<PAGE>
1933 Act File No. 33-3677
1940 Act File No. 811-4603
==========================================================================
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. __16__ X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. __18__ 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
__X__ on May 1, 1996 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
_____ 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.
=============================================================================
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:
__X__ filed the Notice required by that Rule on January 3, 1996; or
_____ intends to file the Notice required by that Rule on or about (date); or
_____ during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant
to Rule 24f-2(b)(2), need not file the Notice.
<PAGE>
LB SERIES FUND, INC.
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
Part A
------
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.
<PAGE>
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 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 May 1, 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 May 1, 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
The tables below for each of the Growth Portfolio, High Yield Portfolio,
Income Portfolio, and Money Market Portfolio of LB Series Fund, Inc., to the
extent and for the periods indicated in its report, have been examined by
Price Waterhouse LLP, independent accountants, whose reports are included in
the Annual Reports to Shareholders for the year ended December 31, 1995. The
tables should be read in conjunction with the financial statements and notes
thereto that appear in such reports, which are incorporated by reference into
the Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION
Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987(a)
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $13.51 $14.76 $13.89 $14.85 $10.72 $11.70 $9.43 $8.92 $10.28
------ ------ ------ ------ ------ ------ ----- ----- ------
Income From
Investment Operations--
Net investment income..... 0.24 0.20 0.29 0.23 0.27 0.28 0.22 0.22 0.13
Net realized and
unrealized gain (loss)
on investments......... 4.76 (0.87) 1.08 0.85 4.13 (0.51) 2.27 0.51 (1.16)
----- ----- ---- ---- ---- ----- ---- ---- -----
Total from investment
operations.... 5.00 (0.67) 1.37 1.08 4.40 (0.23) 2.49 0.73 (1.03)
----- ----- ---- ---- ---- ----- ---- ---- -----
Less Distributions --
Dividends from net
investment income....... (0.24) (0.20) (0.29) (0.23) (0.27) (0.28) (0.22) (0.22) (0.19)
Distributions from net
realized gain
on investments.......... -- (0.38) (0.21) (1.81) -- (0.47) -- -- (0.14)
----- ----- ----- ---- ---- ----- ---- ---- -----
Total distributions.... 0.24 (0.58) (0.50) (2.04) (0.27) (0.75) (0.22) (0.22) (0.33)
----- ----- ----- ---- ---- ----- ---- ---- -----
Net asset value,
end of period........... $18.27 $13.51 $14.76 $13.89 $14.85 $10.72 $11.70 $9.43 $8.92
====== ====== ====== ====== ====== ====== ====== ===== =====
Total investment return
at net asset value (c)... 37.25% -4.66% 10.10% 8.13% 41.35% -1.97% 26.57% 8.31% -10.36%
Net assets, end of period
(millions).............. $1,173.1 $721.8 $534.5 $231.0 $96.2 $35.2 $17.5 $4.3 $1.6
Ratio of expenses to
average net assets...... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%(d)
Ratio of net investment
income to average
net assets.... 1.53% 1.52% 2.17% 1.90% 2.24% 2.79% 2.37% 2.64% 1.59%(d)
Portfolio turnover rate.... 184% 135% 243% 230% 247% 195% 167% 116% 141%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
High Yield Portfolio
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987(b)
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 9.18 $10.76 $9.62 $9.07 $7.62 $9.00 $9.94 $9.93 $9.64
------ ------ ----- ----- ----- ----- ----- ----- -----
Income From
Investment Operations--
Net investment income..... 0.96 0.97 0.96 1.02 1.08 1.08 1.25 1.21 0.19
Net realized and
unrealized gain (loss)
on investments......... 0.76 (1.40) 1.16 0.71 1.45 (1.37) (0.94) 0.05 0.29
----- ----- ---- ---- ---- ----- ---- ---- -----
Total from investment
operations.... 1.72 (0.43) 2.12 1.73 2.53 (0.29) 0.31 1.26 0.48
----- ----- ---- ---- ---- ----- ---- ---- -----
Less Distributions --
Dividends from net
investment income....... (0.96) (0.97) (0.96) (1.02) (1.08) (1.08) (1.25) (1.21) (0.19)
Distributions from net
realized gain
on investments.......... -- (0.18) (0.02) (0.16) -- (0.01) -- (0.04) --
----- ----- ----- ----- ---- ----- ---- ----- -----
Total distributions.... (0.96) (1.15) (0.98) (1.18) (1.08) (1.09) (1.25) (1.25) (0.19)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period........... $ 9.94 $9.18 $10.76 $9.62 $9.07 $7.62 $9.00 $9.94 $9.93
====== ===== ====== ===== ===== ===== ===== ===== =====
Total investment return
at net asset value (c)... 19.62% -4.38% 22.91% 20.08% 35.32% -3.72% 3.13% 13.33% 4.96%
Net assets, end of period
(millions).............. $792.5 $595.6 $444.5 $154.3 $56.7 $25.9 $20.1 $6.3 $2.6
Ratio of expenses to
average net assets...... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%(d)
Ratio of net investment
income to average
net assets.... 9.94% 9.75% 9.29% 10.69% 12.62% 13.04% 12.96% 12.12% 11.53%(d)
Portfolio turnover rate.... 67% 44% 68% 80% 145% 111% 79% 63% 1%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Income Portfolio
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987(a)
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 9.04 $10.36 $9.87 $10.01 $9.10 $9.40 $9.19 $9.25 $10.09
------ ------ ----- ------ ----- ----- ----- ----- ------
Income From
Investment Operations--
Net investment income..... 0.65 0.64 0.63 0.73 0.81 0.84 0.86 0.77 0.79
Net realized and
unrealized gain (loss)
on investments......... 1.04 (1.11) 0.49 0.15 0.91 (0.24) 0.21 (0.06) (0.84)
----- ----- ---- ---- ---- ----- ---- ---- -----
Total from investment
operations.... 1.69 (0.47) 1.12 0.88 1.72 0.60 1.07 0.71 (0.05)
----- ----- ---- ---- ---- ----- ---- ---- -----
Less Distributions --
Dividends from net
investment income....... (0.65) (0.64) (0.63) (0.73) (0.81) (0.84) (0.86) (0.77) (0.79)
Distributions from net
realized gain
on investments.......... -- (0.21) -- (0.29) -- (0.06) -- -- --
----- ----- ----- ----- ---- ----- ---- ----- -----
Total distributions.... (0.65) (0.85) (0.63) (1.02) (0.81) (0.90) (0.86) (0.77) (0.79)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period........... $10.08 $9.04 $10.36 $9.87 $10.01 $9.10 $9.40 $9.19 $9.25
====== ===== ====== ===== ====== ===== ===== ===== =====
Total investment return
at net asset value (c)... 19.36% -4.68% 11.66% 9.23% 19.76% 6.91% 12.22% 8.07% -0.37%
Net assets, end of period
(millions).............. $762.1 $608.2 $566.9 $254.7 $100.0 $43.5 $19.8 $3.5 $0.8
Ratio of expenses to
average net assets...... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%(d)
Ratio of net investment
income to average
net assets.... 6.81% 6.78% 6.23% 7.29% 8.43% 9.25% 9.33% 8.46% 8.54%(d)
Portfolio turnover rate.... 132% 139% 153% 115% 137% 164% 165% 102% 40%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Money Market Portfolio
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987(a)
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ------ ----- ----- ----- ----- ----- ----- -----
Income From
Investment Operations--
Net investment income..... 0.06 0.04 0.03 0.03 0.06 0.08 0.09 0.07 0.06
----- ----- ----- ----- ----- ------ ----- ----- ------
Less Distributions --
Dividends from net
investment income....... (0.06) (0.04) (0.03) (0.03) (0.06) (0.08) (0.09) (0.07) (0.06)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period........... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== =====
Total investment return
at net asset value (c)... 5.71% 4.00% 2.87% 3.53% 5.89% 8.00% 9.07% 7.31% 6.16%
Net assets, end of period
(millions).............. $66.1 $41.9 $24.9 $26.6 $23.0 $20.0 $10.4 $3.9 $2.6
Ratio of expenses to
average net assets...... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%(d)
Ratio of net investment
income to average
net assets.... 5.55% 4.03% 2.83% 3.45% 5.72% 7.76% 8.69% 7.16% 6.17%(d)
___________________________
(a) For a share outstanding from January 9, 1987 (effective date) through December 31, 1987.
(b) For a share outstanding from November 21, 1987 (effective date) through December 31, 1987.
(c) Total investment return is based on the change in net asset value during the period and assumes reinvestment of all
distributions and does not reflect any charges that would normally occur at the separate account level.
(d) Computed on an annualized basis.
</TABLE>
The table below for each of the Opportunity Growth Portfolio and the
World Growth Portfolio of LB Series Fund, Inc., for the period from the
inception of those two portfolios on January 18, 1996 to March 31, 1996 is
unaudited. It should be read in conjunction with the financial statements
and notes thereto for those portfolios that appear in the Fund's Statement
of Additional Information and which are incorporated by reference.
For the period from January 18, 1996 (effective date) to March 31, 1996 (a)
Opportunity World
Growth Growth
Portfolio Portfolio
------------------------
Net asset value, beginning of period... $10.00 $10.00
--------- ---------
Income From Investment Operations -
Net investment income.................. 0.01 0.03
Net realized and unrealized gain
on investments....................... 1.30 0.08
--------- ---------
Total from investment operations..... 1.31 0.11
--------- ---------
Net asset value, end of period......... $11.31 $10.11
========= =========
Total investment return at
net asset value (b).................. 13.05% 1.13%
Net assets, end of period ($ millions). $51.6 $43.8
Ratio of expenses to average
net assets........................... 0.40%(c) 0.85%(c)
Ratio of net investment income to
average net assets................... 0.90%(c) 3.25%(c)
Portfolio turnover rate................ 38% 0%
Notes to Financial Highlights:
___________________________________
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Computed on an annualized basis.
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 $20 billion under management as of December 31,
1995 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 Portfolio 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, 1995 and December 31, 1994 were 132% and 139%,
respectively.
In order to help minimize credit risk, the Portfolio diversifies its
holdings among many issuers. As of December 31, 1995, the Portfolio held
securities of 60 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................................ 3.9%
Government obligations............................... 40.5
Corporate obligations
AAA/Aaa....................................... 14.4
AA/Aa......................................... 16.4
A/A........................................... 11.5
BBB/Baa....................................... 6.4
BB/Ba......................................... 6.1
B/B........................................... 2.1
CCC/Caa....................................... --
CC/Ca......................................... --
D/D........................................... --
Not rated..................................... --
Other Net Assets/Liabilities.................. -1.3
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, 1995 and December 31, 1994 were 67% and 44%,
respectively.
In order to help minimize credit risk, the Portfolio diversifies its
holdings among many issuers. As of December 31, 1995 , the Portfolio held
securities of 143 corporate issuers, and the Portfolio's holdings had the
following credit quality characteristics:
Percent of
Investment Net Assets
Short-term securities--
Aaa equivalent.............................. 5.5%
Government obligations............................ --
Corporate obligations
AAA/Aaa..................................... --
AA/Aa....................................... --
A/A......................................... --
BBB/Baa..................................... 0.2
BB/Ba....................................... 10.2
B/B......................................... 46.7
CCC/Caa..................................... 12.8
CC/Ca....................................... 1.33
D/D......................................... 0.1
Not rated................................... 7.0
Other Net Assets............................ 16.2
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 Portfolio) 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, 1995 and December 31, 1994 were 184% and 135%,
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 capital gains through the active management of a
portfolio consisting primarily of common stocks issued by smaller
capitalization companies. 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 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, 1995 were $10.9 billion.
Additionally, through an indirect subsidiary, Lutheran Brotherhood Research
Corp., Lutheran Brotherhood also manages $3.4 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 Portfolio 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 $20 billion under management as of December 31, 1995 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 Money Market, Income,
High Yield, Growth and Opportunity Growth Portfolios and .85% of the
aggregate average daily net assets of the World Growth Portfolio.
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
Portfolio 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 Portfolio 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 shares of capital stock of the Fund are divided into six classes: Money
Market Portfolio Capital Stock, Income Portfolio Capital Stock, High Yield
Portfolio Capital Stock, Growth Portfolio Capital Stock, Opportunity Growth
Portfolio Capital Stock, and World Growth Portfolio Capital Stock. 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 December 31, 1995, was 5.39% and 5.53%, 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 December 31, 1995
for the High Yield Portfolio was 9.65%. The current yield for the same 30-
day base period for the Income Portfolio was 6.12%. 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 December 31, 1995, and for the period from the Fund's
effective date through December 31, 1995 for the Portfolios are as follows:
From
1 Year 3 Years 5 Years Inception
Growth Portfolio (1/9/87) 37.25% 12.95% 17.09% 11.48%
High Yield Portfolio (11/2/87) 19.62% 12.01% 17.95% 12.92%
Income Portfolio (1/9/87) 19.36% 8.29% 10.68% 8.88%
Money Market Portfolio (1/9/87) 5.71% 4.19% 4.39% 5.83%
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 May 1, 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
BROKERAGE COMMISSIONS
ROWE PRICE-FLEMING AFFILIATED TRANSACTIONS
CAPITAL STOCK
DETERMINATION OF THE NET ASSET VALUE
CALCULATION OF PERFORMANCE
Money Market Portfolio
Other Portfolios
TAX STATUS
ADDITIONAL INFORMATION
REPORT OF INDEPENDENT ACCOUNTANTS AND
FINANCIAL STATEMENTS
_________________________________
The date of this Statement of Additional
Information is May 1, 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, 1994 and 1995 are as follows:
Fiscal Years Ended December 31, 1994 1995
Income Portfolio 139% 132%
High Yield Portfolio 44% 67%
Growth Portfolio 135% 184%
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, 12290 Avenida Consentido, San Diego, CA, 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; Assistant Vice President,
Lutheran Brotherhood Variable Insurance Products Company; Assistant Vice
President, Lutheran Brotherhood Securities Corp.; Vice President of The
Lutheran Brotherhood Family of Funds**.
Wade M. Voigt, Treasurer, 625 Fourth Ave. S., Minneapolis, MN, Age 39
Assistant Vice President, 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; 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 includes 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, 1995, the Directors of the Fund
received the following amounts of compensation:
Total
Aggregate Compensation
Name and Position Compensation Paid by Fund and
of Person From Fund Fund Complex(1)
- ----------------- ------------ -----------------
Rolf F. Bjelland(2) $0 $0
Chairman
and Director
Charles W. Arnason $5,955 $27,500
Director
Herbert F. Eggerding, Jr. $5,955 $27,500
Director
Luther O. Forde(2)(3) $0 $0
Connie M. Levi $5,955 $27,500
Director
Bruce J. Nicholson(2) $0 $0
Director
Ruth E. Randall $5,955 $27,500
Director
(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.
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 $20 billion under management as of December 31, 1995 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, 1995, 1994, and 1993, the
Adviser earned $9,372,835, $7,450,844, and $4,340,282, 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
Portfolio 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 Portfolio 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.
BROKERAGE COMMISSIONS
During the last three fiscal years, the Fund paid the following brokerage
fees:
12/31/95 12/31/94 12/31/93
Growth Portfolio $3,876,957 $2,288,985 $2,510,252
High Yield Portfolio 60,767 _ 12,229 9,218
Income Portfolio 35,118 30,247 16,236
Money Market Portfolio -- -- --
Of the brokerage fee amounts stated above, the following percentages were
paid to firms which provided research, statistical, or other services to the
Fund's Adviser or Sub-advisor in connection with the management of the Fund:
12/31/95 12/31/94 12/31/93
Growth Portfolio 10.21% 5.36% 8.82%
High Yield Portfolio 19.00% 5.72% 46.66%
Income Portfolio 8.37% 11.46% 10.99%
Money Market Portfolio --% --% --%
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:
Class Number of Shares
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
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, 1995:
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* $1.001032959
Net change in account value $1.001032959
Base Period Return
Net change in account value divided by beginning
account value = 0.001032959
Annualized Current Yield [0.001032959 x (365/7)] 5.39%
Effective Yield** [0.001032959 + 1)365/7 - 1 5.53%
* 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, 1995:
Dividends and interest earned by the High Yield
Portfolio during the base period $6,439,798
Expenses accrued for the base period $ (256,004)
$6,183,794 (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 ($9.939722 x 78,929,424 shares) = $784,536,532
(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) = 0.00788210
(C)
Adding one and raising total to the 6th power
(C + 1)6 = 1.048234
(D)
Annualized current yield [2(D - 1) x 100] = 9.65%
The following example illustrates the annualized current yield
calculation for the Income Portfolio for the 30-day base period ended
December 31, 1995:
Dividends and interest earned by the Income
Portfolio during the base period $4,049,755
Expenses accrued for the base period $ (245,869)
$3,803,886
(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 ($10.078066 x 74,924,891 shares) = $755,097,997
(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) = 0.00503761
(C)
Adding one and raising total to the 6th power
(C + 1)6 = 1.030609
(D)
Annualized current yield [2(D - 1) x 100] = 6.12%
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, 1995:
Hypothetical $1,000 initial investment on
January 9, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1995 2,653
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%) 165.30%
Average annual total return from inception
through December 31, 1995 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 eight years and 356 days; the result is
reduced by one and is expressed in terms of a
percentage (For example, 0.2 equals 20%) 11.48%
The following example illustrates the average annual total return for
the High Yield Portfolio from the date of inception through December 31,
1995:
Hypothetical $1,000 initial investment on
November 2, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1995 2,697
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%) 169.73%
Average annual total return from inception
through December 31, 1995 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 eight years and 59 days; the result is reduced
by one and is expressed in terms of a percentage
(For example, 0.2 equals 20%) 12.92%
The following example illustrates the average annual total return for
the Income Portfolio from the date of inception through December 31, 1995:
Hypothetical $1,000 initial investment on
January 9, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1995 2,147
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%) 114.69%
Average annual total return from inception
through December 31, 1995 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 eight years and 356 days; the result is
reduced by one and is expressed in terms of a
percentage (For example, 0.2 equals 20%) 8.88%
The following example illustrates the average annual total return for
the Money Market Portfolio from the date of inception through December 31,
1995:
Hypothetical $1,000 initial investment on January
9, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1995 1,664
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%) 66.39%
Average annual total return from inception
through December 31, 1995 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 eight years and 356 days; the result is
reduced by one and is expressed in terms of a
percentage (For example, 0.2 equals 20%) 5.83%
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,
1995 of the Fund with respect to the Growth Portfolio, the Income Portfolio,
the High Yield Portfolio, and the Money Market Portfolio are a separate
report to be furnished with this Statement of Additional Information and are
incorporated herein by reference. The financial statements for the
Opportunity Growth Portfolio and the World Growth Portfolio for the period
from those two Portfolios' inception on January 17, 1996 to March 31, 1996,
which are unaudited, are included herein.
<PAGE>
LB SERIES FUND, INC.
OPPORTUNITY GROWTH PORTFOLIO
WORLD GROWTH PORTFOLIO
UNAUDITED FINANCIAL STATEMENTS
DATED MARCH 31, 1996
LB Series Fund, Inc. - Opportunity Growth Portfolio
Portfolio of Investments
March 31, 1996
(unaudited)
Shares Value
--------- -----------
COMMON STOCKS - 83.8% (a)
Automotive - 1.0%
31,700 Tower Automotive, Inc. $511,163 (b)
-----------
Bank & Finance - 0.5%
21,350 NAL Financial Group, Inc. 269,544 (b)
-----------
Broadcasting - 1.2%
15,900 Emmis Broadcasting Corp., Class A 612,150 (b)
-----------
Building Products & Materials - 1.2%
29,000 NN Ball & Roller, Inc. 641,625
-----------
Chemicals - 0.9%
11,700 Airgas, Inc. 465,075 (b)
-----------
Computer Software - 15.9%
21,000 Adept Technology, Inc. 304,500 (b)
25,000 Alphanet Solutions, Inc. 250,000 (b)
61,350 AmeriData Technology, Inc. 697,856 (b)
6,700 Analogy, Inc. 53,600 (b)
31,350 Avant! Corp. 752,400 (b)
70,100 Glasgal Communications, Inc. 630,900 (b)
33,800 Inference Corp. 625,300 (b)
47,450 Intersolv, Inc. 551,606 (b)
17,000 Macromedia, Inc. 726,750 (b)
48,650 Open Text Corp. 687,180 (b)
78,000 Softquad International, Inc. 477,750 (b)
9,200 Sterling Software, Inc. 648,600 (b)
46,800 Systemsoft Corp. 748,800 (b)
44,800 Vanstar Corp. 453,600 (b)
20,000 Viasoft, Inc. 562,500 (b)
-----------
8,171,342
-----------
Computers & Office Equipment - 4.6%
52,400 DataWorks Corp. 668,100 (b)
36,800 InaCom Corp. 630,200 (b)
14,100 Madge, N.V. 565,763 (b)
25,750 Proxima Corp. 492,469 (b)
-----------
2,356,532
-----------
Drugs & Health Care - 13.5%
47,350 Alpha-Beta Technology, Inc. 591,875 (b)
46,300 Amrion, Inc. 700,288 (b)
4,800 Coherent, Inc. 204,000 (b)
31,800 Depotech Corp. 779,100 (b)
38,000 GalaGen, Inc. 380,000 (b)
26,200 Integra Lifesciences Corp. 307,850 (b)
62,800 Lipsome Co., Inc. 1,310,950 (b)
21,700 Medicis Pharmaceutical Corp, Class A 520,800 (b)
19,200 Minntech Corp. 393,600
11,200 PDT, Inc. 660,800 (b)
15,450 Summit Technology, Inc. 365,006 (b)
19,400 US Bioscience, Inc. 127,313 (b)
22,900 Vertex Pharmaceuticals, Inc. 606,850 (b)
-----------
6,948,432
-----------
Electronics - 6.4%
21,100 ACT Networks, Inc. 466,838 (b)
57,400 ElectroStar, Inc. 602,700 (b)
50,250 Etec Systems, Inc. 703,500 (b)
54,300 Quality Semiconductor, Inc. 291,863 (b)
44,550 S3, Inc. 531,816 (b)
48,000 Smartflex Systems, Inc. 708,000 (b)
-----------
3,304,717
-----------
Healthcare Management - 2.5%
56,050 Home Health Corp. of America, Inc. 637,569 (b)
30,200 Nueromedical Systems Inc. 656,850 (b)
-----------
1,294,419
-----------
Hospital Management - 2.4%
70,150 Complete Management, Inc. 587,506 (b)
31,800 Horizon Mental Health Management, Inc. 671,775 (b)
-----------
1,259,281
-----------
Leisure & Entertainment - 3.8%
37,750 Cannondale Corp. 693,656 (b)
75,550 Fairfield Communities, Inc. 670,506 (b)
24,450 Movie Gallery, Inc. 617,362 (b)
-----------
1,981,524
-----------
Machinery & Equipment - 2.1%
42,100 Northwest Pipe Co. 578,875 (b)
28,200 Stratasys, Inc. 497,025 (b)
-----------
1,075,900
-----------
Oil & Oil Service - 0.2%
5,000 Belco Oil & Gas Corp. 113,750 (b)
-----------
Pollution Control - 2.4%
82,300 IDM Environmental Corp. 550,381 (b)
25,450 Memtec Limited, ADR 683,969 (b)
-----------
1,234,350
-----------
Restaurants - 4.1%
96,000 BAB Holdings, Inc. 744,000 (b)
49,000 Buffets, Inc. 698,250 (b)
38,900 New World Coffee 131,287 (b)
76,800 Sagebrush, Inc. 556,800 (b)
-----------
2,130,337
-----------
Retail - 5.4%
71,550 American Eagle Outfitters 706,556 (b)
32,300 BT Office Products International, Inc. 545,062 (b)
7,300 Pacific Sunwear of California 89,425 (b)
27,850 Sports Authority, Inc. (The) 762,394 (b)
124,200 Strouds, Inc. 667,575 (b)
-----------
2,771,012
-----------
Services - 2.7%
67,800 Cotelligent Group, Inc. 796,650 (b)
33,450 Personal Group of America, Inc. 610,463 (b)
-----------
1,407,113
-----------
Telecommunications Equipment - 1.1%
16,350 ADC Telecommunications, Inc. 564,075 (b)
-----------
Telephone & Telecommunications - 10.8%
39,000 IntelCom Group (USA), Inc. 692,250 (b)
41,300 Intercel, Inc. 929,250 (b)
34,750 Intermedia Communications of Florida, Inc. 638,530 (b)
40,250 Metrocall, Inc. 835,188 (b)
34,500 PriCellular Corp. 461,438 (b)
24,650 Pronet, Inc. 608,547 (b)
13,300 Teltrend, Inc. 605,150 (b)
24,200 United States Satellite Broadcasting Corp. 792,550 (b)
-----------
5,562,903
-----------
Textiles & Apparel - 1.1%
55,050 Cutter & Buck, Inc. 550,500 (b)
-----------
Total Common Stocks
Cost ($41,348,498) 43,225,744
-----------
Principal
Amount
---------
SHORT-TERM SECURITIES - 16.2% (a)
$8,330,000 Federal Home Loan Mortgage Corp.
Discount Notes, 5.25%, Due 4/1/96
(at amortized cost) 8,327,570
-----------
Total Investments
Cost ($49,676,068) $51,553,314 (c)
===========
Notes to Portfolio of Investments:
--------------------------------------------
(a) The categories of investments are shown as a percentage of
investments of the LB Series Fund, Inc. - Opportunity Growth
Portfolio.
(b) Currently non-income-producing.
(c) At March 31, 1996, the aggregate cost of securities for federal
income
tax purposes was $49,676,068 and the net unrealized appreciation of
investments based on that cost was $1,877,246 which is comprised of
$3,167,156 aggregate gross unrealized appreciation and $1,289,910
aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
LB Series Fund, Inc. - World Growth Portfolio
Portfolio of Investments
March 31, 1996
(unaudited)
Shares Value
--------- -----------
ARGENTINA - 0.6% (a)
COMMON STOCKS
1,700 Banco de Galicia Buenos Aires 'B' $40,800
990 Banco Frances del Rio de la Plata 27,101
60 Enron Global Power & Pipeline 1,545
7,970 Naviera Perez 'B' 45,110
180 Telecom Argentina ADR (USD) 7,470
2,400 Telecom Argentina ADR (USD) 10,032
3,360 Telefonica de Argentina ADR (USD) 86,100
1,210 Transportadora de Gas del Sur ADR (USD) 14,520
3,160 YPF Sociedad Anonima ADR (USD) 63,595
-----------
Total Argentina 296,273
-----------
AUSTRALIA - 1.4% (a)
COMMON STOCKS
5,000 Amcor Ltd. 32,508
19,000 Australia Gas & Light 80,175
7,000 Broken Hill Proprietary 99,664
9,000 Burns Philip & Company 19,200
4,000 Coca Cola Amatil 40,259
2,300 Lend Lease Corporation 33,286
5,000 National Australia Bank Ltd. 44,542
6,700 News Corporation 39,215
8,000 Publishing & Broadcasting 35,008
7,700 Smith (Howard) Ltd. 42,059
9,000 TNT 11,112
6,700 Western Mining 44,293
15,000 Westpac Banking 70,563
9,000 Woodside Petroleum 50,356
-----------
Total Australia 642,240
-----------
AUSTRIA - 0.1% (a)
COMMON STOCKS
100 Energie-Versorgung Niederoesterreich AG 13,655
290 Flughafen Wien 19,870
60 Oesterreische Elektrik Wirtsch 4,215
-----------
37,740
-----------
PREFERRED STOCKS
370 Creditanstalt Bankverein 21,995
-----------
Total Austria 59,735
-----------
BELGIUM - 0.9% (a)
COMMON STOCKS
270 Generale Banque 95,896
680 Kredietbank 185,816
70 UCB 117,445
-----------
Total Belgium 399,157
-----------
BRAZIL - 1.1% (a)
COMMON STOCKS
1,030 Brazil Fund (USD) 22,274
2,800 Centrais Eletricas Brasileiras SA ADR (USD) 37,786
320 Companhia Energetica Brasilia 8,960
1,640 Companhia Energetica Minas Gerais ADR (USD) 45,920 (b)
5,680 Telecomunicacoes Brasilias ADR (USD) 282,580
8,320 Usinas Siderurgicas de Minas Gerais ADR (USD 90,480
-----------
Total Brazil 488,000
-----------
CANADA - 0.3% (a)
COMMON STOCKS
3,220 Alcan Aluminum 104,795
1,540 MacMillan Bloedel 20,213
1,100 Royal Bank of Canada 25,850
-----------
Total Canada 150,858
-----------
CHILE - 0.5% (a)
COMMON STOCKS
1,635 Chile Fund (USD) 38,014
745 Chilectra ADR (USD) 37,809
910 Chilgener ADR (USD) 21,158
440 Compania Telecomunicaciones ADR (USD) 37,290
2,760 Empresa Nacional De Electric ADR (USD) 53,130
1,545 Enersis ADR (USD) 43,646
-----------
Total Chile 231,047
-----------
CHINA - 0.5% (a)
COMMON STOCKS
7,360 Huaneng Power ADR (USD) 126,040 (b)
217,000 Shanghai Petrochemical 'H' (HKD) 67,339
182,000 Yizheng Chemical Fibre 'H' (HKD) 47,065
-----------
Total China 240,444
-----------
DENMARK - 0.2% (a)
COMMON STOCKS
674 Den Danske Bank 42,683
297 Teledanmark 15,474
710 Unidanmark 32,134
-----------
Total Denmark 90,291
-----------
FINLAND - 0.1% (a)
COMMON STOCKS
1,520 Nokia 52,486
-----------
FRANCE - 6.2% (a)
COMMON STOCKS
705 Accor 106,246
1,460 Assurances Generales de France 40,585
10 Canal Plus 2,339
468 Carrefour 342,702
420 Castorama Dubois 76,721
437 Chargeurs 111,844
1,420 Cie de St. Gobain 184,394
515 Credit Local De France 40,330
4,077 Eaux Cie Generale 416,896
333 Ecco 76,764
650 GTM Entrepose 44,784
350 Guilbert SA 50,522
50 Hermes International 13,293
1,310 Lapeyre 73,480
160 Legrand 30,021
180 L'Oreal 56,397
860 Pinault Printemps Redoute 237,352
1,010 Poliet 106,286
610 Primagaz 61,528
150 Promodes 39,165
300 Rexel 66,119
610 Sanofi 44,329
260 Societe Generale 28,910
1,825 Societe Nationale Elf Aquitaine 123,747
240 Sodexho 92,018
2,210 Television Francaise 225,985
2,085 Total 140,755
90 Valeo 4,780
-----------
Total France 2,838,292
-----------
GERMANY - 3.7% (a)
COMMON STOCKS
133 Allianz Holdings 247,117
40 Altana 25,740
670 Bayer 228,235
150 Bilfinger & Berger 58,880
90 Buderas 34,017
2,300 Deutsche Bank 115,802
465 Gehe 267,730
140 Hoechst 49,597
490 Hornbach Baumarkt 16,463
226 Mannesmann 82,360
1,320 Praktiker Bau und Heimwerker Markte 31,294 (b)
406 Rhon Klinikum 44,139
1,200 Schering 95,021
140 Siemans AG 77,051
4,125 Veba 200,480
123 Volkswagen 43,116
-----------
1,617,042
-----------
PREFERRED STOCKS
710 Fielmann 33,761
660 Hornbach Holdings AG 37,777
-----------
71,538
-----------
Total Germany 1,688,580
-----------
HONG KONG - 4.0% (a)
COMMON STOCKS
25,000 Doa Heng Bank Ltd. 103,439
123,000 First Pacific 174,942
28,000 Guoco Group 154,228
124,000 Hong Kong Land Holdings 297,600
110,000 Guangdong Investments 69,692
347,000 Guangzhou Investment 89,734
295,000 Hopewell Holdings 171,645
33,000 Hutchison Whampoa 208,223
39,000 New World Development Co. Ltd. 181,536
19,000 Swire Pacific 'A' 167,055
52,000 Wharf Holdings 196,328
-----------
Total Hong Kong 1,814,422
-----------
ITALY - 1.8% (a)
COMMON STOCKS
7,770 Assicurazioni Generali 173,436
49,780 Banca Fideuram 73,232
5,000 Danieli & Company 19,742
10,000 Ente Nazionale Idrocarburi 36,268
2,000 Finanziaria Autogrill SpA 2,165 (b)
3,000 Imi 20,519
13,000 Istituto Naz Delle Assicurazioni 17,717
15,600 Italgas 45,203
5,600 Rinascente 36,109
1,000 Riunione Adriatica di Securita SpA 9,744
4,000 Sasib 15,284
12,000 Sasib Di Risp 23,843
4,000 SME Meridonale Di 4,371
36,000 Stet 99,844
17,800 Stet Di Risp 35,368
35,827 Telecom Italia 56,698
64,400 Telecom Italia Mobile 116,886 (b)
16,000 Telecom Italia Mobile DRNC 17,607
1,000 Unicem 6,305
-----------
Total Italy 810,341
-----------
JAPAN - 20.9% (a)
COMMON STOCKS
1,100 Advantest Corp. 49,563
7,000 Alps Electric 75,906
13,000 Amada 137,322
15,000 Canon 286,048
8,000 Citizen Watch Company 65,585
12,000 Dai Nippon Screen Manufacturing 113,297
3,000 Daifuku 45,151
13,000 Daiichi Pharmaceutical 204,160
14,000 Daiwa House 219,864
13 DDI Corp. 99,042
40 East Japan Railway 205,656
3,000 Fanuc 121,711
20,000 Hitachi 194,438
21,000 Hitachi Zosen 113,073
5,000 Honda Motor Company 108,904
7,000 Inax 67,399
7,000 Ishihara Sangyo 24,996
5,000 Ito-Yokado 296,798
6,000 Kokuyo 163,777
16,000 Komatsu 142,538
5,000 Komori 127,133
14,000 Kumagai Gumi 57,845
12,000 Kuraray 129,002
5,000 Kyocera 339,332
9,000 Makita 135,452
11,000 Marui 239,589
14,000 Matsushita Electric Industries 227,717
8,000 Mitsubishi 104,697
40,000 Mitsubishi Heavy Industries 345,501
10,000 Mitsubishi Paper 59,360
22,000 Mitsui Fudosan 285,861
6,000 Mitsui Petrochemical Industries 49,413
6,000 Murata Manufacturing 206,403
3,000 National House 51,040
31,000 NEC 359,336
14,000 Nippon Denso 282,683
4,000 Nippon Hodo 67,305
72,000 Nippon Steel 247,684
18 Nippon Telegraph & Telephone Corp. 131,582
14,000 Nomura Securities 307,548
7,000 Pioneer Electronic 143,959
1,000 Sangetsu 24,118
9,000 Sankyo 206,123
2,000 Sega Enterprises 90,488
15,000 Sekisui Chemical 196,308
11,000 Sekisui House 137,789
1,000 Seven-Eleven Japan 64,408
14,000 Sharp 223,791
7,300 Shinetsu Chemical 140,575
4,500 Sony 268,801
22,000 Sumitomo 232,391
21,000 Sumitomo Electric 282,683
8,000 Sumitomo Forestry 122,645
4,000 TDK 206,029
29,000 Teijin 159,944
7,000 Tokio Marine & Fire Insurance 90,956
2,000 Tokyo Electronics 68,240
6,000 Tokyo Steel Manufacturing 108,810
11,000 Toppan Printing 142,931
4,000 Yurtec 69,175
-----------
Total Japan 9,469,875
-----------
KOREA - 0.5% (a)
COMMON STOCKS
6,100 Korea Equity Fund (USD) 128,863
500 Pohang Iron & Steel ADR (USD) 12,125
900 Samsung Electronics GDR 52,875 (b)
271 Samsung Electronics GDR Bonus 15,886 (b)
-----------
Total Korea 209,749
-----------
MALAYSIA - 2.4% (a)
COMMON STOCKS
20,000 Affin Holdings 18,814 (b)
81,000 Affin Holdings 182,490
13,000 Commerce Asset Holdings 41,364 (b)
47,000 MBF Capital 62,047
91,000 Multi-Purpose Holdings 147,470
73,000 Renong 118,877
7,400 Renong Berhad - 4% ICULS Rights 15 (b)
4,625 Renong Berhad - Warrant Rights 690 (b)
82,000 Technology Resources Industries 294,941
33,000 United Engineers 228,261
-----------
Total Malaysia 1,094,969
-----------
MEXICO - 1.3% (a)
COMMON STOCKS
1,650 Panamerican Beverages ADR (USD) 66,619
1,510 Cementos de Mexico ADR (USD) 10,759 (b)
10,900 Cemex 'B' 41,517
99,550 Cifra ADR (USD) 127,922
5,782 Gruma 'B' 20,488 (b)
7,260 Grupo Embotellador de Mexico 10,406
21,680 Grupo Financiero Banamex 'C' 46,208
39,770 Grupo Industrial Maseca 33,463
1,630 Grupo Televisa GDR (USD) 40,546
2,700 Kimberly-Clark Mexico (Class A) 51,599
4,775 Telefonos de Mexico ADR (USD) 156,978
-----------
Total Mexico 606,505
-----------
NETHERLANDS - 8.7% (a)
COMMON STOCKS
3,580 ABN Amro 178,122
2,200 Ahold 106,132
4,690 CSM 224,834
50,515 Elsevier 773,579
1,790 Fortis AMEV 126,224
960 Hagemeyer 65,488
4,465 International Nederland Groep 324,315
1,810 Koninklijke PTT Nederland 71,212
710 Nutricia 71,125
4,925 Polygram 298,105
4,552 Royal Dutch Petroleum 644,736
1,710 Unilever 233,196
7,405 Wolters Kluwer 814,859
-----------
Total Netherlands 3,931,927
-----------
NEW ZEALAND - 0.5% (a)
COMMON STOCKS
16,000 Carter Holt Harvey 35,311
10,000 Fernz 31,674
3,000 Fletcher Challenge Building 7,377
3,000 Fletcher Challenge Energy 6,416
6,000 Fletcher Challenge Paper 11,198
23,000 Fletcher Challenge, Forests Division 30,706
20,000 Telecom Corporation of New Zealand 89,912
-----------
Total New Zealand 212,594
-----------
NORWAY - 1.2% (a)
COMMON STOCKS
970 Bergesen 'A' 16,865
1,210 Kvaerner Industier 'A' 43,773
6,304 Norsk Hydro 274,745
3,885 Orkla 'A' 178,708
1,520 Saga Petroleum 'B' 17,658
-----------
Total Norway 531,749
-----------
PORTUGAL - 0.4% (a)
COMMON STOCKS
2,285 Jeronimo Martins 169,607
-----------
SINGAPORE - 2.1% (a)
COMMON STOCKS
23,000 DBS Land 88,229
6,000 Development Bank of Singapore 73,737
8,000 Far East Levingston Shipbuilding 44,612
3,400 Fraser & Neave Ltd. 38,403
4,000 Jurong Shipyard 23,727
5,000 Keppel 45,464
23,000 Neptune Orient Lines 26,142
11,000 Overseas Union Bank 78,142
1,000 Overseas Union Enterprises 6,038
7,000 Sembawang 35,057
2,000 Singapore Airlines 20,743
22,000 Singapore Land 160,972
5,000 Singapore Press 99,808
40,000 United Industrial 42,907
16,000 United Overseas Bank 161,398
7,000 United Overseas Bank Warrants 6/17/97 29,587 (b)
-----------
Total Singapore 974,966
-----------
SPAIN - 2.1% (a)
COMMON STOCKS
635 Banco Popular Espanol 109,692
2,510 Banco Santander 119,519
2,020 Centros Commerciales Pryca 45,896
1,542 Corporacion Bancaria de Espana S.A. 65,226
3,875 Empresa Nacional de Electridad ADR (USD) 221,982
675 Gas Natural 116,710
9,620 Iberdrola 88,748
4,960 Repsol 187,027
670 Sevillana De Electricidad 4,831
-----------
Total Spain 959,631
-----------
SWEDEN - 2.0% (a)
COMMON STOCKS
830 Asea 'A' 86,148
8,350 Astra AB 'B' 384,559
4,660 Atlas Copco 'B' 83,753
2,815 Electrolux 'B' 137,655
860 Esselte 'B' 15,070
1,060 Hennes & Mauritz 'B' 75,410
430 Sandvik 'A' 9,016
4,530 Sandvik 'B' 94,986
630 Scribona 'B' 6,322
2,910 Stora Kopparberg 'B' 37,264
-----------
Total Sweden 930,183
-----------
SWITZERLAND - 3.6% (a)
COMMON STOCKS
220 BBC Brown Boveri 267,648
144 Ciba Geigy 180,272
720 CS Holding 66,134
295 Nestle 332,848
44 Roche Holdings 365,495
210 Sandoz 246,301
313 Schweizerisch Bankverein 115,000
48 Schweizerische Bankgesellschaft 53,271
-----------
Total Switzerland 1,626,969
-----------
THAILAND - 0.9% (a)
COMMON STOCKS
2,750 Advanced Info Service plc 52,717
7,300 Bangkok Bank 98,305
6,500 Bank of Ayudhya 42,479
1,090 Land & House 17,959
550 Siam Cement 28,319
5,000 Siam Commercial Bank 76,838
5,400 Thai Farmers Bank 63,308
2,200 Total Access Communication (USD) 19,360 (b)
-----------
Total Thailand 399,285
-----------
UNITED KINGDOM - 12.5% (a)
COMMON STOCKS
32,000 Abbey National 274,970
20,000 Argos 208,487
28,000 Argyll Group 131,198
86,000 Asda Group 139,462
5,000 BAA 40,827
21,000 British Gas 73,237
13,000 British Petroleum 113,690
32,000 Cable & Wireless 260,317
25,225 Cadbury Schweppes 192,883
42,000 Caradon 131,090
14,000 Coats Viyella 44,231
13,000 Compass Group 104,762
20,000 David S. Smith (Holdings) plc 94,017
3,000 East Midlands Electricity 27,404
8,000 Electrocomponents plc 43,346
3,000 GKN plc 43,544
20,500 Glaxo Wellcome 257,189
35,000 Grand Metropolitan 225,427
5,000 Heywood Williams Group 17,666
13,000 Hillsdown Holdings 36,607
5,000 John Laing 22,970
28,000 Kingfischer 243,162
21,000 Ladbroke Group 62,340
12,000 London Electricity plc 135,531
20,000 National Grid Group plc 59,447
47,000 National Westminster Bank 455,868
23,000 Rank Organisation 170,078
26,000 Reed International 439,484
14,000 Rolls Royce 46,047
13,000 RTZ 188,294
12,000 Sears 18,223
23,000 Shell Transport & Trading 303,648
44,000 SmithKline Beecham, equity units 442,552
29,000 T & N 76,351
22,000 Tesco 89,484
58,700 Tomkins 226,665
23,000 United News & Media 216,590
-----------
Total United Kingdom 5,657,088
-----------
Principal
Amount
---------
SHORT-TERM SECURITIES - 19.5% (a)
$8,840,000 Federal Home Loan Mortgage Corp.
Discount Notes 5.25% Due 4/1/96 8,837,422
-----------
Total Investments $45,414,685
===========
NOTES TO PORTFOLIO OF INVESTMENTS:
--------------------------------------
(a) The categories of investments are shown as a percentage of total
investments of the LB Series Fund, Inc. - World Growth Portfolio.
(b) Currently non-income producing.
(c) Security Classification:
% of
Portfolio Cost Value
------------ -------------- -----------
Common Stock & Warrants 80.3% $36,043,355 $36,483,730
Preferred Stock 0.2% 102,234 93,533
Short-Term 19.5% 8,837,422 8,837,422
------------ -------------- -----------
Total Investments 100.0% $44,983,011 $45,414,685
============ ============== ===========
(d) At March 31, 1996, the aggregate cost of securities for federal
income tax purposes was $44,983,011 and the net unrealized
appreciation of investments based on that cost was $431,674
which is comprised of $1,017,805 aggregate gross unrealized
appreciation and $586,131 aggregate gross unrealized depreciation.
(e) Miscellaneous Footnotes:
(USD) - Denominated in U.S. Dollars
The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. - Opportunity Growth Portfolio
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
(unaudited)
ASSETS:
Investments in securities, at value
(cost $49,676,068)............................... $51,553,314
Cash...................................................... 9,392
Receivable for investment securities sold................. 560,866
-------------
Total assets.................................... 52,123,572
-------------
LIABILITIES:
Payable for investment securities purchased............... 566,066
-------------
Total liabilities............................... 566,066
-------------
NET ASSETS................................................ $51,557,506
=============
NET ASSETS CONSIST OF:
Paid-in capital (4,560,499 shares of
capital stock outstanding).............................. $49,408,848
Undistributed net investment income....................... 40,966
Accumulated net realized gain from sale of investments.... 230,446
Unrealized net appreciation of investments................ 1,877,246
-------------
NET ASSETS................................................ $51,557,506
=============
Net asset value and redemption price per share
($51,557,506 divided by 4,560,499 shares of
capital stock outstanding).............................. $11.31
=============
The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. - Opportunity Growth Portfolio
STATEMENT OF OPERATIONS
For the period from January 18, 1996 to March 31, 1996
(unaudited)
INVESTMENT INCOME:
Income -
Dividend income..................................... $1,184
Interest income..................................... 57,985
-------------
Total income...................................... 59,169
-------------
Expenses -
Investment advisory fee............................. 18,203
-------------
Net investment income............................. 40,966
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions.......... 230,446
Net change in unrealized appreciation of.............. 1,877,246
-------------
Net gain on investments........................... 2,107,692
-------------
Net increase in net assets resulting
from operations................................. $2,148,658
=============
The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. - Opportunity Growth Portfolio
STATEMENT OF CHANGES IN NET ASSETS
For the period from January 18, 1996 to March 31, 1996
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS -
Net investment income........................ $40,966
Net realized gain on investments............. 230,446
Net change in unrealized appreciation or
depreciation of investments................ 1,877,246
--------------
Net increase in net assets resulting
from operations.......................... 2,148,658
--------------
CAPITAL STOCK TRANSACTIONS -
Proceeds from sale of shares................. 49,408,848
Reinvested dividend distributions............ 0
Cost of shares redeemed...................... 0
--------------
Net increase in net assets
from capital stock transactions.......... 49,408,848
--------------
Net increase in net assets................. 51,557,506
NET ASSETS:
Beginning of period.......................... 0
--------------
End of period (including undistributed
net investment income of $40,966).......... $51,557,506
==============
The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. - Opportunity Growth Portfolio
FINANCIAL HIGHLIGHTS
For the period from January 18, 1996 (effective date)
to March 31, 1996 (a)
(unaudited)
Net asset value, beginning of period... $10.00
---------
Income From Investment Operations -
Net investment income.................. 0.01
Net realized and unrealized gain
on investments....................... 1.30
---------
Total from investment operations..... 1.31
---------
Net asset value, end of period......... $11.31
=========
Total investment return at
net asset value (b).................. 13.05%
Net assets, end of period ($ millions). $51.6
Ratio of expenses to average
net assets........................... 0.40%(c)
Ratio of net investment income to
average net assets................... 0.90%(c)
Portfolio turnover rate................ 38%
Notes to Financial Highlights:
- --------------------------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. - World Growth Portfolio
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
(unaudited)
ASSETS:
Investments in securities, at value
(cost $44,983,011)............................... $45,414,685
Cash (including foreign currency holdings of $2,247,164).. 2,280,725
Receivable for investment securities sold................. 38,723
Dividend and interest receivable.......................... 71,545
-------------
Total assets.................................... 47,805,678
-------------
LIABILITIES:
Payable for investment securities purchased............... 3,981,542
Unrealized depreciation of foreign currency contracts held 2,428
Accrued expenses.......................................... 17,815
-------------
Total liabilities............................... 4,001,785
-------------
NET ASSETS................................................ $43,803,893
=============
NET ASSETS CONSIST OF:
Paid-in capital (4,331,600 shares of
capital stock outstanding).............................. $43,256,709
Undistributed net investment income....................... 124,703
Accumulated net realized loss from sale of investments
and foreign currency transactions....................... (7,023)
Unrealized net appreciation of investments and on
translation of assets and liabilities
in foreign currencies................................... 429,504
-------------
NET ASSETS............................................... $43,803,893
=============
Net asset value and redemption price per share
($43,803,893 divided by 4,331,600 shares of
capital stock outstanding).............................. $10.11
=============
The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. - World Growth Portfolio
STATEMENT OF OPERATIONS
For the period from January 18, 1996 to March 31, 1996
(unaudited)
INVESTMENT INCOME:
Income -
Dividend income (net of foreign taxes of $12,342)... $75,167
Interest income..................................... 82,166
-------------
Total income...................................... 157,333
-------------
Expenses -
Investment advisory fee............................. 32,630
-------------
Net investment income............................. 124,703
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized loss on investment transactions.......... (2,794)
Net realized loss on foreign currency transactions.... (4,229)
-------------
Net realized loss on investments and foreign currency
transactions........................................ (7,023)
Net change in unrealized appreciation of
investments......................................... 431,674
Net change in unrealized depreciation on
translation of assets and liabilities
in foreign currencies............................... (2,170)
-------------
Net change in unrealized appreciation of investments
and on translation of assets and liabilities
in foreign currencies............................... 429,504
-------------
Net gain on investments and foreign currency...... 422,481
-------------
Net increase in net assets resulting
from operations.................. .............. $547,184
=============
The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. - World Growth Portfolio
STATEMENT OF CHANGES IN NET ASSETS
For the period from January 18, 1996 to March 31, 1996
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS -
Net investment income........................ $124,703
Net realized loss on investments
and foreign currency transactions........ (7,023)
Net change in unrealized appreciation or
depreciation of investments and on
translation of assets and liabilities
in foreign currencies...................... 429,504
--------------
Net increase in net assets resulting
from operations.......................... 547,184
--------------
CAPITAL STOCK TRANSACTIONS -
Proceeds from sale of shares................. 43,256,709
Reinvested dividend distributions............ 0
Cost of shares redeemed...................... 0
--------------
Net increase in net assets
from capital stock transactions.......... 43,256,709
--------------
Net increase in net assets................. 43,803,893
NET ASSETS:
Beginning of period.......................... 0
--------------
End of period (including undistributed
net investment income of $124,703)......... $43,803,893
==============
The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC. - World Growth Portfolio
FINANCIAL HIGHLIGHTS
For the period from January 18, 1996 (effective date)
to March 31, 196 (a)
(unaudited)
Net asset value, beginning of period... $10.00
---------
Income From Investment Operations-
Net investment income.................. 0.03
Net realized and unrealized gain
on investments....................... 0.08
---------
Total from investment operations..... 0.11
---------
Net asset value, end of period......... $10.11
=========
Total investment return at
net asset value (b).................. 1.13%
Net assets, end of period ($ millions). $43.8
Ratio of expenses to average
net assets........................... 0.85%(c)
Ratio of net investment income to
average net assets................... 3.25%(c)
Portfolio turnover rate................ 0%
Notes to Financial Highlights:
- --------------------------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
LB SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
(unaudited)
(1) ORGANIZATION
The LB Series Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as a diversified, open-end
investment company. The Fund is divided into six separate
series (the "Portfolio(s)"), each with its own investment
objective and policies. The six Portfolios of the Fund are:
Opportunity Growth Portfolio, World Growth Portfolio, Growth
Portfolio, High Yield Portfolio, Income Portfolio and Money
Market Portfolio. The assets of each portfolio are segregated
and each has a separate class of capital stock. The Fund serves
as the investment vehicle to fund benefits for variable life
insurance and variable annuity contracts issued by Lutheran
Brotherhood and Lutheran Brotherhood Variable Insurance Products
Company (LBVIP), an indirect wholly owned subsidiary of Lutheran
Brotherhood. The Opportunity Growth and World Growth Portfolio's
registration was declared effective by the Securities Exchange
Commission and began operations as separate series of the LB
Series Fund, Inc. on January 18, 1996. On January 18, 1996,
Lutheran Brotherhood invested $2,000,000 each in the Opportunity
Growth and World Growth Portfolios and acquired 200,000 shares
of capital stock in each portfolio.
(2) SIGNIFICANT ACCOUNTING POLICIES
Investment Security Valuations-
Securities traded on U.S. or foreign securities exchanges or
included in a national market system are valued at the last
quoted sales price at the close of each business day. Securities
traded on the over-the-counter market and listed securities for
which no price is readily available are valued at prices within
the range of the current bid and asked prices considered best to
represent the value in the circumstances, based on quotes that
are obtained from an independent pricing service or by dealers
that make markets in the securities. The pricing service, in
determining values of securities, takes into consideration such
factors as current quotations by broker/dealers, coupon,
maturity, quality, type of issue, trading characteristics, and
other yield and risk factors it deems relevant in determining
valuations. Exchange listed options and futures contracts are
valued at the last quoted sales price. For all Portfolios
other than the Money Market Portfolio, short-term securities
with maturities of 60 days or less are valued at amortized cost;
those with maturities greater than 60 days are valued at the
mean between bid and asked price. Short-term securities held by
the Money Market Portfolio are valued on the basis of amortized
cost (which approximates market value), whereby a security is
valued at its cost initially, and thereafter valued to reflect a
constant amortization to maturity of any discount or premium.
The Money Market Portfolio follows procedures necessary to
maintain a constant net asset value of $1.00 per share. All
other securities for which market values are not readily
available are appraised at fair value as determined in good
faith by or under the direction of the Board of Directors.
Investment Income-
Interest income is determined on the basis of interest or
discount earned on any short-term securities and interest earned
on all other debt securities, including amortization of discount
or premium. Dividend income is recorded on the ex-dividend
date.
Options, Financial Futures and Forward Foreign Currency Contracts-
The Fund, with the exception of the Money Market Portfolio, may
utilize buy put and call options, write covered call options and
buy and sell futures contracts. The Fund intends to use such
derivative instruments as hedges to facilitate buying or selling
securities or to provide protection against adverse movements in
security prices or interest rates. The World Growth Portfolio
may also enter into options and futures contracts on foreign
currencies and forward currency contracts to protect against
adverse foreign exchange rate fluctuation.
Option contracts are valued daily and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss
upon expiration or closing of the option transaction. When an
option is exercised, the proceeds on sale for a written call
option or the cost of a security for purchased put and call
options is adjusted by the amount of premium received or paid.
Upon entering into a futures contract, the Fund is required to
deposit initial margin, either cash or securities in an amount
equal to a certain percentage of the contract value. Subsequent
variation margin payments are made or received by the Fund each
day. The variation margin payments are equal to the daily
changes in the contract value and are recorded as unrealized
gains and losses. The Fund realizes a gain or loss when the
contract is closed or expires.
Foreign currency contracts are valued daily and unrealized
appreciation or depreciation is recorded daily as the difference
between the contract exchange rate and the closing forward rate
applied to the face amount of the contract. A realized gain or
loss is recorded at the time a forward contract is closed.
Foreign Currency Translations-
Securities and other assets and liabilities of the World Growth
Portfolio that are denominated in foreign currencies are
translated into U.S. dollars at the daily closing rate of
exchange. Foreign currency amounts related to the purchase or
sale of securities and income and expenses are translated at the
exchange rate on the transaction date. Currency gains and losses
are recorded from sales of foreign currency, exchange gains or
losses between the trade date and settlement dates on securities
transactions, and other translation gains or losses on
dividends, interest income and foreign withholding taxes. The
effect of changes in foreign exchange rates on realized and
unrealized security gains or losses are not segregated from
gains and losses that arise from changes in market prices of
investments, and are included with the net realized and
unrealized gain or loss on investments.
Federal Income Taxes-
It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable
income on a timely basis, including any net realized gain on
investments each year. It is also the intention of the Fund to
distribute an amount sufficient to avoid imposition of any
federal excise tax. Accordingly, no provision for federal income
tax is necessary. Each portfolio is treated as a separate
taxable entity for federal income tax purposes.
Distributions to Shareholders-
Dividends from net investment income, if available,
are declared and reinvested annually for the Opportunity Growth and
World Growth Portfolio. Net realized gains from securities
transactions, if any, are distributed at least annually after
the close of the Fund's fiscal year end for the Opportunity
Growth and World Growth Portfolio. Dividends and capital gains are
recorded on the ex-dividend date.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to timing of
distributions, the year in which amounts are distributed may
differ from the year that the income or net realized gains were
recorded by the Fund.
Other-
Security transactions are accounted for on the date the
securities are purchased or sold. Realized gains and losses are
determined on the identified cost basis, which is the same basis
used for federal income tax purposes.
(3) INVESTMENT ADVISORY FEES AND OTHER EXPENSES
Each Portfolio pays Lutheran Brotherhood, the Fund's investment
advisor, a fee for its advisory services. The fees are accrued
daily and paid monthly. The fees are based on the following
annual rates of average daily net assets: Opportunity Growth
Portfolio, 0.40%, World Growth Portfolio, 0.85%. All other
operating expenses of the Fund are absorbed by either Lutheran
Brotherhood or LBVIP.
Lutheran Brotherhood has entered into a sub-advisory agreement
with Rowe Price - Fleming International, Inc. for the
performance of various sub-advisory services for the World
Growth Portfolio. For these services, Lutheran Brotherhood pays
a portion of an annual sub-advisory fee that is based on the
following annual rates of combined average daily net assets of
the Lutheran Brotherood World Growth Fund and the World Growth
Portfolio: 0.75% for the first $20 million in assets; 0.60% for
the next $30 million, and 0.50% for assets over $50 million.
When combined annual average assets exceed $200 million, the fee
will be equal to 0.50% of all of the World Growth Portfolio's
annual average daily net assets.
(4) INVESTMENT TRANSACTIONS
Purchases and Sales of Investment Securities-
For the period ended March 31, 1996, the cost of purchases and
the proceeds from the sale of investment securities other than
U.S. Government and short term securities were as follows:
Portfolio Purchases Sales
- ---------------------- --------------- -------------
Opportunity Growth $57,583,153 $8,698,779
World Growth 36,194,242 42,586
Foreign Denominated Investments-
The World Growth Portfolio invests primarily in foreign
denominated stocks. Foreign denominated assets and currency
contracts may involve more risks than domestic transactions,
including: currency risk, political and economic risk,
regulatory risk, and market risk. The Portfolio may also invest
in securities of companies located in emerging markets. Future
economic or political developments could adversely affect the
liquidity or value, or both, of such securities.
At March 31, 1996, the World Growth Portfolio was a party to
foreign currency exchange contracts under which it is obligated
to exchange currencies at specified future dates. Risks may
arise from the possible inability of counterparties to meet the
terms of their contracts and from movements in currency values.
Outstanding contracts at March 31, 1996, were as follows:
Currency U.S. Value Currency U.S. Value
Settlement to be as of to be as of Appreciation
Date Delivered 3/31/96 Received 3/31/96 (Depreciation)
------ ----------- --------- -------------- --------- ------------
4/1/96 8,480 USD $ 8,480 88,062 ATS $ 8,498 $ 18
4/1/96 488,151 USD 488,151 320,099 GBP 488,552 401
4/1/96 511,902 USD 511,902 54,456,161 JPY 509,055 (2,847)
------------
$ (2,428)
============
(5) CAPITAL STOCK
Authorized capital stock consists of two billion shares as follows:
Shares Par
Portfolio Authorized Value
- ------------------ ---------------- -----------
Opportunity Growth 200,000,000 $ 0.01
World Growth 200,000,000 $ 0.01
Growth 600,000,000 $ 0.01
High Yield 200,000,000 $ 0.01
Income 400,000,000 $ 0.01
Money Market 200,000,000 $ 0.01
The shares of each portfolio have equal rights and privileges
with all shares of that portfolio. Shares in the Fund are
currently sold only to separate accounts of Lutheran Brotherhood
and LBVIP.
Transactions in capital stock were as follows:
Opportunity World
Growth Growth
------------- ------------
Shares outstanding at December 31, 1995... 0 0
Shares sold............................... 4,560,499 4,331,600
------------- ------------
Shares outstanding at March 31, 1996...... 4,560,499 4,331,600
============= ============
<PAGE>
ANNUAL REPORT
LB SERIES FUND, INC.
DECEMBER 31, 1995
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, MN 55402-3795
[LOGO OMMITTED]
Price Waterhouse LLP
Report of Independent Accountants
To the Shareholders and
Board of Directors of
LB Series Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of each of
the Portfolios (Growth, High Yield, Income, and Money Market) comprising
the LB Series Fund, Inc. (hereafter referred to as the "Fund") at December
31, 1995, the results of each of their operations for the year then ended,
the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31,
1995 by correspondence with the custodian and brokers and the application
of alternative auditing procedures where confirmations from brokers were
not received, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
February 2, 1996
LB Series Fund, Inc.
Growth Portfolio
Portfolio of Investments
December 31, 1995
Shares Value
---------- -----------
COMMON STOCKS - 90.3% (a)
Aerospace - 2.1%
215,400 Boeing Co. $16,881,975
71,600 Litton Industries, Inc. 3,186,200 (b)
46,000 McDonnell Douglas Corp. 4,232,000
--------------
24,300,175
--------------
Airlines - 1.0%
30,000 AMR Corp. 2,227,500 (b)
14,300 Continental Airlines
Holding, Inc., Class B 622,050 (b)
120,000 Delta Air Lines, Inc. 8,865,000
--------------
11,714,550
--------------
Automotive - 2.9%
300,000 Chrysler Corp. 16,612,500
273,400 General Motors Corp. 14,456,025
130,400 Lear Seating Corp. 3,781,600 (b)
--------------
34,850,125
--------------
Bank & Finance - 11.9%
169,750 American International
Group, Inc. 15,701,875
51,400 Amerin Corp. 1,374,950 (b)
216,300 Banc One Corp. 8,165,325
76,600 Bankers Trust NY Corp. 5,093,900
61,200 Crestar Financial Corp. 3,618,450 (c)
52,800 Donaldson, Lufkin &
Jenrette, Inc. 1,650,000 (b)
80,000 Federal Home Loan
Mortgage Corp. 6,680,000
137,600 Federal National
Mortgage Association 17,079,600
122,000 First Interstate Bancorp. 16,653,000
63,500 General Re Corp. 9,842,500
196,700 Great Western
Financial Corp. 5,015,850 (c)
151,800 ITT Hartford Group, Inc. 7,343,325 (b)
116,700 Mellon Bank Corp. 6,272,625
116,700 Morgan Stanley Group, Inc. 9,408,937
173,800 Morgan (J.P.) and Co., Inc. 13,947,450
113,500 PNC Bank Corp. 3,660,375
95,600 Southern National Corp. 2,509,500
90,000 UJB Financial Corp. 3,217,500
17,800 Wells Fargo & Co. 3,844,800
--------------
141,079,962
--------------
Broadcasting - 3.6%
90,000 Capital Cities/ABC, Inc. 11,103,750 (c)
156,100 Infinity Broadcasting
Corp., Class A 5,814,725
98,200 News Corp. Ltd. 2,099,025
121,600 NYNEX CableComms
Group 2,112,800 (b)
518,000 Tele-Communications, Inc.,
TCI Group, Series A 10,295,250
175,000 Tele-Communications, Inc.,
Liberty Media Group,
Series A 4,703,125
143,100 Viacom, Inc., Class B 6,779,363 (b)
--------------
42,908,038
--------------
Chemicals - 1.3%
223,300 Air Products & Chemicals, Inc. 11,779,075
98,800 Praxair, Inc. 3,322,150
--------------
15,101,225
--------------
Computer Software - 6.3%
86,600 Acclaim Entertainment, Inc. 1,071,675 (b)
116,800 Adobe Systems, Inc. 7,241,600
100,600 Autodesk, Inc. 3,445,550
91,400 BBN Corp. 3,758,825 (b)
93,200 BMC Software, Inc. 3,984,300 (b)
136,300 Cadence Design Systems, Inc. 5,724,600 (b,c)
76,000 Cheyenne Software, Inc. 1,985,500 (b)
110,400 Computer Associates
International, Inc. 6,279,000
58,700 FTP Software, Inc. 1,702,300 (b)
118,200 Intersolv, Inc. 1,521,825 (b)
180,000 Microsoft Corp. 15,795,000 (b)
288,400 Oracle Systems Corp. 12,220,950 (b)
74,200 Softkey International, Inc. 1,715,875 (b)
90,000 Spectrum HoloByte, Inc. 585,000 (b)
120,300 Sybase, Inc. 4,330,800 (b)
144,500 Symantec Corp. 3,359,625 (b)
--------------
74,722,425
--------------
Computers & Office
Equipment - 6.9%
24,700 Apple Computer 787,312
164,850 Bay Networks, Inc. 6,779,456 (b)
68,300 Cabletron Systems, Inc. 5,532,300 (b)
123,600 Cisco Systems, Inc. 9,223,650 (b)
202,400 Compaq Computer Corp. 9,715,200 (b)
26,000 DataWorks Corp. 328,250 (b)
97,400 Digital Equipment Corp. 6,245,775 (b)
33,100 FORE Systems, Inc. 1,969,450 (b)
93,800 Hewlett Packard Co. 7,855,750
177,600 International Business
Machines 16,294,800
126,600 Silicon Graphics, Inc. 3,481,500 (b)
100,000 Xerox Corp. 13,700,000
--------------
81,913,443
--------------
Conglomerates - 1.6%
117,800 Allied Signal, Inc. 5,595,500
120,000 ITT Corp. 6,360,000 (b)
120,000 ITT Industries, Inc. 2,880,000 (b)
201,100 U.S. Industries, Inc. 3,695,212 (b)
--------------
18,530,712
--------------
Construction &
Home Building - 0.8%
49,800 Centex Corp. 1,730,550
58,400 Fleetwood Enterprises, Inc. 1,503,800
160,300 Foster Wheeler Corp. 6,812,750 (c)
--------------
10,047,100
--------------
Drugs & Health Care - 7.9%
190,000 Abbott Laboratories 7,932,500
168,000 Amgen, Inc. 9,975,000 (b)
168,000 Becton Dickinson & Co. 12,600,000
73,600 Biogen, Inc. 4,526,400 (b,c)
83,700 Circon Corp. 1,694,925 (b)
90,000 Elan Corp., PLC ADS 4,376,250 (b)
73,200 Eli Lilly & Co. 4,117,500
127,000 Genzyme Corp. 7,921,625 (b)
283,000 Merck & Co., Inc. 18,607,250
200,000 Smithkline Beecham plc 11,100,000
83,300 St. Jude Medical, Inc. 3,581,900 (b)
63,200 Ventritex, Inc. 1,098,100 (b)
63,500 Warner-Lambert Co. 6,167,437 (c)
--------------
93,698,887
--------------
Electric Utilities - 1.2%
80,000 Central & South West Corp. 2,230,000
200,000 Houston Industries, Inc. 4,850,000
307,500 Southern Co. 7,572,187
--------------
14,652,187
--------------
Electrical Equipment - 1.5%
165,800 General Electric Co. 11,937,600
98,500 Whirlpool Corp. 5,245,125
--------------
17,182,725
--------------
Electronics - 4.8%
150,000 Adaptec, Inc. 6,150,000 (b)
143,700 Analog Devices, Inc. 5,083,388 (b)
113,500 AVX Corp. 3,007,750
8,100 Integrated Device
Technology, Inc. 104,287 (b,c)
100,000 Integrated Silicon Solution 1,673,438 (b)
250,000 Intel Corp. 14,187,500
147,900 KLA Instruments Corp. 3,854,644 (b,c)
162,900 Motorola, Inc. 9,285,300
59,000 Novellus Systems, Inc. 3,186,000 (b)
49,200 S3, Inc. 867,150 (b)
10,000 SDL, Inc. 240,000 (b)
101,500 SGS-Thomson
Microelectronics N.V. 4,085,375 (b)
64,600 Silicon Valley Group, Inc. 1,631,150 (b)
75,800 Texas Instruments, Inc. 3,922,650
--------------
57,278,632
--------------
Food & Beverage - 3.1%
81,000 ConAgra, Inc. 3,341,250
100,000 CPC International, Inc. 6,862,500
144,700 Heinz (H.J.) Co. 4,793,188
34,400 Panamerican Beverages, Inc.,
Class A 1,100,800
126,900 PepsiCo, Inc. 7,090,538
80,000 Salomon, Inc., (Snapple, Inc.,
Equity-Linked Security) 1,210,000
375,000 Sara Lee Corp. 11,953,125 (b,c)
--------------
36,351,401
--------------
Healthcare
Management - 1.6%
66,500 Coventry Corp. 1,371,563 (b)
119,000 OrNda Health Corp. 2,766,750 (b)
222,900 United Healthcare Corp. 14,599,950
--------------
18,738,263
--------------
Household Products - 3.1%
115,400 Colgate Palmolive Co. 8,106,850
282,500 Gillette Co. 14,725,312
163,500 Procter & Gamble 13,570,500
--------------
36,402,662
--------------
Leisure &
Entertainment - 1.9%
148,400 Disney (Walt) Co. 8,755,600
21,600 Hollywood
Entertainment Corp. 180,900 (b)
208,700 La Quinta Inns, Inc. 5,713,162
27,400 Movie Gallery, Inc. 835,700 (b)
145,400 Time Warner, Inc. 5,507,025
--------------
20,992,387
--------------
Machinery &
Equipment - 2.3%
161,800 Case Corp. 7,402,350
202,900 Deere & Co. 7,152,225
174,600 Harnischfeger Industries, Inc. 5,805,450
207,500 Ingersoll-Rand Co. 7,288,437 (c)
--------------
27,648,462
--------------
Mining & Metals - 1.9%
45,200 Cronos Group 531,100 (b)
115,100 Inland Steel Industries, Inc. 2,891,888 (c)
237,600 Phelps Dodge Corp. 14,790,600
81,200 Reynolds Metals Co. 4,597,950
--------------
22,811,538
--------------
Oil & Oil Service - 5.8%
212,000 Amoco Corp. 15,237,500
137,600 Baker Hughes, Inc. 3,354,000
142,000 Burlington Resources, Inc. 5,573,500 (c)
138,300 Chevron Corp. 7,260,750
122,400 Enron Corp. 4,666,500
115,600 Enron Oil & Gas Co. 2,774,400
146,700 Halliburton Co. 7,426,687
167,900 Mobil Corp. 18,804,800 (c)
64,000 Western Atlas, Inc. 3,232,000 (b)
--------------
68,330,137
--------------
Paper & Forest
Products - 1.7%
76,400 Boise Cascade Corp. 2,645,350
253,000 International Paper Co. 9,582,375
182,100 Weyerhaeuser Co. 7,875,825
--------------
20,103,550
--------------
Pollution Control - 0.4%
175,400 WMX Technologies, Inc. 5,240,075 (b)
--------------
Railroads - 1.4%
60,000 Canadian National
Railway Corp. 900,000 (b)
339,800 CSX Corp. 15,503,375 (c)
--------------
16,403,375
--------------
Restaurants - 1.0%
77,500 Boston Chicken, Inc. 2,489,688 (b)
208,100 McDonald's Corp. 9,390,513
--------------
11,880,201
--------------
Retail - 3.3%
83,700 Corporate Express, Inc. 2,521,463 (b)
182,300 Federated Department Stores 5,013,250 (b)
72,900 Kohl's Corp. 3,827,250 (b)
158,200 Lowe's Companies 5,299,700
25,000 MSC Industrial Direct
Co., Inc., Class A 687,500 (b)
68,800 Office Depot, Inc. 1,358,800 (b)
93,800 OfficeMax, Inc. 2,098,775 (b)
159,900 Safeway, Inc. 8,234,850 (b)
424,000 Wal-Mart Stores, Inc. 9,487,000
--------------
38,528,588
--------------
Services - 3.1%
66,500 Automatic Data
Processing, Inc. 4,937,625
125,400 Block (H & R) 5,078,700
121,000 DST Systems, Inc. 3,448,500 (b)
227,795 First Data Corp. 15,233,791
161,900 General Motors Group,
Class E 8,418,800
--------------
37,117,416
--------------
Telecommunications
Equipment - 1.2%
114,000 ADC Telecommunications,
Inc. 4,161,000 (b)
121,400 Ericsson (L.M.)
Telecommunications,
Class B, ADR 2,367,300
193,400 Tellabs, Inc. 7,155,800 (b)
--------------
13,684,100
--------------
Telephone &
Telecommunications - 4.7%
136,800 Ameritech Corp. 8,071,200
258,100 AT&T Corp. 16,711,975
143,600 Metrocall, Inc. 2,746,350 (b)
200,000 MobileMedia Corp., Class A 4,450,000 (b)
184,800 NEXTEL Communications,
Inc., Class A 2,725,800 (b)
227,000 SBC Communications, Inc. 13,052,500
73,300 Telefonos de Mexico S.A. 2,336,437
151,700 WorldCom, Inc. 5,347,425 (b)
--------------
55,441,687
--------------
Total Common Stocks
(cost, $966,566,681) 1,067,654,028
--------------
Principal
Amount
-----------
CORPORATE BONDS - 0.3% (a)
$3,000,000 Intergrated Device Technology,
Inc., Convertible
Subordinated Notes, 5.5%,
due 6/1/2002 2,467,500
1,000,000 International CableTel, Inc.,
Convertible Subordinated
Notes, 7.25%,
due 4/15/2005 1,080,000
--------------
Total Corporate Bonds
(cost, $4,033,037) 3,547,500
--------------
U.S. TREASURY - 0.1% (a)
$1,000,000 U.S. Treasury Notes,
6.875%, due 3/31/1997 1,020,311
300,000 U.S. Treasury Notes,
8.75%, due 10/15/1997 317,906
--------------
Total U.S. Treasury
(cost, $1,329,396) 1,338,217
--------------
SHORT-TERM
SECURITIES - 9.3% (a)
Commercial Paper
12,800,000 Associates Corp. of
North America, 5.98%,
due 1/2/1996 12,797,874
5,000,000 Cargill, Inc., 5.67%,
due 1/17/1996 4,987,400
5,000,000 Cargill, Inc., 5.57%,
due 1/17/1996 4,987,622
10,000,000 Chevron Oil Finance Co.,
5.7%, due 1/19/1996 9,971,500
8,300,000 Coca-Cola 5.82%,
due 1/5/1996 8,294,633
10,000,000 Commercial Credit Co.,
5.81%, due 1/16/1996 9,975,792
10,000,000 CXC, Inc., 5.83%,
due 1/12/1996 9,982,186
5,000,000 Enterprise Capital Funding,
5.62%, 1/24/1996 4,982,047
5,000,000 Koch Industries, 5.65%,
due 1/5/1996 4,996,861
10,000,000 Norwest Corp., 5.7%,
due 1/25/1996 9,962,000
10,000,000 Norwest Financial, Inc.,
5.8%, due 1/10/1996 9,985,500
4,770,000 Spiegel Funding Corp.,
5.8%, due 1/8/1996 4,764,621
10,000,000 UBS Finance (Delaware), Inc.,
6.0%, due 1/2/1996 9,998,333
4,500,000 USAA Capital Corp.,
5.8%, due 1/4/1996 4,497,825
--------------
Total Short-Term Securities
(at amortized cost) 110,184,194
--------------
Total Investments
(cost, $1,082,113,308) $1,182,723,939 (d)
--------------
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total
investments of the Growth Portfolio.
(b) Currently non-income producing.
(c) Includes stock rights that automatically traded with the stock and
had no separate value at December 31, 1995.
(d) At December 31, 1995, the aggregate cost of securities for federal
income tax purposes was $1,083,675,009 and the net unrealized
appreciation of investments based on that cost was $99,048,930 which
is comprised of $125,883,083 aggregate gross unrealized appreciation
and $26,834,153 aggregate gross unrealized depreciation.
See accompanying notes to portfolio of investments.
<TABLE>
LB Series Fund, Inc.
High Yield Portfolio
Portfolio of Investments
December 31, 1995
<CAPTION>
Principal
Amount
Rate Date Value
-----------
- --------- --------- -------------
CORPORATE BONDS - 78.9% (a)
Airlines - 0.5%
<S> <C>
<C> <C> <C>
$4,500,000 U.S. Air, Inc., Sr. Secured Equipment Trust, Series 1993-A3
10.375% 3/1/2013 $4,227,840
- ------------
Automotive - 1.6%
5,200,000 Exide Corp., Convertible Sr. Subordinated Notes
2.9% 12/15/2005 3,763,500
8,000,000 Exide Corp., Sr. Notes
10.0% 4/15/2005 8,700,000
- ------------
12,463,500
- ------------
Bank & Finance - 4.8%
2,700,000 American Life Holding Corp., Sr. Subordinated Notes
11.25% 9/15/2004 2,821,500
2,500,000 First Nationwide Holdings, Inc., Sr. Notes
12.25% 5/15/2001 2,812,500
10,050,000 GPA Delaware, Inc., Debentures
8.75% 12/15/1998 9,371,625
10,500,000 Mutual Life Insurance Co. of New York, Surplus Notes
Zero Coupon 8/15/2024 8,820,000
5,250,000 Scotsman Group, Inc., Sr. Secured Notes
9.5% 12/15/2000 5,276,250
3,400,000 Terra Nova (U.K.) Holdings plc, Sr. Notes
10.75% 7/1/2005 3,723,000
4,500,000 Trizec Finance Ltd., Sr. Notes
10.875% 10/15/2005 4,691,250
- ------------
37,516,125
- ------------
Broadcasting - 22.9%
3,750,000 Adelphia Communications Corp., Sr. Debentures
11.875% 9/15/2004 3,562,500
1,750,000 Adelphia Communications Corp., Sr. Notes
12.5% 5/15/2002 1,715,000
7,061,426 American Telecasting, Inc., Sr. Discount Notes
Zero Coupon 6/15/2004 4,890,037
4,100,000 American Telecasting, Inc., Units
Zero Coupon 8/15/2005 2,567,625
9,700,000 Australis Media Ltd., Sr. Subordinated Discount Notes
Zero Coupon 5/15/2003 7,081,000
6,900,000 Cablevision Industries, Debentures
9.25% 4/1/2008 7,486,500
1,750,000 Comcast Corp., Convertible Subordinated Debentures
3.375% 9/9/2005 1,642,813
3,500,000 Comcast Corp., Sr. Subordinated Debentures
9.125% 10/15/2006 3,657,500
8,150,000 Comcast UK Cable Partners Ltd., Sr. Discount Debentures
Zero Coupon 11/15/2007 4,808,500
3,500,000 Continental Cablevision, Inc., Sr. Debentures
9.5% 8/1/2013 3,727,500
5,500,000 Continental Cablevision, Inc., Sr. Notes
8.3% 5/15/2006 5,527,500
5,800,000 Continental Cablevision, Inc., Sr. Subordinated Debentures
11.0% 6/1/2007 6,496,000
11,600,000 Diamond Cable Communications plc, Sr. Discount Notes
Zero Coupon 12/15/2005 6,902,000
10,091,802 Falcon Holdings Group L.P., Sr. Subordinated Notes
11.0% 9/15/2003 9,738,589
3,500,000 Galaxy Telecom L.P., Sr. Subordinated Notes
12.375% 10/1/2005 3,482,500
5,500,000 Granite Broadcasting Corp., Sr. Subordinated Debentures
12.75% 9/1/2002 6,132,500
5,150,000 International CabelTel, Inc., Sr. Notes
Zero Coupon 4/15/2005 3,283,125
5,750,000 International CableTel, Inc., Convertible Subordinated Notes
7.25% 4/15/2005 6,210,000
5,500,000 Jones Intercable, Inc., Sr. Notes
9.625% 3/15/2002 5,933,125
4,300,000 Le Groupe Videotron Ltee., Sr. Notes
10.625% 2/15/2005 4,606,375
7,000,000 Lenfest Communications, Inc., Sr. Notes
8.375% 11/1/2005 7,035,000
9,850,000 Marcus Cable Co., Sr. Discount Notes
Zero Coupon 12/15/2005 6,747,250
6,800,000 NWCG Holdings Corp., Sr. Secured Discount Notes
Zero Coupon 6/15/1999 4,675,000
9,250,000 People's Choice T.V. Corp., Sr. Discount Notes
Zero Coupon 6/1/2004 5,341,875
10,750,000 Robin Media Group, Sr. Subordinated Deferred Interest Bonds
11.125% 4/1/1997 10,776,875
5,750,000 Rogers Cablesystems Ltd., Sr. Secured Second Priority Notes
9.625% 8/1/2002 6,066,250
1,200,000 Rogers Cablesystems Ltd., Sr. Subordinated
Guaranteed Debentures
11.0% 12/1/2015 1,296,000
7,000,000 Rogers Communications, Inc., Convertible Debentures
2.0% 11/26/2005 3,762,500
600,000 Rogers Communications, Inc., Convertible Liquid
Yield Option Notes
Zero Coupon 5/20/2013 210,750
6,300,000 SCI Television, Inc., Sr. Second Priority Secured Notes
11.0% 6/30/2005 6,646,500
6,025,000 Scott Cable Communications, Inc., Subordinated Debentures
12.25% 4/15/2001 3,976,500(c)
3,000,000 TeleWest plc, Sr. Debentures
9.625% 10/1/2006 3,063,750
8,350,000 TeleWest plc, Sr. Discount Debentures
Zero Coupon 10/1/2007 5,062,187
12,400,000 United International Holdings, Inc., Sr. Discount Notes
Zero Coupon 11/15/1999 7,750,000
4,600,000 United International Holdings, Inc., Sr. Secured
Discount Notes, Series B
Zero Coupon 11/15/1999 2,875,000
3,900,000 Wireless One, Inc., Units
13.0% 10/15/2003 4,075,500
- ------------
178,811,626
- ------------
Building Products & Materials - 0.9%
9,500,000 Dal-Tile International, Inc., Sr. Secured Notes
Zero Coupon 7/15/1998 7,267,500
- ------------
Computers & Office Equipment - 1.4%
6,000,000 Bell & Howell, Inc., Sr. Discount Debentures
Zero Coupon 3/1/2005 3,810,000
4,400,000 Dictaphone Corp., Sr. Subordinated Notes
11.75% 8/1/2005 4,312,000
3,000,000 Unisys Corp., Credit Sensitive Notes
13.5% 7/1/1997 2,932,500
- ------------
11,054,500
- ------------
Conglomerates - 0.1%
500,000 Jordan Industries, Inc., Sr. Notes
10.375% 8/1/2003 427,500
- ------------
Construction & Home Building - 0.4%
3,500,000 Peters (J.M.) Co., Inc., Sr. Notes
12.75% 5/1/2002 3,237,500
- ------------
Containers & Packaging - 0.4%
3,200,000 Owens-Illinois, Inc., Sr. Subordinated Notes
9.75% 8/15/2004 3,372,000
- ------------
Drugs & Health Care - 1.9%
7,205,000 Dade International, Inc., Sr. Subordinated Notes
13.0% 2/1/2005 8,069,600
3,775,800 General Medical Corp., Payment-In-Kind Debentures
12.125% 8/15/2005 3,832,437
2,900,000 IVAC Corp., Sr. Notes
9.25% 12/1/2002 2,987,000
- ------------
14,889,037
- ------------
Electric Utilities - 1.5%
250,000 El Paso Electric Co. (Del Norte Funding Corp.), Secured Lease
Obligation Bonds
11.25% 1/2/2014 169,985(c)
2,000,000 El Paso Electric Co. (El Paso Funding Corp.),
Lease Obligation Bonds
10.75% 4/1/2013 1,357,460(c)
6,300,000 El Paso Electric Co. (El Paso Funding Corp.),
Lease Obligation Bonds
10.375% 1/2/2011 4,275,961(c)
3,250,000 Midland Cogen Venture Fund II, Secured Lease Obligation
Bonds, Series A
11.75% 7/23/2005 3,420,849
2,400,000 Midland Cogen Venture Fund II, Subordinated Secured
Lease Obligation Bonds
13.25% 7/23/2006 2,652,564
- ------------
11,876,819
- ------------
Electrical Equipment - 1.6%
3,350,000 ADT Operations, Inc., Liquid Yield Option Notes
Zero Coupon 7/6/2010 1,591,250
7,450,000 Protection One Alarm Monitoring, Sr. Subordinated
Discount Notes
Zero Coupon 6/30/2005 6,034,500
4,750,000 Telex Communications, Inc., Sr. Notes
12.0% 7/15/2004 4,880,625
- ------------
12,506,375
- ------------
Food & Beverage - 2.7%
6,500,000 Curtice-Burns Food, Inc., Sr. Subordinated Notes
12.25% 2/1/2005 6,662,500
4,000,000 Dr. Pepper Bottling Holdings, Sr. Notes
Zero Coupon 2/15/2003 3,200,000
7,800,000 Fresh Del Monte Corp., Sr. Notes
10.0% 5/1/2003 6,961,500
8,600,000 Specialty Foods Acquisition Co., Sr. Secured Discount
Debentures, Series B
Zero Coupon 8/15/2005 4,085,000
- ------------
20,909,000
- ------------
Hospital Management - 4.1%
4,675,000 Integrated Health Services Inc., Sr. Subordinated Notes
9.625% 5/31/2002 4,768,500
3,750,000 Magellan Health Services, Sr. Subordinated Notes
11.25% 4/15/2004 4,115,625
4,350,000 Merit Behavioral Care Corp., Sr. Subordinated Notes
11.5% 11/15/2005 4,502,250
10,350,000 Regency Health Services, Inc., Sr. Subordinated Notes
9.875% 10/15/2002 10,324,125
7,400,000 Tenet Healthcare Corp., Sr. Subordinated Notes
10.125% 3/1/2005 8,232,500
- ------------
31,943,000
- ------------
Household Products - 1.3%
22,000,000 Coleman Worldwide Corp., Convertible Liquid Yield
Option Notes
Zero Coupon 5/27/2013 6,600,000
2,650,000 JB Williams Holdings, Inc., Sr. Notes
12.0% 3/1/2004 2,650,000
1,300,000 Pace Industries, Inc., Sr. Notes, Series B
10.625% 12/1/2002 1,150,500
- ------------
10,400,500
- ------------
Leisure & Entertainment - 1.3%
6,000,000 Host Marriott Travel Plazas, Sr. Secured Notes
9.50% 5/15/2005 5,962,500
4,000,000 IMAX Corp., Sr. Notes
7.0% 3/1/2001 3,940,000
- ------------
9,902,500
- ------------
Mining & Metals - 0.3%
2,100,000 EnviroSource, Inc., Sr. Notes
9.75% 6/15/2003 1,869,000
- ------------
Oil & Gas - 3.7%
5,500,000 Gulf Canada Resources Ltd., Sr. Subordinated Debentures
9.625% 7/1/2005 5,866,074
9,200,000 Kelley Oil & Gas Corp., Sr. Notes
13.5% 6/15/1999 7,498,000
8,775,000 Petroleum Heat & Power Co., Inc., Subordinated Debentures
12.25% 2/1/2005 9,828,000
500,000 Petroleum Heat & Power Co., Inc., Subordinated Debentures
9.375% 2/1/2006 492,500
4,650,000 Sherritt, Inc., Debentures
10.5% 3/31/2014 5,045,250
- ------------
28,729,824
- ------------
Paper & Forest Products - 1.8%
3,500,000 Container Corp. of America, Sr. Notes
11.25% 5/1/2004 3,587,500
5,100,000 Gaylord Container Corp., Sr. Subordinated Debentures
Zero Coupon 5/15/2005 5,023,500
5,150,000 Malette, Inc., Sr. Secured Notes
12.25% 7/15/2004 5,768,000
- ------------
14,379,000
- ------------
Pollution Control - 0.5%
4,000,000 Norcal Waste Systems, Inc., Sr. Notes
12.5% 11/15/2005 4,060,000
- ------------
Publishing & Printing - 2.5%
2,500,000 K-III Communications Corp., Sr. Notes
10.25% 6/1/2004 2,687,500
12,500,000 Neodata Services, Inc., Sr. Notes
Zero Coupon 5/1/2003 11,281,250
4,000,000 News America Holdings, Inc., Convertible Liquid
Yield Option Notes
Zero Coupon 3/11/2013 1,820,000
750,000 News America Holdings, Inc., Subordinated Notes
Zero Coupon 3/31/2002 702,187
3,000,000 Sullivan Graphics, Inc., Sr. Subordinated Notes
12.75% 8/1/2005 2,940,000
- ------------
19,430,937
- ------------
Retail - 6.0%
3,750,000 Big V Supermarkets, Sr. Subordinated Notes
11.0% 2/15/2004 3,056,250
6,400,000 Di Giorgio Corp., Sr. Notes
12.0% 2/15/2003 4,896,000
6,600,000 Dominick's Finer Foods, Sr. Subordinated Notes
10.875% 5/1/2005 6,996,000
2,750,000 F & M Distributors, Inc., Sr. Subordinated Notes
11.5% 4/15/2003 85,937(c)
5,250,000 Farm Fresh, Inc., Sr. Notes
12.25% 10/1/2000 4,331,250
10,350,000 Ralph's Supermarkets, Inc., Sr. Subordinated Notes
11.0% 6/15/2005 10,143,000
5,500,000 Smitty's SuperValu, Inc., Sr. Subordinated Notes, Series B
12.75% 6/15/2004 5,307,500
11,200,000 TLC Beatrice International Holdings, Sr. Secured Notes
11.5% 10/1/2005 11,116,000
7,000,000 Wherehouse Entertainment, Inc., Sr. Subordinated Notes
13.0% 8/1/2002 980,000(c)
- ------------
46,911,937
- ------------
Services - 0.4%
1,550,000 Flagstar Corp., Sr. Subordinated Debentures
11.25% 11/1/2004 1,108,250
3,150,000 Flagstar Corp., Sr. Subordinated Debentures
11.375% 9/15/2003 2,291,625
- ------------
3,399,875
- ------------
Telecommunications - 16.2%
14,500,000 American Communications Services, Inc., Units
Zero Coupon 11/1/2005 8,083,750
5,900,000 A+ Network, Inc., Sr. Subordinated Notes
11.875% 11/1/2005 5,988,500
9,700,000 Call-Net Enterprises, Inc., Sr. Discount Notes
Zero Coupon 12/1/2004 6,984,000
8,200,000 Clearnet Communications, Inc., Units
Zero Coupon 12/15/2005 4,243,500
6,500,000 Comcast Cellular, Inc., Sr. Participation
Redeemable Notes, Series B
Zero Coupon 3/5/2000 5,021,250
6,650,000 Comcast Cellular, Inc., Sr. Redeemable Notes
Zero Coupon 3/5/2000 5,137,125
6,150,000 Dial Call Communications, Inc., Sr. Discount Notes
Zero Coupon 12/15/2005 3,297,937
3,750,000 Dial Call Communications, Inc., Sr. Discount Notes
Zero Coupon 4/15/2004 2,156,250
3,750,000 General Instrument, Convertible Jr. Subordinated Notes
5.0% 6/15/2000 4,125,000
1,500 GST Telecommunications, Inc., Units (each unit consists of
$8,000 principal amount of senior discount notes and $1,000
principal amount of convertible senior subordinated
discount notes)
Zero Coupon 12/15/2005 7,200,000
8,023,000 Horizon Cellular Telephone Co., Sr. Subordinated
Discount Notes
Zero Coupon 10/1/2000 6,859,665
10,100,000 In-Flight Phone Corp., Sr. Discount Notes, Series B
Zero Coupon 5/15/2002 3,383,500
11,000,000 IntelCom Group (USA), Inc., Sr. Discount Notes
Zero Coupon 9/15/2005 6,352,500
7,000,000 Intermedia Communications of Florida, Sr. Notes
13.5% 6/1/2005 7,875,000
11,000,000 IXC Communications, Inc., Sr. Notes, Series A
13.0% 10/1/2005 11,715,000
6,000,000 MobileMedia Communications, Inc., Sr. Subordinated
Deferred Coupon Notes
Zero Coupon 12/1/2003 4,687,500
3,000,000 NEXTEL Communications, Inc., Sr. Discount Notes
Zero Coupon 8/15/2005 1,612,500
13,300,000 PageMart Nationwide, Inc., Sr. Discount Exchange Notes
Zero Coupon 2/1/2005 8,877,750
4,750,000 Rogers Cantel Mobile, Inc., Sr. Subordinated Notes
11.125% 7/15/2002 5,112,188
2,750,000 USA Mobile Communications, Inc., Sr. Notes
9.5% 2/1/2004 2,736,250
2,850,000 USA Mobile Communications, Inc., Sr. Notes
14.0% 11/1/2004 3,348,750
10,000,000 Viatel, Inc., Sr. Discount Notes
Zero Coupon 1/15/2005 5,100,000
4,600 Winstar Communications, Inc., Units (each unit consists of
$2,000 principal amount of senior discount notes and
$1,000 principal amount of convertible senior subordinated
discount notes)
Zero Coupon 10/15/2005 7,348,500
- ------------
127,246,415
- ------------
Transportation - 0.1%
2,550,000 Burlington Motor Holdings, Inc., Sr. Subordinated Notes
11.5% 11/1/2003 $446,250(c)
- ------------
Total Corporate Bonds (cost, $609,429,536)
617,278,560
- ------------
FOREIGN GOVERNMENT BONDS - 0.5% (a)
7,003,973 Brazil, (Republic of), Emerging Markets (Brady Bonds)
(cost, $3,563,898)
8.0% 4/15/2014 4,025,096(f)
- ------------
<CAPTION>
Shares
- --------------
PREFERRED STOCKS - 10.6% (a)
<S> <C>
<C>
35,550 Berg Electronics Holding Corp., Preferred Stock
1,004,288
50,439 Cablevision Systems Corp., Red. Exch., Preferred Stock, Series G
5,308,705
48,000 California Federal Bank, Preferred Stock
5,253,000
156,300 Chevy Chase Savings Bank, Preferred Stock
4,845,300
34,052 Communications & Power Industries, Inc., Preferred Stock
3,495,778
4,350 Consolidated Hydro, Inc., Preferred Stock
2,219,588(b)
27,900 EnviroSource, Inc., Jr. Convertible Preferred Stock
3,811,837(b)
47,500 First Nationwide Bank, Noncumulative Preferred Stock
5,331,875
100,000 Flagstar Cos., Convertible Preferred Stock, Series A
1,037,500
49,500 Grand Union Holdings Corp., Preferred Stock
0(c,d)
200,000 Granite Broadcasting Corp., Convertible Preferred Stock
10,800,000
219,606 Harvard Industries, Inc., Exchangeable Payment-In-Kind Preferred Stock
5,833,284
37,128 K-III Communications Corp., Payment-In-Kind Preferred Stock, Series B
3,703,548
37,000 K-III Communications Corp., Preferred Stock
1,008,250
140,000 MFS Communication, Inc., 8% Cumulative Convertible Preferred Stock
6,816,250
113,000 Network Imaging Corp., Convertible Preferred Stock
1,779,750
110,000 Newscorp Overseas Limited, Cumulative Guaranteed Preferred Stock
2,805,000
8,765 PanAmSat Corp., Convertible Preferred Stock
9,794,888
144,942 Riggs National Corp., Preferred Stock
4,094,612
147,500 River Bank America, Preferred Stock
3,687,500
- ------------
Total Preferred Stocks (cost, $79,080,117)
82,630,953
- ------------
COMMON STOCKS & STOCK WARRANTS - 4.4% (a)
60,000 ADT Ltd., Common Stock
900,000(b)
37,000 American Telecasting, Inc., Stock Warrants
111,000(b)
3,300 Arcadian Corp., Stock Warrants
334,538(b,d)
201,940 Arch Communications Group, Common Stock
4,846,560(b)
65,000 Bell & Howell Holdings Co., Common Stock
1,820,000(b)
2,310 Communications & Power Industries, Inc., Common Stock
231,000(b)
7,830 Consolidated Hydro, Inc., Stock Warrants
31,320(b,d)
3,750 Dial Page Communications, Inc., Stock Warrants
38(b)
3,086 Dial Page Communications, Inc., Stock Warrants
31(b)
79,500 Envirotest Systems Corp., Class A Common Stock
208,687(b)
750 Federated Dept. Stores, Inc., Stock Warrants
3,000(b)
111,377 Gaylord Container Corp., Class A Common Stock
897,977(b)
127,902 Gaylord Container Corp., Stock Warrants
959,265(b)
18,126 Grand Union Co., Stock Warrants
8,157(b)
36,251 Grand Union Co., Stock Warrants
2,900(b)
65,000 Harvard Industries, Inc., Class B Common Stock
1,657,500(b)
10,100 In-Flight Phone Corp., Stock Warrants
0(b)
248,000 IntelCom Group (USA), Inc., Common Stock
3,069,000(b)
36,300 IntelCom Group (USA), Inc., Stock Warrants
163,350(b)
7,000 Intermedia Communications of Florida, Stock Warrants
70,000(b)
38,000 JPS Textiles Group, Common Stock
380,000(b)
139,371 Magellan Health Services, Common Stock
3,344,904(b)
50,379 Memorex Telex, N.V., Common Stock
37,784(b)
1,728 Memorex Telex, N.V., Stock Warrants
17(b)
5,319 MFS Communications Co., Inc., Common Stock
283,237(b)
115,000 MobileMedia Corp., Class A Common Stock
2,558,750(b)
15,000 News Corp. Ltd., ADR, Ordinary Shares, Common Stock
288,750
30,000 News Corp. Ltd., ADR, Preference Shares, Common Stock
641,250
33,250 PageMart Nationwide, Inc., Common Stock
311,719(b)
5,750 Payless Cashways, Inc., Stock Warrants
719(b)
140,000 Plantronics, Inc., Common Stock
5,057,500(b)
23,840 Protection One Alarm Monitoring, Common Stock
214,560(b)
1,500 Terex Corp., Stock Appreciation Rights
75(b,d,e)
5,000 Triangle Wire & Cable, Inc., Stock Warrants
0(b,d)
118,000 United International Holdings, Inc., Class A Common Stock
1,740,500(b)
27,000 United International Holdings, Inc., Stock Warrants
729,000(b)
361,000 Viatel, Inc., Common Stock
1,444,000(b,d)
110,000 Wireless One, Inc., Common Stock
1,815,000(b)
- ------------
Total Common Stocks & Stock Warrants (cost, $26,452,665)
34,162,088
- ------------
<CAPTION>
Principal
Maturity
Amount
Rate Date Value
-----------
- ------ --------- ------------
SHORT-TERM SECURITIES - 5.6% (a)
Commercial Paper
<S> <C>
<C> <C> <C>
$19,000,000 General Electric Capital Corp.
5.82% 1/2/1996 18,996,928
5,000,000 General Motors Acceptance Corp.
5.8% 1/17/1996 4,987,111
5,000,000 General Motors Acceptance Corp.
5.77% 1/9/1996 4,993,589
5,000,000 IBM Credit Corp.
5.77% 1/12/1996 4,991,185
5,000,000 Prudential Funding Corp.
5.77% 1/4/1996 4,997,596
5,000,000 Sears Roebuck Acceptance Corp.
5.88% 1/22/1996 4,982,850
- ------------
Total Short-Term Securities (at amortized cost)
43,949,259
- ------------
Total Investments (cost, $762,475,475)
$782,045,956(g)
============
<CAPTION>
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of
the High Yield Portfolio.
(b) Currently non-income producing.
(c) Currently non-income producing and in default.
(d) Denotes restricted securities. These securities have been valued from the date
of acquisition through December 31,1995, by
obtaining quotations from brokers who are active with the issues. The following
table indicates the acquisition date and
cost of restricted securities the portfolio owned as of December 31, 1995.
Acquisition
Security
Date Cost
------------------------------------------------
- ---------- ----------
<S>
<C> <C>
Arcadian Corp., Stock Warrants
2/6/1992 $90,000
Consolidated Hydro, Inc, Warrants
6/15/1993 171,276
Grand Union Holdings Corp., Preferred Stock
6/14/1993 5,703,525
Terex Corp., Stock Appreciation Rights
7/27/1992 3,750
Triangle Wire & Cable, Inc., Stock Warrants
1/3/1992 500
Viatel, Inc., Common Stock
8/15/1995 1,358,844
(e) Includes stock rights that automatically traded with the stock and had no
separate value at December 31, 1995.
(f) Denominated in U.S. Dollars.
(g) At December 31, 1995, the aggregate cost of securities for federal income tax
purposes was $762,579,659 and the
net unrealized appreciation of investments based on that cost was $19,466,297
which is comprised of $54,735,473
aggregate gross unrealized appreciation and $35,269,176 aggregate gross
unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
LB Series Fund, Inc.
Income Portfolio
Portfolio of Investments
December 31, 1995
<CAPTION>
Principal
Maturity
Amount
Rate Date Value
-----------
- ------ -------- -----------
CORPORATE BONDS - 36.6% (a)
Automotive - 1.4%
<S> <C>
<C> <C> <C>
$ 4,000,000 Exide Corp., Sr. Notes
10.0% 4/15/2005 $ 4,350,000
2,000,000 Ford Motor Credit Co., Notes
6.25% 12/8/2005 2,002,826
4,000,000 Ford Motor Credit Co., Notes
6.375% 10/6/2000 4,075,708
- ------------
10,428,534
- ------------
Bank & Finance - 13.3%
12,500,000 Associates Corp. of North America, Notes
6.625% 5/15/1998 12,802,700
5,000,000 Associates Corp. of North America, Sr. Notes
9.125% 4/1/2000 5,643,345
6,000,000 Citicorp, Subordinated Debentures
7.125% 9/1/2005 6,390,234
3,500,000 Commercial Credit Co., Notes
6.125% 12/1/2005 3,472,756
4,000,000 Dresdner Bank - New York, Subordinated Notes
7.25% 9/15/2015 4,269,804
8,000,000 General Electric Capital Corp., Debentures
8.85% 4/1/2005 9,554,232
6,000,000 Metropolitan Life Insurance Co., Surplus Notes
7.7% 11/1/2015 6,222,840
8,000,000 Nationwide CSN Trust, Trust Notes
9.875% 2/15/2025 9,374,400
5,000,000 New York Life Insurance Co., Surplus Notes
6.4% 12/15/2003 5,050,250
8,000,000 Norwest Financial, Inc., Sr. Notes
6.25% 11/1/2002 8,124,408
6,000,000 Prudential Insurance Co., Surplus Notes
7.65% 7/1/2007 6,343,248
6,000,000 Prudential Insurance Co., Surplus Notes
8.3% 7/1/2025 6,476,352
5,000,000 Reliastar Financial Corp., Sr. Notes
8.625% 2/15/2005 5,704,615
6,000,000 Societe-Generale, Subordinated Notes
9.875% 7/15/2003 7,310,844
6,000,000 Swiss Bank Corp., Subordinated Debentures, (New York Branch)
7.5% 7/15/2025 6,535,398
- ------------
103,275,426
- ------------
Broadcasting - 2.4%
3,000,000 Continental Cablevision, Inc., Sr. Notes
8.3% 5/15/2006 3,015,000
4,000,000 Rogers Cablesystems, Inc., Sr. Secured Second Priority Notes
9.625% 8/1/2002 4,220,000
5,000,000 TCI Communications, Inc., Sr. Notes
8.0% 8/1/2005 5,345,750
6,000,000 Viacom, Inc., Sr. Notes
7.75% 6/1/2005 6,372,534
- ------------
18,953,284
- ------------
Chemicals - 0.8%
3,500,000 Methanex Corp., Notes
7.75% 8/15/2005 3,713,728
2,000,000 Methanex Corp., Notes
7.4% 8/15/2002 2,081,174
- ------------
5,794,902
- ------------
Computers & Office Equipment - 0.8%
6,000,000 Electronic Data Systems Corp., Notes
6.85% 5/15/2000 6,262,500
- ------------
Conglomerates - 0.7%
5,000,000 Dover Corp., Notes
6.45% 11/15/2005 5,137,710
- ------------
Food & Beverage - 1.7%
9,000,000 Nabisco, Inc., Notes
6.7% 6/15/2002 9,195,471
4,000,000 TLC Beatrice International Holdings, Sr. Secured Notes
11.5% 10/1/2005 3,970,000
- ------------
13,165,471
- ------------
Hospital Management - 0.9%
2,500,000 Integrated Health Services, Inc., Sr. Subordinated Notes
9.625% 5/31/2002 2,550,000
4,000,000 Tenet Healthcare Corp.
9.625% 9/1/2002 4,440,000
- ------------
6,990,000
- ------------
Household Products - 0.9%
5,000,000 Procter & Gamble, Guaranteed ESOP Debentures
9.36% 1/1/2021 6,573,915
- ------------
Natural Gas - 2.0%
4,000,000 Coastal Corp., Sr. Debentures
9.75% 8/1/2003 4,779,004
4,000,000 Coastal Corp., Sr. Notes
10.375% 10/1/2000 4,681,724
2,500,000 Tenneco, Inc., Notes
7.875% 10/1/2002 2,729,868
4,000,000 Tenneco, Inc., Notes
6.5% 12/15/2005 4,019,008
- ------------
16,209,604
- ------------
Paper & Forest Products - 1.4%
5,000,000 Georgia Pacific Corp., Debentures
8.625% 4/30/2025 5,526,380
5,000,000 Smurfit Capital Funding plc, Guaranteed Notes
6.75% 11/20/2005 5,137,230
- ------------
10,663,610
- ------------
Petroleum - 3.2%
7,043,068 Mobil Oil Corp, ESOP Sinking Fund Debentures
9.17% 2/29/2000 7,563,805
5,000,000 Oryx Energy Co., Notes
8.125% 10/15/2005 5,140,660
9,000,000 Texaco Capital, Inc., Debentures
7.5% 3/1/2043 9,750,690
2,000,000 United Meridian Corp., Sr. Subordinated Notes
10.375% 10/15/2005 2,125,000
- ------------
24,580,155
- ------------
Pollution Control - 0.6%
4,000,000 Browning-Ferris Industries, Inc., Debentures
7.4% 9/15/2035 4,330,452
- ------------
Retail - 3.2%
7,000,000 Dayton Hudson Corp., Debentures
8.5% 12/1/2022 7,610,351
6,000,000 Federated Department Stores, Sr. Notes
10.0% 2/15/2001 6,502,500
2,000,000 K-Mart Corp., Pass Through Certificates, Series 1995-K-4
9.35% 1/2/2020 1,543,994
3,000,000 Ralph's Grocery Company, Sr. Notes
10.45% 6/15/2004 3,052,500
5,250,000 Revco D.S., Inc., Sr. Notes
9.125% 1/15/2000 5,696,250
- ------------
24,405,595
- ------------
Services - 0.7%
5,000,000 ARA Group, Inc., Subordinated Notes
8.5% 6/1/2003 5,262,500
- ------------
Telephone - 2.6%
6,000,000 AT&T Corp., Debentures
8.35% 1/15/2025 6,865,584
6,000,000 New York Telephone Co., Debentures
9.375% 7/15/2031 7,143,708
6,000,000 U.S. West Communications, Inc., Debentures
7.125% 11/15/2043 6,180,522
- ------------
20,189,814
- ------------
Total Corporate Bonds (cost, $267,749,456)
282,223,472
- ------------
FOREIGN GOVERNMENT BONDS - 7.3% (a,c)
6,000,000 African Development Bank, Subordinated Notes
6.875% 10/15/2015 6,193,422
5,000,000 African Development Bank, Subordinated Notes
7.75% 12/15/2001 5,473,790
5,000,000 British Columbia Hydro & Power, Debentures
15.5% 7/15/2011 5,592,745
5,000,000 British Columbia Hydro & Power, Debentures
12.5% 9/1/2013 6,016,295
5,000,000 Inter American Development Bank, Notes
7.0% 6/15/2025 5,335,530
7,000,000 Korean Development Bank, Sr. Notes
6.5% 11/15/2002 7,111,363
4,000,000 Ontario Province, Canada, Debentures
11.75% 4/25/2013 4,683,636
10,000,000 Ontario Province, Canada, Sr. Secured Notes
7.75% 6/4/2002 10,998,190
5,000,000 Tenaga Nasional Berhad, Debentures
7.5% 11/1/2025 5,239,375
- ------------
Total Foreign Government Bonds (cost, $55,637,257)
56,644,346
- ------------
ASSET-BACKED SECURITIES - 12.9% (a)
17,000,000 AT&T Universal Card Master Trust, Class A, Series 1995-2
5.95% 10/17/2002 17,211,973
6,000,000 Chemical Master Credit Card Trust I, Class A Asset Backed
Certificates, Series 1995-3
6.23% 4/15/2005 6,136,194
5,965,346 IBM Credit Receivables Lease Trust, Series 1993-1
4.55% 11/15/2000 5,926,810
25,000,000 ITT Floorplan Receivable Master Trust, Series 1994-1-A
6.138% 1/15/1996 25,065,225 (b)
7,500,000 NationsBank Credit Card Master, Series 1995-A
6.45% 4/15/2003 7,740,068
15,000,000 Sears Credit Account Master Trust II, Master Trust Certificates,
Series 1995-4-A
6.25% 1/15/2003 15,311,835
22,000,000 Standard Credit Master Trust 1, Credit Card Participation
Certificates, Series 1995-9-A
6.55% 10/7/2007 22,715,638
- ------------
Total Asset-Backed Securities (cost, $98,497,672)
100,107,743
- ------------
MORTGAGE-BACKED SECURITIES - 15.4% (a)
21,000,000 Federal National Mortgage Association,
Participation Certificates
7.0% 2025 21,170,625 (d)
64,444,650 Federal National Mortgage Association,
Participation Certificates
6.5% 2025 63,878,687
33,357,923 Government National Mortgage Association,
Modified Pass Through Certificates
7.0% 2023 - 2025 33,810,647
- ------------
Total Mortgage-Backed Securities (cost, $113,530,245)
118,859,959
- ------------
U.S. GOVERNMENT - 23.9% (a)
31,500,000 U.S. Treasury Bonds
7.625-12.0% 2003 - 2025 42,147,792
132,500,000 U.S. Treasury Notes
6.0-9.25% 1997 - 2005 142,435,799
- ------------
Total U.S. Government (cost, $178,541,399)
184,583,591
- ------------
SHORT-TERM SECURITIES - 3.9% (a)
Commercial Paper
5,300,000 Associates Corp. of North America
5.98% 1/2/1996 5,299,120
24,700,000 Koch Industries
5.97% 1/2/1996 24,695,904
- ------------
Total Short-Term Securities (at amortized cost)
29,995,024
- ------------
Total Investments (cost, $743,951,053)
$772,414,135 (e)
============
Notes to Portfolio of Investments:
- ----------------------------------c
(a) The categories of investments are shown as a percentage of total investments of
the Income Portfolio.
(b) Denotes variable rate obligations for which current yield is shown.
(c) Denominated in U.S. Dollars.
(d) Denotes investments purchased on a when-issued basis.
(e) At December 31, 1995, the aggregate cost of securities for federal income tax
purposes was $744,297,783 and the net
unrealized appreciation of investments based on that cost was $28,116,352 which
is comprised of $30,006,216 aggregate
gross unrealized appreciation and $1,889,864 aggregate gross unrealized
depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
LB Series Fund, Inc.
Money Market Portfolio
Portfolio of Investments
December 31, 1995
<CAPTION>
Principal
Maturity
Amount Rate
Date Value
- ------------ ------ --
- ------- -----------
BANKER'S ACCEPTANCES - 5.8% (a)
<S> <C> <C>
<C> <C>
$2,000,000 First Bank, N.A., Minneapolis 5.6%
3/5/1996 $ 1,980,089
1,857,143 Morgan Guaranty Trust Co. of New York 5.55%
4/24/1996 1,824,504
- -----------
Total Banker's Acceptances
3,804,593
- -----------
COMMERCIAL PAPER - 90.5% (a)
Banking-Domestic - 3.0%
2,000,000 AES Barbers Point, Inc., (Bank of America,
Direct Pay Letter of Credit) 5.7%
1/12/1996 1,996,517
- -----------
Banking-Foreign - 8.2%
1,000,000 Accor S.A., (Banque National de Paris,
Direct Pay Letter of Credit) 5.73%
1/25/1996 996,180
1,500,000 Finance One Funding Corp., (Credit Suisse,
Direct Pay Letter of Credit) 5.56%
5/7/1996 1,470,578
1,000,000 PEMEX Capital, Inc., (Credit Suisse,
Direct Pay Letter of Credit) 5.53%
2/15/1996 993,088
2,000,000 Petroleos De Venezuela, S.A., (Westdeutsche Landesbank
Girozentrale, Direct Pay Letter of Credit) 5.62%
3/8/1996 1,979,081
- -----------
5,438,927
- -----------
Computer & Office Equipment - 7.5%
2,000,000 Electronic Data Systems Corp. 5.48%
3/19/1996 1,976,253
1,000,000 Hewlett-Packard Co. 5.75%
1/18/1996 997,285
1,000,000 IBM Credit Corp. 5.75%
1/10/1996 998,563
1,000,000 IBM Credit Corp. 5.76%
1/10/1996 998,560
- -----------
4,970,661
- -----------
Drugs & Healthcare - 3.0%
2,000,000 Schering Corp. 5.64%
2/27/1996 1,982,140
- -----------
Education - 6.9%
2,300,000 Harvard University 6.05%
1/2/1996 2,299,613
1,800,000 Leland H. Stanford Jr. University 5.58%
3/18/1996 1,778,517
500,000 Leland H. Stanford Jr. University 5.5%
3/14/1996 494,424
- -----------
4,572,554
- -----------
Finance-Automotive - 6.6%
2,000,000 Ford Motor Credit Co 5.7%
2/9/1996 1,987,650
400,000 Ford Motor Credit Co 5.8%
2/1/1996 398,002
1,000,000 General Motors Acceptance Corp 5.87%
1/3/1996 999,674
1,000,000 General Motors Acceptance Corp 5.85%
1/3/1996 999,675
- -----------
4,385,001
- -----------
Finance-Commercial - 6.0%
1,000,000 General Electric Capital Corp 5.62%
3/1/1996 990,633
1,000,000 General Electric Capital Corp 5.58%
4/3/1996 985,585
2,000,000 Norwest Financial, Inc 5.68%
2/8/1996 1,988,009
- -----------
3,964,227
- -----------
Finance-Consumer - 15.0%
2,000,000 Associates Corp. of North America 5.75%
1/16/1996 1,995,208
1,000,000 AVCO Financial Services, Inc 5.6%
3/11/1996 989,111
1,000,000 AVCO Financial Services, Inc 5.82%
1/19/1996 997,090
2,000,000 Beneficial Corp 5.77%
1/26/1996 1,991,986
2,000,000 Commercial Credit Co 5.76%
1/5/1996 1,998,720
2,000,000 Penney (J.C.) Funding Corp 5.65%
2/6/1996 1,988,700
- -----------
9,960,815
- -----------
Finance-Structured - 16.0%
2,000,000 Ciesco, L.P 5.67%
2/8/1996 1,988,030
2,000,000 CXC, Inc 5.7%
1/29/1996 1,991,133
1,000,000 Delaware Funding Corp 5.73%
1/22/1996 996,658
1,600,000 New Center Asset Trust 5.74%
1/26/1996 1,593,622
2,000,000 Preferred Receivables Funding Corp 5.73%
1/24/1996 1,992,678
2,000,000 Sheffield Receivables Corp., (Barclay's Bank) 5.72%
1/18/1996 1,994,598
- -----------
10,556,719
- -----------
Financial Services - 0.8%
500,000 American Express Credit Corp 5.7%
1/31/1996 497,625
- -----------
Food & Beverage - 5.9%
2,450,000 Cargill, Inc 5.57%
2/16/1996 2,432,563
1,500,000 CPC International, Inc. 5.44%
5/13/1996 1,469,853
- -----------
3,902,416
- -----------
Household Products - 1.1%
700,000 Colgate-Palmolive Co. 5.9%
1/8/1996 699,197
- -----------
Industrial - 6.0%
1,000,000 Du Pont (E.I.) de Nemours and Co 5.63%
2/16/1996 992,806
1,000,000 Du Pont (E.I.) de Nemours and Co 5.58%
3/28/1996 986,515
2,000,000 Great Lakes Chemical Corp 5.8%
1/29/1996 1,990,978
- -----------
3,970,299
- -----------
Insurance - 3.0%
2,000,000 Lincoln National Corp. 5.57%
2/22/1996 1,983,909
- -----------
Telecommunications - 1.5%
1,000,000 AT&T Corp 5.57%
2/21/1996 992,109
- -----------
Total Commercial Paper
59,873,116
- -----------
VARIABLE RATE NOTES - 3.0% (a,b)
2,000,000 Boatsmen's National Bank of St. Louis (Bank Note) 5.914%
1/12/1996 2,000,000
- -----------
OTHER - 0.7% (a,b)
480,000 Federated Master Trust 5.383%
1/2/1996 480,000
- -----------
Total Investments (at amortized cost)
$66,157,709 (c)
===========
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total investments of
the Money Market Portfolio.
(b) Denotes variable rate obligations for which the current yield and next scheduled
interest reset date are shown.
(c) Also represents cost for federal income tax purposes.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
LB Series Fund, Inc.
Statement of Assets and Liabilities
December 31, 1995
<CAPTION>
Portfolios
-------------------
- -------------------------------------------
High Money
Growth
Yield Income Market
-------------- -
- ----------- ------------ ------------
ASSETS:
<S> <C>
<C> <C> <C>
Investments in securities, at value (cost of $1,082,113,308,
$762,475,475, $743,951,053 and $66,157,709, respectively) $1,182,723,939
$782,045,956 $772,414,135 $66,157,709
Cash 127,500
68,762 115,544 4,256
Receivable for investment securities sold 1,946,865
1,751,500 -- --
Dividends and interest receivable 1,599,351
10,948,900 10,885,637 9,029
-------------- -
- ----------- ------------ -----------
Total assets 1,186,397,655
794,815,118 783,415,316 66,170,994
-------------- -
- ----------- ------------ -----------
LIABILITIES:
Payable for investment securities purchased 13,227,789
1,961,250 21,087,188 --
Dividends payable --
346,689 254,699 19,576
Accrued expenses 25,713
17,373 16,702 1,451
-------------- -
- ----------- ------------ -----------
Total liabilities 13,253,502
2,325,312 21,358,589 21,027
-------------- -
- ----------- ------------ -----------
NET ASSETS $1,173,144,153
$792,489,806 $762,056,727 $66,149,967
==============
============ ============ ===========
NET ASSETS CONSIST OF:
Paid-in capital $917,597,644
$799,620,527 $755,721,028 $66,149,967
Accumulated net realized gain (loss) from sale of investments 154,935,878
(26,701,203) (22,127,382) --
Unrealized net appreciation of investments 100,610,631
19,570,482 28,463,081 --
-------------- -
- ----------- ------------ -----------
NET ASSETS $1,173,144,153
$792,489,806 $762,056,727 $66,149,967
==============
============ ============ ===========
Outstanding shares of capital stock 64,197,627
79,742,358 75,614,192 66,149,967
Net asset value and public offering price per share
(net assets divided by outstanding shares) $18.27
$9.94 $10.08 $1.00
======
====== ====== ======
</TABLE>
<TABLE>
Statement of Operations
Year Ended December 31, 1995
<CAPTION>
Portfolios
-------------------
- -------------------------------------------
High Money
Growth
Yield Income Market
-------------- -
- ----------- ------------ ------------
INVESTMENT INCOME:
Income-
<S> <C>
<C> <C> <C>
Interest income $4,780,867
$64,895,862 $48,094,035 $2,849,976
Dividend income 13,340,902
6,154,206 179,522 --
------------ -
- ----------- ------------ ----------
Total income 18,121,769
71,050,068 48,273,557 2,849,976
Expenses-
Investment advisory fee 3,755,106
2,749,181 2,676,959 191,589
------------ -
- ----------- ------------ ----------
Net investment income 14,366,663
68,300,887 45,596,598 2,658,387
------------ -
- ----------- ------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on investment transactions 177,817,436
(17,634,503) 14,948,726 --
Net realized gain on closed or expired option contracts written 497,309
- -- -- --
------------ -
- ----------- ------------ ----------
Net realized gain (loss) on investments 178,314,745
(17,634,503) 14,948,726 --
Net change in unrealized appreciation of investments 93,851,521
70,247,942 57,100,261 --
------------ -
- ----------- ------------ ----------
Net gain on investments 272,166,266
52,613,439 72,048,987 --
------------ -
- ----------- ------------ ----------
Net increase in net assets resulting from operations $286,532,929
$120,914,326 $117,645,585 $2,658,387
============
============ ============ ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
LB Series Fund, Inc.
Statement of Changes in Net Assets
Years Ended December 31, 1995 and 1994
<CAPTION>
Growth
High Yield
Portfolio
Portfolio
----------------------
- -------- ------------------------------
1995
1994 1995 1994
------------ ----
- -------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
<S> <C> <C>
<C> <C>
Net investment income $14,366,663
$9,902,273 $68,300,887 $54,770,889
Net realized gain (loss) on investments 178,314,745
(22,140,074) (17,634,503) (9,003,809)
Net change in unrealized appreciation or
depreciation of investments 93,851,521
(17,508,695) 70,247,942 (73,154,741)
-------------- ----
- -------- ------------ ------------
Net change in net assets resulting from operations 286,532,929
(29,746,496) 120,914,326 (27,387,661)
-------------- ----
- -------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (14,366,663)
(9,902,273) (68,300,887) (54,772,664)
Net realized gain on investments --
(15,253,955) -- (8,655,183)
-------------- ----
- -------- ------------ ------------
Total distributions (14,366,663)
(25,156,228) (68,300,887) (63,427,847)
-------------- ----
- -------- ------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 176,315,837
222,812,960 95,025,930 191,477,158
Reinvested dividend distributions 14,366,663
25,156,228 68,106,629 63,275,415
Cost of shares redeemed (11,526,193)
(5,752,814) (18,896,967) (12,779,325)
-------------- ----
- -------- ------------ ------------
Net increase in net assets from capital
stock transactions 179,156,307
242,216,374 144,235,592 241,973,248
-------------- ----
- -------- ------------ ------------
Net increase in net assets 451,322,573
187,313,650 196,849,031 151,157,740
NET ASSETS:
Beginning of year 721,821,580
534,507,930 595,640,775 444,483,035
-------------- ----
- -------- ------------ ------------
End of year $1,173,144,153
$721,821,580 $792,489,806 $595,640,775
==============
============ ============ ============
<CAPTION>
Income
Money Market
Portfolio
Portfolio
----------------------
- -------- ------------------------------
1995
1994 1995 1994
------------ ----
- -------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
<S> <C> <C>
<C> <C>
Net investment income $45,596,598
$41,746,172 $2,658,387 $1,381,753
Net realized gain (loss) on investments 14,948,726
(36,852,960) -- --
Net change in unrealized appreciation or
depreciation of investments 57,100,261
(34,234,350) -- --
------------ ----
- -------- ----------- -----------
Net change in net assets resulting from operations 117,645,585
(29,341,138) 2,658,387 1,381,753
------------ ----
- -------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (45,596,598)
(41,746,172) (2,658,387) (1,381,753)
Net realized gain on investments --
(12,433,934) -- --
------------ ----
- -------- ----------- -----------
Total distributions (45,596,598)
(54,180,106) (2,658,387) (1,381,753)
------------ ----
- -------- ----------- -----------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 72,115,092
114,530,628 52,883,017 52,739,421
Reinvested dividend distributions 45,455,976
54,066,029 2,645,101 1,375,462
Cost of shares redeemed (35,776,663)
(43,751,484) (31,260,652) (37,143,126)
------------ ---
- --------- ----------- -----------
Net increase in net assets from capital
stock transactions 81,794,405
124,845,173 24,267,466 16,971,757
------------ ---
- --------- ----------- -----------
Net increase in net assets 153,843,392
41,323,929 24,267,466 16,971,757
NET ASSETS:
Beginning of year 608,213,335
566,889,406 41,882,501 24,910,744
------------ ---
- --------- ----------- -----------
End of year $762,056,727
$608,213,335 $66,149,967 $41,882,501
============
============ =========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
LB Series Fund, Inc.
Financial Highlights
(For a share outstanding throughout each period)
<CAPTION>
GROWTH PORTFOLIO (a) 1995 1994
1993 1992 1991
------ ------
- ------ ------ ------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $13.51 $14.76
$13.89 $14.85 $10.72
------ ------
- ------ ------ ------
Income From Investment Operations --
Net investment income 0.24 0.20
0.29 0.23 0.27
Net realized and unrealized gain (loss) on investments 4.76
(0.87) 1.08 0.85 4.13
------ ------
- ------ ------ ------
Total from investment operations 5.00
(0.67) 1.37 1.08 4.40
------ ------
- ------ ------ ------
Less Distributions --
Dividends from net investment income (0.24)
(0.20) (0.29) (0.23) (0.27)
Distributions from net realized gain on investments --
(0.38) (0.21) (1.81) --
------ ------
- ------ ------ ------
Total distributions (0.24)
(0.58) (0.50) (2.04) (0.27)
------ ------
- ------ ------ ------
Net asset value, end of period $18.27 $13.51
$14.76 $13.89 $14.85
====== ======
====== ====== ======
Total investment return at net asset value (b) 37.25% -
4.66% 10.10% 8.13% 41.35%
Net assets, end of period ($millions) $1,173.1 $721.8
$534.5 $231.0 $96.2
Ratio of expenses to average net assets 0.40%
0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to average net assets 1.53%
1.52% 2.17% 1.90% 2.24%
Portfolio turnover rate 184%
135% 243% 230% 247%
<CAPTION>
HIGH YIELD PORTFOLIO (a) 1995 1994
1993 1992 1991
------ ------
- ------ ------ ------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $9.18 $10.76
$9.62 $9.07 $7.62
------ ------
- ------ ------ ------
Income From Investment Operations --
Net investment income 0.96 0.97
0.96 1.02 1.08
Net realized and unrealized gain (loss) on investments 0.76
(1.40) 1.16 0.71 1.45
------ ------
- ------ ------ ------
Total from investment operations 1.72
(0.43) 2.12 1.73 2.53
------ ------
- ------ ------ ------
Less Distributions --
Dividends from net investment income (0.96)
(0.97) (0.96) (1.02) (1.08)
Distributions from net realized gain on investments --
(0.18) (0.02) (0.16) --
------ ------
- ------ ------ ------
Total distributions (0.96)
(1.15) (0.98) (1.18) (1.08)
------ ------
- ------ ------ ------
Net asset value, end of period $9.94 $9.18
$10.76 $9.62 $9.07
====== ======
====== ====== ======
Total investment return at net asset value (b) 19.62% -
4.38% 22.91% 20.08% 35.32%
Net assets, end of period ($millions) $792.5 $595.6
$444.5 $154.3 $56.7
Ratio of expenses to average net assets 0.40%
0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to average net assets 9.94%
9.75% 9.29% 10.69% 12.62%
Portfolio turnover rate 67%
44% 68% 80% 145%
<CAPTION>
INCOME PORTFOLIO (a) 1995 1994
1993 1992 1991
------ ------
- ------ ------ ------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $9.04 $10.36
$9.87 $10.01 $9.10
------ -----
- ------ ----- ------
Income From Investment Operations --
Net investment income 0.65 0.64
0.63 0.73 0.81
Net realized and unrealized gain (loss) on investments 1.04
(1.11) 0.49 0.15 0.91
------ -----
- ------ ----- ------
Total from investment operations 1.69
(0.47) 1.12 0.88 1.72
------ -----
- ------ ----- ------
Less Distributions --
Dividends from net investment income (0.65)
(0.64) (0.63) (0.73) (0.81)
Distributions from net realized gain on investments --
(0.21) -- (0.29) --
------ -----
- ------ ----- ------
Total distributions (0.65)
(0.85) (0.63) (1.02) (0.81)
------ -----
- ------ ----- ------
Net asset value, end of period $10.08 $9.04
$10.36 $9.87 $10.01
====== =====
====== ===== ======
Total investment return at net asset value (b) 19.36% -
4.68% 11.66% 9.23% 19.76%
Net assets, end of period ($millions) $762.1 $608.2
$566.9 $254.7 $100.0
Ratio of expenses to average net assets 0.40%
0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to average net assets 6.81%
6.78% 6.23% 7.29% 8.43%
Portfolio turnover rate 132%
139% 153% 115% 137%
<CAPTION>
MONEY MARKET PORTFOLIO (a) 1995 1994
1993 1992 1991
------ ------
- ------ ------ ------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $1.00 $1.00
$1.00 $1.00 $1.00
----- -----
- ----- ----- -----
Net investment income from operations 0.06 0.04
0.03 0.03 0.06
Less: Dividends from net investment income (0.06)
(0.04) (0.03) (0.03) (0.06)
----- -----
- ----- ----- -----
Net asset value, end of period $1.00 $1.00
$1.00 $1.00 $1.00
===== =====
===== ===== =====
Total investment return at net asset value (b) 5.71%
4.00% 2.87% 3.53% 5.89%
Net assets, end of period ($millions) $66.1 $41.9
$24.9 $26.6 $23.0
Ratio of expenses to average net assets 0.40%
0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to average net assets 5.55%
4.03% 2.83% 3.45% 5.72%
Notes to Financial Highlights:
- ------------------------------
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return is based on the change in net asset value during the year
and assumes reinvestment of all
distributions and does not reflect any charges that would normally occur at the
separate account level.
The accompanying notes are an integral part of the financial statements.
</TABLE>
LB Series Fund, Inc.
Notes to Financial Statements
December 31, 1995
(1) Organization
The Fund is registered under the Investment Company Act of 1940, as a
diversified, open-end investment company. The Fund is comprised of four
separate portfolios: Growth Portfolio, High Yield Portfolio, Income Portfolio
and Money Market Portfolio. Each portfolio is, in effect, a separate
investment fund with its own investment objectives and policies. The assets
of each portfolio are segregated and each has a separate class of capital
stock. The Fund serves as the investment vehicle to fund benefits for
variable life insurance and variable annuity contracts issued by Lutheran
Brotherhood and Lutheran Brotherhood Variable Insurance Products Company
(LBVIP), an indirect wholly owned subsidiary of Lutheran Brotherhood.
(2) Significant Accounting Policies
Investment Security Valuations
Securities traded on national securities exchanges or included in a national
market system are valued at the last quoted sales price at the close of each
business day. Securities traded on the over-the-counter market and listed
securities for which no price is readily available are valued at prices
within the range of the current bid and asked prices considered best to
represent the value in the circumstances, based on quotes that are obtained
from an independent pricing service or by dealers that make markets in the
securities. The pricing service, in determining values of securities, takes
into consideration such factors as current quotations by broker/dealers,
coupon, maturity, quality, type of issue, trading characteristics, and other
yield and risk factors it deems relevant in determining valuations. Exchange
listed options and futures contracts are valued at the last quoted sales
price. For all Portfolios other than the Money Market Portfolio, short-term
securities with maturities of 60 days or less are valued at amortized cost;
those with maturities greater than 60 days are valued at the mean between bid
and asked price. Short-term securities held by the Money Market Portfolio are
valued on the basis of amortized cost (which approximates market value),
whereby a security is valued at its cost initially, and thereafter valued to
reflect a constant amortization to maturity of any discount or premium. The
Money Market Portfolio follows procedures necessary to maintain a constant
net asset value of $1.00 per share. All other securities for which market
values are not readily available are appraised at fair value as determined in
good faith by or under the direction of the Board of Directors.
Repurchase Agreements
The Fund may engage in repurchase agreement transactions in pursuit of its
investment objectives. When the Fund engages in such transactions, it is
policy to require the custodian bank to take possession of all securities
held as collateral in support of repurchase agreement investments. In
addition, the Fund monitors the market value of the underlying collateral on
a daily basis. If the seller defaults or if bankruptcy proceedings are
initiated with respect to the seller, the realization or retention of the
collateral may be subject to legal proceedings.
Investment Income
Interest income is determined on the basis of interest or discount earned on
any short-term securities and interest earned on all other debt securities,
including amortization of discount or premium. Dividend income is recorded on
the ex-dividend date. For payment-in-kind securities, income is recorded on
the ex-dividend date in the amount of the value received.
Options and Financial Futures Transactions
The Fund, with the exception of the Money Market Portfolio, may utilize
futures and options contracts. The Fund intends to use such derivative
instruments as hedges to facilitate buying or selling securities or to
provide protection against adverse movements in security prices or interest
rates.
Option contracts are valued daily and unrealized appreciation or depreciation
is recorded. The Fund will realize a gain or loss upon expiration or closing
of the option transaction. When an option is exercised, the proceeds on sale
for a written call option or the cost of a security for purchased put and
call options is adjusted by the amount of premium received or paid.
Upon entering into a futures contract, the Fund is required to deposit
initial margin, either cash or securities in an amount equal to a certain
percentage of the contract value. Subsequent variation margin payments are
made or received by the Fund each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as
unrealized gains and losses. The Fund realizes a gain or loss when the
contract is closed or expires.
Federal Income Taxes
It is the Fund's policy to comply with the provisions of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable income on a timely basis, including any net
realized gain on investments each year. It is also the intention of the Fund
to distribute an amount sufficient to avoid imposition of any federal excise
tax. Accordingly, no provision for federal income tax is necessary. Each
portfolio is treated as a separate taxable entity for federal income tax
purposes.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. To the
extent the Fund engages in such transactions, it will do so for the purpose
of acquiring securities consistent with its investment objectives and
policies and not for the purpose of investment leverage or to speculate on
interest rate changes. On the trade date, assets of the Fund are segregated
on the Fund's records in a dollar amount sufficient to make payment for the
securities to be purchased. Income is not accrued until settlement date.
Dollar Roll Transactions
The Income Portfolio enters into dollar roll transactions, with respect to
mortgage securities issued by GNMA, FNMA and FHLMC, in which the Portfolio
sells mortgage securities and simultaneously agrees to repurchase similar
(same type, coupon and maturity) securities at a later date at an agreed upon
price. During the period between the sale and repurchase, the Portfolio
forgoes principal and interest paid on the mortgage securities sold. The
Portfolio is compensated by the interest earned on the cash proceeds of the
initial sale and from negotiated fees paid by brokers offered as an
inducement to the Portfolio to "roll over" its purchase commitments. The
Income Portfolio earned $389,180 from such fees.
Distributions to Shareholders
Dividends from net investment income, if available, are declared and
reinvested daily for the High Yield Portfolio, Income Portfolio and Money
Market Portfolio, and quarterly for the Growth Portfolio. Net realized gains
from securities transactions, if any, are distributed at least annually after
the close of the Fund's fiscal year end for the Growth Portfolio, High Yield
Portfolio and Income Portfolio. Short-term gains (losses) of the Money Market
Portfolio are included in interest income and distributed daily. Dividends
and capital gains are recorded on the ex-dividend date.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization
for federal income tax purposes. Also, due to timing of distributions, the
year in which amounts are distributed may differ from the year that the
income or net realized gains were recorded by the Fund.
Reclassification of Permanent Tax Differences
It is the policy of the Fund to reclassify the net effect of permanent
differences between book and taxable income to paid-in capital on the
statement of assets and liabilities. During the year ended December 31, 1995,
there were no reclassifications to paid-in capital.
Other
Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are determined on the identified
cost basis, which is the same basis used for federal income tax purposes.
(3) Investment Advisory Fees And Other expenses
The Fund pays Lutheran Brotherhood, the Fund's investment advisor, an
investment advisory fee equal to 0.40% of the annual average daily net assets
of each portfolio. The fees are accrued daily and paid monthly. All other
operating expenses of the Fund are absorbed by either Lutheran Brotherhood or
LBVIP.
(4) SECURITIES LENDING
To generate additional income, the Fund may participate in a securities
lending program administered by the Fund's custodian bank. Securities are
periodically loaned to brokers, banks or other institutional borrowers of
securities, for which collateral in the form of cash, U.S. government
securities, or letter of credit is received by the custodian in an amount at
least equal to the market value of securities loaned. Collateral received in
the form of cash is invested in short-term investments by the custodian from
which earnings are shared between the borrower, the custodian and the Fund at
negotiated rates. The risks to the Fund are that it may experience delays in
recovery or even loss of rights in the collateral should the borrower of
securities fail financially. There were no security loans during the year
ended December 31, 1995.
(5) CAPITAL LOSS CARRYOVER
During the year ended December 31, 1995, the Growth Portfolio fully utilized
the remaining $19,103,448 of its capital loss carryover, and the Income
Portfolio utilized $6,883,130 of its capital loss carryover against net
realized capital gains. At December 31, 1995, the High Yield and Income
Portfolios had accumulated net realized capital loss carryovers of
$25,438,084 and $21,666,184 respectively, expiring $1,662,110 and $21,666,184
in the year 2002 respectively, and $23,775,974 in 2003 for the High Yield
Portfolio. To the extent these Portfolios realize future net capital gains,
taxable distributions will be reduced by any unused capital loss carryovers.
Temporary timing differences of $1,651,645, $1,263,119, and $461,198 existed
between accumulated net realized capital gains or losses for financial
statement and tax purposes as of December 31, 1995 for the Growth, High Yield
and Income Portfolios, respectively. These differences are due primarily to
deferral of capital losses for tax purposes.
(6) INVESTMENT TRANSACTIONS
Purchases and Sales of Investment Securities
For the year ended December 31, 1995, the cost of purchases and the proceeds
from sales of investment securities other than U.S. Government and short-term
securities were as follows:
$(thousands)
----------------------------
Portfolio Purchases Sales
- ---------- ---------- ----------
Growth $1,714,514 $1,572,276
High Yield 553,626 425,253
Income 618,045 512,673
Purchases and sales of U.S. Government securities were:
$(thousands)
----------------------------
Portfolio Purchases Sales
- ---------- ---------- ----------
Growth $ 17,715 $ 13,772
Income 350,200 322,454
Investments in Restricted Securities
The High Yield Portfolio owns restricted securities that were purchased in
private placement transactions without registration under the Securities Act
of 1933. Unless such securities subsequently become registered, they
generally may be resold only in privately negotiated transactions with a
limited number of purchasers. The aggregate value of restricted securities
was $1,809,933 at December 31, 1995 which represented 0.2% of net assets of
the High Yield Portfolio.
Investments in High Yielding Securities
The High Yield Portfolio invests primarily in high yielding fixed income
securities. The Income Portfolio may from time to time invest up to 25% of
its total assets in high-yielding securities. These securities will typically
be in the lower rating categories or will be non-rated and generally will
involve more risk than securities in the higher rating categories. Lower
rated or unrated securities are more likely to react to developments
affecting market risk and credit risk than are more highly rated securities,
which react primarily to movements in the general level of interest rates.
Investments in Options and Futures Contracts
The movement in the price of the instrument uderlying an option or futures
contract may not correlate perfectly with the movement in the prices of the
portfolio securities being hedged. A lack of correlation could render the
Fund's hedging strategy unsuccessful and could result in a loss to the Fund.
In the event that a liquid secondary market would not exist, the Fund could
be prevented from entering into a closing transaction which could result in
additional losses to the Fund.
Open Option Contracts
The number of contracts and premium amounts associated with call option
contracts written during the year ended December 31, 1995 were as follows:
Growth Portfolio Income Porfolio
------------------------ ----------------------
Number of Premium Number of Premium
Contracts Amount Contracts Amount
------- ---------- --------- --------
Balance at
December 31, 1994 420 $ 45,627 -- --
Opened 13,574 2,295,077 1 $ 56,875
Closed (7,690) (1,555,750) -- --
Expired (3,369) (260,188) -- --
Exercised (2,935) (524,766) (1) (56,875)
------- ---------- --------- --------
Balance at
December 31, 1995 -- $ -- -- $ --
======= ========== ========= ========
(7) CAPITAL STOCK
Authorized capital stock consists of two billion shares as follows:
Shares Par
Portfolio Authorized Value
- ------------ ----------- ------
Growth 600,000,000 $ 0.01
High Yield 200,000,000 $ 0.01
Income 400,000,000 $ 0.01
Money Market 600,000,000 $ 0.01
The balance of the Fund's authorized capital (200 million shares) may be
issued in the above portfolios or in any new portfolio as may be determined
by the Board of Directors. The shares of each portfolio have equal rights and
privileges with all shares of that portfolio. Shares in the Fund are
currently sold only to separate accounts of Lutheran Brotherhood and LBVIP.
Transactions in capital stock were as follows:
<TABLE>
Portfolios
---------------------------------------------------
<CAPTION>
High Money
Growth Yield Income Market
---------- ----------- ---------- ---------
- -
Shares outstanding at
<S> <C> <C> <C> <C>
December 31, 1993 36,213,732 41,317,018 54,703,967
24,910,744
Shares sold 15,858,169 18,598,536 11,711,971
52,739,421
Shares issued on
reinvestment of
dividends and
distributions 1,788,745 6,316,397 5,656,598
1,375,462
Shares redeemed (425,471) (1,346,559) (4,789,538)
(37,143,126)
---------- ---------- ---------- ---------
- -
Shares outstanding at
December 31, 1994 53,435,175 64,885,392 67,282,998
41,882,501
Shares sold 10,639,507 9,776,871 7,399,297
52,883,017
Shares issued on
reinvestment of
dividends aand
distributions 860,983 7,060,502 4,735,997
2,645,101
Shares redeemed (738,038) (1,980,407) (3,804,100)
(31,260,652)
---------- ---------- ---------- ---------
- -
Shares outstanding at
December 31, 1995 64,197,627 79,742,358 75,614,192
66,149,967
========== ========== ==========
==========
</TABLE>
<PAGE>
LB SERIES FUND, INC.
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- -------------------------------------------
(a) Financial Statements
(1) Part A: Financial Highlights for Growth Portfolio, Income
Portfolio, High Yield Portfolio and Money Market
Portfolio (*)
(2) Unaudited Financial Highlights for Opportunity Growth
Portfolio and World Growth Portfolio (*)
(3) Part B: Financial Statements for Growth Portfolio, Income
Portfolio, High Yield Portfolio and Money Market
Portfolio (*)
(4) Part B: Unaudited Financial Statements for the Opportunity
Growth
Portfolio and World Growth Portfolio for the period
ended
March 31, 1996 (*)
(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. (9)
(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 (9)
(8)(d) Amendment to Custodian Contract dated January 11, 1990 (9)
(8)(e) Form of Amendment to Custodian Contract (9)
(8)(f) Form of Letter Agreement between the Registrant and State Street
Bank and Trust Company (10)
(9) Not applicable
(10) Opinion and consent of counsel (9)
(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. (9)
(13)(c) Form of Letter from Lutheran Brotherhood with respect to
providing
initial capital Letter with respect to the Opportunity Growth
Portfolio (10)
(13)(d) Form of Letter from Lutheran Brotherhood with respect to
providing
initial capital Letter with respect to the World Growth Portfolio
(10)
(13)(e) Form of Letter from Lutheran Brotherhood Variable Insurance
Products Company with respect to providing initial capital Letter
with respect to the Opportunity Growth Portfolio (10)
(13)(f) Form of Letter from Lutheran Brotherhood Variable Insurance
Products Company with respect to providing initial capital Letter
with respect to the World Growth Portfolio (10)
(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 (9)
(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
(9) Post-effective Amendment No. 14 November 1, 1995
(10) Post-effective Amendment No. 15 January 17, 1996
(*) Filed herewith
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 $10.9 billion on December
31, 1995. 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 $3.4 billion
at December 31, 1995.
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;
Formerly Senior Vice President, General Counsel and Secretary of
Monsanto Company, 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;
Formerly President of Diversified Financial Consultants, Marco Island,
FL and Eden Prarie, MN.
Richard C. Kessler, Director;
President of the Kessler Enterprise, Inc., 12205 Apopka Vineland Road,
Orlando, FL.
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;
Formerly 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
Jennifer H. Smith, 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
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
Rolf H. Running, 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
amendment to this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Minneapolis and
State of Minnesota, on the 29th day of April, 1996.
LB SERIES FUND, INC.
By: /s/ Randall L. Wetherille
-------------------------
Randall L. Wetherille,
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this amendment to Registration Statement has
been signed below on the 29th day of April, 1996, by the following persons
in the capacities indicated:
Signature Title Date
* Director and President April 29, 1996
- ------------------------ (Principal Executive Officer)
Rolf F. Bjelland
* Treasurer April 29, 1996
- ------------------------ (Principal Financial and
Wade M. Voigt Accounting Officer)
* Director April 29, 1996
- ------------------------
Charles W. Arnason
* Director April 29, 1996
- -------------------------
Herbert F. Eggerding, Jr.
* Director April 29, 1996
- ------------------------
Bruce J. Nicholson
* Director April 29, 1996
- ------------------------
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
(1) Part A: Financial Highlights for Growth Portfolio,
Income Portfolio, High Yield Portfolio and
Money Market Portfolio
(2) Unaudited Financial Highlights for
Opportunity Growth Portfolio and World
Growth Portfolio)
(3) Part B: Financial Statements for Growth Portfolio,
Income Portfolio, High Yield Portfolio and
Money Market Portfolio
(4) Part B: Unaudited Financial Statements for the
Opportunity Growth Portfolio and World
Growth Portfolio for the period ended
March 31, 1996
(11) Consent of Independent Accountants
27 Financial Data Schedules
8
6
{PAGE}
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting part of this Post-Effective
Amendment No. 16 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated February 2, 1996, relating to
the financial statements and financial highlights appearing in the December
31, 1995 Annual Report to Shareholders of the LB Series Fund, Inc., which is
also incorporated by reference into the Registration Statement. We also
consent to the references to us under the heading "Financial Highlights" in
the Prospectus and under the heading "Independent Accountants" in the
Statement of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
April 29, 1996
PWcon1.doc
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1995 and
is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> LB SERIES FUND, INC. - GROWTH PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,082,113
<INVESTMENTS-AT-VALUE> 1,182,724
<RECEIVABLES> 3,546
<ASSETS-OTHER> 128
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,186,398
<PAYABLE-FOR-SECURITIES> 13,228
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26
<TOTAL-LIABILITIES> 13,254
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 917,598
<SHARES-COMMON-STOCK> 64,198
<SHARES-COMMON-PRIOR> 53,435
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 154,935
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 100,611
<NET-ASSETS> 1,173,144
<DIVIDEND-INCOME> 13,341
<INTEREST-INCOME> 4,781
<OTHER-INCOME> 0
<EXPENSES-NET> 3,755
<NET-INVESTMENT-INCOME> 14,367
<REALIZED-GAINS-CURRENT> 178,315
<APPREC-INCREASE-CURRENT> 93,851
<NET-CHANGE-FROM-OPS> 286,533
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,367
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,640
<NUMBER-OF-SHARES-REDEEMED> 738
<SHARES-REINVESTED> 861
<NET-CHANGE-IN-ASSETS> 451,323
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (23,379)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,755
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,755
<AVERAGE-NET-ASSETS> 938,777
<PER-SHARE-NAV-BEGIN> 13.51
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 4.76
<PER-SHARE-DIVIDEND> 0.24
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.27
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1995 and
is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> LB SERIES FUND, INC. - INCOME PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 743,951
<INVESTMENTS-AT-VALUE> 772,414
<RECEIVABLES> 10,886
<ASSETS-OTHER> 116
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 783,416
<PAYABLE-FOR-SECURITIES> 21,087
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 272
<TOTAL-LIABILITIES> 21,359
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 755,721
<SHARES-COMMON-STOCK> 75,614
<SHARES-COMMON-PRIOR> 67,283
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22,127)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28,463
<NET-ASSETS> 762,057
<DIVIDEND-INCOME> 180
<INTEREST-INCOME> 48,094
<OTHER-INCOME> 0
<EXPENSES-NET> 2,677
<NET-INVESTMENT-INCOME> 45,597
<REALIZED-GAINS-CURRENT> 14,949
<APPREC-INCREASE-CURRENT> 57,100
<NET-CHANGE-FROM-OPS> 117,646
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 45,597
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,399
<NUMBER-OF-SHARES-REDEEMED> 3,804
<SHARES-REINVESTED> 4,736
<NET-CHANGE-IN-ASSETS> 153,843
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (37,076)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,677
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,677
<AVERAGE-NET-ASSETS> 669,240
<PER-SHARE-NAV-BEGIN> 9.04
<PER-SHARE-NII> 0.65
<PER-SHARE-GAIN-APPREC> 1.04
<PER-SHARE-DIVIDEND> 0.65
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.08
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1995 and
is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> LB SERIES FUND, INC. - MONEY MARKET PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 66,158
<INVESTMENTS-AT-VALUE> 66,158
<RECEIVABLES> 9
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 66,171
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21
<TOTAL-LIABILITIES> 21
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,150
<SHARES-COMMON-STOCK> 66,150
<SHARES-COMMON-PRIOR> 41,883
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 66,150
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,850
<OTHER-INCOME> 0
<EXPENSES-NET> 192
<NET-INVESTMENT-INCOME> 2,658
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,658
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,658
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 52,883
<NUMBER-OF-SHARES-REDEEMED> 31,261
<SHARES-REINVESTED> 2,645
<NET-CHANGE-IN-ASSETS> 24,267
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 192
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 192
<AVERAGE-NET-ASSETS> 47,897
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.06
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1995 and
is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> LB SERIES FUND, INC. - HIGH YIELD PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 762,475
<INVESTMENTS-AT-VALUE> 782,046
<RECEIVABLES> 12,700
<ASSETS-OTHER> 69
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 794,815
<PAYABLE-FOR-SECURITIES> 1,961
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 364
<TOTAL-LIABILITIES> 2,325
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 799,621
<SHARES-COMMON-STOCK> 79,742
<SHARES-COMMON-PRIOR> 64,885
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (26,701)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,570
<NET-ASSETS> 792,490
<DIVIDEND-INCOME> 6,154
<INTEREST-INCOME> 64,896
<OTHER-INCOME> 0
<EXPENSES-NET> 2,749
<NET-INVESTMENT-INCOME> 68,301
<REALIZED-GAINS-CURRENT> (17,635)
<APPREC-INCREASE-CURRENT> 70,248
<NET-CHANGE-FROM-OPS> 120,914
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 68,301
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,777
<NUMBER-OF-SHARES-REDEEMED> 1,980
<SHARES-REINVESTED> 7,061
<NET-CHANGE-IN-ASSETS> 196,849
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (9,067)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,749
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,749
<AVERAGE-NET-ASSETS> 687,295
<PER-SHARE-NAV-BEGIN> 9.18
<PER-SHARE-NII> 0.96
<PER-SHARE-GAIN-APPREC> 0.76
<PER-SHARE-DIVIDEND> 0.96
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.94
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Additional Information of LB Series Fund, Inc. dated May 1, 1996
and is qualified in its entirety by reference to such Statement of Additional
Information.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> LB SERIES FUND, INC. - OPPORTUNITY GROWTH PORTFOLIO PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-18-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 49,676
<INVESTMENTS-AT-VALUE> 51,553
<RECEIVABLES> 561
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52,124
<PAYABLE-FOR-SECURITIES> 566
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 566
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,409
<SHARES-COMMON-STOCK> 4,560
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 41
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 231
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,877
<NET-ASSETS> 51,558
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 58
<OTHER-INCOME> 0
<EXPENSES-NET> 18
<NET-INVESTMENT-INCOME> 41
<REALIZED-GAINS-CURRENT> 231
<APPREC-INCREASE-CURRENT> 1,877
<NET-CHANGE-FROM-OPS> 2,149
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,560
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 51,558
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18
<AVERAGE-NET-ASSETS> 23,459
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 1.30
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.31
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Additional Information of LB Series Fund, Inc. dated May 1, 1996
and is qualified in its entirety by reference to such Statement of Additional
Information.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> LB SERIES FUND, INC. - WORLD GROWTH PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-18-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 44,983
<INVESTMENTS-AT-VALUE> 45,415
<RECEIVABLES> 110
<ASSETS-OTHER> 2,281
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,806
<PAYABLE-FOR-SECURITIES> 3,982
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20
<TOTAL-LIABILITIES> 4,002
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,257
<SHARES-COMMON-STOCK> 4,332
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 125
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 429
<NET-ASSETS> 43,804
<DIVIDEND-INCOME> 75
<INTEREST-INCOME> 82
<OTHER-INCOME> 0
<EXPENSES-NET> 32
<NET-INVESTMENT-INCOME> 125
<REALIZED-GAINS-CURRENT> (7)
<APPREC-INCREASE-CURRENT> 429
<NET-CHANGE-FROM-OPS> 547
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,332
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 43,804
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 32
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 32
<AVERAGE-NET-ASSETS> 19,789
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.08
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.11
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
