheran Brotherhood Income Fund,
Lutheran Brotherhood Municipal Bond Fund, and Lutheran Brotherhood Money
Market Fund.
COMPENSATION OF DIRECTORS AND OFFICERS
The Fund make no payments to any of its officers for services performed
for the Fund. Directors of the Fund who are not interested persons of the Fund
are paid an annual retainer fee of $19,500 and an annual fee of $9,000 per
year to attend meetings of Board of Directors of the Fund complex.
Directors who are not interested persons of the Fund are reimbursed by
the Fund for any expenses they may incur by reason of attending Board meetings
or in connection with other services they may perform in connection with their
duties as Directors of the Fund. The Directors receive no pension or
retirement benefits in connection with their service to the Fund.
For the fiscal year ended December 31, 1994, the Directors of the Fund
received the following amounts of compensation:
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Name and Position Compensation Paid by Fund and
of Person From Fund Fund Complex(1)
- ----------------- ------------ -----------------
<S> <C> <C>
Rolf F. Bjelland(2) $0 $0
Chairman
and Director
Charles W. Arnason $4,643 $24,250
Director
Herbert F. Eggerding, Jr. $4,643 $24,250
Director
Luther O. Forde(2)(3) $0 $0
Bobby I. Griffin(4) $2,071 $11,250
Connie M. Levi $4,643 $24,250
Director
Bruce J. Nicholson(2) $0 $0
Director
Ruth E. Randall $4,643 $24,250
Director
</TABLE>
(1) The "Fund Complex" includes The Lutheran Brotherhood Family of Funds and
LB Series Fund, Inc.
(2) "Interested person" of the Fund as defined in the Investment Company
Act of 1940.
(3) Retired as a Director of the Fund effective April 30, 1995.
(4) Resigned as a Director to accept appointment to the Board of Directors of
Lutheran Brotherhood June 30, 1994.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Shares in the Fund are sold only to separate accounts (the "Accounts") of
Lutheran Brotherhood and Lutheran Brotherhood Variable Insurance Products
Company ("LBVIP"), to fund benefits under various variable life insurance and
annuity contracts issued by Lutheran Brotherhood and LBVIP (the "Contracts").
The voting rights of Contract owners, and limitations on those rights,
are explained in separate prospectuses relating to such Contracts. Lutheran
Brotherhood and LBVIP, as the owners of the assets in the Accounts, are
entitled to vote all of the shares of the Fund held to fund the benefits under
the Contracts, but they will generally do so in accordance with the
instructions of Contract owners. Any shares of a Portfolio attributable to a
Contract for which no timely voting instructions are received, and any shares
of that Portfolio held by Lutheran Brotherhood, LBVIP or any of their
affiliates for their own account, will be voted by Lutheran Brotherhood and
LBVIP in proportion to the voting instructions that are received with respect
to all Contracts participating in that Portfolio. Under certain circumstances
described in the separate prospectus relating to the Contracts, however,
Lutheran Brotherhood and LBVIP may disregard voting instructions received from
Contract owners.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
Lutheran Brotherhood (the "Adviser") is the investment adviser of the
Fund. The Adviser is registered as an investment adviser under the Investment
Advisers Act of 1940. Lutheran Brotherhood, founded in 1917 under the laws of
Minnesota, is a fraternal benefit society owned by and operated for its
members. It is subject to regulation by the Insurance Division of the State of
Minnesota as well as by the insurance departments of all the other states and
jurisdictions in which it does business. LBVIP is an indirect subsidiary of
Lutheran Brotherhood.
Certain directors and officers of the Fund are also affiliates of
Lutheran Brotherhood and/or LBVIP. See "Management of the Fund--Directors and
Officers of the Fund".
Investment decisions for the World Growth Portfolio are made by Rowe
Price-Fleming International, Inc. (the "Sub-advisor"), which Lutheran
Brotherhood has engaged the sub-advisor for that Portfolio. The Sub-advisor
manages that Portfolio on a daily basis, subject to the overall direction of
Lutheran Brotherhood and the Fund's Board of Directors.
The Sub-advisor was founded in 1979 as a joint venture between T. Rowe
Price Associates, Inc. and Robert Fleming Holdings Limited. The Sub-advisor is
one of the world's largest international mutual fund asset managers with
approximately $17 billion under management as of December 31, 1994 in its
offices in Baltimore, London, Tokyo and Hong Kong.
The Advisory Contract provides that it shall continue in effect with
respect to each Portfolio from year to year as long as it is approved at least
annually both (i) by a vote of a majority of the outstanding voting securities
of such Portfolio (as defined in the 1940 Act) or by the Directors of the
Fund, and (ii) in either event by a vote of a majority of the Directors who
are not parties to the Advisory Contract or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Contract may be terminated on 60 days' written notice
by either party and will terminate automatically in the event of its
assignment, as defined under the 1940 Act and regulations thereunder. Such
regulations provide that a transaction which does not result in a change of
actual control or management of an adviser is not deemed an assignment.
The Sub-advisory Contract between the Fund and the Sub-advisor provides
that it shall continue in effect with respect to the World Growth Portfolio
from year to year as long as it is approved at least annually both (i) by a
vote of a majority of the outstanding voting securities of such Portfolio (as
defined in the 1940 Act) or by the Directors of the Fund, and (ii) in either
event by a vote of a majority of the Directors who are not parties to the Sub-
advisory Contract or "interested persons" of any party thereto, cast in person
at a meeting called for the purpose of voting on such approval. The Sub-
advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically in the event of its assignment, as defined
under the 1940 Act and regulations thereunder. Such regulations provide that a
transaction which does not result in a change of actual control or management
of an adviser is not deemed an assignment.
The Adviser receives an investment advisory fee as compensation for its
services to the Fund. The fee is a daily charge equal to an annual rate of
.40% of the aggregate average daily net assets of the Money Market, Income,
High Yield, Growth and Opportunity Growth Portfolios. The fee is a daily
charge equal to an annual rate of .85% of the aggregate average daily net
assets of the World Growth Portfolio Each daily charge for the fee is divided
among the Portfolios in proportion to their net assets on that day. During the
fiscal periods ended December 31, 1994, 1993, and 1992, the Adviser earned
$7,450,844, $4,340,282, and $1,800,085, respectively, as gross advisory fees.
Lutheran Brotherhood pays the Sub-advisor for the World Growth Portfolio
an annual sub-advisory fee for the performance of sub-advisory services. The
fee payable is equal to a percentage of the that Portfolio's average daily net
assets. The percentage decreases as the Portfolio's assets increase. For
purposes of determining the percentage level of the sub-advisory fee for the
Portfolio, the assets of the Portfolio are combined with the assets of the
Lutheran Brotherhood World Growth Fund, another fund with investment
objectives and policies that are similar to the World Growth Porfolio and for
which the Sub-advisor also provides sub-advisory services. The sub-advisory
fee Lutheran Brotherhood pays the Sub-advisor is equal to the World Growth
Portfolio's pro rata share of the combined assets of the Portfolio and the
Lutheran Brotherhood World Growth Fund and is equal to .75% of combined
average daily net assets up to $20 million, .60% of combined average daily net
assets over $20 million but not over $50 million, and .50% of combined average
daily net assets over $50 million. When the combined assets of the World
Growth Portfoio and the Lutheran Brotherhood World Growth Fund exceed $200
million, the sub-advisory fee for the World Growth Portfolio is equal to .50%
of all of the Portfolio's average daily net assets.
The Investment Advisory Agreement provides that the Fund will pay, or
provide for the payment of, the compensation of the directors who are not
affiliated with the Adviser, Lutheran Brotherhood or LBVIP and all other
expenses of the Fund (other than those assumed by the Adviser), including
governmental fees, interest charges, taxes, membership dues in the Investment
Company Institute allocable to the Fund, fees and expenses of the independent
auditors, of legal counsel and of any transfer agent, registrar and dividend
disbursing agent of the Fund, expenses of preparing, printing and mailing
prospectuses, shareholders' reports, notices, proxy statements and reports to
governmental officers and commissions, expenses connected with the execution,
recording and settlement of portfolio security transactions, insurance
premiums, fees and expenses of the Fund's custodian for all services to the
Fund, expenses of calculating the net asset value of the shares of the
Portfolio of the Fund, expenses of shareholders' meetings and expenses
relating to the issuance, registration and qualification of shares of the
Fund. Lutheran Brotherhood and LBVIP have agreed with the Fund to pay, or to
reimburse the Fund for the payment of, all of the foregoing expenses.
The Adviser also furnishes at its own expense all necessary
administrative services, office space, equipment and clerical personnel for
servicing the investments of the Fund and maintaining its organization, and
investment advisory facilities and executive and supervisory personnel for
managing the investments and effecting the portfolio transactions of the Fund.
The Investment Advisory Agreement specifically provides that the Adviser,
including its directors, officers and employees, shall not be liable for any
error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution and management of the
Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its
obligations and duties under the Agreement.
The Adviser, through the indirect ownership of Lutheran Brotherhood
Research Corp., also serves as the investment adviser to several other
investment companies. When investment opportunities arise that may be
appropriate for one of the Portfolios and one or more of such other companies,
the Adviser will not favor one over another and may allocate investments among
them in an impartial manner believed to be equitable to each entity involved.
The allocations will be based on the investment objectives and current cash
and investment position of each. Because the various entities for which the
Adviser acts as investment adviser have different investment objectives and
positions, the Adviser may from time to time buy a particular security for one
or more such entities while at the same time it sells such securities for
another.
Custodian
State Street Bank and Trust Company, Boston, Massachusetts, is the
custodian of the securities held by the Portfolios and is authorized to use
various securities depository facilities, such as the Depository Trust Company
and the facilities of the book-entry system of the Federal Reserve Bank. State
Street Bank and Trust Company is also the transfer agent and dividend
disbursing agent for the Fund.
Independent Accountants
The independent accountant for the Fund is Price Waterhouse LLP.
PORTFOLIO BROKERAGE AND RELATED PRACTICES
Except for the World Growth Portfolio, the Adviser is responsible for
decisions to buy and sell securities for the Portfolios, the selection of
brokers and dealers to effect the transactions and the negotiation of
brokerage commissions, if any. The Sub-advisor is responsible for such
functions for the World Growth Portfolio. Transactions on a stock exchange in
equity securities for the Growth Portfolio, the Opportunity Growth Portfolio
and the World Growth Portfolio will be executed primarily through brokers that
will receive a commission paid by the Portfolio. The Money Market, High Yield
and Income Portfolios, on the other hand, will not normally incur any
brokerage commissions. Fixed income securities, as well as equity securities
traded in the over-the-counter market, are generally traded on a "net" basis
with dealers acting as principals for their own accounts without a stated
commission, although the price of the security usually includes a profit to
the dealer. In underwritten offerings, securities are purchased at a fixed
price that includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. Certain of these
securities may also be purchased directly from an issuer, in which case
neither commissions nor discounts are paid.
In placing orders for securities transactions, the Adviser and the Sub-
advisor give primary consideration to obtaining the most favorable price and
efficient execution. The Adviser and the Sub-advisor seek to effect each
transaction at a price and commission, if any, that provides the most
favorable total cost or proceeds reasonably attainable in the circumstances.
The Adviser and the Sub-advisor may, however, pay a higher commission than
would otherwise be necessary for a particular transaction when, in the
Adviser's or Sub-advisor's opinion, to do so will further the goal of
obtaining the best available execution.
In connection with any securities transaction that involves a commission
payment, the Adviser or the Sub-advisor negotiates the commission with the
broker on the basis of the quality and quantity of execution services that the
broker provides, in light of generally prevailing commission rates. When
selecting a broker or dealer in connection with a transaction for any
Portfolio, the Adviser or the Sub-advisor gives consideration to whether the
broker or dealer has furnished the Adviser or the Sub-advisor with certain
services, provided this does not jeopardize the objective of obtaining the
best price and execution. These services, which include statistical and
economic data and research reports on particular companies and industries, are
services that brokerage houses customarily provide to institutional investors.
The Adviser or the Sub-advisor uses these services in connection with all of
its investment activities, and some of the data or services obtained in
connection with the execution of transactions for a Portfolio may be used in
managing other investment accounts. Conversely, brokers and dealers furnishing
such services may be selected for the execution of transactions of such other
accounts, while the data or service may be used by the Adviser or the Sub-
advisor in providing investment management for the Fund. Although the
Adviser's and the Sub-advisor's present policies are not to pay higher
commissions on transactions in order to secure research and statistical
services from brokers or dealers, the Adviser or the Sub-advisor might in the
future pay higher commissions, but only with the prior concurrence of the
Board of Directors of the Fund, if the Adviser or the Sub-advisor determines
that the higher commissions are necessary in order to secure desired research
and are reasonable in relation to all of the services that the broker or
dealer provides.
The Adviser or the Sub-advisor may employ an affiliated broker to execute
brokerage transactions on behalf of the Portfolios, as long as the Adviser or
the Sub-advisor obtains a price and execution as favorable as that which would
be available through the use of an unaffiliated broker, and no less favorable
than the affiliated broker's contemporaneous charges to its other most
favored, but unaffiliated, customers. The Fund may not engage in any
transactions in which the Adviser or the Sub-advisor or their affiliates acts
as principal, including over-the-counter purchases and negotiated trades in
which such a party acts as a principal.
The Adviser or the Sub-advisor may enter into business transactions with
brokers or dealers other than using them to execute Portfolio securities
transactions for accounts the Adviser or the Sub-advisor manages. These other
transactions will not affect the Adviser's or the Sub-advisor's selection of
brokers or dealers in connection with Portfolio transactions for the Fund.
ROWE PRICE-FLEMING AFFILIATED TRANSACTIONS
Subject to applicable SEC rules, as well as other regulatory
requirements, the Sub-advisor of the World Growth Portfolio may allocate
orders to brokers or dealers affiliated with the Sub-advisor. Such allocation
shall be in such amounts and proportions as the Sub-advisor shall determine
and the Sub-advisor will report such allocations either to Lutheran
Brotherhood, which will report such allocations to the Board of Directors, or,
if requested, directly to the Board of Directors. It is expected that less
than 20% of the aggregate brokerage commissions for World Growth Portfolio
will be paid to affiliates of that Portfolio's Sub-advisor for the fiscal year
ending December 31, 1995.
CAPITAL STOCK
The total number of shares of capital stock which the Fund has authority
to issue is 2,000,000,000 shares of the par value of $.01 per share. All
shares are divided into the following classes of capital stock, each class
comprising the number of shares and having the designations indicated,
subject, however, to the authority to increase and decrease the number of
shares of any class granted to the Board of Directors:
<TABLE>
<CAPTION>
Class Number of Shares
<S> <C>
Money Market Portfolio Capital Stock 400,000,000
Income Portfolio Capital Stock 400,000,000
High Yield Portfolio Capital Stock 200,000,000
Growth Portfolio Capital Stock 600,000,000
Opportunity Growth Portfolio Capital Stock 200,000,000
World Growth Portfolio Capital Stock 200,000,000
</TABLE>
Subject to any then applicable statutory requirements, the balance of any
unassigned shares of the authorized capital stock may be issued in such
classes, or in any new class or classes having such designations, such powers,
preferences and rights as may be fixed and determined by the Board of
Directors. In addition, and subject to any applicable statutory requirements,
the Board of Directors has the authority to increase or decrease the number of
shares of any class, but the number of shares of any class will not be
decreased below the number of shares thereof then outstanding.
The holder of each share of stock of the Fund shall be entitled to one
vote for each full share and a fractional vote for each fractional share of
stock, irrespective of the class, then standing in such holder's name on the
books of the Fund. On any matter submitted to a vote of shareholders, all
shares of the Fund will be voted in the aggregate and not by class except that
(a) when otherwise expressly required by statutes or the Investment Company
Act of 1940 shares will be voted by individual class, (b) only shares of a
particular Portfolio are entitled to vote on matters concerning only that
Portfolio, and (c) fundamental objectives and restrictions may be changed,
with respect to any Portfolio, if such change is approved by the holders of a
majority (as defined under the Investment Company Act of 1940) of the
outstanding shares of such Portfolio. No shareholder will have any cumulative
voting rights.
The shares of each class, when issued, will be fully paid and
nonassessable, have no preference, preemptive, conversion, exchange or similar
rights and will be freely transferable. The consideration received by the Fund
for the sale of shares shall become part of the assets of the Portfolio to
which the shares of the class relates. Each share will have a pro rate
interest in the assets of the Portfolio to which the share relates and will
have no interest in the assets of any other Portfolio.
The Board of Directors may from time to time declare and pay dividends or
distributions, in stock or in cash, on any or all classes of stock, the amount
of such dividends and distributions and the payment of them being wholly in
the discretion of the Board. Dividends or distributions on shares of any class
of stock shall be paid only out of undistributed earnings or other lawfully
available funds belonging to such class.
Inasmuch as one goal of the Fund is to qualify as a Regulated Investment
Company under the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder, and inasmuch as the computation of net
income and gains for Federal income tax purposes may vary from the computation
thereof on the books of the Fund, the Board of Directors has the power in its
discretion to distribute in any fiscal year as dividends, including dividends
designated in whole or in part as capital gains distributions, amounts
sufficient in the opinion of the Board to enable the Fund and each portfolio
to qualify as a Regulated Investment Company and to avoid liability for
Federal income tax in respect of that year.
The assets belonging to any class of stock will be charged with the
liabilities in respect to such class, and will also be charged with their
share of the general liabilities of the Fund in proportion to the asset values
of the respective classes.
DETERMINATION OF THE NET ASSET VALUE
The net asset value of the shares of each Portfolio is determined once
daily by the Adviser immediately after the declaration of dividends, if any,
at 4:00 P.M., Eastern time, on each day during which the New York Stock
Exchange is open for business and on any other day in which there is a
sufficient degree of trading in the Portfolio's portfolio securities such that
the current net asset value of its shares might be materially affected,
excluding in each case July 5, 1996, the day after Thanksgiving, and the day
before Christmas. The net asset value per share of each Portfolio except the
Money Market Portfolio is computed by adding the sum of the value of the
securities held by that Portfolio plus any cash or other assets it holds,
subtracting all its liabilities, and dividing the result by the total number
of shares outstanding of that Portfolio at such time. Expenses, including the
investment advisory fee payable to the Adviser, are accrued daily.
In determining the net asset value of the Portfolios other than the Money
Market Portfolio, securities will be valued at prices provided by an
independent pricing service. Securities traded on national securities
exchanges are generally valued at the last quoted sales price at the close of
each business day. Securities traded on the over-the-counter market,
securities listed on a national exchange for which no price is readily
available or for which the available price is determined to not represent fair
value, and securities or assets for which adequate market quotations are not
readily available are valued at a price within the range of current bid and
asked prices considered to best represent value under the circumstances as
determined by the Adviser under the direction of the Board of Directors of the
Fund. In determining fair value the Advisor may consider institutional trading
in similar groups of securities, yield, quality, coupon rate, maturities, etc.
The amortized cost accounting method of valuation will be used for short-
term investments maturing in 60 days or less that are held by any of the
Portfolios, other than the Money Market Portfolio.
The net asset value of shares of the Money Market Portfolio will normally
remain at $1.00 per share, because the net investment income of this Portfolio
(including realized gains and losses on Portfolio holdings) will be declared
as a dividend each time the Portfolio's net income is determined. If, in the
view of the Board of Directors of the Fund, it is inadvisable to continue to
maintain the net asset value of the Money Market Portfolio at $1.00 per share,
the Board reserves the right to alter the procedure. The Fund will notify
shareholders of any such alteration.
The Fund values all short-term debt obligations held in the Money Market
Portfolio on an amortized cost basis. This means that each obligation will be
valued initially at its purchase price and thereafter by amortizing any
discount or premium uniformly to maturity, regardless of the impact of
fluctuating interest rates on the market value of the obligation. This highly
practical method of valuation is in widespread use and almost always results
in a value that is extremely close to the actual market value. As a result of
the rule of the Securities and Exchange Commission that permits the use of
amortized cost valuation for the Money Market Portfolio, it is the policy of
the Fund that the Money Market Portfolio may not purchase any security with a
remaining maturity of more than one year and must maintain a dollar-weighted
average of portfolio maturity of 90 days or less. In the event of sizeable
changes in interest rates, however, the value determined by this method may be
higher or lower than the price that would be received if the obligation were
sold. The Board of Directors has established procedures to determine whether,
on these occasions, if any should occur, the deviation might be enough to
affect the value of shares in the Money Market Portfolio by more than 1/2 of
one percent, and, if it does, an appropriate adjustment will be made in the
value of the obligations.
CALCULATION OF PERFORMANCE
Money Market Portfolio
The Prospectus contains information with respect to the yield and
effective yield of a hypothetical pre-existing account having a balance of one
Money Market Portfolio share at the beginning of a specified seven-day period.
Such yield quotations have been calculated by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share of the Portfolio at the beginning of the
period, dividing the net change by the value of the account at the beginning
of the period to obtain the period return, and multiplying the period return
by 365/7. The effective yield has been calculated by compounding the yield
quotation for such period by adding 1 and raising the sum to a power equal to
365/7, and subtracting 1 from the result.
This example illustrates the yield quotation for the Money Market
Portfolio for the seven-day period ended December 31, 1994:
Value of hypothetical pre-existing account with
exactly one share at the beginning of the period $1.000000000
Value of same account (excluding capital changes)
at end of the seven-day period* $1.001038585
Net change in account value $0.001038585
Base Period Return
Net change in account value divided by beginning
account value = 0.001038585
Annualized Current Yield [0.001038585 x (365/7)] 5.42%
Effective Yield** [0.001038585 + 1)365/7 - 1 5.56%
* This value includes the value of any additional shares purchased with
dividends from the original share, and all dividends declared on both the
original share and any such additional shares.
** This value may change to include shares purchased with dividends
reinvested on a less frequent basis.
The annualization of a seven-day average yield is not a representation of
future actual yield.
Other Portfolios
The Prospectus contains information with respect to yield quotations by
Portfolios other than the Money Market Portfolio. These yield quotations are
based on a 30-day (or one month) period computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, by setting yield equal to two
times the difference between the sixth power of one plus the designated ratio
and one, where the designated ratio is the difference between the net
investment income earned during the period and the expenses accrued for the
period (net of reimbursement) divided by the product of the average daily
number of shares outstanding during the period and the maximum offering price
per share on the last day of the period.
The following example illustrates the annualized current yield
calculation for the High Yield Portfolio for the 30-day base period ended
December 31, 1994:
Dividends and interest earned by the High Yield
Portfolio during the base period $5,498,772
Expenses accrued for the base period $ (194,520)
$ 5,304,252 (A)
Product of the maximum public offering price on
the last day of the base period and the average
daily number of shares outstanding during the
base period that were entitled to receive
dividends ($9,180657 x 64,558,683 shares) = $592,691,125 (B)
Quotient of dividends and interest earned minus
expenses accrued divided by product of maximum
public offering price multiplied by average
shares outstanding (A divided by B) = 0.00894944 (C)
Adding one and raising total to the 6th power
(C + 1)6 = 1.054912 (D)
Annualized current yield [2(D - 1) x 100] = 10.98%
The following example illustrates the annualized current yield
calculation for the Income Portfolio for the 30-day base period ended December
31, 1994:
Dividends and interest earned by the Income
Portfolio during the base period $4,077,817
Expenses accrued for the base period $ (200,842)
$3,876,975 (A)
Product of the maximum public offering price on
the last day of the base period and the average
daily number of shares outstanding during the
base period that were entitled to receive
dividends ($9.039622 x 67,412,555 shares) = $609,384,015 (B)
Quotient of dividends and interest earned minus
expenses accrued divided by product of maximum
public offering price multiplied by average
shares outstanding (A divided by B) = .00636212 (C)
Adding one and raising total to the 6th power
(C + 1)6 = 1.038785 (D)
Annualized current yield [2(D - 1) x 100] = 7.76%
Annualized current yield of any specific base period is not a
representation of future actual yield.
The Prospectus contains information with respect to performance data for
the Portfolios of the Fund. Such performance data includes average annual
total return quotations for the 1, 5 and 10-year periods (or such shorter time
period during which the Portfolios have been offered) ended on the date of the
most recent balance sheet of the Fund included in the Prospectus or Statement
of Additional Information, computed by finding the average annual compounded
rates of return over the 1, 5 and 10-year periods (or such shorter time period
during which the Portfolios have been offered) that would equate the initial
amount invested to the ending redeemable value, by equating the ending
redeemable value to the product of a hypothetical initial payment of $1,000,
and one plus the average annual total return raised to a power equal to the
applicable number of years.
Such performance data assumes that any applicable charges have been
deducted from the initial $1,000 payment and includes all recurring fees that
are charged to the Fund's shareholders.
Average annual total return for any specific period is not a
representation of future actual results. Average annual total return assumes a
steady rate of growth. Actual performance fluctuates and will vary from the
quoted results for periods of time within the quoted periods.
The following example illustrates the average annual total return for the
Growth Portfolio from the date of inception through December 31, 1994:
Hypothetical $1,000 initial investment on January
January 9, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1994 1,933
Total return for the period is the difference
between the ending redeemable value and the
hypothetical $1,000 initial investment divided by
the hypothetical $1,000 initial investment; the
result is expressed in terms of a percentage (For
example, 2 equals 200%) 93.27%
Average annual total return from inception
through December 31, 1994 is the sum of the total
return calculated above plus one; such sum is
raised to the power of 1/n where n is expressed
as seven years and 356 days; the result is
reduced by one and is expressed in terms of a
percentage (For example, 0.2 equals 20%) 8.61%
The following example illustrates the average annual total return for the
High Yield Portfolio from the date of inception through December 31, 1994:
Hypothetical $1,000 initial investment on
November 2, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1994 2,255
Total return for the period is the difference
between the ending redeemable value and the
hypothetical $1,000 initial investment divided by
the hypothetical $1,000 initial investment; the
result is expressed in terms of a percentage (For
example, 2 equals 200%) 125.53%
Average annual total return from inception
through December 31, 1994 is the sum of the total
return calculated above plus one; such sum is
raised to the power of 1/n where n is expressed
as seven years and 59 days; the result is reduced
by one and is expressed in terms of a percentage
(For example, 0.2 equals 20%) 12.02%
The following example illustrates the average annual total return for the
Income Portfolio from the date of inception through December 31, 1994:
Hypothetical $1,000 initial investment on
January 9, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1994 1,799
Total return for the period is the difference
between the ending redeemable value and the
hypothetical $1,000 initial investment divided by
the hypothetical $1,000 initial investment; the
result is expressed in terms of a percentage (For
example, 2 equals 200%) 79.88%
Average annual total return from inception
through December 31, 1994 is the sum of the total
return calculated above plus one; such sum is
raised to the power of 1/n where n is expressed
as seven years and 356 days; the result is
reduced by one and is expressed in terms of a
percentage (For example, 0.2 equals 20%) 7.63%
The following example illustrates the average annual total return for the
Money Market Portfolio from the date of inception through December 31, 1994:
Hypothetical $1,000 initial investment on January
9, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1994 1,574
Total return for the period is the difference
between the ending redeemable value and the
hypothetical $1,000 initial investment divided by
the hypothetical $1,000 initial investment; the
result is expressed in terms of a percentage (For
example, 2 equals 200%) 57.39%
Average annual total return from inception
through December 31, 1994 is the sum of the total
return calculated above plus one; such sum is
raised to the power of 1/n where n is expressed
as seven years and 356 days; the result is
reduced by one and is expressed in terms of a
percentage (For example, 0.2 equals 20%) 5.85%
TAX STATUS
The Fund intends to qualify as a Regulated Investment Company under
certain provisions of the Internal Revenue Code of 1986, as amended, (the
"Code"). Under such provisions, the Fund will not be subject to Federal income
tax on the part of its net ordinary income and net realized capital gains that
it distributes to the Account. Generally, each of the Portfolios will be
treated as a separate corporation for Federal income tax purposes. This means
that the investment results of each Portfolio will determine whether the
Portfolio qualifies as a Regulated Investment Company and will determine the
net ordinary income (or loss) and net realized capital gains (or losses) of
the Portfolio. To qualify for treatment as a Regulated Investment Company,
each Portfolio must, among other things, derive in each taxable year at least
90% of its gross income from dividends, interest (including tax-exempt
interest) and gains from the sale or other disposition of securities, and must
derive less than 30% of its gross income in each taxable year from the sale or
disposition of securities held for less than three months. At least 50% of its
assets quarterly must be in cash items or "other securities". "Other
securities" cannot include securities of one issuer greater in value than 5%
of total Portfolio assets nor represent more than 10% of the voting power of
the issuer. Not more than 25% in value of the Portfolio's assets quarterly can
be invested in securities (excluding governments) of any one issuer (including
affiliates).
The Fund intends to distribute as dividends substantially all the net
investment income, if any, of each Portfolio. For dividend purposes, net
investment income of each Portfolio, other than the Money Market Portfolio,
will consist of all payments of dividends (other than stock dividends) or
interest received by such Portfolio less the estimated expenses of such
Portfolio (including fees payable to the Adviser). Net investment income of
the Money Market Portfolio consists of (i) interest accrued and/or discount
earned (including both original issue and market discount), (ii) plus or minus
all realized gains and losses, (iii) less the expenses of the Portfolio
(including the fees payable to the Adviser).
Dividends on the Income Portfolio, the High Yield Portfolio and Money
Market Portfolio will be declared and reinvested daily in additional full and
fractional shares of the Portfolio. Shares will begin accruing dividends on
the day following the date on which they are issued. Dividends from investment
income of the Growth Portfolio will be declared and reinvested in additional
full and fractional shares quarterly, although the Fund may make distribution
more frequently. Dividends from investment income of the Opportunity Growth
Portfolio and the World Growth Portfolio will be declared and reinvested in
additional full and fractional shares annually, although the Fund may make
distribution more frequently.
The Fund will also declare and distribute annually all net realized
capital gains of each Portfolio, other than short-term gains of the Money
Market Portfolio which are declared as dividends daily.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury Regulations promulgated thereunder. The Code and these
Regulations are subject to change by legislative or administrative actions.
ADDITIONAL INFORMATION
The Prospectus of the Fund and this Statement of Additional Information
do not contain all information included in the Registration Statement filed
with the Securities and Exchange Commission under the Securities Act of 1933
with respect to the securities offered hereby, certain portions of which have
been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The Registration Statement including the exhibits filed
therewith may be examined at the office of the Securities and Exchange
Commission in Washington, D.C.
Statements contained in the Prospectus and this Statement of Additional
Information as to the contents of any contract or other document referred to
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectus and this Statement of
Additional Information form a part, each such statement being qualified in all
respects by such reference.
REPORT OF INDEPENDENT ACCOUNTANTS
AND FINANCIAL STATEMENTS
The Report of Independent Accountants and financial statements included
in the Annual Report to Shareholders for the fiscal year ended December 31,
1994 of the Fund are a separate report to be furnished with this Statement of
Additional Information and will be incorporated in a subsequent amendment to
the Fund's registration statement.
<PAGE>
LB SERIES FUND, INC.
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- -------------------------------------------
(a) Financial Statements
(1) Part A: Financial Highlights (*)
(2) Part B: Financial Statements (*)
(b) Exhibits
(1) Articles of Incorporation of the Registrant (1),(4),(7)
(2) By-Laws of the Registrant (1),(5)
(3) Not applicable
(4) Not applicable
(5)(a) Form of Investment Advisory Contract between the Registrant
and Lutheran Brotherhood Research Corp. (1),(2)
(5)(b) Form of Investment Advisory Contract between the Registrant
and Lutheran Brotherhood. (7)
(5)(c) Form of Sub-Advisory Agreement between Lutheran Brotherhood,
the Registrant and Rowe Price-Fleming International, Inc.
(6)(a) Form of Distribution Agreement between the Registrant and
Lutheran Brotherhood Securities Corp. (2)
(7) Not applicable
(8)(a) Form of Custodian Contract between the Registrant and State
Street Bank and Trust Company (2),(3)
(8)(b) Form of Transfer Agency Agreement between the Registrant and
State Street Bank and Trust Company (2),(3)
(8)(c) Amendment to Custodian Contract dated February 1, 1989
(8)(d) Amendment to Custodian Contract dated January 11, 1990
(8)(e) Form of Amendment to Custodian Contract
(9) Not applicable
(10) Opinion and consent of counsel
(11) Consent of independent accountants (*)
(12) Not applicable
(13)(a) Letter from Lutheran Brotherhood Variable Insurance Products
Company ("LBVIP")with respect to providing initial capital. (1)
(13)(b) Form of Letter from Lutheran Brotherhood with respect to providing
initial capital Letter with respect to the Opportunity Growth
Portfolio and the World Growth Portfolio.
(14) Not applicable
(15) Not applicable
(16) Schedule of computation of performance data provided in response
to Item 22 of this Registration Statement (6)
(i) Total Return -- Growth Portfolio
(ii) Current Yield -- Income Portfolio
(iii) Current Yield -- Money Market Portfolio
(17) Powers of Attorney for Rolf F. Bjelland, Wade M. Voigt, Charles W.
Arnason, Herbert F. Eggerding, Jr.and Ruth E. Randall. (8)
(17)(b) Power of Attorney for Bruce J. Nicholson
(18) Form of Reimbursement Agreement between the Registrant and
LBVIP. (3)
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote
Reference Securities Act of 1933 Amendment Date Filed
--------- -------------------------------- ----------
(1) Initial Registration Statement March 3, 1986
(2) Pre-effective Amendment No. 1 July 26, 1986
(3) Pre-effective Amendment No. 2 December 23, 1986
(4) Post-effective Amendment No. 3 March 3, 1988
(5) Post-effective Amendment No. 6 March 2, 1990
(6) Post-effective Amendment No. 7 May 1, 1990
(7) Post-effective Amendment No. 11 March 1, 1994
(8) Post-effective Amendment No. 12 April 28, 1994
(*) To be filed by subsequent amendment
Item 25. Persons Controlled by or under Common Control with Registrant
- ----------------------------------------------------------------------
None.
LBVIP, a Minnesota stock life insurance company, has purchased shares of
Common Stock of Registrant for the purpose of providing the initial
capital of Registrant.
LBVIP is an indirect subsidiary of Lutheran Brotherhood, a fraternal
benefit society founded under the laws of the State of Minnesota.
Lutheran Brotherhood's other direct and indirect subsidiaries are
Lutheran Brotherhood Financial Corporation, a Minnesota corporation,
and the Adviser and Lutheran Brotherhood Securities Corp., both of
which are Pennsylvania corporations.
Item 26. Number of Holders of Securities
- ----------------------------------------
As of October 31, 1995 the numbers of record holders of shares of the
Registrant was as follows:
(1) (2)
Title of Class Number of Record Holders
Money Market Portfolio Capital Stock Two
Income Portfolio Capital Stock Two
Growth Portfolio Capital Stock Two
High Yield Portfolio Capital Stock Two
No information is provided for the Opportunity Growth Portfolio and the
World Growth Portfolio, which will not commence operation until on or
after January 15, 1996.
Item 27. Indemnification
- ------------------------
Filed as part of the initial Registration Statement filed on March 3, 1986,
and incorporated herein by reference.
Item 28. Business and Other Connections of Investment Adviser
- -------------------------------------------------------------
The Adviser has been engaged in the management of its own investment
portfolio since 1917, and has been a registered investment adviser since 1989.
The Adviser's own assets were approximately $9.4 billion on December 31, 1994.
The Adviser also has owned a subsidiary investment advisory company since 1970
that acts as investment adviser to six registered investment companies with
combined net assets of approximately $2.9 billion at December 31, 1994.
The directors and officers of the Adviser are listed below, together with
their principal occupations during the past two years. (Their titles may have
varied during that period.)
Directors:
Robert O. Blomquist, Chairman and Director of Lutheran Brotherhood;
Formerly Chief Credit Officer and Executive Vice President, Integra
Financial Corp., Four PPG Place, Pittsburgh, PA.
Richard W. Duesenberg, Director;
Senior Vice President, General Counsel and Secretary of Monsanto
Company, 800 North Lindbergh Blvd., St. Louis, MO.
Robert P. Gandrud, President and Director of Lutheran Brotherhood.
Bobby I. Griffin; Director
Executive Vice President of Medtronic, Inc.; President, Medtronic Pacing
Business, Fridley, MN.
William R. Halling, Director;
Formerly Partner of Peat, Marwick, Main & Co.
James M. Hushagen, Director
Attorney-at-Law, Puyallup, Washington.
Herbert D. Ihle, Director;
President of Diversified Financial Consultants, Marco Island, FL and
Eden Praries, MN.
Richard C. Kessler, Director;
President of the Kessler Enterprise, Inc., One Buckhead Plaza, 3060
Peachtree Street, N.W., Stuite 750, Atlanta, GA.
Judith K. Larson, Director;
Vice President of Dataquest, San Jose, CA.
Luther S. Luedtke, Director
President, California Lutheran University, Thousand Oaks, California
John P. McDaniel, Director;
President and Chief Executive Officer of Medlantic Healthcare Group, 100
Irving Street N.W., Washington, DC.
Mary Ellen H. Schmider, Director;
Dean of Graduate Studies - Coordinator of Grants, Moorhead State
University, Moorhead, MN.
Russel M. Smith, Director;
President of Rockport Consultants, P.O. Box 2264, Rockport, TX; formerly
General Agent and Vice President of Lutheran Brotherhood.
Officers:
Robert P. Gandrud, President and Chief Executive Officer
Rolf F. Bjelland, Executive Vice President
Bruce J. Nicholson, Executive Vice President
Paul R. Ramseth, Executive Vice President
William H. Reichwald, Executive Vice President
David J. Larson, Senior Vice President, Secretary and General Counsel
Anita J. T. Young, Vice President and Treasurer
Edward A. Lindell, Senior Vice President
Michael E. Loken, Senior Vice President
Jerald E. Sourdiff, Senior Vice President
Mary M. Abbey, Vice President
Galen R. Becklin, Vice President
Larry A. Borlaug, Vice President
Collen Both, Vice President
J. Keith Both, Vice President
Randall L. Boushek, Vice President
David J. Christianson, Vice President
Craig R. Darrington, Vice President
Pamela H. Desnick, Vice President
Mitchell F. Felchle, Vice President
Charles E. Heeren, Vice President
Wayne A. Hellbusch, Vice President
Otis F. Hilbert, Vice President
Richard J. Johnson, Vice President
Gary J. Kallsen, Vice President
Fred O. Konrath, Vice President
Douglas B. Miller, Vice President
C. Theodore Molen, Vice President
James R. Olson, Vice President
Kay J. Owen, Vice President
Kevin B. Pederson, Vice President
Dennis K. Peterson, Vice President
Bruce M. Piltingsrud, Vice President
Lynette J.C. Stertz, Vice President
John O. Swanson, Vice President
Louise K. Thoreson, Vice President
James M. Walline, Vice President
Except where noted otherwise, the business address address of each of the
above directors and officers employed by Lutheran Brotherhood is 625 Fourth
Avenue South, Minneapolis, Minnesota 55415.
The business and other connections of the officers and directors of Rowe
Price-Fleming International, Inc. ("Sub-advisor") are set forth in the Form
ADV of Sub-advisor currently on file with the Securities and Exchange
Commission (File No. 801-14713)
Item 29. Principal Underwriters
- -------------------------------
Not Applicable
Item 30. Location of Accounts and Records
- -----------------------------------------
The Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment Company
Act of 1940 at its principal executive offices at 625 Fourth Avenue South,
Minneapolis, Minnesota 55415. Certain records, including records relating to
Registrant's shareholders and the physical possession of its securities, may
be maintained pursuant to Rule 31a-3 under the Investment Company Act of
1940 by the Registrant's transfer agent or custodian at the following
locations:
Name Address
---- -------
Lutheran Brotherhood Securities Corp. 625 Fourth Avenue South
Minneapolis, Minnesota 55415
Norwest Bank Minnesota, N.A. Sixth and Marquette Avenue
Minneapolis, Minnesota 55402
State Street Bank and Trust Company 225 Franklin Street
Boston, Massachusetts 02110
Item 31. Management Services
- ----------------------------
Not Applicable.
Item 32. Undertakings
- ---------------------
1. The Registrant incudes in its Annual Report to Shareholder a discussion
of Portfolio performance as required by Item 5A of this Form and incorporates
such discussion in this Amended Registration Statement on Form N-1A by
reference. The Registrant hereby undertakes to make such Annual Report to
Shareholders available without charge to anyone so requesting it, and further
undertakes to make such fact know by including in its Prospectus a statement
to that effect.
2. The Registrant hereby undertakes to file a post-effective amendment to
its registration for the purposes of filing updated financial statements with
respect to the Opportunity Growth Portfolio and the World Growth Portfolio
(which need not be audited) within the time limit specified by Item 32(b) of
Form N-1A.
rlww\series\n-1a\part-c4.doc
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant has duly caused this amendment
to Registration Statement on Form N-1A to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Minneapolis and State of
Minnesota, on the 31st day of October, 1995.
LB SERIES FUND, INC.
By: /s/ Randall L. Wetherille
-------------------------
Randall L. Wetherille,
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to this registration statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title Date
* Trustee and President October 31, 1995
- ------------------------ (Principal Executive Officer)
Rolf F. Bjelland
* Treasurer October 31, 1995
- ------------------------ (Principal Financial and
Wade M. Voigt Accounting Officer)
* Trustee October 31, 1995
- ------------------------
Charles W. Arnason
* Trustee October 31, 1995
- -------------------------
Herbert F. Eggerding, Jr.
* Trustee October 31, 1995
- ------------------------
Bruce J. Nicholson
* Trustee October 31, 1995
- ------------------------
Ruth E. Randall
By: /s/ Randall L. Wetherille
-------------------------
Randall L. Wetherille,
Attorney-in-Fact under Powers
of Attorney incorporated by
reference from Post-Effective
Amendment Nos. 12 and 15.
<PAGE>
INDEX TO EXHIBITS
Item 24
PAGE IN
REGISTRATION
EXHIBIT NUMBER STATEMENT
(5)(c) Form of Sub-Advisory Agreement between Lutheran Brotherhood and
Rowe Price-Fleming International, Inc.
(8)(c) Amendment to Custodian Contract dated February 1, 1989
(8)(d) Amendment to Custodian Contract dated January 11, 1990
(8)(e) Form of Amendment to Custodian Contract
(10) Opinion and consent of counsel
(13)(b) Form of Letter from Lutheran Brotherhood with respect to providing
initial capital Letter with respect to the Opportunity Growth
Portfolio and the World Growth Portfolio.
(17)(c) Power of Attorney for Bruce J. Nicholson
rlww\series\n-1a\index-1
sec1195.txt
4
INVESTMENT SUB-ADVISORY AGREEMENT
Between
LUTHERAN BROTHERHOOD
and
ROWE PRICE-FLEMING INTERNATIONAL, INC.
INVESTMENT SUB-ADVISORY AGREEMENT, made as of the _____ day of ____________
1995, between Lutheran Brotherhood ("Adviser"), a fraternal beneficiary
society organized and existing under the laws of the State of Minnesota, and
Rowe Price-Fleming International, Inc. ("Sub-Adviser"), a corporation
organized and existing under the laws of the State of Maryland.
WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated
as of the 31st day of January, 1994 and amended as of the ______ day of
January, 1996, ("Advisory Agreement") with LB SERIES FUND, INC. ("Company"),
which is engaged in business as an open-end investment company registered
under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Company is authorized to issue shares of the World Growth
Portfolio ("Portfolio"), a separate series of the Company;
WHEREAS, the Sub-Adviser is engaged principally in the business of rendering
investment supervisory services and is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended ("Advisers Act"); and
WHEREAS, the Adviser desires to retain the Sub-Adviser as sub-adviser to
furnish certain investment advisory services to the Adviser and the
Portfolio and the Sub-Adviser is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual promises herein
set forth, the parties hereto agree as follows:
1. Appointment. Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Portfolio for the period and on the terms
set forth in this Agreement. The Sub-Adviser accepts such appointment and
agrees to render the services herein set forth, for the compensation herein
provided.
2. Duties of the Sub-Adviser.
A. Investment Sub-Advisory Services. Subject to the supervision of the
Company's Board of Trustees ("Board") and the Adviser, the Sub-Adviser shall
act as the investment sub adviser and shall supervise and direct the
investments of the Portfolio in accordance with the Portfolio's investment
objectives, policies, and restrictions as provided in the Portfolio's
Prospectus and Statement of Additional Information, as currently in effect
and as amended or supplemented from time to time (hereinafter referred to as
the "Prospectus"), and such other limitations as the Portfolio may impose by
notice in writing to the Sub-Adviser. The Sub-Adviser shall obtain and
evaluate such information relating to the economy, industries, businesses,
securities markets, and securities as it may deem necessary or useful in the
discharge of its obligations hereunder and shall formulate and implement a
continuing program for the management of the assets and resources of the
Portfolio in a manner consistent with the Portfolio's investment
objective(s), policies, and restrictions. In furtherance of this duty, the
Sub-Adviser, on behalf of the Portfolio, is authorized, in its discretion
and without prior consultation with the Portfolio or the Adviser, to:
(1) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(2) directly or through the trading desks of Rowe Price-Fleming
International, Inc., Robert Fleming Holdings Limited, and their affiliates
place orders and negotiate the commissions (if any) for the execution of
transactions in securities or other assets with or through such brokers,
dealers, underwriters or issuers as the Sub-Adviser may select.
B. Further Duties of Sub-Adviser. In all matters relating to the
performance of this Agreement, the Sub-Adviser shall act in conformity with
the Company's Master Trust Agreement, By-Laws, and currently effective
Registration Statement (as defined below) and with the written instructions
and directions of the Board and the Adviser, and shall comply with the
requirements of the 1940 Act, the Advisers Act, the rules thereunder, and
all other applicable federal and state laws and regulations.
3. Compensation. For the services provided and the expenses assumed by
the Sub-Adviser pursuant to this Agreement, the Sub-Adviser shall receive a
monthly investment management fee as set forth in Schedule 1, attached
hereto and incorporated herein by reference. The management fee shall be
payable monthly to the Sub-Adviser [on or before the _________ day of the
next succeeding calendar month; or, monthly in arrears]. If this Agreement
becomes effective or terminates before the end of any month, the investment
management fee for the period from the effective date to the end of such
month or from the beginning of such month to the date of termination, as the
case may be, shall be prorated according to the proration which such period
bears to the full month in which such effectiveness or termination occurs.
4. Duties of the Adviser.
A. The Adviser shall continue to have responsibility for all services to
be provided to the Portfolio pursuant to the Advisory Agreement and shall
oversee and review the Sub-Adviser's performance of its duties under this
Agreement.
B. The Adviser has furnished the Sub-Adviser with copies of each of the
following documents and will furnish to the Sub-Adviser at its principal
office all future amendments and supplements to such documents, if any, as
soon as practicable after such documents become available:
(1) The Master Trust Agreement of the Company, as filed with the State of
Delaware, as in effect on the date hereof and as amended from time to time
("Declaration of Trust");
(2) The By-Laws of the Company as in effect on the date hereof and as
amended from time to time ("By-Laws");
(3) Certified resolutions of the Board of the Company authorizing the
appointment of the Adviser and the Sub-Adviser and approving the form of the
Advisory Agreement and this Agreement;
(4) The Company's Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-IA, as filed with the
Securities and Exchange Commission ("SEC") relating to the Portfolio and its
shares and all amendments thereto ("Registration Statement");
(5) The Notification of Registration of the Company under the 1940 Act on
Form N-8A as filed with the SEC and any amendments thereto;
(6) The Portfolio's Prospectus (as defined above); and
(7) A certified copy of any financial statement or report prepared for
the Portfolio by certified or independent public accountants, and copies of
any financial statements or reports made by the Portfolio to its
shareholders or to any governmental body or securities exchange.
The Adviser shall furnish the Sub-Adviser with any further documents,
materials or information that the Sub-Adviser may reasonably request to
enable it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Adviser shall furnish to the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature, or other material prepared for
distribution to shareholders of the Portfolio or the public, which refer to
the Sub-Adviser or its clients in any way, prior to the use thereof, and the
Adviser shall not use any such materials if the Sub-Adviser reasonably
objects in writing five business days (or such other time as may be mutually
agreed) after receipt thereof. The Adviser shall ensure that materials
prepared by employees or agents of the Adviser or its affiliates that refer
to the Sub-Adviser or its clients in any way are consistent with those
materials previously approved by the Sub-Adviser as referenced in the
preceding sentence.
5. Brokerage.
A. The Sub-Adviser agrees that, in placing orders with broker-dealers for
the purchase or sale of portfolio securities, it shall attempt to obtain
quality execution at favorable security prices; provided that, on behalf of
the Portfolio, the Sub-Adviser may, in its discretion, agree to pay a
broker-dealer that furnishes brokerage or research services as such services
are defined under Section 28(e) of the Securities Exchange Act of 1934, as
amended ("1934 Act"), a higher commission than that which might have been
charged by another broker-dealer for effecting the same transactions, if the
Sub-Adviser determines in good faith that such commission is reasonable in
relation to the brokerage and research services provided by the broker-
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Sub-Adviser with respect to the accounts as to which
it exercises investment discretion (as such term is defined under Section
3(a)(35) of the 1934 Act). In no instance will portfolio securities be
purchased from or sold to the Sub-Adviser, or any affiliated person thereof,
except in accordance with the federal securities laws and the rules and
regulations thereunder.
B. On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be purchased or sold to attempt to obtain a more
favorable price or lower brokerage commissions and efficient execution. In
such event, allocation of the securities so purchased or sold, as well as
the expenses incurred in the transaction, will be made by the Sub-Adviser in
the manner the Sub-Adviser considers to be the most equitable and consistent
with its fiduciary obligations to the Portfolio and to its other clients.
6. Ownership of Records. The Sub-Adviser shall maintain all books and
records required to be maintained by the Sub-Adviser pursuant to the 1940
Act and the rules and regulations promulgated thereunder with respect to
transactions on behalf of the Portfolio. In compliance with the
requirements of Rule 3 1 a-3 under the 1940 Act, the Sub-Adviser hereby
agrees (i) that all records that it maintains for the Portfolio are the
property of the Company, (ii) to preserve for the periods prescribed by Rule
3 1 a-2 under the 1940 Act any records that it maintains for the Company and
that are required to be maintained by Rule 3 1 a- I under the 1940 Act, and
(iii) agrees to surrender promptly to the Company any records that it
maintains for the Company upon request by the Company; provided, however,
the Sub-Adviser may retain copies of such records.
7. Reports. The Sub-Adviser shall furnish to the Board or the Adviser, or
both, as appropriate, such information, reports, evaluations, analyses and
opinions as the Sub-Adviser and the Board or the Adviser, as appropriate,
may mutually agree upon from time to time.
8. Services to Others Clients. Nothing contained in this Agreement shall
limit or restrict (i) the freedom of the Sub-Adviser, or any affiliated
person thereof, to render investment management and corporate administrative
services to other investment companies, to act as investment manager or
investment counselor to other persons, firms, or corporations, or to engage
in any other business activities, or (ii) the right of any director,
officer, or employee of the Sub-Adviser, who may also be a trustee, officer,
or employee of the Company, to engage in any other business or to devote his
or her time and attention in part to the management or other aspects of any
other business, whether of a similar nature or a dissimilar nature.
9. Sub-Adviser's Use of the Services of Others. The Sub-Adviser may (at its
cost except as contemplated by Paragraph 5 of this Agreement) employ,
retain, or otherwise avail itself of the services or facilities of other
persons or organizations for the purpose of providing the Sub-Adviser or the
Company or Portfolio, as appropriate, with such statistical and other
factual information, such advice regarding economic factors and trends, such
advice as to occasional transactions in specific securities, or such other
information, advice, or assistance as the Sub-Adviser may deem necessary,
appropriate, or convenient for the discharge of its obligations hereunder or
otherwise helpful to the Company or the Portfolio, as appropriate, or in the
discharge of Sub-Adviser's overall responsibilities with respect to the
other accounts that it serves as investment manager or counselor.
10. Limitation of Liability of the Sub-Adviser. Neither the Sub-Adviser nor
any of its officers, directors, or employees, nor any person performing
executive, administrative, trading, or other functions for the Company, the
Portfolio (at the direction or request of the Sub-Adviser) or the Sub-
Adviser in connection with the Sub-Adviser's discharge of its obligations
undertaken or reasonably assumed with respect to this Agreement, shall be
liable for (i) any error of judgment or mistake of law or for any loss
suffered by the Company or Portfolio or (ii) any error of fact or mistake of
law contained in any report or data provided by the Sub-Adviser, except for
any error, mistake or loss resulting from willful misfeasance, bad faith, or
gross negligence in the performance of its or his duties on behalf of the
Company or Portfolio or from reckless disregard by the Sub-Adviser or any
such person of the duties of the Sub-Adviser pursuant to this Agreement.
11. Representations of Sub-Adviser. The Sub-Adviser represents, warrants,
and agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement;
(iii) has met, and will continue to meet for so long as this Agreement
remains in effect, any other applicable federal or state requirements, or
the applicable requirements of any regulatory or industry self-regulatory
agency, necessary to be met in order to perform the services contemplated by
this Agreement; (iv) has the authority to enter into and perform the
services contemplated by this Agreement; and (v) will immediately notify the
Adviser of the occurrence of any event that would disqualify the Sub-Adviser
from serving as an investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise.
B. The Sub-Adviser has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and, if it has not already
done so, will provide the Adviser and the Company with a copy of such code
of ethics, together with evidence of its adoption.
C. The Sub-Adviser has provided the Adviser and the Company with a copy
of its Form ADV as most recently filed with the SEC and will, promptly after
filing any amendment to its Form ADV with the SEC, furnish a copy of such
amendment to the Adviser.
12. Term of Agreement. This Agreement shall become effective upon the date
first above written, provided that this Agreement shall not take effect
unless it has fast been approved (i) by a vote of a majority of those
trustees of the Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval, and (ii) by vote of a majority of the
Portfolio's outstanding voting securities. Unless sooner terminated as
provided herein, this Agreement shall continue in effect for two years from
its effective date. Thereafter, this Agreement shall continue in effect
from year to year, with respect to the Portfolio, subject to the termination
provisions and all other terms and conditions hereof, so long as such
continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of
the Portfolio; (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
trustees of the Company who are not parties to this Agreement or interested
persons of any such party; and (c) the Sub-Adviser shall not have notified
the Company, in writing, at least 60 days prior to such approval that it
does not desire such continuation. The Sub-Adviser shall furnish to the
Company, promptly upon its request, such information as may reasonably be
necessary to evaluate the terms of this Agreement or any extension, renewal,
or amendment hereof.
13. Termination of Agreement. Notwithstanding the foregoing, this Agreement
may be terminated at any time, without the payment of any penalty, by vote
of the Board or by a vote of a majority of the outstanding voting securities
of the Portfolio on at least 60 days' prior written notice to the Sub-
Adviser. This Agreement may also be terminated by the Adviser: (i) on at
least 120 days' prior written notice to the Sub-Adviser, without the payment
of any penalty; (ii) upon material breach by the Sub-Adviser of any of the
representations and warranties set forth in Paragraph I I of this Agreement,
if such breach shall not have been cured within a 20-day period after notice
of such breach; or (iii) if the Sub-Adviser becomes unable to discharge its
duties and obligations under this Agreement. The Sub-Adviser may terminate
this Agreement at any time, without the payment of any penalty, on at least
60 days' prior notice to the Adviser. This Agreement shall terminate
automatically in the event of its assignment or upon termination of the
Advisory Agreement.
14. Amendment of Agreement. No provision of this Agreement may be changed,
waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge, or termination is sought, and no material amendment of this
Agreement shall be effective until approved by vote of a majority of the
Portfolio's outstanding voting securities.
15. Miscellaneous.
A. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Maryland without giving effect to the conflicts of
laws principles thereof and the 1940 Act. To the extent that the applicable
laws of the State of Maryland conflict with the applicable provisions of the
1940 Act, the latter shall control.
B. Captions. The captions contained in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
C. Entire Agreement. This Agreement represents the entire agreement and
understanding of the parties hereto and shall supersede any prior agreements
between the parties relating to the subject matter hereof, and all such
prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. Interpretation. Nothing herein contained shall be deemed to require
the Company to take any action contrary to its [Articles/Declaration of
Trust] or By-Laws, or any applicable statutory or regulatory requirement to
which it is subject or by which it is bound, or to relieve or deprive the
Board of its responsibility for and control of the conduct of the affairs of
the Portfolio.
E. Definitions. Any question of interpretation of any term or provision
of this Agreement having a counterpart in or otherwise derived from a term
or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the
United States courts or, in the absence of any controlling decision of any
such court, by rules, regulations, or orders 'of the SEC validly issued
pursuant to the Act. As used in this Agreement, the terms "majority of the
outstanding voting securities," "affiliated person," "interested person,"
"assignment," broker," "investment adviser," "net assets," "sale," "sell,"
and "security" shall have the same meaning as such terms have in the 1940
Act, subject to such exemption as may be granted by the SEC by any rule,
regulation, or order. Where the effect of a requirement of the federal
securities laws reflected in any provision of this Agreement is made less
restrictive by a rule, regulation, or order of the SEC, whether of special
or general application, such provision shall be deemed to incorporate the
effect of such rule, regulation, or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
LUTHERAN BROTHERHOOD
Attest:
______________________________ By: _______________________________
ROWE PRICE-FLEMING
INTERNATIONAL, INC.
Attest:
______________________________ By: _______________________________
AMENDMENT dated February 1, 1989, of a certain Custodian Agreement dated
December 2, 1986, (the "Custodian Agreement") between LBVIP Series Fund,
Inc. (the "Fund") and State Street Bank and Trust Company (the "Custodian").
WITNESSETH:
WHEREAS, the Fund and the Custodian desire to amend the Custodian Agreement
in order to provide for the lending of securities;
NOW, THEREFORE, the Fund and the Custodian hereby agree that said Custodian
Agreement shall be amended by adding the following new Section 15:
Loans Of Securities. As directed in writing by the Fund, the Custodian
shall participate in a securities lending program sponsored and administered
by the Custodian (the "Program"), and in connection therewith, the Custodian
is authorized to release and deliver securities and return collateral
received for loaned securities in accordance with the provisions of the
Securities Lending Authorization Agreement between the Custodian and the
Fund.
IN WITNESSETH WHEREOF, the Fund and the Custodian have caused this amendment
to be executed and their seals affixed by their duly authorized
representative, as of the day and the year first above written.
LBVIP Series Fund, Inc.
----------------------------------
ATTEST: /s/ James M. Odland By: /s/ Otis F. Hilbert
------------------------ ---------------------------
Title: Assistant Secretary Title: Vice President and
Secretary
------------------------ ---------------------------
STATE STREET BANK AND TRUST
COMPANY
ATTEST: /s/ M.E.Hogue By: /s/ T.B.Hageet
------------------------ ---------------------------
Title: Assistant Secretary Title: Vice President and
Secretary
------------------------ ---------------------------
exhib8c
AMENDMENT TO THE
CUSTODIAL CONTRACT
AGREEMENT made this 11th day of January, 1990 by and between STATE STREET
BANK AND TRUST COMPANY ("Custodian") and LBVIP SERIES FUND, INC. (the
"Fund").
WITNESSETH THAT:
WHEREAS, the Custodian and the Fund are parties to a Custodian Contract
dated December 2, 1986, (as amended to date, the "Contract") which governs
the terms and conditions under which the Custodian maintains custody of the
securities and assets of the Fund:
NOW THEREFORE, the Custodian and the Fund hereby amend the terms of the
Custodian Contract and mutually agree to the following:
Replace subsection 7 of Section 2.2 DELIVERY OF SECURITIES with the
following new subsection 7:
7) Upon the sale of such securities for the account of the Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; the Custodian shall have no
responsibility or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except as may
arise from the Custodian's own negligence or willful misconduct;
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and on its behalf by a duly authorized officer as of
the day and year first above written.
ATTEST LBVIP SERIES FUND, INC.
/s/ James M. Odland /s/ Otis F. Hilbert
- ------------------------ ------------------------
James M. Odland, Asst. Secretary Otis F. Hilbert, Secretary
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ P. McCleese /s/ Guy R. Sturgeon
- ------------------------ ------------------------
Assistant Secretary Vice President
exhib8d
AMENDMENT TO THE CUSTODIAN CONTRACT
AGREEMENT made by and between State Street Bank and Trust Company (the
"Custodian") and LB SERIES FUND, (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated December 2, 1986 and amended February 1, 1989 and January 11, 1990
(the "Custodian Contract") governing the terms and conditions under which
the Custodian maintains custody of the securities and other assets of the
Fund; and
WHEREAS, the Custodian and the Fund desire to amend the Custodian Contract
to provide for the maintenance of the Fund's foreign securities, and cash
incidental to transactions in such securities, in the custody of certain
foreign banking institutions and foreign securities depositories acting as
sub-custodians in conformity with the requirements of Rule 17f-5 under the
Investment Company Act of 1940;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by
the addition of the following terms and conditions:
1. APPOINTMENT OF FOREIGN SUB-CUSTODIANS.
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets maintained outside
the United States the foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ("foreign sub-custodians").
Upon receipt of "Proper Instructions", as defined in Section 2.17 of the
Custodian Contract, together with a certified resolution of the Fund's Board
of Trustees, the Custodian and the Fund may agree to amend Schedule A hereto
from time to time to designate additional foreign banking institutions and
foreign securities depositories to act as sub-custodian. Upon receipt of
Proper Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for maintaining custody of
the Fund's assets.
2. ASSETS TO BE HELD.
The Custodian shall limit the securities and other assets maintained in
the custody of the foreign sub-custodians to: (1) "foreign securities", as
defined in paragraph (c)(1) of Rule 17F-5 under the Investment Company Act
of 1940, and (b) cash and cash equivalents in such amounts as the Custodian
or the Fund may determine to be reasonably necessary to effect the Fund's
foreign securities transactions. The Custodian shall identify on its books
as belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian.
3. FOREIGN SECURITIES DEPOSITORIES.
Except as may otherwise be agreed upon in writing by the Custodian and
the Fund, assets of the Funds shall be maintained in foreign securities
depositories only through arrangements implemented by the foreign banking
institutions serving as sub-custodians pursuant to the terms hereof. Where
possible, such arrangements shall include entry into agreements containing
the provisions set forth in Section 5 hereof.
4. AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS.
Each agreement with a foreign banking institution shall be
substantially in the form set forth in Exhibit 1 hereto and shall provide
that: (a) the Fund's assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for their
safe custody or administration; (b) beneficial ownership of the Fund's
assets will be freely transferable without the payment of money or value
other than for custody or administration; (c) adequate records will be
maintained identifying the assets as belonging to the Fund; (d) officers of
or auditors employed by, or other representatives of the Custodian,
including to the extent permitted under applicable law the independent
public accountants for the Fund, will be given access to the books and
records of the foreign banking institution relating to its actions under its
agreement with the Custodian; and (e) assets of the Fund held by the foreign
sub-custodian will be subject only to the instructions of the Custodian or
its agents.
5. ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND.
Upon request of the Fund, the Custodian will use its best efforts to
arrange for the independent accountants of the Fund to be afforded access to
the books and records of any foreign banking institution employed as a
foreign sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement with the
Custodian.
6. REPORTS BY CUSTODIAN.
The Custodian will supply to the Fund from time to time, as mutually
agreed upon, statements in respect of the securities and other assets of the
Fund held by foreign sub-custodians, including but not limited to an
identification of entities having possession of the Fund's securities and
other assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking institution
for the Custodian on behalf of the Fund indicating, as to securities
acquired for the Fund, the identity of the entity having physical possession
of such securities.
7. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
(a) Except as otherwise provided in paragraph (b) of this Section 7,
the provision of Sections 2.2 and 2.7 of the Custodian Contract shall apply,
MUTATIS MUTANDIS to the foreign securities of the Fund held outside the
United States by foreign sub-custodians.
(b) Notwithstanding any provision of the Custodian Contract to the
contrary, settlement and payment for securities received for the account of
the Fund and delivery of securities maintained for the account of the Fund
may be effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with
the expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same extent as
set forth in Section 2.3 of the Custodian Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record of
such securities.
8. LIABILITY OF FOREIGN SUB-CUSTODIANS.
Each agreement pursuant to which the Custodian employs a foreign
banking institution as a foreign sub-custodian shall require the institution
to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Custodian and the Fund from and against
any loss, damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At the
election of the Fund, it shall be entitled to be subrogated to the rights of
the Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
9. LIABILITY OF CUSTODIAN.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to sub-
custodians generally in the Custodian Contract and, regardless of whether
assets are maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank as contemplated by
paragraph 13 hereof, the Custodian shall not be liable for any loss, damage,
cost, expense, liability or claim resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism or any
loss where the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph 10, in delegating
custody duties to State Street London Ltd., the Custodian shall not be
relieved of any responsibility to the Fund for any loss due to such
delegation, except such loss as may result from (a) political risk
(including, but not limited to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed
hostilities) or (b) other losses (excluding a bankruptcy or insolvency of
State Street London Ltd. not caused by political risk) due to Acts of God,
nuclear incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
10. REIMBURSEMENT FOR ADVANCES.
If the Fund requires the Custodian to advance cash or securities for
any purpose including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or its
nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of
this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of such
Fund assets to the extent necessary to obtain reimbursement.
11. MONITORING RESPONSIBILITIES.
The Custodian shall furnish annually to the Fund, during the month of
June, information concerning the foreign sub-custodians employed by the
Custodian. Such information shall be similar in kind and scope to that
furnished to the Fund in connection with the initial approval of the
Custodian Contract. In addition, the Custodian will promptly inform the
Fund in the event that the Custodian learns of a material adverse change in
the financial condition of a foreign sub-custodian or any material loss of
the assets of the Fund or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange Commission is
notified by such foreign sub-custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed in accordance
with generally accepted U.S. accounting principles).
12. BRANCHES OF U.S. BANKS.
(a) Except as otherwise set forth in this amendment to the Custodian
Contract, the provisions hereof shall not apply where the custody of the
Funds assets is maintained in a foreign branch of a banking institution
which is a "bank" as defined by Section 2 (a)(5) of the Investment Company
Act of 1940 meeting the qualification set forth in Section 26(a) of said
Act. The appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of the Custodian Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained
in an interest bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction of the
Custodian, State Street London Ltd. or both.
13. TAX LAW.
The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America or any
state or political subdivision thereof. It shall be the responsibility of
the Fund to notify the Custodian of the obligations imposed on the Fund or
the Custodian as custodian of the Fund by the tax law of jurisdictions other
than those mentioned in the above sentence, including responsibility for
withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole responsibility of the
Custodian with regard to such tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such information.
14. APPLICABILITY OF CUSTODIAN CONTRACT.
Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force
and effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the 15th day of March, 1995.
ATTEST LB SERIES FUND, INC.
________________________________ By:__________________________________
ATTEST STATE STREET BANK AND TRUST COMPANY
________________________________ By:___________________________________
Executive Vice President
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of The Lutheran
Brotherhood Family of Funds for use as sub-custodians for the Fund's
securities and other assets:
(Insert banks and securities depositories)
Certified:
____________________________
Fund's Authorized Officer
Date:________________________
exhib8e1
625 Fourth Avenue South
Minneapolis, Minnesota 55415
(612) 340-8039
Fax: (612) 340-7062
[Lutheran Brotherhood logo]
Randall L. Wetherille
Assistant Vice President
Law Division
October 30, 1995
LB Series Fund, Inc.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Gentlemen:
As counsel to LB Series Fund, Inc., a corporation organized under the laws
of the State of Minnesota (the "Fund"), I have been asked to render an
opinion in connection with the proposed issuance by the Fund of shares of
beneficial interest of the World Growth Portfolio and the Opportunity Growth
Portfolio (the "Portfolios") of the Fund, which are separate series of the
Fund which have been established and designated pursuant to Article III of
the Fund's Articles of Incorporation, as amended,as more fully described in
the Prospectus and Statement of Additional Information contained in Post-
Effective Amendment No. 14 under the Securities Act of 1933 to the
Registration Statement on Form N-1A (Securities Act File No. 33-3677) to be
filed by the Fund with the Securities and Exchange Commission (as amended,
the "Registration Statement").
I wish to advise you that I have examined such documents and questions of
law as I have deemed necessary for purposes of this opinion. Based upon the
foregoing, I am of the opinion that:
1. The Fund has been duly organized and is validly existing pursuant to
the laws of the State of Minnesota; and
2. The shares of capital stock of the Fund which are described in the
foregoing Registration Statement will, when sold in accordance with the
terms of the Prospectus and Statement of Additional Information in effect at
the time of the sale, be legally issued, fully paid and non-assessable by
the Fund.
I consent to this opinion being filed as an exhibit to the foregoing
Registration Statement.
Sincerely,
/s/ Randall L. Wetherille
Randall L. Wetherille
rlww\series\n-1a\exhib10a.doc
SUBSCRIPTION AGREEMENT
January ___, 1996
LB Series Fund, Inc.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Gentleman:
The undersigned hereby subscribes for 50,000 shares of Opportunity Growth
Portfolio Capital Stock and 200,000 shares of World Growth Portfolio Capital
Stock (collectively the "Shares") of LB Series Fund, Inc., a Minnesota
corporation (the "Company"), at a cash price of $10 per share, for an
aggregate purchase price of $2,500,000.
In connection with the purchase of the Shares, the undersigned hereby
represents, warrants and agrees as follows:
1. The undersigned understands that the Shares have not been
registered under the Securities Act of 1933, as amended, or under any state
securities laws, in reliance on the exemptions from registration under all
such laws for transactions not involving any public offering, and that,
accordingly, the Shares may not be resold by the undersigned unless they are
registered under both the Securities Act of 1933 and any applicable state
securities laws or are sold in transactions which are exempt from
registration under all of such laws.
2. The undersigned understands that, even though the Shares constitute
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act of 1933 (which Rule defines the circumstances under which the
exemption from registration contained in Section 4(1) of the Securities Act
of 1933 is available for the resale of restricted securities), you are not
now obligated, nor do you now or at any future date intend, unless
obligated, to make available to the public the information required by Rule
144, and that therefore Rule 144 may not be available to the undersigned for
the resale of the Shares.
3. The undersigned has had access to information about the Company,
the offering of the Shares, and the use of any proceeds therefrom.
4. The undersigned has such knowledge and experience in financial and
business matters that it is capable of utilizing the information furnished
to it by you and evaluating the risks involving in the purchase of the
Shares.
5. The undersigned has such income and such assets that it is able to
bear the economic risks of the purchase of the Shares.
6. The undersigned is familiar with the risks involved in the business
to be conducted by the Company.
7. The undersigned is acquiring the Shares for investment for its own
account and without any view to the distribution thereof and it has no
present intention of selling, redeeming or otherwise disposing of the Shares
or any portion thereof.
8. The undersigned therefore agrees not to sell, assign, transfer or
otherwise dispose of the Shares unless a registration statement relating
thereto has been duly filed and become effective under both the Securities
Act of 1933, and any applicable state securities laws, or unless in the
opinion of counsel satisfactory to you no such registration is required
under the circumstances.
Very truly yours,
LUTHERAN BROTHERHOOD
By ______________________________________
Its ______________________________________
The foregoing subscription is hereby accepted as of this
______ day of January, 1996
LB SERIES FUND, INC.
By ______________________________________
Its ______________________________________
LB SERIES FUND, INC.
Power of Attorney of Director and Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned trustee and/or officer
of LB SERIES FUND, INC., a Minnesota Corporation, does hereby make,
constitute and appoint Otis F. Hilbert, Randall L. Wetherille and James M.
Odland, and each or any of them, the undersigned's true and lawful
attorneys-in-fact, with power of substitution, for the undersigned and in
the undersigned's name, place and stead, to sign and affix the undersigned's
name as such director and/or officer of such Company to a Registration
Statement or Registration Statements, on Form N-1A or other applicable form,
and all amendments, including post-effective amendments, thereto, to be
filed by such Company with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended,
of shares of such Company, and to file the same, with all exhibits thereto
and other supporting documents, with such Commission, granting unto such
attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 31st day
of October, 1995.
/s/ Bruce J. Nicholson
____________________________________________________
Bruce J. Nicholson
Bruce J. Nicholson