<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. __19__ X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. __21__ 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 January 30, 1998 (date) pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
_____ on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
============================================================================
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and:
__X__ filed the Notice required by that Rule on February 25, 1997; 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.
COVER2.doc
<PAGE>
LB SERIES FUND, INC.
Cross Reference Sheet
Pursuant to Rule 485(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
Performance Portfolio 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.
Crossrf1.doc
<PAGE>
PROSPECTUS
LB SERIES FUND, INC.
625 Fourth Avenue South * Minneapolis, Minnesota 55415
(800) 423-7056 * (612) 340-7210
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 seven 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.
Mid Cap Growth Portfolio. To achieve long term growth of capital by
investing primarily in a professionally managed diversified portfolio of
common stocks of companies with medium market capitalizations.
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 January
30, 1998 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.
The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the
Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------------------
The date of this Prospectus is January 30, 1998.
<PAGE>
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
Mid Cap 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
<PAGE>
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 seven separate Portfolios: the Money Market
Portfolio, the Income Portfolio, the High Yield Portfolio, the Growth
Portfolio, the Opportunity Growth Portfolio, the Mid Cap 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 Portfolios of LB Series Fund, Inc., to
the extent and for the periods indicated in its report, (except for the six
month period ended June 30, 1997), 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, 1996. 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
- ----------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/97 ---------------------------------------------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(a)
--------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $19.32 $18.27 $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 0.11 0.24 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.(f) 2.92 3.43 4.76 (0.87) 1.08 0.85 4.13 (0.51) 2.27 0.51 (1.16)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations 3.03 3.67 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 (0.11) (0.24) (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 (2.63) (2.38) -- (0.38) (0.21) (1.81) -- (0.47) -- -- (0.14)
----- ----- ----- ----- ----- ---- ---- ----- ---- ---- -----
Total distributions (2.74) (2.62) 0.24 (0.58) (0.50) (2.04) (0.27) (0.75) (0.22) (0.22) (0.33)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - -----
Net asset value,
end of period $19.61 $19.32 $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) 17.20% 22.44% 37.25% -4.66% 10.10% 8.13% 41.35% -1.97% 26.57% 8.31% -10.36%
Net assets, end of period
(millions) $2,080.6 $1,658.6 $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%(d) 0.40% 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 1.21%(d) 1.41% 1.53% 1.52% 2.17% 1.90% 2.24% 2.79% 2.37% 2.64% 1.59%(d)
Portfolio turnover rate 113% 223% 184% 135% 243% 230% 247% 195% 167% 116% 141%
Average Commission Rate (e) $0.0601 $0.0629 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
High Yield Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/97 ---------------------------------------------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(a)
--------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.06 $ 9.94 $ 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 0.50 0.98 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.(f) 0.10 0.12 0.76 (1.40) 1.16 0.71 1.45 (1.37) (0.94) 0.05 0.29
----- ----- ----- ----- ---- ---- ---- ----- ----- ---- -----
Total from investment
operations 0.60 1.10 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 (0.50) (0.98) (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 (0.50) (0.98) (0.96) (1.15) (0.98) (1.18) (1.08) (1.09) (1.25) (1.25) (0.19)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $10.16 $10.06 $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) 6.19% 11.55% 19.62% -4.38% 22.91% 20.08% 35.32% -3.72% 3.13% 13.33% 4.96%
Net assets, end of period
(millions) $1,178.4 $1,026.7 $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%(d) 0.40% 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 10.06%(d) 9.83% 9.94% 9.75% 9.29% 10.69% 12.62% 13.04% 12.96% 12.12% 11.53%(d)
Portfolio turnover rate 62% 107% 67% 44% 68% 80% 145% 111% 79% 63% 1%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Income Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/97 ---------------------------------------------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(a)
--------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.75 $10.08 $ 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 0.33 0.63 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.(f) (0.04) (0.33) 1.04 (1.11) 0.49 0.15 0.91 (0.24) 0.21 (0.06) (0.84)
----- ----- ----- ----- ---- ---- ---- ----- ---- ---- -----
Total from investment
operations 0.29 0.30 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 (0.33) (0.63) (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 (0.33) (0.63) (0.65) (0.85) (0.63) (1.02) (0.81) (0.90) (0.86) (0.77) (0.79)
------ ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $9.71 $9.75 $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) 3.00% 3.21% 19.36% -4.68% 11.66% 9.23% 19.76% 6.91% 12.22% 8.07% -0.37%
Net assets, end of period
(millions) $816.3 $801.2 $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%(d) 0.40% 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 6.83%(d) 6.54% 6.81% 6.78% 6.23% 7.29% 8.43% 9.25% 9.33% 8.46% 8.54%(d)
Portfolio turnover rate 67% 150% 132% 139% 153% 115% 137% 164% 165% 102% 40%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Money Market Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/97 ---------------------------------------------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(a)
--------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <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 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income From
Investment Operations--
Net investment income 0.03 0.05 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 (0.03) (0.05) (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 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total investment return
at net asset value (c) 2.59% 5.20% 5.71% 4.00% 2.87% 3.53% 5.89% 8.00% 9.07% 7.31% 6.16%
Net assets, end of period
(millions) $115.9 $103.9 $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%(d) 0.40% 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 5.17% 5.07% 5.55% 4.03% 2.83% 3.45% 5.72% 7.76% 8.69% 7.16% 6.17%(d)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Opportunity Growth Portfolio
- --------------------------------------------------------------------------------------
Six Months
Ended Period Ended
6/30/97 December 31,
(unaudited) 1996(g)
--------- ----
<S> <C> <C>
Net asset value, beginning of period $11.50 $10.00
------ ------
Income From Investment Operations -
Net investment income 0.02 0.02
Net realized and unrealized gain
on investments.(e) (0.44) 1.90
----- -----
Total from investment operations (0.42) 1.92
----- -----
Less Distributions --
Dividends from net investment income -- (0.02)
Distributions from net realized gain
on investments -- (0.40)
----- ------
Total Distributions -- (0.42)
----- ------
Net asset value, end of period $11.08 $11.50
====== ======
Total investment return at
net asset value (c) -3.67% 19.17%
Net assets, end of period ($ millions) $321.7 $246.6
Ratio of expenses to average
net assets 0.40%(d) 0.40%(d)
Ratio of net investment income to
average net assets 0.39%(d) 0.27%(d)
Portfolio turnover rate 53% 155%
Average commission rate (e) $0.0554 $0.0342
____________________________
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
World Growth Portfolio
- --------------------------------------------------------------------------------------
Six Months
Ended Period Ended
6/30/97 December 31,
(unaudited) 1996(g)
--------- ----
<S> <C> <C>
Net asset value, beginning of period $10.95 $10.00
------ ------
Income From Investment Operations -
Net investment income 0.09 0.08
Net realized and unrealized gain
on investments.(e) 1.12 0.96
----- -----
Total from investment operations 1.21 1.04
----- -----
Less Distributions --
Dividends from net investment income -- (0.09)
Distributions from net realized gain
on investments (0.01) --
------ -----
Total Distributions (0.01) (0.09)
----- ------
Net asset value, end of period $12.15 $10.95
====== ======
Total investment return at
net asset value (c) 11.01% 10.41%
Net assets, end of period ($ millions) $259.8 $174.1
Ratio of expenses to average
net assets 0.85%(d) 0.85%(d)
Ratio of net investment income to
average net assets 1.86%(d) 1.34%(d)
Portfolio turnover rate 9% 9%
Average commission rate (e) $0.0264 $0.0265
____________________________
(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.
(e) Average commission rate is based on total broker commissions incurred
in connection with execution of portfolio transactions during the
period, divided by the sum of all portfolio shares purchased and sold
during the period that were subject to a commission. Broker
commissions are treated as capital items that increase the cost basis
of securities purchased, or reduce the proceeds of securities sold.
(f) The amount shown is a balancing figure and may not accord with the
change in aggregate gains and losses of portfolio securities due to the
timing of sales and redemption of fund shares.
(g) For a share outstanding from January 18, 1996 (effective date) through
December 31, 1996.
Management's Discussion of Portfolio Performance
The discussion by management of the performance of each of the Fund's
Portfolios 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 seven 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 seven 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, Mid Cap 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 $29.2 billion under management as of December
31, 1996 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,
Mid Cap 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 seven 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, 1996 and December 31, 1995 were 150% and 132%,
respectively.
In order to help minimize credit risk, the Portfolio diversifies its
holdings among many issuers. As of December 31, 1996, the Portfolio held
securities of 97 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................................ 9.2%
Government obligations............................... 26.2
Corporate obligations
AAA/Aaa....................................... 18.5
AA/Aa......................................... 8.6
A/A........................................... 18.2
BBB/Baa....................................... 13.1
BB/Ba......................................... 7.8
B/B........................................... 4.2
CCC/Caa....................................... --
CC/Ca......................................... --
D/D........................................... --
Not rated..................................... --
Other Net Assets/Liabilities.................. -5.8
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, 1996 and December 31, 1995 were 107% and 67%,
respectively.
In order to help minimize credit risk, the Portfolio diversifies its
holdings among many issuers. As of December 31, 1996, the Portfolio held
securities of 172 corporate issuers, and the Portfolio's holdings had the
following credit quality characteristics:
Percent of
Investment Net Assets
Short-term securities--
Aaa equivalent.............................. 2.3%
Government obligations............................ --
Corporate obligations
AAA/Aaa..................................... --
AA/Aa....................................... --
A/A......................................... --
BBB/Baa..................................... 0.2
BB/Ba....................................... 5.9
B/B......................................... 50.6
CCC/Caa..................................... 8.0
CC/Ca....................................... --
D/D......................................... 0.1
Not rated................................... 16.0
Other Net Assets............................ 16.9
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, 1996 and December 31, 1995 were 223% and 184%,
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 for
the period January 18, 1996 through December 31, 1996 was 155%.
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.
Mid Cap Growth Portfolio
The investment objective of this Portfolio is to achieve long term
growth of capital.
The Mid Cap Growth Portfolio seeks to achieve this objective by
investing primarily in a professionally managed diversified portfolio of
common stocks of companies with medium market capitalizations. Lutheran
Brotherhood defines companies with medium market capitalizations ("mid cap
companies") as those with market capitalizations that fall within the
capitalization range of companies included in the Standard & Poor's MidCap
400 Index at the time of the Portfolio's investment. The Portfolio will seek
to invest in companies that have a track record of earnings growth or the
potential for continued above average growth. The Portfolio will normally
invest at least 65% of its total assets in common stocks of mid cap
companies. The Portfolio will invest its remaining assets in other
securities, including common stocks of companies that fall outside the
medium capitalization range and debt obligations, subject to the limitations
discussed below. Lutheran Brotherhood will use both fundamental and
technical investment research techniques to seek out these companies.
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.
Many mid cap companies have lower daily trading volume in their stocks
and less overall liquidity than larger, more well established companies. The
common stocks of such companies may have greater price volatility than the
stocks of other larger companies. A description of these and other risks
associated with investments in such companies is set forth below.
The Portfolio may also invest in other types of securities, including
bonds, preferred stocks, convertible bonds, convertible preferred stocks,
warrants, American Depository Receipts (ADR's), common stocks of companies
falling outside the medium market capitalization range, and other debt or
equity securities. In addition, the 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 (sometimes referred to as "high yield" or "junk bonds") are
considered to be speculative and involve certain risks, including a higher
risk of default and greater sensitivity to interest rate and economic
changes.
The 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 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 turnover rate for the Mid Cap Growth Portfolio is
expected to be no higher than 100% in its first year of operation.
Mid Cap Growth Portfolio Investment Risks
Stocks in mid cap companies entail greater risk than the stocks of
larger, well-established companies. These companies tend to have smaller
revenues, narrower product lines, less management depth and experience,
smaller shares of their product or service markets, fewer financial
resources, and less competitive strength than larger companies. Also, mid
cap companies usually reinvest a high portion of their earnings in their own
businesses and therefore lack a predictable dividend yield. Since investors
frequently buy these stocks because of their expected above average earnings
growth, earnings levels that fail to meet expectations often result in sharp
price declines of such stocks.
In addition, in many instances, the frequency and volume of trading of
mid cap companies is substantially less than is typical of larger companies.
Therefore, the securities of such companies may be subject to wider price
fluctuations. The spreads between the bid and asked prices of the securities
of these companies in the over-the-counter market typically are larger than
the spreads for more actively-traded companies. As a result, the Portfolio
could incur a loss if it determined to sell such a security shortly after
its acquisition. When making large sales, the Portfolio may have to sell
portfolio holdings at discounts from quoted prices or may have to make a
series of small sales over an extended period of time due to the trading
volume of such securities. Investors should be aware that, based on the
foregoing factors, an investment in the Portfolio may be subject to greater
price fluctuations than an investment in a fund that invests primarily in
larger more established companies.
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 portfolio turnover rate
for the World Growth Portfolio for the period January 18, 1996 through
December 31, 1996 was 9%.
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 World Growth Portfolio 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, the Mid Cap 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.
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. 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, Mid Cap 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, Mid Cap 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, Mid Cap
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, 1996 were $11.8 billion.
Additionally, through an indirect subsidiary, Lutheran Brotherhood Research
Corp., Lutheran Brotherhood also manages $4.09 billion of assets of eight
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:
Michael A. Binger, Portfolio Manager of Lutheran Brotherhood, has been
the Portfolio Manager of the Opportunity Growth Portfolio of the Fund since
inception January 18, 1996. Mr. Binger has been with Lutheran Brotherhood
since 1987.
Brian L. Thorkelson, Portfolio Manager of Lutheran Brotherhood, serves
as the Portfolio Manager of Mid Cap Growth Portfolio. Mr. Thorkelson has
been with Lutheran Brotherhood since 1987.
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 $29.2 billion under management as of December 31, 1996 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, Mid Cap 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 seven classes:
Money Market Portfolio Capital Stock, Income Portfolio Capital Stock, High
Yield Portfolio Capital Stock, Growth Portfolio Capital Stock, Opportunity
Growth Portfolio Capital Stock, Mid Cap Growth 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, 1996, was 5.12% and 5.25%, 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, 1996
for the High Yield Portfolio was 10.22%. The current yield for the same 30-
day base period for the Income Portfolio was 6.68%. 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, 1996, and for the period from the Fund's
effective date through December 31, 1996 for the Portfolios are as follows:
From
1 Year 3 Years 5 Years Inception
Opportunity Growth
Portfolio (1/18/96) N/A N/A N/A 19.17%
World Growth Portfolio 1/18/96) N/A N/A N/A 10.41%
Growth Portfolio (1/9/87) 22.44% 16.99% 13.77% 12.52%
High Yield Portfolio (11/2/87) 11.55% 8.45% 13.47% 12.76%
Income Portfolio (1/9/87) 3.21% 5.51% 7.44% 8.30%
Money Market Portfolio (1/9/87) 5.20% 4.96% 4.25% 5.77%
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 edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Commercial Paper:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
* 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 senior short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earning trends and coverage ratios, while sound,
will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's Corporation describes grades of corporate debt
securities and "A" commercial paper as follows:
Bonds:
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories. However, the obligor's capacity to meet its financial
commitments on the obligation is still strong.
BBB Debt rated BBB exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitments of the
obligation 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.
series\n-1a\1997-2\pro10.doc
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
LB SERIES FUND, INC.
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Prospectus for LB Series Fund, Inc. (the
"Fund") dated January 30, 1998. 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 January 30, 1998.
<PAGE>
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 seven separate Portfolios: the Money Market
Portfolio, the Income Portfolio, the High Yield Portfolio, the Growth
Portfolio, the Opportunity Growth Portfolio, the Mid Cap 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. Long term corporate debt issues having less
than 397 days to maturity are deemed to be commercial paper and to have a
credit risk equal to the issuer's commercial paper rating. 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, Mid Cap 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, 1995 and 1996 are as follows:
Fiscal Years Ended December 31, 1995 1996
Income Portfolio 132% 150%
High Yield Portfolio 67% 107%
Growth Portfolio 184% 223%
The portfolio turnover rate for the Opportunity Growth Portfolio and the
World Growth Portfolio for the period January 18, 1996 through December 31,
1996 is 155% and 9%, respectively.
The portfolio turnover rate for the Mid Cap Growth Portfolio is expected to
be no higher than 100% in its 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 59
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 69
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
60
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**.
Noel K. Estenson, Director, CENEX, Inc., P.O. Box 64089, St. Paul, MN, Age
58
Chairman, CENEX, Inc. Trustee of the Lutheran Brotherhood Family of Funds**
Connie M. Levi, Director, PO Box 675325, Rancho Santa Fe, CA, Age 58
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 51
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, 25 Stanley, #A2, West Hartford, CT, Age 68
Retired 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
52
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 42
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 41
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 60
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 55
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 $21,500 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, 1996, the Directors of the Fund
received the following amounts of compensation either directly or in the
form of payments into a deferred compensation plan:
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 $10,904 $29,500
Director
Herbert F. Eggerding, Jr. $10,904 $29,500
Director
Connie M. Levi $10,904 $29,500
Director
Bruce J. Nicholson(2) $0 $0
Director
Ruth E. Randall $10,904 $29,500
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.
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 $29.2 billion under management as of December 31, 1996 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, Opportunity Growth, and Mid Cap 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, 1996, 1995,
and 1994, the Adviser earned $13,945,681, $9,372,835, and $7,450,844,
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 Mid Cap 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:
12/31/96 12/31/95 12/31/94
Opportunity Growth
Portfolio $ 353,407 $ -- $ --
World Growth Portfolio 441,571 -- $ --
Growth Portfolio 6,346,524 3,876,957 2,288,985
High Yield Portfolio 44,558 60,767 12,229
Income Portfolio 89,581 35,118 30,247
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:
12/31/96 12/31/95 12/31/94
Opportunity Growth
Portfolio 0.30% -- --
World Growth Portfolio 1.30% -- --
Growth Portfolio 9.79% 10.21% 5.36%
High Yield Portfolio -- 19.00% 5.72%
Income Portfolio 4.78% 8.37% 11.46%
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. For the
fiscal period ended December 31, 1996, the Fund paid $10,997 to brokers or
dealers affiliated with the Sub-advisor of the World Growth Portfolio.
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 400,000,000
Opportunity Growth Portfolio Capital Stock 200,000,000
Mid Cap 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. 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, 1996:
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* $1.000981447
Net change in account value $0.000981447
Base Period Return
Net change in account value divided by beginning
account value = 0.000981447
Annualized Current Yield [0.000981447 x (365/7)] 5.12%
Effective Yield** [0.000981447 + 1)365/7 - 1 5.25%
* 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, 1996:
Dividends and interest earned by the High Yield
Portfolio during the base period $8,817,516
Expenses accrued for the base period $ (331,433)
$8,486,083 (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 ($10.055407 x 101,138,431 shares) = $1,016,988,087 (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) = 0.00834433 (C)
Adding one and raising total to the 6th power
(C + 1)6 = 1.051122 (D)
Annualized current yield [2(D - 1) x 100] = 10.22%
The following example illustrates the annualized current yield
calculation for the Income Portfolio for the 30-day base period ended
December 31, 1996:
Dividends and interest earned by the Income
Portfolio during the base period $4,647,674
Expenses accrued for the base period $ (263,278)
$4,384,396 (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 ($9.749323 x 81,944,795 shares) = $798,906,275 (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) = 0.00548800 (C)
Adding one and raising total to the 6th power
(C + 1)6 = 1.033383 (D)
Annualized current yield [2(D - 1) x 100] = 6.68%
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 Opportunity Growth Portfolio from the date of inception through December
31, 1996:
Hypothetical $1,000 initial investment on
January 18, 1996 $1,000
Ending redeemable value of the investment on
December 31, 1996 1,192
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%) 19.17%
The following example illustrates the average annual total return for
the World Growth Portfolio from the date of inception through December 31,
1996:
Hypothetical $1,000 initial investment on
January 18, 1996 $1,000
Ending redeemable value of the investment on
December 31, 1996 1,104
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%) 10.41%
The following example illustrates the average annual total return for
the Growth Portfolio from the date of inception through December 31, 1996:
Hypothetical $1,000 initial investment on
January 9, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1996 3,248
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%) 224.76%
Average annual total return from inception
through December 31, 1996 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 nine years and 356 days; the result is
reduced by one and is expressed in terms of a
percentage (For example, 0.2 equals 20%) 12.52%
The following example illustrates the average annual total return for
the High Yield Portfolio from the date of inception through December 31,
1996:
Hypothetical $1,000 initial investment on
November 2, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1996 3,009
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%) 200.89%
Average annual total return from inception
through December 31, 1996 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 nine years and 59 days; the result is reduced
by one and is expressed in terms of a percentage
(For example, 0.2 equals 20%) 12.76%
The following example illustrates the average annual total return for
the Income Portfolio from the date of inception through December 31, 1996:
Hypothetical $1,000 initial investment on
January 9, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1996 2,216
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%) 121.65%
Average annual total return from inception
through December 31, 1996 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 nine years and 356 days; the result is
reduced by one and is expressed in terms of a
percentage (For example, 0.2 equals 20%) 8.30%
The following example illustrates the average annual total return for
the Money Market Portfolio from the date of inception through December 31,
1996:
Hypothetical $1,000 initial investment on January
9, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1996 1,750
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%) 75.04%
Average annual total return from inception
through December 31, 1996 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 nine years and 356 days; the result is
reduced by one and is expressed in terms of a
percentage (For example, 0.2 equals 20%) 5.77%
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, Mid Cap 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
AND FINANCIAL STATEMENTS
The Report of Independent Accountants and financial statement included in
the Annual Report to Shareholders for the fiscal year ended December 31,
1996 of the Fund are a separate report furnished with this Statement of
Additional Information and are incorporated herein by reference. In
addition, the unaudited financial statements included in the Semi-Annual
Report to Shareholders for the period ended June 30, 1997 of the Fund are a
separate report furnished with this Statement of Additional Information are
incorporated herein by reference.
Sai8.doc
<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, Money Market
Portfolio, Opportunity Growth Portfolio and World Growth
Portfolio (*)
(2) Part B: Financial Statements for Growth Portfolio, Income
Portfolio, High Yield Portfolio, Money Market
Portfolio, Opportunity Growth Portfolio and World Growth
Portfolio (*)
(b) Exhibits
(1) Articles of Incorporation of the Registrant (1),(4),(7)
(2) By-Laws of the Registrant (1),(5), (11)
(3) Not applicable
(4) Not applicable
(5)(a) Investment Advisory Contract between the Registrant
and Lutheran Brotherhood Research Corp. (1),(2)
(5)(b) 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)
(5)(d) Form of Investment Advisory Contract between the Registrant
and Lutheran Brotherhood. (11)
(6)(a) Distribution Agreement between the Registrant and
Lutheran Brotherhood Securities Corp. (2)
(7) Not applicable
(8)(a) Custodian Contract between the Registrant and State
Street Bank and Trust Company (2),(3)
(8)(b) 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) Amendment to Custodian Contract (9)
(8)(f) Letter Agreement between the Registrant and State Street
Bank and Trust Company (10)
(8)(g) Form of Letter Agreement between the Registrant and State Street
Bank and Trust Company (11)
(9) Not applicable
(10)(a) Opinion and consent of counsel (9)
(10)(b) Opinion and consent of counsel (11)
(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) 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) Letter from Lutheran Brotherhood with respect to
providing initial capital Letter with respect to the Opportunity
Growth Portfolio (10)
(13)(d) Letter from Lutheran Brotherhood with respect to providing
initial capital Letter with respect to the World Growth
Portfolio (10)
(13)(e) 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) Letter from Lutheran Brotherhood Variable Insurance Products
Company with respect to providing initial capital Letter
with respect to the World Growth Portfolio (10)
(13)(g) Letter from Lutheran Brotherhood with respect to providing
initial capital Letter with respect to the Mid Cap Growth
Portfolio (11)
(13)(h) Form of Letter from Lutheran Brotherhood Variable Insurance
Products Company with respect to providing initial capital Letter
with respect to the Mid Cap Growth Portfolio (11)
(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) Financial Data Schedules(*)
(18)(a) Reimbursement Agreement between the Registrant and LBVIP. (3)
(18)(b) Powers of Attorney for Rolf F. Bjelland, Wade M. Voigt, Charles
W. Arnason, Herbert F. Eggerding, Jr. and Ruth E. Randall. (8)
(18)(c) Power of Attorney for Bruce J. Nicholson (9)
(18)(d) Power of Attorney for Noel K. Estenson (11)
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
(11) Post-effective Amendment No. 18 November 12, 1997
(*) 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, 1996 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
Opportunity Growth Portfolio Capital Stock Two
World Growth Portfolio Capital Stock Two
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 $11.8 billion on December
31, 1996. 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 $3.7 billion
at December 31, 1996.
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
Bruce J. Nicholson, Executive Vice President and Chief Operating Officer
David W. Angstadt, Executive Vice President and Chief Marketing Officer
Rolf F. Bjelland, 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
David K. Stewart, Vice President and Treasurer
Edward A. Lindell, Senior Vice President
Michael E. Loken, Senior Vice President
James R. Olson, 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
Michael R. Braun, 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
Susan Oberman Smith, Vice President
Kay J. Owen, Vice President
Dennis K. Peterson, Vice President
Bruce M. Piltingsrud, Vice President
Richard B. Ruckdashel, 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
Daniel G. Walseth, Vice President
Anita J. T. Young, Vice President
Except where noted otherwise, the business address of each of the above
directors and officers employed by Lutheran Brotherhood is 625 Fourth Avenue
South, Minneapolis, Minnesota 55415.
The business and other connections of the officers and directors of Rowe
Price-Fleming International, Inc. ("Sub-advisor") are set forth in the Form
ADV of Sub-advisor currently on file with the Securities and Exchange
Commission (File No. 801-14713)
Item 29. Principal Underwriters
- -------------------------------
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 includes 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.
partc7.doc
<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 30th day of January, 1998.
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 30th day of January, 1998, by the following persons
in the capacities indicated:
Signature Title Date
* Director and President January 30, 1998
- ------------------------ (Principal Executive Officer)
Rolf F. Bjelland
* Treasurer January 30, 1998
- ------------------------ (Principal Financial and
Wade M. Voigt Accounting Officer)
* Director January 30, 1998
- ------------------------
Charles W. Arnason
* Director January 30, 1998
- -------------------------
Herbert F. Eggerding, Jr.
* Director January 30, 1998
- -------------------------
Noel K. Estenson
* Director January 30, 1998
- ------------------------
Bruce J. Nicholson
* Director January 30, 1998
- ------------------------
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, 15, and 18.
sign(b)
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 19 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated February 7, 1997, relating to
the financial statements and financial highlights appearing in the
December 31, 1996 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 "Report of Independent
Accountants and Financial Statements" in the Statement of Additional
Information.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
January 30, 1998
pwconsnt
[7 SOLID SQUARE BULLETS]
- --------------------------------------------------
LB SERIES FUND, INC.
- --------------------------------------------------
[ART OF COMPASS WITH LETTER "N" IN TOP RIGHT CORNER:
THE WORDS "CHOICE", "PROTECTION" AND "ACCUMULATION" ARE
PRINTED ON THE CIRCLE OF THE COMPASS]
Annual Report
for Variable Products
December 31, 1996
[LUTHERAN BROTHERHOOD LOGO HERE]
[PHOTO OF MR. BJELLAND OMITTED]
Our Message to You
December 31, 1996
Dear Contract Owner,
The year ended December 31, 1996 was a favorable one for investors.
During that time the economy grew at a moderate pace, inflation remained
in check and interest rates were historically low. As a result, stocks
continued to earn exceptional returns, extending the bull market that
began in the fall of 1990. Although bond returns were much lower than
the previous year, they were nearer their historical averages.
You will find a detailed discussion of market performance in the
enclosed Annual Report for the LB Series Fund Inc. (the Fund), which is
the underlying investment vehicle for all variable annuity and variable
life insurance contracts issued by Lutheran Brotherhood and Lutheran
Brotherhood Variable Insurance Products Company. The report also
discusses the investment strategies that individual portfolio managers
used to take advantage of changing market conditions. In addition, you
will find audited financial statements for each portfolio.
Throughout 1996, each Fund portfolio maintained a well-diversified mix
of quality investments with good potential for long-term performance.
This served the portfolios well as ongoing inflation worries increased
market volatility and caused individual market sectors to outperform at
different times. With inflation pressure still a factor, we believe such
a strategy can continue to make the most of variable market conditions.
In 1996, many Lutheran Brotherhood members took advantage of the chance
for greater diversification by investing in the Opportunity Growth and
World Growth Portfolios -- the newest members of LB Series Fund, Inc.
These portfolios, launched on January 18, 1996, accumulated $247 million
and $174 million in assets, respectively, by year end. The small-company
U.S. stocks of the Opportunity Growth Portfolio and the foreign stocks
of the World Growth Portfolio have added important equity growth
potential to Lutheran Brotherhood's variable product offerings.
We hope this Annual Report will provide useful background information as
you review the performance of your investments. If you would like
additional help in understanding this performance, please contact your
LB representative, or call us toll-free at 1-800-423-7056.
Sincerely,
/s/ Rolf F. Bjelland
Rolf F. Bjelland
President and Chairman of the Board
LB Series Fund, Inc.
[GRAPHIC OMITTED: COMPASS WITH LETTER "N" IN TOP RIGHT CORNER:
THE WORDS "CHOICE", "PROTECTION" AND "ACCUMULATION" ARE
PRINTED ON THE CIRCLE OF THE COMPASS]
Economic and Market Overview December 31, 1996
Ongoing growth in the economy, accompanied by steady inflation and low
interest rates, produced a favorable environment for stocks and bonds in
1996. Growth in the U.S. Gross Domestic Product (GDP) was better than
most analysts had expected, spawning continued improvements in corporate
earnings. Because manufacturing and labor capacity kept pace with this
growth, inflation was moderate and interest rates rose only modestly.
On further gains in company earnings and profitability, stock prices
advanced strongly for a second year. For the 12 months ended December
31, 1996, the S&P 500 Index had a total return of 22.98%. With lower
interest rates and awakening economies, prices for foreign stocks also
improved -- giving Morgan Stanley Capital International's Europe,
Australia and Far East (EAFE) Index a return of 6.36% for the period.
Although market interest rates fluctuated substantially throughout 1996,
they ended the year very near their beginning-of-year levels. After
cutting short-term interest rates by 0.25% in January, the Federal
Reserve left interest rates unchanged for the rest of the year.
Throughout 1996, however, reports of accelerating economic growth caused
concern that the Federal Reserve would raise interest rates to stem
inflation. As a result, returns for U.S. bonds were lower than in 1995.
For 1996 the Lehman Brothers Aggregate Bond Index had a total return of
3.63%.
Strong Demand for U.S. Securities
In this positive economic environment, demand for stocks was
particularly strong. During the year, equity mutual funds received huge
flows of new money -- boosted largely by retirement savings. Meanwhile,
stock market supplies were significantly reduced by mergers and
acquisitions, as well as corporate stock buyback programs.
The blend of stronger demand and tighter supplies gave extra support to
rising stock prices. When near-term corporate earnings disappointments
caused stock prices to correct in July, this extra support helped prices
rebound quickly and go on to achieve new highs. In the bond market,
prices were strengthened by increased demand for U.S. bonds from foreign
investors. As foreign governments pushed interest rates lower to
stimulate their economies, U.S. bonds became more attractive to overseas
investors.
National elections in November provided further encouragement to the
markets. With the balance of power between the White House and Congress
still intact, investors believed there would be no dramatic changes to
federal economic policies. There was also new hope for balancing the
federal budget -- an issue at the forefront of the election campaign.
Moderate Growth, Stable Inflation
We expect the GDP to grow at a moderate annual rate near 3% in 1997.
With ample capacity and continued productivity, inflation should also
stay near 3%. Although spikes in certain prices, such as energy costs,
could push inflation higher temporarily, strong corporate profitability
and foreign competition should keep overall prices under control.
If fears of inflation persist, there may be temporary upticks in market
interest rates. There could also be downward pressure on rates, however,
if Congress balances the federal budget. Overall, we think interest
rates should remain in a narrow range, which would help bond prices
remain relatively stable. With stable prices, returns from bonds would
come largely from coupon income.
Continued growth in corporate earnings, combined with stable inflation
and interest rates, should give stocks further room to advance. After
rising strongly for two years, returns from stocks will probably be more
modest in 1997. Since expectations for earnings are still relatively
high, stocks could experience near-term volatility if actual earnings
fall short of those expectations. In the long-term, however, demand for
stocks should remain strong -- especially from retirement savings plans.
[GRAPHIC OMITTED: COMPASS WITH LETTER "N" IN TOP RIGHT CORNER:
THE WORDS "CHOICE", "PROTECTION" AND "ACCUMULATION" ARE
PRINTED ON THE CIRCLE OF THE COMPASS]
Opportunity Growth Portfolio Review LB Series Fund, Inc.
[GRAPHIC OMITTED: PHOTO OF MICHAEL A. BINGER]
Michael A. Binger is a Chartered Financial Analyst and portfolio manager
for the Opportunity Growth Portfolio. He has been with Lutheran
Brotherhood since 1987.
Stocks of small companies performed well in 1996, as rising equity
prices and ongoing economic growth underscored the values available in
this sector. By creating a mix of investments with exceptional
potential, we helped the Opportunity Growth Portfolio make the most of
this environment. Between its inception on January 18, 1996, and the end
of the year, the Portfolio earned a total return of 19.17%. Over the
same period, the Russell 2000 Index had a total return of 21.09%.
Building the Portfolio
When we introduced the Portfolio, prices for stocks of small companies
were rallying strongly. Having underperformed at the end of 1995, small-
company stocks were particularly attractive to investors as the economy
picked up steam. Because of their strong long-term growth potential, we
invested a large portion of the Portfolio in technology stocks. Among
our largest investments were stocks of computer software and service
firms like Systemsoft, a producer of software for laptop computers, and
ACT Networks, a manufacturer of communications switching devices. These
companies enjoyed especially strong gains during the first half of the
year.
The Portfolio also earned good returns from shares of industrial
manufacturing firms -- like Memtec, which manufactures water filtration
systems, and Northwest Pipe, which produces pipes for water
transmission. These returns, and good performances from other positions,
helped offset disappointments from holdings in retail and medical device
companies. In addition to technology and health care firms, we also
built large positions in the biotechnology sector.
Later in the year, slowing economic growth caused small-company stocks
to lag the large-company stock market. This was particularly true for
issues of the smallest firms, where the Portfolio has many investments.
Although the Portfolio did not invest in small-company energy stocks,
which did perform well, it earned good returns from positions in certain
vacation time-share, health care service and industrial firms. Finding
that the Portfolio's holdings in financial firms were not meeting
expectations, we reduced those investments and added shares in consumer-
related firms.
The Year Ahead
We believe the Opportunity Growth Portfolio is well-positioned for 1997.
If the economy continues to grow, prices for small-company stocks could
outperform the greater market as investors find further values in that
sector. If historical cycles repeat, the long-term outlook for small-
company issues remains strong.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Short-term
Securities 9%
Common Stocks 91%
Investment Objective: To seek long-term growth of capital by investing
in small-company stocks.
With a well-diversified mix of investments, the Portfolio should
participate fully in further gains for small-company shares. As was our
focus in launching the Portfolio, we will continue to search for
companies with good management and new product lines, market niches or
innovations that have produced earnings growth of at least 20% over the
previous three years.
LB Opportunity Growth Portfolio
Annualized Total Returns*
Period Ending 12/31/96
- -------------------------------
Since Inception
1/18/96 19.17%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Top 10 Holdings
% of
Company Portfolio
ACT Networks, Inc. 3.0%
BMC Industries 2.5%
DataWorks Corporation 2.5%
Memtec Limited 2.4%
Cannondale Corporation 2.2%
Xpedite Systems 2.2%
Guess?, Inc. 2.0%
Cameron Ashley
Building Products 1.9%
Unison Software 1.9%
Home Health Corp.
of America 1.9%
Footnote reads:
These holdings represent 22.5%
of the total investment portfolio.
The Opportunity Growth Portfolio was introduced on January 18, 1996.
Given its limited performance history, the growth of a $10,000
investment in the Opportunity Growth Portfolio is not illustrated in
this report.
World Growth Portfolio Review LB Series Fund, Inc.
[GRAPHIC OMITTED: PHOTO OF MARTIN G. WADE]
Martin G. Wade is president of Rowe Price-Fleming, the investment
subadvisor for the World Growth Portfolio. He leads a team of 12
portfolio managers who have managed the assets of the World Growth
Portfolio since its inception. Mr. Wade has 29 years of experience in
research and investment management, including 17 years with
Rowe Price-Fleming.
Taken together, foreign stock markets performed quite well in 1996.
While returns from Japan were disappointing, there were strong gains in
other Pacific markets, Europe and Latin America. By overweighting the
World Growth Portfolio in many of the stronger markets, and picking
individual stocks that investors favored, we helped the Portfolio make
the most of recent price advances overseas.
Between its inception on January 18, 1996, and the end of the year, the
World Growth Portfolio had a total return of 10.41%. That compares to a
return of 6.45% for Morgan Stanley Capital International's Europe,
Australia, Far East (EAFE) Index.**
Limiting Exposure to Japan
As a weakening economy drove stock prices lower in Japan, we reduced the
Portfolio's investments there. During the year, Japan's representation
in the EAFE Index fell from about 40% to 33%, while we cut the
Portfolio's exposure to about 20%. For the most part, we focused on
issues of large multinational corporations, which benefited from
improving economies outside Japan.
We invested some of the assets we took from Japan in other Asian markets
- -- many of which performed especially well during the year. Among the
best was Hong Kong, which benefited from ties between its currency and a
strong U.S. dollar and from anticipation of positive economic results
after its 1997 reunion with China.
[GRAPHIC OMITTED: PORTFOLIO COMPOSITION TOP 10 COUNTRIES]
% of
Country Portfolio
Japan 21.4%
United Kingdom 16.2%
Netherlands 10.5%
France 8.2%
Hong Kong 4.9%
Switzerland 4.5%
Germany 3.8%
Spain 2.6%
Sweden 2.7%
Malaysia 2.4%
Other 16.0%
----------
93.2%
Short-Term Securities 6.8%
We also held significant investments in Latin America, which has no
representation in the Index. After a currency crisis several years
before, local economies there rebounded strongly -- particularly in
Mexico and Brazil. Besides greater stability in their currencies, Latin
American economies have benefited from the recent North American Free
Trade Agreement with the U.S.
During the year, we kept the Portfolio's total weighting in Europe close
to that of the Index. We overweighted in the Netherlands, France and
Norway, however, where gains were particularly strong. Although lower
interest rates helped European economies improve, progress toward a
single currency has restrained growth there. Given this, we focused on
stocks of "noncyclical" blue-chip companies whose earnings do not rely
on a growing economy. Investments in media and pharmaceutical firms in
Europe did particularly well.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Short-Term
Securities 7%
Common Stocks 93%
LB World Growth Portfolio
Annualized Total Returns*
Period Ending 12/31/96
- -------------------------
Since Inception
1/18/96 10.41%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Investment Objective: To seek long-term capital growth by investing
primarily in common stocks issued by established companies outside the
United States.***
New Opportunities
We think the stage is set for further gains overseas in 1997. Most
foreign economies still have room to grow and should continue to
strengthen while interest rates remain low. If, as we expect, prices for
U.S. stocks advance more slowly than they did in 1996, markets overseas
should enjoy their day in the sun.
With increased talk of corporate restructuring, Japanese stocks could
soon turn the corner and show steady, if moderate, gains. As a result,
we've added slightly to positions in Japan as attractive opportunities
have occurred. To do this, we've taken profits in markets that have
performed well -- including the Netherlands, Hong Kong and Malaysia.
We continue to feel positive about Europe, where more companies are
managing their businesses with the stockholders in mind. As in other
markets abroad, we believe individual stock selection will continue to
dominate investment returns.
[GRAPHIC OMITTED: TOP TEN HOLDINGS]
Top 10 Holdings
% of
Company Industry Portfolio
Royal Dutch Petroleum ENERGY 2.1%
Wolters Kluwer NV BASIC INDUSTRY 2.0%
Elsevier NV BASIC INDUSTRY 2.0%
SmithKline Beecham CONSUMER GROWTH 1.6%
National Westminster FINANCE 1.6%
Eaux (Cie Generale) FINANCE 1.3%
Telecomunicacoes
Brasileiras TELECOMMUNICATIONS 1.3%
Reed International FINANCE 1.3%
Astra AB FINANCE 1.1%
Novartis AG FINANCE 1.1%
Footnote reads:
These holdings represent 15.4%
of the total investment portfolio.
The World Growth Portfolio was introduced on January 18, 1996. Given its
limited performance history, the growth of a $10,000 investment in the
World Growth Portfolio is not illustrated in this report.
Growth Portfolio Review LB Series Fund, Inc.
[GRAPHIC OMITTED: PHOTO OF SCOTT A. VERGIN]
Scott A. Vergin is a Chartered Financial Analyst and portfolio manager
for the Growth Portfolio. He began managing the Portfolio in November
1994, and has managed securities at Lutheran Brotherhood since 1983.
As stocks rallied in 1996, uncertainty about the economy, inflation and
interest rates caused different market sectors to move in and out of
favor. By selecting individual stocks with new products or other
potential for outstanding growth, we helped the Growth Portfolio perform
well in this environment of "sector rotation."
During the period, the Portfolio earned a total return of 22.44%. Over
the same time, the S&P 500 Index had a return of 22.98%.
Picking Winners
When 1996 began, the economy was growing slowly. The Portfolio enjoyed
good returns from its positions in defensive sectors, whose earnings
tend to be more consistent than sectors that were tied to cycles of
economic growth. Soon, it was clear that economic growth was
accelerating -- which benefited stocks in those cyclical sectors. Later,
when growth again slowed, defensive issues and "light cyclicals"
outperformed.
During the year, the Portfolio enjoyed strong returns from many of its
technology shares -- including Intel, 3Com, Microsoft and Cisco Systems.
Health care issues such as Eli Lilly and Merck also did well, along with
oil-service firms like Halliburton and Tidewater and banks like Chase
Manhattan, Barnett and BankAmerica. The primary disappointments for 1996
fell in the retail sector, from companies like Wal-Mart and Federated
Department Stores. These stocks underperformed as the result of
lackluster discretionary spending by consumers in the last half of the
year.
Throughout the year we remained overweighted in technology stocks
relative to the market, gaining increased exposure in shares of
semiconductor firms. We also invested heavily in health care issues --
particularly shares of pharmaceutical companies. While we remained
underweighted in energy and utilities stocks, we increased the
Portfolio's exposure to energy firms somewhat as their growth potential
increased. An underweighting in consumer cyclical firms helped mute poor
returns from that sector.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Short-Term
Securities 6%
Common Stocks 94%
[GRAPHIC WORM CHART OMITTED: GROWTH OF $10,000 INVESTED
January 31, 1987 - December 31, 1996]
INSET BOX ON CHART READS:
LB Growth Portfolio
Annualized Total Returns*
Period Ending 12/31/96
- ------------------------------------------------------------
Since Inception
1/9/87 12.52%
- ------------------------------------------------------------
5 Years 13.77%
- ------------------------------------------------------------
1 Year 22.44%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Investment Objective: To seek long-term growth of capital by investing
primarily in common stocks of established corporations.
More Selectivity to Come
We believe individual stock selection, rather than market sector picks,
will again drive performance in the coming year. As long as the economy
continues to grow, stock prices should rise. But we expect returns to be
more modest in 1997 than in the previous two years. With slower economic
growth, there will likely be more near-term disappointments in corporate
earnings, and investors will place even greater value on companies that
can produce reliable earnings or positive earnings surprises.
As a result, we will continue to look for firms whose products or market
niches promise above-average growth. As before, we expect some of the
best growth to come from technology and health care stocks and will
probably remain overweighted in those shares. Regardless of sectors,
we'll continue to choose stocks from companies that are well-managed
with high-quality products, good operating histories and strong customer
loyalty.
[GRAPHIC OMITTED : TOP TEN HOLDINGS]
Top 10 Holdings
% of
Company Portfolio
Intel Corp. 1.9%
Mobil Corp. 1.9%
American Int'l.
Group Inc. 1.6%
Merck and Co. Inc 1.5%
Chase Manhattan Corp. 1.5%
Boeing Company 1.5%
Eli Lilly & Company 1.4%
General Electric Co. 1.4%
Federal National
Mtg. Assoc. 1.4%
Cisco Systems, Inc. 1.4%
Footnote reads:
These holdings represent 15.5%
of the total investment portfolio.
High Yield Portfolio Review LB Series Fund, Inc.
[GRAPHIC OMITTED: PHOTO OF THOMAS N. HAAG]
Thomas N. Haag, assistant vice president, is a Chartered Financial
Analyst and portfolio manager for the High Yield Portfolio. He has
managed the Portfolio since January 1992.
In the year ended December 31, 1996, returns for high-yield bonds were
significantly greater than returns for investment-grade issues. With
rising interest rates in the first part of the year, and the threat of
even higher rates later on, investors favored high-yield bonds that
could provide attractive income as bond prices fell. High-yield
securities also benefited from continued growth in the economy and
corporate profits, which improved the credit quality of many issues.
By making the most of this environment, the High-Yield Portfolio earned
a total return of 11.55% for the 12 months ended December 31, 1996. That
compares to a return of 11.35% for the Lehman Brothers High-Yield Index.
Response to a Growing Economy
As the year began, the Portfolio held sizable positions in zero-coupon
securities issued by media and telecommunications firms. At the time,
slower economic growth was keeping interest rates relatively low, which
helped zeros outperform other segments of the high-yield market. These
investments also benefited from government deregulation of the
telecommunications industry.
As a strengthening economy pushed interest rates higher, and changing
supply and demand made zeros less attractive, we traded some of our
zero-coupon holdings for bonds with B credit ratings and competitive
coupons. When economic growth rates became more moderate from the second
quarter to the third quarter, we emphasized bonds from sectors that were
less sensitive to economic cycles. Later in the year, when growth rates
seemed to be accelerating once again, we emphasized issues with slightly
greater economic sensitivity.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Short-Term
Securities 2%
Common Stocks
and Stock Warrants 3%
Preferred Stocks 13%
Foreign Government
Bonds 1%
Corporate Bonds 81%
[GRAPHIC MOUNTAIN CHART OMITTED: GROWTH OF $10,000 INVESTED
NOVEMBER 30, 1987 - DECEMBER 31, 1996
INSET BOX ON CHART READS:
LB High Yield Portfolio
Annualized Total Returns*
Period Ending 12/31/96
- ----------------------------------------------------------
Since Inception
11/2/87 12.76%
- ----------------------------------------------------------
5 Years 13.47%
- ----------------------------------------------------------
1 Year 11.55%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Investment Objective: To seek high current income and growth of capital
by investing primarily in high-yielding ("junk") corporate bonds.
During the year, we swapped some media and telecommunications issues in
the Portfolio, for others in the same sector with greater potential. We
also found attractive values in U.S. dollar-denominated securities
issued by foreign corporations.
Looking Ahead
We expect high-yield issues to perform well in 1997. If, as we
anticipate, economic growth is moderate and interest rates remain low,
higher-yielding bonds should continue to attract investors.
Believing the long-term outlook for media and telecommunications firms
is still bright, we will continue to keep a greater-than-market
weighting there. As before, we will trade up to issues with greater
potential as we find the opportunities to do so. While the economy
continues to exhibit more moderate growth, we will also rely heavily on
B-rated industrial bonds, emphasizing those of a less cyclical nature.
As always, we will continue to look for investments that offer a good
balance between credit quality and yield. Typically such issues come
from well-run companies with manageable levels of debt and sound
business plans. We look to these businesses for high-yield issues that
produce the best balance of risk and reward.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: MOODY'S BOND QUALITY
RATING DISTRIBUTION]
Moody's Bond Quality Rating Distribution
Baa 0.2%
Ba 7.3%
B 62.8%
Caa 9.9%
Not Rated 19.8%
Income Portfolio Review LB Series Fund, Inc.
[GRAPHIC OMITTED: PHOTO OF CHARLES E. HEEREN]
Charles E. Heeren, vice president, is a Chartered Financial Analyst
and portfolio manager for the Income Portfolio. He has managed the
Portfolio since its inception in January 1987.
When interest rates fluctuate, prices for investment-grade bonds with
longer maturities generally change more than prices for those with
shorter maturities. As interest rates rose in the past year, we
emphasized shorter-term instruments to help buffer the Portfolio against
falling bond prices. And, as rates began to fall, we emphasized longer-
term issues to make the most of potential price gains. In the meantime,
we took advantage of new yield opportunities brought about by these
changes in interest rates.
During the 12 months ended December 31, 1996, the Income Portfolio had a
total return of 3.21%. Over the same time, the Lehman Aggregate Bond Index
returned 3.63%.
A Changing Mix of Investments
At the start of 1996, as stronger economic growth pushed interest rates
higher, we increased the Portfolio's weighting in shorter-term issues.
Since investors favor bonds with higher yields when prices fall, we
swapped some of the Portfolio's longer-term Treasury securities for
shorter-term corporate bonds and mortgage-backed securities. With higher
market interest rates, the mortgage-backed securities performed
especially well -- since homeowners are less likely to prepay their
loans when rates are rising.
As the economy improved further, without higher inflation, we added
corporate bonds from "cyclical" sectors that tend to be more sensitive
to economic change. We also added securities issued by insurance firms,
as well as U.S. dollar-denominated "Yankee" bonds issued by foreign
banks.
In the spring of 1996, as it looked like economic growth was moderating,
we added longer-term securities again -- increasing the potential for
capital gains as interest rates fell. With market rates declining, we
reduced investments in mortgage-backed securities and corporate bonds
that could be called in by their issuers before maturity. Since the
market remained nervous about the economy and interest rates, we gave
extra attention to bonds with top credit ratings.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Short-Term
Securities 9%
Preferred Stocks 2%
U.S. Government 11%
Asset-Backed
Securities 16%
Mortgage-Backed
Securities 13%
Foreign Government
Bonds 4%
Corporate Bonds 45%
[GRAPHIC MOUNTAIN CHART OMITTED: GROWTH OF $10,000 INVESTED
JANUARY 31, 1987 - DECEMBER 31, 1996]
INSET BOX ON CHART READS:
LB Income Portfolio
Annualized Total Returns*
Period Ending 12/31/96
- ----------------------------------------------------------
Since Inception
1/9/87 8.30%
- ----------------------------------------------------------
5 Years 7.44%
- ----------------------------------------------------------
1 Year 3.21%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Investment Objective: To seek a high level of income while preserving
principal by investing primarily in intermediate- and long-term bonds.
Although we shortened maturities in the summer of 1996, on reports of
stronger economic growth, we also added longer maturities in the fall --
when slower, more sustainable growth seemed certain. Feeling the economy
would still grow enough to enhance the credit quality of many issuers,
we also added some higher-yielding corporate bonds.
Greater Focus on Yield
If economic growth remains moderate, as we expect, there should be
greater stability in interest rates, inflation and bond prices. Under
these conditions, coupon income should comprise the bulk of Portfolio
returns. As a result, we expect to keep sizable positions in corporate
bonds, with an emphasis on high-quality, higher-yielding issues. We will
also maintain large holdings in shorter-term asset-backed securities of
high quality -- which offer stable prices as well as attractive yields.
If economic growth decelerates, making bond prices more attractive, we
may increase positions in longer-term issues. For now, we're using a
more market-neutral maturity structure and emphasizing good yields at
fair prices.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: MOODY'S BOND QUALITY RATING
DISTRIBUTION]
Moody's Bond Quality Rating Distribution
Aaa 46.4%
Aa 89.9%
A 18.8%
Baa 13.5%
Ba 8.1%
B 4.3%
Money Market Portfolio Review LB Series Fund, Inc.
[GRAPHIC OMITTED: PHOTO OF GAIL R. ONAN]
Gail R. Onan was named portfolio manager for the Money Market Portfolio
in January 1994. She has been with Lutheran Brotherhood since 1969.
Prior to her appointment as manager of the Portfolio, she served as
associate manager for the Portfolio.
Ongoing uncertainty about the economy and interest rates made money
market yields more volatile during 1996. Although the Federal Reserve
left short-term rates unchanged from February through December,
investors expected rates to change throughout the year. During this time,
we adjusted maturities of the Money Market Portfolio to make the most of
fluctuating yields, and took advantage of special yield opportunities
that arose in a variety of different instruments. This helped the
Portfolio earn a total return of 5.20% for the year.
Maximizing Yield
When 1996 began, the yield for three-month Treasury bills was 4.97% and
the Money Market Portfolio had an average maturity of 43 days. With slow
economic growth and a cut in the Federal Funds rate, short-term yields fell
to 4.90% in February. Then, following reports of stronger economic
growth, short-term yields rose to 5.33% by July.
As yields improved, we lengthened the average maturity of the
Portfolio's investments to 50 days. In doing so, we used a "barbelled"
maturity structure that balanced instruments maturing overnight with
those maturing in six to nine months. This helped us lock in attractive
yields of longer maturities as they became available, while maintaining
liquidity on the short end of the barbell to move quickly into even
higher yields as they occurred.
By September, it was clear that investors had overreacted to fears of
inflation and that short-term yields were likely to fall. To lock in
higher yields for longer periods of time, we increased the Portfolio's
average maturity. By the end of the year, lower inflation expectations
reduced the spread between the yields for longer maturities and the
yields of shorter-term issues. As a result, we again emphasized shorter-
term issues and distributed the Portfolio's investments more evenly
across the yield curve.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Variable Rate
Notes 6%
U.S. Government
Agency 2%
Medium-Term Notes 1%
Certificates
of Deposits 2%
Commercial Paper 85%
Banker's Acceptances 4%
Throughout 1996, we maintained the Portfolio's historical asset mix --
giving the greatest weight to commercial paper. When we found attractive
opportunities in letters of credit, high-quality asset-backed securities
and other short-term corporate instruments, we also made investments in
these issues. These strategies helped us maintain very high credit
quality, good liquidity and attractive yields throughout the year as the
Portfolio drew large inflows of cash.
Investment Objective: To seek current income with stability of principal
by investing in high quality, short-term debt securities.****
Future Strategies
As we head into 1997, changes in money market supply and demand have
combined with reports of stronger economic growth to push shorter-term
yields higher. In this environment, we expect to keep the Portfolio's
investments on the short side and look for attractive yield
opportunities to enhance returns. Like before, we will continue to
stress investments that offer good liquidity and high credit quality as
well as strong yields.
LB Money Market Portfolio
Annualized Total Returns*
Period Ending 12/31/96
- -----------------------------------------------------------------------
Since Inception
1/9/87 5.77%
- -----------------------------------------------------------------------
5 Years 4.25%
- -----------------------------------------------------------------------
1 Year 5.20%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Footnotes
* The annualized total returns for the Portfolio reflect changes in
share prices, the reinvestment of all dividends and capital gains, and
the effects of compounding for the periods indicated. These returns have
not been adjusted for charges associated with the variable life
insurance and variable annuity contracts that invest in the portfolios.
(For additional information on the charges, costs and benefits
associated with the contracts, refer to the contract prospectus or
contact your LB representative.) Since performance varies, the
annualized total returns, which assume a steady rate of growth, differ
from the Portfolios' actual total returns for the years indicated. All
returns represent past performance. The value of an investment
fluctuates so that shares, when redeemed, may be worth more or less than
the original investment.
** Total returns for the EAFE index are for 1-31-96 through 12-31-96,
beginning the index's first full month of data following the inception
date of the World Growth Portfolio.
*** International investing has special risks, including currency
fluctuation and political volatility.
**** Investments in the Money Market Portfolio are neither guaranteed
nor insured by the U.S. Government and there is no assurance that the
Portfolio will maintain a stable net asset value.
This report must be preceded or accompanied by a current prospectus.
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, MN 55402-3795
Price Waterhouse LLP [LOGO]
Report of Independent Accountants
To the Shareholders and Board of Directors of
LB Series Fund, Inc.
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of each
of the Portfolios (Opportunity Growth, World Growth, Growth, High Yield,
Income and Money Market) comprising the LB Series Fund, Inc. (hereafter
referred to as the "Fund") at December 31, 1996, the results of each of
their operations for the year then ended or period indicated and the
changes in each of their net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility
of management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform 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, 1996 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 7, 1997
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Opportunity Growth Portfolio
Portfolio of Investments
December 31, 1996
Shares Value
- -------------- -------------
<S> <C> <C>
COMMON STOCKS - 91.0% (a)
Automotive - 1.7%
61,300 Aftermarket Technology
Corp. $1,057,425 (b)
103,200 Tower Automotive, Inc. 3,225,000 (b)
-------------
4,282,425
-------------
Bank & Finance - 2.3%
318,400 ACC Consumer
Finance Corp. 3,064,600 (b)
296,650 NAL Financial Group, Inc. 2,855,256
-------------
5,919,856
-------------
Building Products &
Materials - 3.0%
347,800 Cameron Ashley Building
Products 4,869,200 (b)
180,700 Dayton Superior Corp.,
Class A 2,371,687 (b)
193,400 Mark Solutions, Inc. 459,325 (b)
-------------
7,700,212
-------------
Computer Software - 13.9%
154,800 ANSYS, Inc. 2,089,800 (b)
136,850 Avant! Corp. 4,344,988 (b)
273,100 AXENT Technologies, Inc. 4,096,500 (b)
250,850 DataWorks Corp. 6,333,963 (b)
153,000 Information Management
Resources, Inc. 3,232,125 (b)
154,700 Premis Corp. 870,188 (b)
39,500 Project Software &
Development, Inc. 1,673,812 (b)
183,700 Pure Atria Corp. 4,546,575 (b)
250,600 Softquad International, Inc. 814,450 (b)
87,700 Summit Design, Inc. 898,925 (b)
118,300 Sunquest Information
Systems, Inc. 1,685,775 (b)
178,800 Unison Software, Inc. 4,782,900 (b)
-------------
35,370,001
-------------
Computers & Office
Equipment - 0.4%
111,100 Multiple Zones
International, Inc. 1,083,225 (b)
-------------
Drugs & Health Care - 11.9%
44,700 ADAC Labs, Inc. 1,067,213
346,250 Alpha-Beta Technology, Inc. 3,657,266 (b)
119,700 Amrion, Inc. 2,708,213 (b)
195,000 Amylin Pharmaceuticals, Inc. 2,535,000 (b)
215,400 Atrix Laboratories, Inc. 2,315,550 (b)
30,800 Autoimmune, Inc. 473,550 (b)
258,600 DepoTech Corp. 4,234,575 (b)
261,100 Eclipse Surgical
Technologies, Inc. 2,284,625 (b)
208,600 GalaGen, Inc. 912,625 (b)
98,000 Isis Pharmaceuticals, Inc. 1,764,000 (b)
244,100 Matritech, Inc. 2,074,850 (b)
141,700 Orphan Medical, Inc. 1,381,575 (b)
124,800 PDT, Inc. 3,494,400 (b)
93,700 Sepracor, Inc. 1,557,762 (b)
-------------
30,461,204
-------------
Electronics - 6.2%
11,700 Burr-Brown Corp. 304,200 (b,c)
72,800 Cypress Semiconductor Corp. 1,028,300 (b)
14,300 Electro Scientific
Industries, Inc. 371,800 (b)
125,600 ESS Technology, Inc. 3,532,500 (b)
40,800 Etec Systems, Inc. 1,560,600 (b)
71,500 FSI International, Inc. 1,072,500 (b)
94,800 Integrated Silicon Solution 817,650 (b)
111,200 Intevac, Inc. 1,890,400 (b)
115,850 S3, Inc. 1,882,562 (b)
104,800 Sierra Semiconductor Corp. 1,572,000 (b)
43,500 Silicon Valley Group, Inc. 875,438 (b)
43,000 Ultrateck Stepper, Inc. 1,021,250 (b)
-------------
15,929,200
-------------
Healthcare
Management - 8.7%
337,400 American Oncology
Resources, Inc. 3,458,350 (b)
99,100 CN Biosciences, Inc. 1,820,962 (b)
308,150 Complete Management, Inc. 3,967,431 (b)
432,350 Home Health Corp. of
America, Inc. 4,728,828 (b)
122,300 Horizon Mental Health
Management, Inc. 3,393,825 (b)
55,000 UroCor, Inc. 525,938 (b)
464,900 U.S. Diagnostic Labs, Inc. 4,300,325 (b)
-------------
22,195,659
-------------
Household Products - 0.3%
50,500 First Years, Inc. (The) 820,625
-------------
Leisure &
Entertainment - 6.2%
251,350 Cannondale Corp. 5,655,375 (b)
188,800 Fairfield Communities, Inc. 4,672,800 (b)
96,100 Signature Resorts, Inc. 3,387,525 (b)
162,300 Travis Boats & Motors, Inc. 2,089,613 (b)
-------------
15,805,313
-------------
Machinery &
Equipment - 3.4%
247,200 Northwest Pipe Co. 4,017,000 (b)
163,400 Stratasys, Inc. 3,247,575 (b)
58,400 Triumph Group, Inc. 1,394,300 (b)
-------------
8,658,875
-------------
Manufacturing - 2.9%
205,900 BMC Industries, Inc. 6,485,850
165,800 Zomax Optical Media, Inc. 911,900 (b)
-------------
7,397,750
-------------
Oil & Oil Service - 1.2%
84,400 Pool Energy Services Co. 1,297,650 (b)
75,200 Pride Petroleum Services, Inc. 1,748,400 (b)
-------------
3,046,050
-------------
Pollution Control - 3.0%
361,300 IDM Environmental Corp. 1,061,319 (b)
186,650 Memtec Ltd., ADR 6,136,119
348,100 Recycling Industries, Inc. 500,394 (b)
-------------
7,697,832
-------------
Publishing & Printing - 0.3%
186,900 Printware, Inc. 841,050 (b)
-------------
Restaurants - 2.4%
252,800 BAB Holdings, Inc. 1,232,400 (b)
37,500 Logan's Roadhouse, Inc. 881,250 (b)
72,400 Lone Star Steakhouse &
Saloon 1,936,700 (b)
191,500 New World Coffee 454,812 (b)
197,000 Sagebrush, Inc. 1,526,750 (b)
-------------
6,031,912
-------------
Retail - 4.0%
45,300 Borders Group, Inc. 1,625,137 (b)
193,450 Movie Gallery, Inc. 2,514,850 (b)
42,400 Proffitt's, Inc. 1,563,500 (b)
109,700 Sports Authority, Inc. (The) 2,385,975 (b)
194,900 Strouds, Inc. 633,425 (b)
184,900 West Coast Entertainment
Corp. 1,617,875 (b)
-------------
10,340,762
-------------
Services - 6.6%
142,100 Cotelligent Group, Inc. 3,428,162 (b)
81,800 ECsoft Group plc, ADR 787,325 (b)
86,600 F.Y.I., Inc. 1,807,775 (b)
271,100 Glasgal Communications, Inc. 1,287,725 (b)
136,050 Personal Group of
America, Inc. 3,282,206 (b)
132,200 StaffMark, Inc. 1,652,500 (b)
227,000 Steiner Leisure Ltd. 4,568,375
-------------
16,814,068
-------------
Telecommunications
Equipment - 4.8%
224,600 ACE*COMM Corp. 3,369,000 (b)
211,900 ACT Networks, Inc. 7,734,350 (b)
96,200 Larscom, Inc., Class A 1,094,275
-------------
12,197,625
-------------
Telephone &
Telecommunications - 4.6%
70,700 Intermedia Communications
of Florida, Inc. 1,820,525 (b)
142,900 LCC International, Inc.,
Class A 2,643,650 (b)
185,700 Orckit Communications Ltd. 1,810,575 (b)
258,600 Xpedite Systems, Inc. 5,495,250 (b)
-------------
11,770,000
-------------
Textiles & Apparel - 3.2%
710,300 Chaus (Bernard), Inc. 1,154,237 (b)
168,974 Cutter & Buck, Inc. 1,964,323 (b)
351,200 Guess ?, Inc. 5,048,500 (b)
-------------
8,167,060
-------------
Total Common Stocks
(cost $236,623,716) 232,530,704
-------------
CORPORATE
BONDS - 0.4% (a)
$500,000 Complete Management, Inc.,
Convertible Subordinated
Debentures, 8.0%,
due 8/15/2003 526,875
1,000,000 Kushner-Locke Co.,
Convertible Subordinated
Debentures, 8.0%,
due 12/15/2000 605,000
-------------
Total Corporate Bonds
(cost $1,379,774) 1,131,875
-------------
SHORT-TERM
SECURITIES - 8.6% (a)
Commercial Paper
700,000 Ciesco L.P., 6.75%,
due 1/2/1997 699,869
5,000,000 General Electric Capital Corp.,
5.9%, due 1/2/1997 4,999,180
6,000,000 General Electric Capital Corp.,
6.65%, due 1/2/1997 5,998,892
8,200,000 PepsiCo., Inc., 6.5%,
due 1/2/1997 8,198,519
2,000,000 Warner-Lambert Co., 6.0%,
due 1/7/1997 1,998,000
-------------
Total Short-Term Securities
(at amortized cost) 21,894,460
-------------
Total Investments
(cost $259,897,950) $255,557,039 (d)
=============
Notes to Portfolio of Investments:
- ---------------------------------
(a) The categories of investments are shown as a percentage of total
investments of the Opportunity 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, 1996.
(d) At December 31, 1996, the aggregate cost of securities for federal income
tax purposes was $260,101,511 and the net unrealized depreciation of
investments based on that cost was $4,544,472 which is comprised of
$16,385,510 aggregate gross unrealized appreciation and $20,929,982
aggregate gross unrealized depreciation.
Abbreviations:
- ---------------
(ADR) -- American Depository Receipts
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
World Growth Portfolio
Portfolio of Investments
December 31, 1996
Shares Value
- -------------- -------------
<S> <C> <C>
ARGENTINA - 0.7% (a)
COMMON STOCKS
6,033 Banco de Galicia Buenos
Aires "B" ADR (USD) $146,300
5,080 Banco Frances del Rio de la
Plata ADR (USD) 139,688
1,140 Enron Global Power &
Pipeline (USD) 30,780
40,900 Naviera Perez "B" 287,585
560 Sociedad Comercial del Plata
ADR (USD) 14,420 (b)
2,820 Telecom Argentina Stet "B" 11,621
630 Telecom Argentina Stet "B"
ADR (USD) 25,436
12,030 Telefonica de Argentina
ADR (USD) 311,276
1,370 Transportadora de Gas del
Sur ADR (USD) 16,783
6,430 YPF Sociedad Anonima
ADR (USD) 162,358
-------------
Total Argentina 1,146,247
-------------
AUSTRALIA - 1.4% (a)
COMMON STOCKS
52,528 Australia Gas & Light 298,943
23,000 Australia & New Zealand
Banking Group Ltd. 144,973
25,000 Broken Hill Proprietary 356,093
1,600 Coca Cola Amatil 17,105
25,500 Commonwealth Instalment
Receipt Trustee Ltd. 158,704
7,300 Lend Lease Corp. 141,579
16,303 National Australia Bank Ltd. 191,785
53,000 National Mutual Holdings Ltd. 79,199
59,159 News Corp. 312,229
24,000 Publishing & Broadcasting 116,747
11,783 Smith (Howard) Ltd. 96,935
17,700 Western Mining 111,566
37,000 Westpac Banking 210,571
33,000 Woodside Petroleum 241,054
-------------
Total Australia 2,477,483
-------------
AUSTRIA - 0.03% (a)
COMMON STOCKS
120 EVN Energie-Versorgung
Niederoesterreich AG 18,063
610 Flughafen Wien 31,096
-------------
Total Austria 49,159
-------------
BELGIUM - 1.0% (a)
COMMON STOCKS
825 Credit Communal
Holding/Dexia 75,278 (b)
1,121 Generale de Banque S.A. 401,903
81 Generale de Banque S.A.,
VVPR (reduced tax) Strips 46
2,960 Kredietbank 970,262
104 UCB 271,083
-------------
Total Belgium 1,718,572
-------------
BRAZIL - 2.0% (a)
COMMON STOCKS
1,030 Brazil Fund (USD) 22,918
15,712 Centrais Eletricas Brasileiras
S.A. ADR (USD) 284,859
6,360 Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar GDR (USD) 112,890 (b)
320 Companhia Energetica
Brasilia (USD) 10,880
13,848 Companhia Energetica
Minas Gerais ADR (USD) 470,832
28,500 Telecomunicacoes Brasilias
ADR (USD) 2,180,250
39,020 Usinas Siderurgicas de
Minas Gerais ADR (USD) 398,980
-------------
Total Brazil 3,481,609
-------------
CANADA - 0.3% (a)
COMMON STOCKS
11,780 Alcan Aluminum 400,037
4,670 Royal Bank of Canada 164,045
-------------
Total Canada 564,082
-------------
CHILE - 0.3% (a)
COMMON STOCKS
1,635 Chile Fund (USD) 34,131
1,775 Chilectra ADR (USD) 95,184
2,000 Chilgener ADR (USD) 41,750
1,030 Companhia Telecomunicaciones
ADR (USD) 104,159
7,854 Empresa Nacional de Electric
ADR (USD) 121,737
3,495 Enersis S.A. ADR (USD) 96,986
-------------
Total Chile 493,947
-------------
CHINA - 0.4% (a)
COMMON STOCKS
15,360 Huaneng Power International
N ADR (USD) 345,600 (b)
821,000 Shanghai Petrochemical
H(HKD) 249,447
452,000 Yizheng Chemical Fibre
H (HKD) 109,866
-------------
Total China 704,913
-------------
CZECH REPUBLIC - 0.1% (a)
COMMON STOCKS
700 SPT Telecom a.s. 87,149 (b)
-------------
DENMARK- 0.2% (a)
COMMON STOCKS
2,614 Den Danske Bank 210,778
807 Tele Danmark "B" 44,523
2,120 Unidanmark "A" 109,764
-------------
Total Denmark 365,065
-------------
FINLAND - 0.2% (a)
COMMON STOCKS
6,130 Oy Nokia "A" 355,540
-------------
FRANCE- 8.2% (a)
COMMON STOCKS
2,135 Accor 270,347
3,660 Alcatel Alsthom 294,013
3,480 Assurances Generales
de France 112,345
2,893 AXA 184,001
1,890 Canal Plus 417,450
2,512 Carrefour 1,634,482
570 Castorama Dubois 98,103
757 Chargeurs International S.A. 37,496 (b)
5,230 Cie de St. Gobain 739,871
2,513 Credit Local De France 218,922
17,847 Eaux Cie Generale 2,211,742
1,580 GTM Entrepose 73,085
2,130 Guilbert S.A. 416,681
1,260 Havas S.A. 88,395
4,350 Lapeyre 249,841
1,499 Legrand 255,395
614 L'Oreal 231,234
1,067 Pathe S.A. 257,059 (b)
3,870 Pinault Printemps Redoute 1,535,022
2,470 Primagaz 290,868
920 Rexel 279,271
5,276 Sanofi 524,702
6,030 Schneider S.A. 278,808 (b)
620 Societe Generale 67,037
6,725 Societe Nationale Elf Aquitaine 612,165
1,790 Sodexho 997,032
8,110 Television Francaise 775,284
13,189 Total "B" 1,072,710
-------------
Total France 14,223,361
-------------
GERMANY - 3.8% (a)
COMMON STOCKS
339 Allianz Holdings 616,844
70 Altana 54,497
35,280 Bayer 1,439,813
4,890 Bilfinger & Berger Bau AG 179,546
240 Buderas 118,534
3,159 Deutsche Bank 147,603
18,837 Gehe AG 1,205,774
5,070 Hoechst AG 239,530
520 Hornbach Baumarkt 16,491
716 Mannesmann 310,354
1,370 Praktiker Bau und
Heimwerker Markte 27,421
3,476 Rhoen Klinikum 363,683
870 SAP AG 118,446
1,443 Schering 121,813
15,465 Veba 894,453
484 Veba International, Finance
Warrants Expiring 4/6/98 155,064
273 Volkswagen 113,543 (b)
-------------
6,123,409
-------------
PREFERRED STOCKS
1,200 Fielmann 37,432
2,490 Hornbach Holdings AG 177,996
160 Krones 58,019
1,117 SAP AG 156,066
-------------
429,513
-------------
Total Germany 6,552,922
-------------
HONG KONG - 4.9% (a)
COMMON STOCKS
194,000 Cathay Pacific Airways 306,006
103,000 Dao Heng Bank Ltd. 494,059
388,188 First Pacific 504,401
335,000 Guangdong Investments 322,678
695,000 Guangzhou Investment
Co. Ltd. 332,471
118,000 Guoco Group 660,599
380,142 Hong Kong Land
Holdings (USD) 1,056,795
897,000 Hopewell Holdings 579,869
134,000 Hutchison Whampoa 1,052,492
184,000 New World Development
Co. Ltd. 1,243,002
89,000 Swire Pacific "A" 848,633
205,000 Wharf Holdings 1,023,078
-------------
Total Hong Kong 8,424,083
-------------
INDONESIA - 0.04% (a)
COMMON STOCKS
37,000 PT Telekomunikai Indonesia 63,834
-------------
ITALY - 1.9% (a)
COMMON STOCKS
3,000 Assicurazioni Generali 56,856
74,580 Banca Fideuram 163,958
88,179 Ente Nazionale Idrocarburi 452,520
2,000 Finanziaria Autogrill SpA 1,938 (b)
31,160 IMI SpA 267,027
6,074 Industrie Natuzzi SpA
ADR (USD) 139,702
28,000 Istituto Nazionale Delle
Assicurazioni 36,472
47,600 Italgas 198,778
280 La Rinascente SpA.,
Stock Warrants 123 (b)
16,520 Mediolanum SpA 156,379 (b)
8,600 Rinascente 49,888
135,000 Societa' Finaziaria
Telefonica SpA 614,041
43,800 Societa' Finaziaria Telefonica
SpA, RNC 147,973
122,827 Telecom Italia 319,010
240,400 Telecom Italia Mobile 607,735 (b)
37,000 Telecom Italia Mobile RNC 52,805
3,000 Unicem 19,578 (b)
-------------
Total Italy 3,284,783
-------------
JAPAN - 21.4% (a)
COMMON STOCKS
2,100 Advantest Corp. 98,463
23,000 Alps Electric 250,237
54,000 Amada 419,653
72,000 Canon 1,591,572
30,000 Citizen Watch Co. 215,007
43,000 Dai Nippon Screen
Manufacturing Co. Ltd. 317,460 (b)
8,000 Daifuku 100,855
51,000 Daiichi Pharmaceutical 819,100
64,000 Daiwa House 823,418
76 DDI Corp. 502,685
160 East Japan Railway 719,800
12,100 Fanuc 387,626
78,000 Hitachi 727,398
73,000 Hitachi Zosen 283,654
6,000 Honda Motor Co. 171,488
25,000 Inax 185,217
21,000 Ishihara Sangyo Kaisha 50,773 (b)
18,000 Ito-Yokado 783,352
25,000 Kao Corp. 291,426
3,000 Kawada Industries 18,392
24,000 Kokuyo 592,695
61,000 Komatsu 500,389
22,000 Komori 467,317
33,000 Kumagai Gumi 81,781
57,000 Kuraray 526,638
23,000 Kyocera 1,433,900
33,000 Makita 461,618
43,000 Marui 776,012
65,000 Matsushita Electric Industrial 1,060,789
31,000 Mitsubishi 321,216
202,000 Mitsubishi Heavy Industries 1,604,697
23,000 Mitsubishi Paper Mills 89,966
99,000 Mitsui Fudosan 991,624
16,000 Mitsui Petrochemical Industries 82,894
24,000 Murata Manufacturing 797,859
13,000 National House Industrial 172,869
128,000 NEC 1,547,362
65,000 Nippon Denso 1,565,927
9,000 Nippon Hodo 104,136
300,000 Nippon Steel 885,934
71 Nippon Telegraph & Telecom 538,278
64,000 Nomura Securities 961,575
31,000 Pioneer Electronic 591,572
4,000 Sangetsu Co. Ltd. 83,585
44,000 Sankyo 1,246,179
7,500 Sega Enterprises 252,569
65,000 Sekisui Chemical 656,679
49,000 Sekisui House 499,266
7,000 Seven-Eleven Japan 409,809
60,000 Sharp 854,848
40,300 Shin-Etsu Chemical 734,246
12,000 Shiseido Co. Ltd. 138,848
16,100 Sony 1,055,168
93,000 Sumitomo 733,175
99,000 Sumitomo Electric 1,384,855
28,000 Sumitomo Forestry 340,903
17,000 TDK 1,108,281
129,000 Teijin 563,630
23,000 Tokio Marine & Fire Insurance 216,475
9,000 Tokyo Electronics 275,883
22,300 Tokyo Steel Manufacturing 317,719
42,000 Toppan Printing 525,861
26,000 Uny Co. 475,952
8,400 Yurtec 113,876
-------------
Total Japan 36,902,431
-------------
MALAYSIA - 2.4% (a)
COMMON STOCKS
213,000 Affin Holdings BHD 586,161
61,000 Commerce Asset
Holding BHD 458,919
191,000 MBF Capital 310,077
334,000 Multi-Purpose Holdings 648,030
284,000 Multi-Purpose Holdings
BHD, Stock Warrants 12,370 (b)
331,000 Renong BHD 587,163
7,400 Renong BHD - 4% ICULS
Rights 3,106 (b)
101,000 Technology Resources
Industries BHD 199,161 (b)
78,000 Time Engineering BHD 144,542
132,000 United Engineers 1,191,685
-------------
Total Malaysia 4,141,214
-------------
MEXICO - 1.5% (a)
COMMON STOCKS
58,000 Cementos de Mexico
ADR (USD) 449,500
17,850 Cemex S.A. de C.V. "B" 69,613
208,783 Cifra "B" ADR (USD) 249,496 (b)
40,349 Gruma "B" 246,030 (b)
3,636 Gruma S.A. GDR (USD) 88,173 (b)
7,260 Grupo Embotellador
de Mexico 10,606
700 Grupo Financiero Banamex
Accival "L" 1,378 (b)
51,680 Grupo Financiero
Banamex "B" 109,111 (b)
92,062 Grupo Industrial Maseca "B" 116,715
1,600 Grupo Televisa GDR (USD) 41,000 (b)
9,440 Kimberly-Clark Mexico "A" 186,474
7,010 Panamerican Beverages "A"
ADR (USD) 328,594
19,435 Telefonos de Mexico "L"
ADR (USD) 641,355
-------------
Total Mexico 2,538,045
-------------
NETHERLANDS - 10.5% (a)
COMMON STOCKS
14,410 ABN Amro Holdings 938,131
12,206 Ahold 763,538
12,559 CSM 698,328
199,115 Elsevier 3,367,598
17,255 Fortis Amev N.V. 604,650
1,168 Gucci Group N.V. (USD) 74,606
3,710 Hagemeyer 296,757
41,272 ING Groep N.V. 1,486,892
29,950 ING Groep N.V.,
Stock Warrants 215,106 (b)
6,050 Koninklijke PTT Nederland 230,927
2,420 Nutricia 367,941
1,940 Otra N.V. 33,373
20,215 Polygram 1,030,362
20,402 Royal Dutch Petroleum 3,579,360
5,880 Unilever 1,040,792
25,992 Wolters Kluwer 3,455,062
-------------
Total Netherlands 18,183,423
-------------
NEW ZEALAND - 0.5% (a)
COMMON STOCKS
33,100 Carter Holt Harvey 75,116
18,000 Fernz 61,718
32,000 Fletcher Challenge Building 98,409 (b)
3,000 Fletcher Challenge Energy 8,696 (b)
112,369 Fletcher Challenge
Forests Division 188,275
6,000 Fletcher Challenge Paper 12,344 (b)
86,000 Telecom Corp. of New Zealand 438,968
-------------
Total New Zealand 883,526
-------------
NORWAY - 1.6% (a)
COMMON STOCKS
2,120 Bergesen "A" 51,329
27,584 Norsk Hydro 1,477,003
17,075 Orkla "A" 1,179,304
3,350 Saga Petroleum "B" 51,994
-------------
Total Norway 2,759,630
-------------
PANAMA - 0.05% (a)
COMMON STOCKS
1,676 Banco Latinoamericano de
Exportaciones S.A. "E" 85,057
-------------
PERU - 0.03% (a)
COMMON STOCKS
3,180 Telefonica del Peru S.A.
ADR (USD) 60,023
-------------
PHILIPPINES - 0.1% (a)
COMMON STOCKS
16,000 Philippine National Bank 190,114
-------------
PORTUGAL - 0.4% (a)
COMMON STOCKS
6,825 Estabelecimentos Jeronimo
Martins & Filho SGPA S.A. 352,012
4,550 Estabelecimentos Jeronimo
Martins & Filho SGPA S.A.,
Baby Shares 218,535
6,825 Estabelecimentos Jeronimo
Martins & Filho SGPA S.A.,
Stock Appreciation Rights 115,327
1,137 Estabelecimentos Jeronimo
Martins & Filho SGPA S.A.,
Units 64,399
-------------
Total Portugal 750,273
-------------
RUSSIA - 0.02% (a)
COMMON STOCKS
2,280 Gazprom ADR (USD) 40,470 (b)
-------------
SINGAPORE - 2.4% (a)
COMMON STOCKS
14,000 City Developments Ltd. 126,063
74,000 DBS Land 272,350
22,000 Development Bank of Singapore 297,149
19,000 Far East Levingston
Shipbuilding 99,121
27,400 Fraser & Neave Ltd. 281,970
17,000 Keppel 132,423
99,000 Overseas Union Bank 764,096
4,000 Singapore Airlines 36,304
87,000 Singapore Land 481,848
33,000 Singapore Press 650,897
78,000 United Industrial 65,776
75,000 United Overseas Bank 836,132
7,000 United Overseas Bank,
Stock Warrants 24,712 (b)
-------------
Total Singapore 4,068,841
-------------
SOUTH KOREA - 0.4% (a)
COMMON STOCKS
20,300 Korea Electric Power Corp.
ADR (USD) 416,150
6,309 Korea Equity Fund (USD) 94,635
500 Pohang Iron & Steel
ADR (USD) 10,125
270 Samsung Electronics GDR
Bonus (USD) 7,223 (b)
900 Samsung Electronics
37,238 (b)
10,000 Samsung Electronics GDR,
non voting (USD) 184,500 (b)
-------------
Total South Korea 749,871
-------------
SPAIN - 2.6% (a)
COMMON STOCKS
2,275 Banco Popular Espanol 446,852
9,110 Banco Santander 583,124
2,590 Centros Comerciales
Continente S.A. 53,067 (b)
4,940 Centros Comerciales Pryca 104,641
5,012 Corporacion Bancaria de
Espana S.A. 224,300
13,510 Empresa Nacional
de Electridad 961,544
2,516 Gas Natural 585,274
38,580 Iberdrola 546,791
17,860 Repsol S.A. 685,098
40 Repsol S.A. ADR (USD) 1,525
1,683 Sociedade General de Aguas
de Barcelona S.A. 70,003
24 Sociedade General de Aguas
de Barcelona S.A. 993 (b)
7,260 Telefonica de Espana 168,603
-------------
Total Spain 4,431,815
-------------
SWEDEN - 2.7% (a)
COMMON STOCKS
2,740 ABB AB 309,359
40,600 Astra AB "B" 1,958,592
15,130 Atlas Copco "B" 368,272
10,375 Electrolux "B" 602,428
2,000 Esselte "B" 44,282
4,840 Hennes & Mauritz "B" 669,945
1,720 Sandvik "A" 46,405
17,150 Sandvik "B" 465,220
2,720 Scribona "B" 30,511
8,670 Stora Kopparberg "B" 118,229 (b)
-------------
Total Sweden 4,613,243
-------------
SWITZERLAND - 4.5% (a)
COMMON STOCKS
2,597 Adecco S.A. 651,918
1,040 ABB AG 1,293,687
2,900 CS Holding 297,908
1,295 Nestle 1,390,299
1,689 Novartis AG 1,934,432 (b)
224 Roche Holdings 1,742,966
2,696 Schwizerischer Bankverein 512,613
-------------
Total Switzerland 7,823,823
-------------
THAILAND - 0.4% (a)
COMMON STOCKS
7,950 Advanced Information
Service plc (Foreign
Registered) 67,578
29,470 Bangkok Bank 284,979
1,130 Siam Cement 35,425
13,950 Siam Commercial Bank 101,174
15,110 Thai Farmers Bank Public
Co. Ltd. 94,268 (b)
3,600 Total Access Communication
Public Co. Ltd. ADR (USD) 24,840 (b)
-------------
Total Thailand 608,264
-------------
UNITED KINGDOM - 16.2% (a)
COMMON STOCKS
136,000 Abbey National 1,780,093
72,066 Argos plc 946,970
314,000 Asda Group 661,676
62,000 British Gas 237,930
53,000 British Petroleum 635,600
121,000 Cable & Wireless 1,011,616
87,225 Cadbury Schweppes 736,713
157,000 Caradon 645,537
39,000 Coats Viyella 89,532
48,000 Compass Group 509,851
84,000 David S. Smith 448,998
23,000 East Midlands Electricity plc 260,853
47,000 Electrocomponents 371,201
8,000 GKN 137,194
84,500 Glaxo Wellcome 1,375,278
105,000 Grand Metropolitan 823,882
11,000 Heywood Williams Group 44,852
37,000 Hillsdown Holdings 126,777
24,000 John Laing "A" 114,922
121,000 Kingfisher 1,305,979
40,000 London Electricity 466,335
231,000 National Westminster Bank 2,714,853
85,000 Rank Group plc 637,828
115,000 Reed International 2,163,269
29,000 Rolls Royce 127,685
58,000 RTZ 932,054
111,000 Safeway plc 766,370
26,000 Sears 41,871
106,000 Shell Transport & Trading 1,837,793
200,000 SmithKline Beecham 2,768,545
96,000 T & N 286,174
102,000 Tesco 618,605
248,700 Tomkins 1,150,403
99,000 United News & Media 1,182,165
-------------
Total United Kingdom 27,959,404
-------------
Principal
Amount
- --------------
SHORT-TERM
SECURITIES - 6.8% (a)
Commercial Paper
$1,790,000 Ciesco L.P., 6.75%,
due 1/2/1997 (USD) 1,789,665
8,000,000 General Electric Capital
Corp., 6.65%,
due 1/2/1997 (USD) 7,998,522
2,000,000 Warner-Lambert Co.,
6.0%, due 1/7/1997 (USD) 1,998,000
-------------
Total Short-Term Securities 11,786,187
-------------
Total Investments $172,568,403 (c,d)
=============
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total
investments of the World Growth Portfolio.
(b) Currently non-income producing.
(c) Security Classification:
Percentage of
Cost Value Portfolio
------------- ------------- --------
Common Stocks &
Warrants $149,981,660 $160,352,703 93.00%
Preferred Stocks 467,665 429,513 0.20%
Short-Term 11,786,187 11,786,187 6.80%
------------- ------------- ------
Total Investments $162,235,512 $172,568,403 100.00%
============= ============= ======
(d) At December 31, 1996, the aggregate cost of securities for federal income
tax purposes was $162,500,009 and the net unrealized appreciation of
investments based on that cost was $10,068,394 which is comprised of
$16,108,651 aggregate gross unrealized appreciation and $6,040,257
aggregate gross unrealized depreciation.
Abbreviations:
- ------------------------------------------
(ADR) -- American Depository Receipts
(GDR) -- Global Depository Receipts
(HKD) -- Denominated in Hong Kong Dollars
(USD) -- Denominated in U.S. Dollars
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Growth Portfolio
Portfolio of Investments
December 31, 1996
Shares Value
- -------------- ---------------
<S> <C> <C>
COMMON STOCKS - 93.8% (a)
Aerospace - 2.3%
230,000 Boeing Co. $24,466,250
91,700 Raytheon Co. 4,413,062
156,800 United Technologies Corp. 10,348,800
---------------
39,228,112
---------------
Airlines - 0.6%
116,400 Continental Airlines Holding,
Inc., Class B 3,288,300 (b)
100,800 UAL Corp. 6,300,000 (b)
----------------
9,588,300
----------------
Automotive - 2.7%
383,700 Chrysler Corp. 12,662,100
200,000 Ford Motor Co. 6,375,000
201,000 General Motors Corp. 11,205,750
243,800 Goodyear Tire & Rubber
Co. (The) 12,525,225
45,400 PACCAR, Inc. 3,087,200
---------------
45,855,275
---------------
Bank & Finance - 13.9%
128,500 Allstate Corp. 7,436,938
240,900 American Express Co. 13,610,850
238,600 American International
Group, Inc. 25,828,450
245,800 Bank of New York Co., Inc. 8,295,750
176,600 BankAmerica Corp. 17,615,850
246,300 Barnett Banks, Inc. 10,129,088
104,300 Beneficial Corp. 6,610,013 (c)
278,800 Chase Manhattan Corp. 24,882,900
91,700 Crestar Financial Corp. 6,820,187 (b,c)
600,000 Federal National Mortgage
Association 22,350,000
139,600 First Bank System, Inc. 9,527,700
221,300 First Chicago NBD Corp. 11,894,875
177,200 First USA, Inc. 6,135,550
108,300 Firstar Corp. 5,685,750 (c)
182,300 Great Western Financial Corp. 5,286,700
166,200 Green Tree Financial Corp. 6,419,475
344,700 Hibernia Corp., Class A 4,567,275
92,600 ITT Hartford Group, Inc. 6,250,500
122,600 MBNA Corp. 5,087,900
96,900 Southern National Corp. 3,512,625
100,000 Summit Bancorp 4,375,000
76,600 TCF Financial Corp. 3,332,100
80,200 Torchmark Corp. 4,050,100
40,000 Wells Fargo & Co. 10,790,000
---------------
230,495,576
---------------
Broadcasting - 1.3%
89,500 Cox Radio, Inc., Class A 1,566,250 (b)
255,400 Infinity Broadcasting Corp.,
Class A 8,587,825
232,000 Tele-Communications, Inc.,
Liberty Media Group,
Series A 6,626,500 (b)
91,400 Tele-Communications, Inc.,
TCI Group, Series A 1,193,912
113,500 Young Broadcasting Corp.,
Class A 3,319,875 (b)
---------------
21,294,362
---------------
Chemicals - 1.7%
200,000 Air Products & Chemicals, Inc. 13,825,000
251,200 IMC Global, Inc. 9,828,200
91,500 Millipore Corp. 3,785,812
---------------
27,439,012
---------------
Computer Software - 4.7%
115,200 Broderbund Software, Inc. 3,427,200 (b)
195,300 Cadence Design Systems, Inc. 7,763,175 (b)
238,500 Computer Associates
International, Inc. 11,865,375 (d)
163,700 DataWorks Corp. 4,133,425
211,100 Microsoft Corp. 17,442,137 (b)
114,700 Netscape Communications
Corp. 6,523,563 (b)
118,100 Network General Corp. 3,572,525 (b)
215,500 Oracle Corp. 8,997,125 (b)
162,300 Rational Software Corp. 6,420,994 (b)
145,500 Sterling Commerce, Inc. 5,128,875 (b)
127,700 Structural Dynamics Research
Corp. 2,554,000 (b,c)
---------------
77,828,394
---------------
Computers &
Office Equipment - 5.3%
169,400 3Com Corp. 12,429,725 (b)
351,100 Cisco Systems, Inc. 22,338,737 (b)
120,000 Compaq Computer Corp. 8,910,000 (b,d)
78,200 FORE Systems, Inc. 2,570,825 (b)
202,100 Hewlett Packard Co. 10,155,525
140,000 International Business
Machines 21,140,000
145,800 Seagate Technology, Inc. 5,759,100 (b)
190,900 Sun Microsystems, Inc. 4,903,744 (b)
---------------
88,207,656
---------------
Conglomerates - 1.0%
246,800 AlliedSignal, Inc. 16,535,600
---------------
Drugs & Health Care - 10.7%
260,200 Abbott Laboratories 13,205,150
175,000 Alpha-Beta Technology, Inc. 1,848,437 (b)
104,700 Amgen, Inc. 5,693,063 (b)
73,300 Astra AB, ADR 3,591,700
279,600 Becton, Dickinson & Co. 12,127,650
237,300 Biochem Pharma, Inc. 11,924,325 (b)
142,300 Boston Scientific Corp. 8,538,000 (b)
200,000 Centocor, Inc. 7,150,000 (b)
314,000 Eli Lilly & Co. 22,922,000
312,700 Johnson & Johnson 15,556,825
314,500 Merck & Co., Inc. 24,924,125
97,200 PDT, Inc. 2,721,600
127,100 Pfizer, Inc. 10,533,413
82,200 Schering-Plough Corp. 5,322,450
98,300 STERIS Corp. 4,276,050 (b)
166,900 Teva Pharmaceutical Industries
Ltd., ADR 8,386,725
242,600 Warner-Lambert Co. 18,195,000
---------------
176,916,513
---------------
Electric Utilities - 1.0%
200,500 American Electric Power Co. 8,245,562
325,000 Entergy Corp. 9,018,750
---------------
17,264,312
---------------
Electrical Equipment - 1.5%
230,000 General Electric Co. 22,741,250
137,200 Vivid Technologies, Inc. 1,715,000 (b)
---------------
24,456,250
---------------
Electronics - 5.8%
124,100 Applied Materials, Inc. 4,459,844 (b)
145,600 Atmel Corp. 4,823,000 (b)
115,300 Etec Systems, Inc. 4,410,225 (b)
125,000 Harman International
Industries, Inc. 6,953,125
233,700 Intel Corp. 30,600,094
150,000 Maxim Integrated
Products, Inc. 6,487,500 (b)
225,700 Micron Technology, Inc. 6,573,513
109,500 Motorola, Inc. 6,720,562
169,300 Nokia Corp., ADR 9,755,913
121,600 S3, Inc. 1,976,000 (b)
142,800 Sierra Semiconductor Corp. 2,142,000 (b)
138,200 Vitesse Semiconductor Corp. 6,288,100 (b)
151,200 Xilinx, Inc. 5,566,050 (b)
---------------
96,755,926
---------------
Food & Beverage - 3.8%
355,100 Coca-Cola Co. 18,687,138
134,500 Coca-Cola Femsa S.A., ADR 3,883,688
144,200 ConAgra, Inc. 7,173,950
289,400 PepsiCo, Inc. 8,464,950
113,900 Ralston-Ralston Purina Group 8,357,412
80,000 Salomon, Inc., (Snapple, Inc.,
Equity-Linked Security) 1,150,000
400,000 Sara Lee Corp. 14,900,000
---------------
62,617,138
---------------
Healthcare
Management - 1.5%
152,300 Oxford Health Plans, Inc. 8,919,069 (b)
41,100 PacifiCare Health Systems,
Inc., Class B 3,503,775 (b)
289,000 United Healthcare Corp. 13,005,000
---------------
25,427,844
---------------
Household Products - 4.1%
221,400 Avon Products, Inc. 12,647,475
177,100 Colgate Palmolive Co. 16,337,475
309,600 Dial Corp 4,566,600
206,500 Gillette Co. 16,055,375
173,900 Procter & Gamble Co. 18,694,250
---------------
68,301,175
---------------
Leisure &
Entertainment - 2.4%
341,800 CapStar Hotel Co. 6,707,825 (b)
232,400 Disney (Walt) Co. 16,180,850
128,000 Hollywood Entertainment
Corp. 2,368,000 (b)
119,400 Hospitality Franchise
Systems, Inc. 7,134,150 (b)
91,500 Time Warner, Inc. 3,431,250
92,200 Viacom, Inc., Class B 3,215,475 (b)
---------------
39,037,550
---------------
Machinery &
Equipment - 1.5%
160,000 Caterpillar, Inc. 12,040,000
268,700 Deere & Co. 10,915,938
101,100 New Holland N.V. 2,110,462 (b)
---------------
25,066,400
---------------
Manufacturing - 0.2%
84,800 BMC Industries, Inc. 2,671,200
---------------
Mining & Metals - 2.2%
148,000 Aluminum Co. of America 9,435,000
80,700 Newmont Mining, Inc. 3,611,325
178,600 Nucor Corp. 9,108,600
175,000 Phelps Dodge Corp. 11,812,500
113,900 Steel Dynamics, Inc. 2,178,337 (b)
---------------
36,145,762
---------------
Natural Gas - 0.8%
199,500 Consolidated Natural Gas Co. 11,022,375
54,300 Union Pacific Resources
Group, Inc. 1,588,275
---------------
12,610,650
---------------
Oil & Oil Service - 7.2%
200,000 Amoco Corp. 16,100,000
173,900 Baker Hughes, Inc. 5,999,550
280,400 Chevron Corp. 18,226,000
206,900 Enron Oil & Gas Co. 5,224,225
267,500 Halliburton Co. 16,116,875
137,900 Louisiana Land and
Exploration Co. 7,394,888
250,000 Mobil Corp. 30,562,500
161,800 Noble Drilling Corp. 3,215,775 (b)
187,300 Reading & Bates Corp. 4,963,450 (b)
141,800 Tidewater, Inc. 6,416,450 (c)
85,300 Triton Energy Ltd., Class A 4,137,050 (b)
24,100 Varco International, Inc. 557,312 (b)
---------------
118,914,075
---------------
Photography - 1.0%
204,300 Eastman Kodak Co. 16,395,075
---------------
Pollution Control - 0.3%
168,800 WMX Technologies, Inc. 5,507,100
---------------
Publishing & Printing - 0.8%
173,600 Gannett Co., Inc. 12,998,300
---------------
Railroads - 0.3%
54,900 Burlington Northern Santa Fe 4,741,987
---------------
Restaurants - 0.6%
208,500 McDonald's Corp. 9,434,625
---------------
Retail - 4.8%
215,700 American Stores Co. 8,816,738 (c)
321,200 CVS Corp. 13,289,650
182,400 Federated Department Stores 6,224,400 (b)
184,700 Gap, Inc. 5,564,088
119,100 Home Depot, Inc. 5,969,888
267,000 Kroger Co. 12,415,500 (b)
174,500 Movie Gallery, Inc. 2,268,500 (b)
233,300 Safeway, Inc. 9,973,575 (b)
159,000 Sears, Roebuck & Co. 7,333,875
355,100 Wal-Mart Stores, Inc. 8,122,912
---------------
79,979,126
---------------
Services - 2.8%
244,192 AccuStaff, Inc. 5,158,556 (b)
157,700 Automatic Data
Processing, Inc. 6,761,387
40,000 BA Merchants Services, Inc. 715,000 (b)
158,300 Computer Sciences Corp. 13,000,388 (b)
26,800 DST Systems, Inc. 840,850 (b)
532,590 First Data Corp. 19,439,535
---------------
45,915,716
---------------
Telecommunications
Equipment - 3.1%
141,700 ACT Networks, Inc. 5,172,050 (b)
292,600 ADC Telecommunications, Inc. 9,107,175 (b)
157,700 Ascend Communications, Inc. 9,797,112 (b,d)
36,700 Cascade Communications
Corp. 2,023,088 (b,d)
159,200 DSC Communications Corp. 2,845,700 (b)
164,042 Lucent Technologies, Inc. 7,586,943 (b)
255,800 Tellabs, Inc. 9,624,475 (b)
70,000 U.S. Robotics Corp. 5,040,000 (b)
---------------
51,196,543
---------------
Telephone &
Telecommunications - 3.3%
341,100 Aerial Communications, Inc. 2,771,437 (b)
285,000 Ameritech Corp. 17,278,125
325,000 BellSouth Corp. 13,121,875
200,600 MCI Communications Corp. 6,557,113
327,500 MobileMedia Corp., Class A 143,281 (b)
290,000 SBC Communications, Inc. 15,007,500
---------------
54,879,331
---------------
Textiles & Apparel - 0.6%
172,200 NIKE, Inc., Class B 10,288,950
---------------
Total Common Stock
(cost $1,411,176,476) 1,553,993,835
---------------
PREFERRED
STOCK - 0.3% (a)
66,300 Microsoft Corp., Convertible
Preferred Stock, Series A
(cost $5,295,712) 5,312,287
---------------
CORPORATE
BONDS - 0.3% (a)
6,250,000 Broadband Technologies, Inc.,
Convertible Subordinated
Notes, 5.0%, due 5/15/2001
(cost $6,247,044)
4,718,750
U.S. GOVERNMENT - 0.1% (a) ---------------
1,000,000 U.S. Treasury Notes,
6.875%, due 3/31/1997 1,003,125
300,000 U.S. Treasury Notes,
8.75%, due 10/15/1997 306,562
Total U.S. Government ---------------
(cost $1,306,875) 1,309,687
---------------
SHORT-TERM
SECURITIES - 5.5% (a)
Commercial Paper
10,000,000 Coca-Cola Co., 5.9%,
due 1/7/1997 9,990,167
3,141,000 Enterprise Funding Corp.,
5.45%, due 1/23/1997 3,130,539
5,000,000 Fletcher Challenge Finance
USA, Inc., 5.4%,
due 1/28/1997 4,979,750
10,000,000 General Electric Capital Corp.,
5.42%, due 1/24/1997 9,965,372
14,330,000 Koch Industries, 7.0%,
due 1/2/1997 14,327,214
10,000,000 Norwest Financial, Inc.,
5.4%, due 1/21/1997 9,970,000
1,103,000 Oyster Creek Co., 5.7%,
due 1/22/1997 1,099,332
7,000,000 Sheffield Receivables Corp.,
5.7%, due 1/3/1997 6,997,783
20,700,000 Shell Oil Co., Series A,
6.4%, due 1/2/1997 20,696,320
10,000,000 United Parcel Service,
5.85%, 1/10/1997 9,985,375
---------------
Total Short-Term Securities
(at amortized cost) 91,141,852
---------------
Total Investments
(cost $1,515,167,959) $1,656,476,411 (e)
================
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, 1996.
(d) At December 31, 1996, securities valued at $5,756,300 were held in escrow
to
cover open call options written as follows:
<CAPTION>
Number of Exercise Expiration
Issue Contracts Price Date Value
- --------------- ---------- ------- --------- -------
<S> <C> <C> <C> <C>
Ascend
Communications, 200 $60 1/18/97 $95,000
Cascade
Communications C 100 $58 1/18/97 25,000
Compaq
Computer Corp. 200 $70 1/18/97 112,500
Computer Associates
International, I 246 $50 1/18/97 58,425
Computer Associates
International, I 252 $55 1/18/97 14,175
----- ---------
Total 998 $305,100
===== =========
(e) At December 31, 1996, the aggregate cost of securities for federal income
tax purposes was $1,521,738,773 and the net unrealized appreciation of
investments
based on that cost was $134,737,638 which is comprised of $166,110,021
aggregate
gross unrealized appreciation and $31,372,383 aggregate gross unrealized
depreciation.
Abbreviations:
- -----------------
(ADR) -- American Depository Receipts
See accompanying notes to portfolio of investments.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
High Yield Portfolio
Portfolio of Investments
December 31, 1996
Principal Maturity
Amount Rate Date Value
- ---------------- ------ ---------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 81.1% (a)
Airlines - 0.5%
$4,500,000 U.S. Air, Inc., Sr. Secured Equipment Trust, Series 1993-A-3 10.375% 3/1/2013 $4,680,000
--------------
Automotive - 0.4%
7,050,000 Exide Corp., Convertible Sr. Subordinated Notes 2.9% 12/15/2005 4,212,375
--------------
Bank & Finance - 6.2%
4,750,000 Chevy Chase Savings Bank, Subordinated Debentures 9.25% 12/1/2005 4,892,500
7,800,000 Dollar Financial Group, Inc., Sr. Notes 10.875% 11/15/2006 8,073,000
10,000,000 First Nationwide Holdings, Inc., Sr. Notes 12.5% 4/15/2003 11,050,000
6,000,000 HomeSide, Inc., Sr. Secured Second Priority Bonds, Series B 11.25% 5/15/2003 6,720,000
6,000,000 Mego Mortgage Corp., Sr. Subordinated Notes 12.5% 12/1/2001 6,030,000
8,440,352 Scotsman Holdings, Sr. Notes, Payment-In-Kind, Series B 11.0% 3/1/2004 8,672,462
3,000,000 Trizec Finance Ltd., Sr. Notes 10.875% 10/15/2005 3,326,250
6,350,000 Veritas Holdings GMBH, Sr. Notes 9.625% 12/15/2003 6,413,500
8,000,000 Wilshire Financial Services Group, Inc., Notes 13.0% 1/1/2004 8,080,000
--------------
63,257,712
--------------
Broadcasting - 17.3%
4,550,000 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 8/15/2005 1,660,750
9,111,426 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 6/15/2004 3,781,242
4,750,000 Australis Holdings Pty Ltd., Units Zero Coupon 11/1/2002 2,719,375
15,000,000 Australis Media Ltd., Units Zero Coupon 5/15/2003 8,475,000
10,100,000 Benedek Communications Corp., Sr. Discount Notes Zero Coupon 5/15/2006 5,858,000
6,900,000 Cablevision Industries, Debentures, Series B 9.25% 4/1/2008 7,326,724
13,780,000 CS Wireless Systems, Inc., Sr. Discount Notes Zero Coupon 3/1/2006 5,029,700
5,400,000 EchoStar Satellite Broadcasting Corp., Sr.
Secured Discount Notes Zero Coupon 3/15/2004 4,158,000
17,554,867 Falcon Holdings Group L.P., Sr. Subordinated Notes, Series B 11.0% 9/15/2003 15,711,606
7,750,000 FrontierVision Operating Partners L.P./Frontier
Vision Capital Corp., Sr. Subordinated Notes 11.0% 10/15/2006 7,779,063
13,000,000 Groupo Televisa S.A., Sr. Discount Debentures Zero Coupon 5/15/2008 8,645,000
10,100,000 Groupo Televisa S.A., Sr. Notes 11.875% 5/15/2006 11,223,625
10,400,000 InterMedia Capital Partners IV, L.P., Sr. Notes 11.25% 8/1/2006 10,894,000
4,650,000 International CableTel, Inc., Convertible Subordinated Notes 7.25% 4/15/2005 4,992,937
5,900,000 International CableTel, Inc., Convertible Subordinated Notes 7.0% 6/15/2008 5,398,500
7,800,000 International CableTel, Inc., Sr. Deferred Notes, Series A Zero Coupon 2/1/2006 5,343,000
6,900,000 International CableTel, Inc., Sr. Notes, Series A Zero Coupon 4/15/2005 5,192,250
7,650,000 Jacor Communications, Inc., Convertible Liquid Yield
Option Notes Zero Coupon 6/12/2011 3,442,500
5,200,000 NWCG Holdings Corp., Sr. Secured Discount Notes, Series B Zero Coupon 6/15/1999 4,355,000
10,700,000 Olympus Communications, L.P., Sr. Notes 10.625% 11/15/2006 11,007,625
11,150,000 People's Choice TV Corp., Sr. Discount Notes Zero Coupon 6/1/2004 4,738,750
7,050,000 Rogers Cablesystems Ltd., Sr. Secured Second Priority Notes 9.625% 8/1/2002 7,402,500
7,000,000 Rogers Communications, Inc., Convertible Debentures 2.0% 11/26/2005 3,850,000
3,750,000 Rogers Communications, Inc., Sr. Notes 9.125% 1/15/2006 3,731,250
6,025,000 Scott Cable Communications, Inc., Subordinated Debentures 12.25% 4/15/2001 4,247,625 (C)
1,900,000 Tele-Communications International, Inc., Convertible
Subordinated Debentures 4.5% 2/15/2006 1,436,875
8,400,000 UIH Australia/Pacific, Inc., Sr. Discount Notes, Series B Zero Coupon 5/15/2006 4,431,000
9,100,000 United International Holdings, Inc., Sr. Discount Notes Zero Coupon 11/15/1999 6,506,500
6,400,000 Wireless One, Inc., Sr. Notes 13.0% 10/15/2003 6,240,000
--------------
175,578,397
--------------
Building Products & Materials - 1.7%
9,450,000 Atrium Cos., Inc., Sr. Subordinated Notes 10.5% 11/15/2006 9,639,000
7,200,000 CEMEX S.A. de C.V., Notes 12.75% 7/15/2006 8,064,000
--------------
17,703,000
--------------
Computers & Office Equipment - 3.2%
4,750,000 Cirrus Logic, Inc., Sr. Subordinated Notes 6.0% 12/15/2003 4,322,500
11,725,000 Dictaphone Corp., Sr. Subordinated Notes 11.75% 8/1/2005 10,611,125
3,000,000 National Data Corp., Convertible Subordinated Notes 5.0% 11/1/2003 3,112,500
8,850,000 Unisys Corp., Sr. Notes 11.75% 10/15/2004 9,480,562
4,600,000 Unisys Corp., Sr. Notes 12.0% 4/15/2003 4,945,000
--------------
32,471,687
--------------
Construction & Home Building - 1.9%
11,750,000 Peters (J.M.) Co., Inc., Sr. Notes 12.75% 5/1/2002 11,221,250
7,750,000 The Fortress Group, Inc., Sr. Notes 13.75% 5/15/2003 8,253,750
--------------
19,475,000
--------------
Containers & Packaging - 1.0%
4,650,000 Radnor Holdings Corp., Sr. Notes 10.0% 12/1/2003 4,743,000
5,900,000 Riverwood International Corp., Sr. Subordinated Notes 10.875% 4/1/2008 5,487,000
--------------
10,230,000
--------------
Drugs & Health Care - 1.6%
4,245,800 General Medical Corp., Payment-In-Kind Debentures 12.125% 8/15/2005 4,564,235
3,550,000 Owens & Minor, Inc., Sr. Subordinated Notes 10.875% 6/1/2006 3,834,000
10,900,000 Unilab Corp., Sr. Notes 11.0% 4/1/2006 7,466,500
--------------
15,864,735
--------------
Electric Utilities - 0.6%
3,250,000 Midland Cogen Venture Fund II, Secured Lease
Obligation Bonds, Series A 11.75% 7/23/2005 3,656,250
2,000,000 Midland Cogen Venture Fund II, Subordinated Secured
Lease Obligation Bonds 13.25% 7/23/2006 2,370,000
--------------
6,026,250
--------------
Electrical Equipment - 1.8%
6,350,000 Protection One Alarm Monitoring, Convertible Sr.
Subordinated Notes 6.75% 9/15/2003 5,842,000
7,450,000 Protection One Alarm Monitoring, Sr. Subordinated
Discount Notes Zero Coupon 6/30/2005 7,114,750
4,750,000 Telex Communications, Inc., Sr. Notes 12.0% 7/15/2004 5,296,250
--------------
18,253,000
--------------
Food & Beverage - 2.0%
9,965,000 Fresh Del Monte Corp., Sr. Notes, Series B 10.0% 5/1/2003 9,516,575
6,000,000 Gorges/Quik-to-Fix Foods, Inc., Sr. Subordinated Notes 11.5% 12/1/2006 6,247,500
4,750,000 International Home Foods, Inc., Sr. Subordinated Notes 10.375% 11/1/2006 4,963,750
--------------
20,727,825
--------------
Hospital Management - 4.2%
7,250,000 Merit Behavioral Care Corp., Sr. Subordinated Notes 11.5% 11/15/2005 7,902,500
6,600,000 Paracelsus Healthcare Corp., Sr. Subordinated Notes 10.0% 8/15/2006 6,220,500
4,650,000 PhyMatrix Corp., Convertible Subordinated Debentures 6.75% 6/15/2003 3,853,687
5,850,000 Regency Health Services, Inc., Sr. Subordinated Notes 9.875% 10/15/2002 5,923,125
4,400,000 Regency Health Services, Inc., Subordinated Notes 12.25% 7/15/2003 4,697,000
5,650,000 Rotech Medical Corp., Convertible Subordinated Debentures 5.25% 6/1/2003 5,565,250
8,350,000 Unison HealthCare Corp., Sr. Notes 12.25% 11/1/2006 8,600,500
--------------
42,762,562
--------------
Household Products - 2.4%
6,850,000 BPC Holding Corp., Sr. Secured Notes, Series B 12.5% 6/15/2006 7,261,000
35,400,000 Coleman Worldwide Corp., Convertible Liquid Yield
Option Notes Zero Coupon 5/27/2013 10,354,500
6,750,000 Simmons Co., Sr. Subordinated Notes 10.75% 4/15/2006 7,053,750
--------------
24,669,250
--------------
Leisure & Entertainment - 1.2%
11,500,000 AMF Group, Inc., Sr. Subordinated Discount Notes, Series B Zero Coupon 3/15/2006 7,661,875
4,000,000 IMAX Corp., Sr. Notes 7.0% 3/1/2001 4,100,000
--------------
11,761,875
--------------
Mining & Metals - 0.7%
7,000,000 Commonwealth Aluminum Corp., Sr. Subordinated Notes 10.75% 10/1/2006 7,175,000
--------------
Oil & Gas - 3.4%
7,800,000 Abraxas Petroleum Corp., Sr. Notes 11.5% 11/1/2004 8,404,500
5,950,000 Kelley Oil & Gas Corp., Sr. Subordinated Notes 10.375% 10/15/2006 6,217,750
5,950,000 National Energy Group, Inc., Sr. Notes 10.75% 11/1/2006 6,277,250
5,704,000 Petroleum Heat & Power Co., Inc., Subordinated Debentures 12.25% 2/1/2005 6,402,740
7,000,000 Veritas DGC, Inc., Sr. Notes 9.75% 10/15/2003 7,315,000
--------------
34,617,240
--------------
Paper & Forest Products - 1.6%
4,850,000 FSW International Finance Co. B.V., Guaranteed Secured Notes 12.5% 11/1/2006 5,141,000
10,550,000 National Fiberstock Corp., Sr. Notes Series B 11.625% 6/15/2002 11,183,000
--------------
16,324,000
--------------
Pollution Control - 1.7%
6,350,000 Allied Waste, North America, Sr. Subordinated Notes 10.25% 12/1/2006 6,691,312
4,000,000 Norcal Waste Systems, Inc., Sr. Notes, Series B 13.0% 11/15/2005 4,460,000
5,700,000 U.S. Filter Corp., Convertible Subordinated Notes 4.5% 12/15/2001 5,821,125
--------------
16,972,437
--------------
Publishing & Printing - 4.3%
2,500,000 K-III Communications Corp., Sr. Notes 10.25% 6/1/2004 2,631,250
8,100,000 MDC Communications Corp., Sr. Subordinated Notes 10.5% 12/1/2006 8,393,625
13,800,000 Neodata Services, Inc., Sr. Notes, Series B 12.0% 5/1/2003 14,593,500
4,000,000 News America Holdings, Inc., Convertible Liquid
Yield Option Notes Zero Coupon 3/11/2013 1,885,000
750,000 News America Holdings, Inc., Subordinated Notes Zero Coupon 3/31/2002 686,250
7,750,000 Park Newspapers, Inc., Sr. Notes, Series B 11.875% 5/15/2004 9,174,062
5,850,000 Sullivan Graphics, Inc., Sr. Subordinated Notes 12.75% 8/1/2005 5,703,750
--------------
43,067,437
--------------
Retail - 0.8%
2,750,000 F & M Distributors, Inc., Sr. Subordinated Notes 11.5% 4/15/2003 6,875(C)
7,000,000 Lifestyle Furnishings International Ltd., Sr. Subordinated Notes 10.875% 8/1/2006 7,542,500
7,000,000 Wherehouse Entertainment, Inc., Sr. Subordinated Notes 13.0% 8/1/2002 385,000(C)
--------------
7,934,375
--------------
Retail: Food -2.0%
7,150,000 Jitnay-Jungle Stores of America, Sr. Notes 12.0% 3/1/2006 7,614,750
6,000,000 Pueblo Xtra International, Inc., Sr. Notes 9.5% 8/1/2003 5,595,000
3,850,000 Smith's Food & Drug Centers, Pass Through Certificates 8.64% 7/2/2012 3,407,250
3,000,000 TLC Beatrice International Holdings, Sr. Secured Notes 11.50% 10/1/2005 3,202,500
--------------
19,819,500
--------------
Services - 0.5%
4,200,000 Intertek Finance plc, Sr. Subordinated Notes 10.25% 11/1/2006 4,368,000
--------------
Telecommunications - 20.1%
21,600,000 American Communications Services, Sr. Discount Notes Zero Coupon 11/1/2005 12,852,000
6,700,000 Call-Net Enterprises, Inc., Sr. Discount Notes Zero Coupon 12/1/2004 5,527,500
10,650,000 Clearnet Communications, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 6,656,250
4,750,000 COLT Telecom Group plc, Units Zero Coupon 12/15/2006 2,873,750
5,250,000 Comcast Cellular, Inc., Sr. Participation Redeemable Notes,
Series B Zero Coupon 3/5/2000 3,806,250
5,600,000 Comcast Cellular, Inc., Sr. Redeemable Notes Zero Coupon 3/5/2000 4,053,000
1,445,000 GST Telecommunications, Inc., Sr. Subordinated Notes Zero Coupon 12/15/2005 1,098,200
13,810,000 GST USA, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 8,493,150
14,950,000 Hyperion Telecommunications, Sr. Discount Notes, Series B Zero Coupon 4/15/2003 8,558,875
10,300,000 In-Flight Phone Corp., Sr. Discount Notes, Series B Zero Coupon 5/15/2002 2,008,500
5,350,000 IntelCom Group Holdings (U.S.A.), Inc., Sr. Discount Notes Zero Coupon 9/15/2005 3,825,250
4,700,000 Intermedia Communications of Florida, Sr. Notes, Series B 13.5% 6/1/2005 5,393,250
14,800,000 Ionica plc, Sr. Notes 13.5% 8/15/2006 14,874,000
11,750,000 IXC Communications, Inc., Sr. Notes, Series B 12.5% 10/1/2005 12,983,750
10,800,000 Microcell Telecommunications, Inc., Sr. Discount Notes Zero Coupon 6/1/2006 6,021,000
16,450,000 Millicom International Cellular, Sr. Discount Notes Zero Coupon 6/1/2006 10,281,250
11,200,000 NEXTEL Communications, Inc., Sr. Discount Notes Zero Coupon 8/15/2004 7,686,000
10,650,000 NEXTLINK Communications LLC, Sr. Discount Notes 12.5% 4/15/2006 11,475,375
10,000,000 ORBCOMM Global, L.P., Sr. Notes 14.0% 8/15/2004 10,175,000
15,050,000 PageMart Nationwide, Inc., Sr. Discount Exchange Notes Zero Coupon 2/1/2005 10,459,750
8,500,000 Paging Network, Inc., Sr. Subordinated Notes 10.0% 10/15/2008 8,659,375
8,650,000 Phonetel Technologies, Inc., Sr. Notes 12.0% 12/15/2006 8,996,000
10,600,000 RSL Communications Ltd., Units 12.25% 11/15/2006 10,759,000
2,750,000 USA Mobile Communications, Inc., Sr. Notes 9.5% 2/1/2004 2,626,250
2,850,000 USA Mobile Communications, Inc., Sr. Notes 14.0% 11/1/2004 3,206,250
10,000,000 Viatel, Inc., Sr. Discount Notes Zero Coupon 1/15/2005 6,200,000
5,750,000 WinStar Communications, Inc., Convertible Sr. Subordinated
Discount Notes Zero Coupon 10/15/2005 4,025,000
16,700,000 WinStar Communications, Inc., Sr. Discount Notes Zero Coupon 10/15/2005 10,270,500
--------------
203,844,475
--------------
Total Corporate Bonds (cost $813,072,996) 821,796,132
--------------
FOREIGN GOVERNMENT BONDS - 0.6% (a,e)
6,000,000 Banco Nacional de Obras y Servicios Publicos, S.N.C., Sr. Notes
(cost $5,983,402) 9.625% 11/15/2003 6,067,500
--------------
PREFERRED STOCKS - 12.7% (a)
97,751 Cablevision Systems Corp., Preferred Stock 8,797,590
50,004 Cablevision Systems Corp., Exchangeable Preferred Stock, Series H 4,687,875
31,000 California Federal Bank, Preferred Stock, Series B 3,417,750
115,000 Chevy Chase Capital Corp., Noncumulative Exchangeable Preferred
Stock, Series A 5,994,375
39,045 Communications & Power Industries, Inc., Convertible Preferred
Stock, Series B 4,345,747
4,350 Consolidated Hydro, Inc., Preferred Stock 653,588
45,000 First Nationwide Bank, Noncumulative Preferred Stock 5,158,125
49,500 Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 0
194,000 Granite Broadcasting Corp., Convertible Preferred Stock 10,961,000
396,146 Harvard Industries, Inc., Exchangeable Payment-In-Kind Preferred
Stock 5,645,081
151,000 Host Marriott Financial Trust, Convertible Preferred Stock 8,059,625
37,000 K-III Communications Corp., Exchangeable Preferred Stock 994,375
49,264 K-III Communications Corp., Exchangeable Preferred Stock, Series B 4,987,985
52,000 K-III Communications Corp., Preferred Stock, Series D 5,109,000
175,000 MFS Communication, Inc., 8% Cumulative Convertible Preferred Stock 15,968,750
73,000 Mobile Telecommunications Technologies Corp., Convertible Preferred
Stock 1,332,250
99,000 Network Imaging Corp., Convertible Preferred Stock, Series A 1,522,125
10,037 PanAmSat Corp., Convertible Preferred Stock 12,245,140
8,900 Paxson Communications Corp., Payment-In-Kind Preferred Stock 8,388,250
144,942 Riggs National Corp., Preferred Stock 4,185,200
147,500 River Bank America, Preferred Stock 3,724,375
59,000 SFX Broadcasting, Inc., 6.5% Convertible Preferred Stock, Series D 2,736,125
2,711 Silgan Holdings, Inc., Payment-In-Kind Preferred Stock 2,860,105
75,000 TIMET Capital Trust I, Convertible Preferred Stock 4,125,000
85,000 USX Corp. (Marathon Group), Convertible Preferred Stock 2,241,875
--------------
Total Preferred Stocks (cost $120,798,881) 128,141,311
--------------
COMMON STOCKS & STOCK WARRANTS - 3.3% (a,b)
16,800 American Communications Services, Stock Warrants 1,512,000
4,100 American Telecasting, Inc., Stock Warrants 4,100
37,000 American Telecasting, Inc., Stock Warrants 37,000
202,940 Arch Communications Group, Common Stock 1,902,563
134,200 Bell & Howell Co., Common Stock 3,187,250
36,960 Clearnet Communications, Inc., Stock Warrants 258,720
47,000 COLT Telecom Group plc, ADR, Common Stock 904,750
2,310 Communications & Power Industries, Inc., Common Stock 346,500(d)
7,830 Consolidated Hydro, Inc., Stock Warrants 0(d)
4,422 CS Wireless Systems, Inc., Common Stock 0(d)
79,500 Envirotest Systems Corp., Class A Common Stock 178,875
101,377 Gaylord Container Corp., Class A Common Stock 620,934
127,902 Gaylord Container Corp., Stock Warrants 791,393
18,126 Grand Union Co., Stock Warrants 4,713
36,251 Grand Union Co., Stock Warrants 1,450
65,000 Harvard Industries, Inc., Class B Common Stock 292,500
14,350 Hyperion Telecommunications, Stock Warrants 287,000
10,100 In-Flight Phone Corp., Stock Warrants 0
260,000 IntelCom Group Communications, Inc., Common Stock 4,582,500
68,300 IntelCom Group (U.S.A.), Inc., Stock Warrants 751,300
209,000 InterCel, Inc., Common Stock 2,560,250
5,900 Intermedia Communications of Florida, Stock Warrants 206,500
14,800 Ionica plc, Stock Warrants 1,554,000
38,000 JPS Textiles Group, Common Stock, Class A 380
139,371 Magellan Health Services, Common Stock 3,118,426
50,379 Memorex Telex N.V. ADR, Common Stock 3,149
1,728 Memorex Telex N.V. ADR, Stock Warrants 0
2,574 MFS Communications Co., Inc., Common Stock 140,283
43,200 Microcell Telecommunications, Inc., Conditional Warrants 27,000
43,200 Microcell Telecommunications, Inc., Initial Warrants 540,000
384,500 MobileMedia Corp., Class A Common Stock 168,219
3,086 NEXTEL Communications, Stock Warrants, Expiring 1998 31
3,750 NEXTEL Communications, Stock Warrants, Expiring 1997 38
33,250 PageMart Nationwide, Inc., Common Stock 249,375
205,000 Pagemart Wireless, Inc., Class A Common Stock 1,358,125
11,150 People's Choice TV Corp., Stock Warrants 11,150
46,600 Plantronics, Inc., Common Stock 2,097,000
23,840 Protection One Alarm Monitoring, Stock Warrants 178,800
5,000 Triangle Wire & Cable, Inc., Stock Warrants 0(d)
118,000 United International Holdings, Inc., Class A Common Stock 1,445,500
27,000 United International Holdings, Inc., Stock Warrants 540,000
361,000 Viatel, Inc., Common Stock 2,707,500
138,000 Wireless One, Inc., Common Stock 914,250
19,200 Wireless One, Inc., Stock Warrants 28,800
--------------
Total Common Stocks & Stock Warrants (cost $39,449,767) 33,512,324
--------------
Principal Maturity
Amount Rate Date
- ------------ ------ -------------
SHORT-TERM SECURITIES - 2.3% (a)
Commercial Paper
$9,000,000 General Electric Capital Corp. 6.65% 1/2/1997 8,998,337
10,350,000 New Center Asset Trust 7.0% 1/2/1997 10,347,988
4,000,000 Warner-Lambert Co. 6.0% 1/7/1997 3,996,000
--------------
Total Short-Term Securities (at amortized cost) 23,342,325
--------------
Total Investments (cost $1,002,647,372) $1,012,859,592(f)
==============
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, 1996, 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, 1996.
<CAPTION>
Acquisition
Security Date Cost
- -------------------------------------------------------------------- ---------- --------------
<S> <C> <C>
Communications & Power Industries, Inc., Common Stock 12/22/1995 $211,287
Consolidated Hydro, Inc., Stock Warrants 2/8/1994 171,277
CS Wireless Systems, Inc., Common Stock 2/16/1996 30,655
Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 6/14/1993 5,703,525
Triangle Wire & Cable, Inc., Stock Warrants 1/3/1992 500
(e) Denominated in U.S. Dollars.
(f) At December 31, 1996, the aggregate cost of securities for federal income tax purposes
was $1,004,762,583 and the net unrealized appreciation of investments based on that cost was
$8,097,009 which is comprised of $68,241,601 aggregate gross unrealized appreciation and
$60,144,592 aggregate gross unrealized depreciation.
Abbreviations:
(ADR) -- American Depository Receipts
See accompanying notes to portfolio of investments.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Income Portfolio
Portfolio of Investments
December 31, 1996
Principal Maturity
Amount Rate Date Value
- --------- ---------- -------- -------------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 45.4% (a)
Aerospace - 1.5%
$5,000,000 Lockheed Martin Corp., Notes 7.7% 6/15/2008 $5,244,165
7,500,000 Lockheed Martin Corp., Notes 7.45% 6/15/2004 7,750,605
-------------
12,994,770
-------------
Automotive - 0.6%
5,000,000 Ford Motor Credit Co., Notes 6.375% 10/6/2000 4,979,625
-------------
Bank & Finance - 16.3%
12,500,000 Associates Corp. of North America, Notes 6.625% 5/15/1998 12,599,700
5,000,000 Associates Corp. of North America, Sr. Notes 9.125% 4/1/2000 5,385,920
4,000,000 BT Institutional Capital Trust, Capital Trust Preferred Securities 7.75% 12/1/2026 3,829,804
2,000,000 Chase Manhattan Corp., Subordinated Notes 10.375% 3/15/1999 2,165,360
2,000,000 Chase Manhattan Corp., Subordinated Notes 9.375% 7/1/2001 2,210,686
5,000,000 Chemical New York Corp., Debentures 9.75% 6/15/1999 5,384,640
2,000,000 Chevy Chase Bank, F.S.B, Subordinated Debentures 9.25% 12/1/2008 2,040,000
12,000,000 Equitable Life Assurance Society of the United States,
Surplus Notes 6.95% 12/1/2005 11,775,132
5,000,000 First Chicago, N.B.D. Institute, Capital Trust
Preferred Securities, Series B 7.75% 12/1/2026 4,880,275
1,500,000 First Nationwide Escrow Corp., Sr. Subordinated Notes 10.625% 10/1/2003 1,627,500
2,000,000 First USA Capital Trust I, Capital Trust Preferred Securities 9.33% 1/15/2027 2,056,600
6,500,000 General Electric Capital Corp., Debentures 8.85% 4/1/2005 7,317,512
10,000,000 Mellon Capital I, Capital Trust Preferred Securities 7.72% 12/1/2026 9,861,120
10,000,000 Metropolitan Life Insurance Co., Surplus Notes 7.7% 11/1/2015 10,087,600
6,000,000 Midland Bank plc, Subordinated Notes 7.625% 6/15/2006 6,207,360
8,000,000 Nationwide CSN Trust, Trust Notes 9.875% 2/15/2025 8,816,968
5,000,000 New York Life Insurance Co., Surplus Notes 6.4% 12/15/2003 4,875,180
5,000,000 Prudential Insurance Co., Surplus Notes 8.3% 7/1/2025 5,138,770
2,500,000 Reliastar Financial Corp., Sr. Notes 8.625% 2/15/2005 2,715,307
3,500,000 Riggs Capital Trust, Capital Trust Preferred Securities, Series A 8.625% 12/31/2026 3,517,500
7,000,000 Salomon, Inc., Sr. Notes 6.75% 2/15/2003 6,843,865
3,000,000 Societe-Generale- New York, Subordinated Notes 7.4% 6/1/2006 3,053,211
6,000,000 Societe-Generale- New York, Subordinated Notes 9.875% 7/15/2003 6,901,266
4,000,000 Swiss Bank Corp.- New York, Subordinated Debentures 7.5% 7/15/2025 4,030,776
4,500,000 Wells Fargo Capital, Capital Trust Preferred Securities 7.73% 12/1/2026 4,370,580
3,000,000 Wells Fargo Capital I, Capital Trust Preferred Securities 7.96% 12/15/2026 2,999,757
-------------
140,692,389
-------------
Broadcasting - 4.5%
8,000,000 Continental Cablevision, Inc., Sr. Notes 8.3% 5/15/2006 8,550,280
1,500,000 Groupo Televisa S.A., Sr. Notes, Series A 11.375% 5/15/2003 1,614,375
4,000,000 Rogers Cablesystems, Inc., Sr. Secured Second Priority Notes 9.625% 8/1/2002 4,200,000
3,000,000 Rogers Communications Inc., Sr. Notes 9.125% 1/15/2006 2,985,000
5,000,000 TCI Communications, Inc., Sr. Notes 8.65% 9/15/2004 5,126,415
7,500,000 Time Warner, Inc., Notes 9.625% 5/1/2002 8,364,765
8,000,000 Viacom, Inc., Subordinated Debentures 8.0% 7/7/2006 7,667,000
-------------
38,507,835
-------------
Building Products & Materials - 0.2%
2,000,000 Building Materials Corp. of America, Sr. Notes 8.625% 12/15/2006 2,000,000
-------------
Chemicals - 1.9%
2,500,000 ISP Holdings, Inc., Sr. Notes 9.0% 10/15/2003 2,550,000
6,000,000 Millennium America, Inc., Sr. Notes 7.0% 11/15/2006 5,853,978
4,000,000 Sociedad Quimica y Minera de Chile S.A., Loan
Participation Certificates 7.7% 9/15/2006 4,097,968
4,000,000 Uniroyal Chemical Co., Sr. Notes 9.0% 9/1/2000 4,190,000
-------------
16,691,946
-------------
Computers & Office Equipment - 1.1%
10,000,000 International Business Machines Corp., Debentures 7.125% 12/1/2096 9,524,680
-------------
Conglomerates - 0.2%
2,000,000 FMC Corp., Sr. Debentures 7.75% 7/1/2011 2,060,020
-------------
Electric Utilities - 1.3%
2,000,000 El Paso Electric Co., First Mortgage Bonds, Series D 8.9% 2/1/2006 2,120,000
2,000,000 El Paso Electric Co., First Mortgage Bonds, Series E 9.4% 5/1/2011 2,150,000
6,500,000 Empresa Electrica Pehuienche S.A., Notes 7.3% 5/1/2003 6,607,205
-------------
10,877,205
-------------
Electrical Equipment - 0.9%
5,000,000 Westinghouse Electric Corp., Notes 8.375% 6/15/2002 5,145,700
3,000,000 Westinghouse Electric Corp., Sr. Debentures 8.625% 8/1/2012 3,017,235
-------------
8,162,935
-------------
Hospital Management - 1.4%
3,500,000 Allegiance Corp., Debentures 7.8% 10/15/2016 3,528,262
7,000,000 MedPartners, Inc., Sr. Notes 7.375% 10/1/2006 6,984,915
1,500,000 Paracelsus Healthcare Corp., Sr. Subordinated Notes 10.0% 8/15/2006 1,413,750
-------------
11,926,927
-------------
Household Products - 0.7%
5,000,000 Procter & Gamble, Guaranteed ESOP Debentures 9.36% 1/1/2021 6,094,855
-------------
Machinery & Equipment - 0.5%
4,000,000 Newport News Shipbuilding, Inc., Sr. Subordinated Notes 9.25% 12/1/2006 4,145,000
-------------
Mining & Metals - 0.5%
4,000,000 AK Steel Corp., Sr. Notes 9.125% 12/15/2006 4,105,000
-------------
Natural Gas - 1.8%
4,000,000 Coastal Corp., Sr. Debentures 9.75% 8/1/2003 4,585,608
5,000,000 Coastal Corp., Sr. Notes 10.375% 10/1/2000 5,606,030
5,000,000 Columbia Gas Systems, Inc., Series A Notes 6.39% 11/28/2000 4,954,795
-------------
15,146,433
-------------
Petroleum - 3.4%
2,500,000 CITGO Petroleum Corp., Sr. Notes 7.875% 5/15/2006 2,569,360
2,000,000 Flores & Rucks, Inc., Sr. Subordinated Notes 9.75% 10/1/2006 2,125,000
6,174,258 Mobil Oil Corp., ESOP Sinking Fund Debentures 9.17% 2/29/2000 6,472,925
3,000,000 Oryx Energy Co., Notes 8.125% 10/15/2005 3,061,866
4,000,000 Oryx Energy Co., Notes 8.375% 7/15/2004 4,156,120
7,000,000 Petroliam Nasional BHD, Notes 7.75% 8/15/2015 7,230,650
3,000,000 United Meridian Corp., Sr. Subordinated Notes 10.375% 10/15/2005 3,285,000
-------------
28,900,921
-------------
Pollution Control - 0.2%
2,000,000 Allied Waste, North America, Sr. Subordinated Notes 10.25% 12/1/2006 2,107,500
-------------
Retail - 4.6%
8,500,000 Dayton Hudson Corp., Notes 6.4% 2/15/2003 8,333,332
6,000,000 Federated Department Stores, Sr. Notes 10.0% 2/15/2001 6,516,732
5,250,000 Revco D.S., Inc., Sr. Notes 9.125% 1/15/2000 5,492,812
6,000,000 Sears Roebuck Acceptance Corp., Medium Term Notes 6.56% 11/20/2003 5,908,242
10,000,000 Sears Roebuck Acceptance Corp., Medium Term Notes, Series II 6.86% 7/3/2001 10,109,840
3,000,000 Simon DeBartolo Group, L.P., Notes 6.875% 11/15/2006 2,921,460
-------------
39,282,418
-------------
Services - 0.7%
6,000,000 Electronic Data Systems Corp., Notes 6.85% 5/15/2000 6,077,826
-------------
Telecommunications - 1.5%
5,000,000 AirTouch Communications, Inc., Notes 7.5% 7/15/2006 5,157,045
4,500,000 Paging Network, Inc., Sr. Subordinated Notes 10.0% 10/15/2008 4,584,375
3,000,000 Teleport Communications Group, Inc., Sr. Notes 9.875% 7/1/2006 3,225,000
-------------
12,966,420
-------------
Telephone - 0.8%
6,000,000 New York Telephone Co., Debentures 9.375% 7/15/2031 6,793,854
-------------
Textiles & Apparel - 0.8%
7,000,000 Levi Strauss & Co., Notes 6.8% 11/1/2003 6,980,862
-------------
Total Corporate Bonds (cost $385,202,255) 391,019,421
-------------
FOREIGN GOVERNMENT BONDS - 4.3% (a,c)
5,500,000 African Development Bank, Subordinated Notes 6.875% 10/15/2015 5,283,949
3,500,000 Banco Nacional de Obras y Servicios Publicos, S.N.C., Sr. Notes 9.625% 11/15/2003 3,539,375
5,000,000 British Columbia Hydro & Power, Debentures 12.5% 9/1/2013 5,674,345
5,000,000 Inter American Development Bank, Notes 7.0% 6/15/2025 4,932,975
5,000,000 Korea Electric Power Corp., Debentures 7.75% 4/1/2013 5,096,485
6,000,000 Ontario Province, Canada, Debentures 11.75% 4/25/2013 6,692,640
6,000,000 Ontario Province, Canada, Sr. Bonds 7.375% 1/27/2003 6,252,834
-------------
Total Foreign Government Bonds (cost $38,566,622) 37,472,603
-------------
ASSET-BACKED SECURITIES - 15.7% (a)
12,000,000 AT&T Universal Card Master Trust, Class A, Series 1995-2 5.95% 10/17/2002 11,870,760
8,000,000 Bridgestone/Firestone Master Trust, Series 96-1-A 6.17% 7/1/2003 7,968,240
9,000,000 Capita Equipment Receivables Trust, Series 1996-1, Class A4 6.28% 6/15/2000 9,023,760
7,500,000 Chase Manhattan Credit Card, Series 1996-3, Class A 7.04% 2/15/2004 7,696,575
16,000,000 Chase Manhattan Credit Card, Series 1996-4, Class A 6.73% 2/15/2002 16,241,600
10,974,332 Chase Manhattan Grantor Trust, Series 1996-B-A 6.61% 9/15/2002 11,098,123
20,000,000 Deutsche Floorplan Receivables Master Trust, Series 1994-1-A 5.8% 2/15/2001 20,071,000
10,000,000 Discover Card Master Trust I, Series 1996-3-A 6.05% 8/18/2008 9,481,800
7,500,000 NationsBank Credit Card Master Trust, Series 1995-A 6.45% 4/15/2003 7,551,225
12,000,000 Standard Credit Master Trust 1, Credit Card Participation
Certificates, Series 1995-9-A 6.55% 10/7/2007 11,802,120
15,000,000 World Financial Network Credit Card Master Trust, Series 1996-B 6.95% 4/15/2006 15,300,000
8,000,000 World Omni Automobile Lease Trust Certificates,
Series 1996-B, Class A3 6.25% 11/15/2002 8,023,120
-------------
Total Asset-Backed Securities (cost $135,791,920) 136,128,323
-------------
MORTGAGE-BACKED SECURITIES - 13.1% (a)
22,425,936 Federal Home Loan Mortgage Corp., Participation Certificates 6.0% 2011 21,626,654
19,965,886 Government National Mortgage Association,
Modified Pass Through Certificates 7.0% 2024-2026 19,569,686
75,000,000 Government National Mortgage Association,
Modified Pass Through Certificates 6.5% 2026 71,484,375 (d)
-------------
Total Mortgage-Backed Securities (cost $112,574,250) 112,680,715
-------------
U.S. GOVERNMENT - 11.3% (a)
53,000,000 U.S. Treasury Bonds 7.25-12.0% 2003-2022 62,573,581
30,000,000 U.S. Treasury Notes 6.25-7.875% 2001-2004 32,170,614
15,000,000 U.S. Treasury Strips Zero Coupon 5/15/2023 2,520,495
-------------
97,264,690
-------------
PREFERRED STOCKS - 1.7% (a)
60,000 Chevy Chase Capital Corp., Noncumulative
Exchangeable Preferred Stock, Series A 3,127,500
5,000 Fresenius Medical Care Capital Trust, Preferred Stock 5,087,500
20,000 K-III Communications Corp., Preferred Stock, Series D 1,965,000
20,000 Microsoft Corp., Convertible Preferred Stock, Series A 1,602,500
100,000 TransCanada Pipelines, Ltd., Preferred Stock 2,562,500
-------------
Total Preferred Stocks (cost $14,097,500) 14,345,000
-------------
OPTIONS ON U.S. TREASURY BOND FUTURES - 0.01% (a)
U.S. Treasury Bond Futures, 150 call option contracts,
exercise price of $116, expires February 22, 1997
(cost $189,086) 77,344(e)
-------------
Principal Maturity
Amount Rate Date
- ---------------- ------ ------------------
SHORT-TERM SECURITIES - 8.5% (a)
Commercial Paper - 7.3% 6.5% 1/2/1997
$21,200,000 A.I. credit corp. 21 196,172
10,000,000 Asset Securitization Cooperative Corp. 5.33% 1/21/1997 9,970,389
10,000,000 Cargill Financial Services Corp. 5.45% 1/16/1997 9,977,292
9,930,000 CIT Group Holdings, Inc. 7.25% 1/2/1997 9,928,000
12,330,000 St. Paul Cos., Inc. 6.5% 1/2/1997 12,327,774
-------------
63,399,627
-------------
U.S. Government Agency - 1.2%
10,000,000 Federal Home Loan Mortgage Discount Notes 5.4% 1/17/1997 9,976,000
-------------
Total Short-Term Securities (at amortized cost) 73,375,627
Total Investments (cost $855,205,675) $862,363,723(f)
=============
Notes to Portfolio of Investments:
(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, 1996, options on U.S. Treasury Bond Futures valued at
$77,344 were in escrow to cover open call options written as follows:
<CAPTION>
Number of Exercise Expiration
Contracts Price Date Value
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Bond Futures 150 4/28/1904 2/22/97 $30,469
(f) At December 31, 1996, the aggregate cost of securities for federal income tax purposes
was $855,376,117 and the net unrealized appreciation of investments based on that cost was
$6,987,606 which is comprised of $11,487,706 aggregate gross unrealized appreciation and
$4,500,100 aggregate gross unrealized depreciation.
See accompanying notes to portfolio of investments.
</TABLE>
<TABLE>
<CAPTION>
LB Series Fund, Inc.
Money Market Portfolio
Portfolio of Investments
December 31, 1996
Principal Yield to Maturity
Amount Maturity Date Value
----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
BANKER'S ACCEPTANCES - 3.8% (a,c)
$1,000,000 Bankers Trust Co., N.A., New York 5.76% 3/24/1997 $987,244
3,000,000 Bankers Trust Co., N.A., New York 5.37% 3/12/1997 2,969,200
------------
Total Banker's Acceptances 3,956,444
------------
COMMERCIAL PAPER - 85.1% (a,c)
Banking-Domestic - 6.7%
1,000,000 AES Barbers Point, Inc., (Bank of America NT&SA,
Direct Pay Letter of Credit) 5.62% 1/17/1997 997,511
2,000,000 Allegheny University Hospitals, (PNC Bank, N.A.,
Direct Pay Letter of Credit) 5.60% 2/18/1997 1,985,200
2,000,000 Formosa Plastics Corp. USA, Series B, (Bank of America
NT&SA, Direct Pay Letter of Credit) 5.40% 1/15/1997 1,995,831
2,000,000 Hyundai Motor Finance Co., (Bank of America NT&SA,
Direct Pay Letter of Credit) 5.41% 1/21/1997 1,994,067
------------
6,972,609
------------
Banking-Foreign - 11.0%
2,000,000 Comision Federal de Electricidad, Series A, (Westdeutsche
Landesbank Girozentrale, Direct Pay Letter of Credit) 5.40% 2/18/1997 1,985,760
2,000,000 Corporacion Andina de Formento (Barclays Bank plc,
Direct Pay Letter of Credit) 5.54% 2/3/1997 1,989,917
1,000,000 Finance One Funding Corp., (Credit Suisse,
Direct Pay Letter of Credit) 5.52% 4/17/1997 984,188
1,500,000 Finance One Funding Corp., (Credit Suisse,
Direct Pay Letter of Credit) 5.45% 2/13/1997 1,490,325
2,000,000 Fletcher Challenge Finance USA, Inc., (National
Westminster Bank plc, Direct Pay Letter of Credit) 5.50% 3/27/1997 1,974,358
2,000,000 FPL Fuels, Inc., (Barclays Bank plc, Direct Pay Letter of Credit) 5.39% 1/24/1997 1,993,177
1,000,000 U.S. Prime Property, Inc., (ABN AMRO Bank N.V.,
Direct Pay Letter of Credit) 5.42% 4/8/1997 985,639
------------
11,403,364
------------
Computer & Office Equipment - 4.2%
2,000,000 Electronic Data Systems Corp. 5.42% 3/3/1997 1,981,971
2,000,000 IBM Credit Corp. 5.36% 1/27/1997 1,992,330
385,000 International Business Machines Corp. 5.42% 1/8/1997 384,597
------------
4,358,898
------------
Cosmetics & Toiletries - 4.2%
4,000,000 Gillette Co. 5.42% 1/8/1997 3,995,800
345,000 Gillette Co. 5.40% 1/8/1997 344,642
------------
4,340,442
------------
Drugs & Healthcare - 2.0%
140,000 Schering Corp. 5.44% 1/29/1997 139,412
2,000,000 Warner-Lambert Co. 5.37% 3/20/1997 1,977,120
------------
2,116,532
------------
Education - 7.2%
1,500,000 Duke University 5.51% 2/25/1997 1,487,510
2,000,000 Duke University 5.36% 2/5/1997 1,989,694
4,000,000 Yale University 5.43% 3/4/1997 3,963,144
------------
7,440,348
------------
Finance-Automotive - 3.9%
100,000 Ford Motor Credit Co. 5.47% 3/24/1997 98,770
1,000,000 General Motors Acceptance Corp. 5.75% 3/11/1997 989,286
1,000,000 General Motors Acceptance Corp. 5.70% 3/21/1997 987,821
2,000,000 General Motors Acceptance Corp. 5.61% 2/20/1997 1,984,833
------------
4,060,710
------------
Finance-Commercial - 4.4%
2,000,000 CIT Group Holdings, Inc. 5.37% 1/28/1997 1,992,035
1,000,000 CIT Group Holdings, Inc. 7.00% 1/2/1997 999,806
458,000 General Electric Capital Corp. 5.39% 1/17/1997 456,915
1,000,000 General Electric Capital Corp. 5.48% 5/16/1997 980,050
152,000 General Electric Capital Corp. 5.48% 3/17/1997 150,284
------------
4,579,090
------------
Finance-Consumer - 7.7%
2,000,000 AVCO Financial Services, Inc. 5.39% 2/24/1997 1,984,100
2,000,000 AVCO Financial Services, Inc. 5.37% 1/28/1997 1,992,020
2,000,000 Beneficial Corp. 5.38% 2/10/1997 1,988,178
2,000,000 Beneficial Corp. 5.37% 1/22/1997 1,993,805
------------
7,958,103
------------
Finance-Retail - 4.3%
2,000,000 Sears Roebuck Acceptance Corp. 5.38% 2/13/1997 1,987,315
2,000,000 Sears Roebuck Acceptance Corp. 5.52% 1/16/1997 1,995,500
510,000 Sears Roebuck Acceptance Corp. 5.46% 1/31/1997 507,705
------------
4,490,520
------------
Finance-Structured - 11.1%
1,000,000 Asset Securitization Cooperative Corp. 5.44% 2/19/1997 992,677
1,400,000 CXC, Inc. 5.47% 1/8/1997 1,398,516
2,000,000 Delaware Funding Corp. 5.37% 1/14/1997 1,996,158
1,000,000 Delaware Funding Corp. 5.51% 1/10/1997 998,630
2,000,000 Enterprise Funding Corp. 5.63% 1/21/1997 1,993,778
2,000,000 Enterprise Funding Corp. 5.39% 1/22/1997 1,993,793
500,000 Enterprise Funding Corp. 5.55% 2/20/1997 496,181
1,708,176 Norwest Automobile Trust, Series 1996-A-1 5.59% 12/5/1997 1,708,176
------------
11,577,909
------------
Food & Beverage - 1.6%
1,700,000 CPC International, Inc. 6.01% 1/9/1997 1,697,733
------------
Industrial - 2.9%
2,000,000 Chevron Transport Corp., (Guaranteed Chevron Corp.) 5.38% 2/3/1997 1,990,247
1,000,000 Chevron Transport Corp., (Guaranteed Chevron Corp.) 5.41% 2/6/1997 994,640
------------
2,984,887
------------
Insurance - 1.2%
730,000 A.I.G. Funding, Inc. 5.57% 7/21/1997 708,194
240,000 MetLife Funding, Inc. 5.51% 3/7/1997 237,638
165,000 MetLife Funding, Inc. 5.50% 1/30/1997 164,276
100,000 Prudential Funding Corp. 5.47% 1/2/1997 99,985
------------
1,210,093
------------
Leisure & Entertainment - 1.4%
1,500,000 Disney (Walt) Co. 5.94% 3/21/1997 1,481,238
------------
Natural Gas - 0.7%
722,000 Northern Illinois Gas Co. 5.64% 2/14/1997 717,058
------------
Petroleum - 2.3%
2,420,000 Koch Industries, Inc. 7.00% 1/2/1997 2,419,529
------------
Sovereign/Foreign Government - 4.4%
2,581,000 Kingdom of Sweden 5.74% 2/3/1997 2,567,514
1,000,000 Kingdom of Sweden 5.58% 6/27/1997 973,598
1,000,000 Kingdom of Sweden 5.49% 3/27/1997 987,368
------------
4,528,480
------------
U.S. Municipal - 3.9%
2,000,000 California Pollution Control Finance Authority
(Guaranteed Shell Oil Co.) 5.48% 2/12/1997 2,000,000
2,000,000 California Pollution Control Finance Authority
(Guaranteed Shell Oil Co.) 5.48% 3/14/1997 2,000,000
------------
4,000,000
------------
Total Commercial Paper 88,337,543
------------
CERTIFICATES OF DEPOSIT - 1.9% (a,c)
Euro Dollar
1,000,000 ABN AMRO Bank, N.V. 5.47% 1/2/1997 999,998
1,000,000 Morgan Guaranty Trust Co., New York 5.63% 8/12/1997 1,000,289
------------
Total Certificates of Deposit 2,000,287
------------
MEDIUM TERM NOTE - 1.4% (a,c)
1,500,000 CIT Group Holdings, Inc., Medium Term Note 5.55% 3/21/1997 1,500,390
------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTE - 1.9% (a,c)
2,000,000 Federal Home Loan Mortgage Corp., Discount Notes 5.52% 3/14/1997 1,978,480
------------
ADJUSTABLE RATE NOTES - 5.8% (a,b)
2,000,000 Federal Home Loan Bank, Consolidated Bonds 5.49% 1/23/1997 1,999,393
2,000,000 First Bank, N.A., Minneapolis, Bank Note 5.52% 1/20/1997 1,999,059
2,000,000 PNC Bank, N.A., Pittsburgh, Medium Term Bank Notes 5.28% 1/2/1997 1,999,020
------------
Total Adjustable Rate Notes 5,997,472
------------
OTHER - 0.1% (a,b)
60,000 Federated Master Trust 5.15% 1/2/1997 60,000
------------
Total Investments (at amortized cost) $103,830,616 (d)
============
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 the next
scheduled interest reset date are shown.
(c) Yield to maturity is calculated at date of purchase.
(d) Also represents cost for federal income tax purposes.
See accompanying notes to portfolio of investments.
</TABLE>
<TABLE>
<CAPTION>
LB Series Fund, Inc.
Opportunity Growth Portfolio
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $259,897,950) $255,557,039
Cash 270,013
Receivable for investment securities sold 2,100,260
Dividend and interest receivable 51,403
------------
Total assets 257,978,715
------------
LIABILITIES:
Payable for investment securities purchased 11,427,416
============
NET ASSETS $246,551,299
============
NET ASSETS CONSIST OF:
Paid-in capital (21,430,739 shares of capital
stock outstanding) $254,590,079
Accumulated net realized loss from sale
of investments (3,697,869)
Unrealized net depreciation of investments (4,340,911)
------------
NET ASSETS $246,551,299
============
Net asset value and public offering price per share
($246,551,299 (divided by) 21,430,739 shares of capital
stock outstanding) $11.50
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period from January 18, 1996 to
December 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $23,926
Interest income 826,436
------------
Total income 850,362
------------
Expenses --
Investment advisory fee 505,507
------------
Net investment income 344,855
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 4,508,424
Net realized loss on closed or expired
option contracts written (15,761)
------------
Net realized gain on investments 4,492,663
Net change in unrealized depreciation of investments (4,340,911)
------------
Net gain on investments 151,752
------------
Net increase in net assets resulting
from operations $496,607
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the period from
January 18, 1996
(effective date) to
December 31, 1996
--------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $344,855
Net realized gain (loss) on investments 4,492,663
Net change in unrealized appreciation or depreciation
of investments (4,340,911)
------------
Net increase in net assets resulting from operations 496,607
------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income (344,855)
Net realized gain on investments (8,190,532)
------------
Total distributions (8,535,387)
------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 247,867,947
Reinvested dividend distributions 8,535,387
Cost of shares redeemed (1,813,255)
------------
Net increase in net assets from capital stock transactions 254,590,079
------------
Net increase in net assets 246,551,299
NET ASSETS:
Beginning of period --
------------
End of period $246,551,299
============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB Series Fund, Inc.
World Growth Portfolio
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
<S> <C>
ASSETS:
Investments in securities, at value
(cost $162,235,512) $172,568,403
Cash (including foreign currency holdings
of $1,385,183) 1,387,642
Receivable for investment securities sold 330,866
Dividend and interest receivable 209,655
------------
Total assets 174,496,566
------------
LIABILITIES:
Payable for investment securities purchased 401,688
Unrealized depreciation of foreign
currency contracts held 2,330
------------
Total liabilities 404,018
------------
NET ASSETS $174,092,548
============
NET ASSETS CONSIST OF:
Paid-in capital (15,900,731 shares of
capital stock outstanding) $163,854,167
Accumulated net realized loss from sale
of investments and foreign
currency transactions (103,395)
Unrealized net appreciation of investments and
on translation of assets and liabilities
in foreign currencies 10,341,776
------------
NET ASSETS $174,092,548
============
Net asset value and public offering price per share
($174,092,548 (divided by) 15,900,731 shares of
capital stock outstanding) $10.95
=======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period from January 18, 1996 to
December 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income (net of foreign taxes of $205,229) $1,412,086
Interest income 549,909
------------
Total income 1,961,995
------------
Expenses --
Investment advisory fee 761,089
------------
Net investment income 1,200,906
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investment transactions 101,590
Net realized gain on foreign currency transactions 26,954
------------
Net realized gain on investments and foreign
currency transactions 128,544
------------
Net change in unrealized appreciation of investments 10,332,890
Net change in unrealized appreciation on translation
of assets and liabilities in foreign currencies 8,886
------------
Net change in unrealized appreciation of
investments and on translation of assets and
liabilities in foreign currencies 10,341,776
------------
Net gain on investments and foreign currency 10,470,320
------------
Net increase in net assets resulting
from operations $11,671,226
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the period from
January 18, 1996
(effective date) to
December 31, 1996
--------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $1,200,906
Net realized gain on investments
and foreign currency transactions 128,544
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and liabilities
in foreign currencies 10,341,776
------------
Net increase in net assets resulting from operations 11,671,226
------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income (1,432,845)
------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 163,860,588
Reinvested dividend distributions 1,432,845
Cost of shares redeemed (1,439,266)
------------
Net increase in net assets from capital stock transactions 163,854,167
------------
Net increase in net assets 174,092,548
NET ASSETS:
Beginning of period --
------------
End of period $174,092,548
============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB Series Fund, Inc.
Growth Portfolio
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $1,515,167,959) $1,656,476,411
Receivable for investment securities sold 25,986,202
Dividend and interest receivable 1,759,631
--------------
Total assets 1,684,222,244
--------------
LIABILITIES:
Open options written, at value
(premium received $334,242) 305,100
Payable for investment securities purchased 25,336,207
--------------
Total liabilities 25,641,307
--------------
NET ASSETS $1,658,580,937
==============
NET ASSETS CONSIST OF:
Paid-in capital (85,832,808 shares of
capital stock outstanding) $1,292,877,108
Accumulated net realized gain from
sale of investments 224,366,235
Unrealized net appreciation of investments 141,337,594
--------------
NET ASSETS $1,658,580,937
==============
Net asset value and public offering price per share
($1,658,580,937 (divided by) 85,832,808 shares of
capital stock outstanding) $19.32
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $19,181,790
Interest income 6,299,587
-----------
Total income 25,481,377
-----------
Expenses --
Investment advisory fee 5,622,221
-----------
Net investment income 19,859,156
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 225,071,076
Net realized gain on closed or expired
option contracts written 946,804
-----------
Net realized gain on investments 226,017,880
Net change in unrealized appreciation of investments 40,726,963
-----------
Net gain on investments 266,744,843
-----------
Net increase in net assets resulting
from operations $286,603,999
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1996 and 1995
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $19,859,156 $14,366,663
Net realized gain on investments 226,017,880 178,314,745
Net change in unrealized appreciation or depreciation
of investments 40,726,963 93,851,521
-------------- --------------
Net increase in net assets resulting from operations 286,603,999 286,532,929
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (19,859,156) (14,366,663)
Net realized gain on investments (156,587,523) --
-------------- --------------
Total distributions (176,446,679) (14,366,663)
-------------- --------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 226,899,132 176,315,837
Reinvested dividend distributions 176,446,679 14,366,663
Cost of shares redeemed (28,066,347) (11,526,193)
-------------- --------------
Net increase in net assets from capital stock transactions 375,279,464 179,156,307
-------------- --------------
Net increase in net assets 485,436,784 451,322,573
NET ASSETS:
Beginning of period 1,173,144,153 721,821,580
-------------- --------------
End of period $1,658,580,937 $1,173,144,153
============== ==============
</TABLE>
<TABLE>
<CAPTION>
LB Series Fund
High Yield Portfolio
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
<S> <C>
ASSETS:
Investments in securities, at value
(cost $1,002,647,372) $1,012,859,592
Cash 1,724,182
Receivable for investment securities sold 1,188,375
Interest and dividend receivable 14,171,809
--------------
Total assets 1,029,943,958
--------------
LIABILITIES:
Payable for investment securities purchased 3,207,442
--------------
Total liabilities 3,207,442
--------------
NET ASSETS $1,026,736,516
==============
NET ASSETS CONSIST OF:
Paid-in capital (102,107,904 shares of
capital stock outstanding) $1,023,694,789
Accumulated net realized loss from sale
of investments (7,170,493)
Unrealized net appreciation of investments 10,212,220
--------------
NET ASSETS $1,026,736,516
==============
Net asset value and public offering price per share
($1,026,736,516 (divided by) 102,107,904 shares of
capital stock outstanding) $10.06
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $84,287,225
Dividend income 8,357,979
-----------
Total income 92,645,204
-----------
Expenses --
Investment advisory fee 3,624,036
-----------
Net investment income 89,021,168
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 19,530,710
Net change in unrealized appreciation of investments (9,358,262)
-----------
Net gain on investments 10,172,448
-----------
Net increase in net assets resulting
from operations $99,193,616
===========
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1996 and 1995
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $89,021,168 $68,300,887
Net realized gain (loss) on investment transactions 19,530,710 (17,634,503)
Net change in unrealized appreciation or depreciation
of investments (9,358,262) 70,247,942
-------------- --------------
Net increase in net assets resulting from operations 99,193,616 120,914,326
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (89,021,168) (68,300,887)
-------------- --------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 156,539,510 95,025,930
Reinvested dividend distributions 89,367,857 68,106,629
Cost of shares redeemed (21,833,105) (18,896,967)
-------------- --------------
Net increase in net assets from capital stock transactions 224,074,262 144,235,592
-------------- --------------
Net increase in net assets 234,246,710 196,849,031
NET ASSETS:
Beginning of period 792,489,806 595,640,775
-------------- --------------
End of period $1,026,736,516 $792,489,806
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB Series Fund, Inc.
Income Portfolio
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
<S> <C>
ASSETS:
Investments in securities, at value
(cost $855,205,675) $862,363,723
Cash 57,409
Interest and dividend receivable 10,758,904
------------
Total assets 873,180,036
------------
LIABILITIES:
Open options written, at value
(premium received $99,197) 30,469
Payable for investment securities purchased 71,989,583
------------
Total liabilities 72,020,052
------------
NET ASSETS $801,159,984
============
NET ASSETS CONSIST OF:
Paid-in capital (82,175,962 shares of
capital stock outstanding) $819,799,248
Accumulated net realized loss from sale
of investments (25,866,039)
Unrealized net appreciation of investments 7,226,775.00
------------
NET ASSETS $801,159,984
============
Net asset value and public offering price per share
($801,159,984 (divided by) 82,175,962 shares of
capital stock outstanding) $9.75
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $53,738,639
Dividend income 207,112
-----------
Total income 53,945,751
-----------
Expenses --
Investment advisory fee 3,107,396
-----------
Net investment income 50,838,355
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investment transactions (4,092,922)
Net realized gain on closed or expired
option contracts written 86,977
Net realized gain on closed futures contracts 267,289
-----------
Net realized loss on investments (3,738,656)
Net change in unrealized depreciation of investments (21,236,306)
-----------
Net loss on investments (24,974,962)
-----------
Net increase in net assets resulting
from operations $25,863,393
===========
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1996 and 1995
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $50,838,355 $45,596,598
Net realized gain (loss) on investment transactions (3,738,656) 14,948,726
Net change in unrealized appreciation or depreciation
of investments (21,236,306) 57,100,261
------------ ------------
Net increase in net assets resulting from operations 25,863,393 117,645,585
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (50,838,355) (45,596,598)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 80,241,834 72,115,092
Reinvested dividend distributions 51,093,053 45,455,976
Cost of shares redeemed (67,256,668) (35,776,663)
------------ ------------
Net increase in net assets from capital stock transactions 64,078,219 81,794,405
------------ ------------
Net increase in net assets 39,103,257 153,843,392
NET ASSETS:
Beginning of period 762,056,727 608,213,335
------------ ------------
End of period $801,159,984 $762,056,727
============ ============
</TABLE>
<TABLE>
<CAPTION>
LB Series Fund, Inc.
Money Market Portfolio
Financial Statements
Statement of Assets and Liabilities
December 31, 1996
<S> <C>
ASSETS:
Investments in securities, at amortized
cost and value $103,830,616
Cash 5,591.00
Interest receivable 84,419.00
--------------
Total assets 103,920,626.00
--------------
NET ASSETS $103,920,626
==============
NET ASSETS CONSIST OF:
Paid-in capital (103,920,626 shares of
capital stock outstanding) $103,920,626
==============
Net asset value and public offering price per share
($103,920,626 (divided by) 103,920,626 shares of
capital stock outstanding) $1.00
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1996
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $4,457,893
Expenses --
Investment advisory fee 325,432
Net investment income $4,132,461
==========
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1996 and 1995
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $4,132,461 $2,658,387
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (4,132,461) (2,658,387)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 75,776,304 52,883,017
Reinvested dividend distributions 4,152,037 2,645,101
Cost of shares redeemed (42,157,682) (31,260,652)
------------ ------------
Net increase in net assets from capital stock transactions 37,770,659 24,267,466
------------ ------------
Net increase in net assets 37,770,659 24,267,466
NET ASSETS:
Beginning of period 66,149,967 41,882,501
------------ ------------
End of period $103,920,626 $66,149,967
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB Series Fund, Inc.
Financial Highlights
For a share outstanding throughout each period (a)
For the period from
January 18, 1996
(effective date) to
OPPORTUNITY GROWTH PORTFOLIO December 31, 1996
-------------------
<S> <C>
Net asset value, beginning of period $10.00
-------
Income From Investment Operations --
Net investment income 0.02
Net realized and unrealized gain
(loss) on investments (b) 1.90
-------
Total from investment operations 1.92
-------
Less Distributions --
Dividends from net investment income (0.02)
Distributions from net realized
gain on investments (0.40)
-------
Total distributions (0.42)
-------
Net asset value, end of period $11.50
=======
Total investment return at net asset value (c) 19.17%
Net assets, end of period ($ millions) $246.6
Ratio of expenses to average net assets 0.40%(d)
Ratio of net investment income to
average net assets 0.27%(d)
Portfolio turnover rate 155%
Average Commission Rate (e) $0.0342
</TABLE>
<TABLE>
<CAPTION>
For the period from
January 18, 1996
(effective date) to
WORLD GROWTH PORTFOLIO December 31, 1996
--------------------
<S> <C>
Net asset value, beginning of period $10.00
-------
Income From Investment Operations --
Net investment income 0.08
Net realized and unrealized gain
(loss) on investments (b) 0.96
-------
Total from investment operations 1.04
-------
Less Distributions --
Dividends from net investment income (0.09)
-------
Net asset value, end of period $10.95
=======
Total investment return at net asset value (c) 10.41%
Net assets, end of period ($ millions) $174.1
Ratio of expenses to average net assets 0.85%(d)
Ratio of net investment income to
average net assets 1.34%(d)
Portfolio turnover rate 9%
Average Commission Rate (e) $0.0265
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $18.27 $13.51 $14.76 $13.89 $14.85
------- ------- ------- ------- -------
Income From Investment Operations --
Net investment income 0.24 0.24 0.20 0.29 0.23
Net realized and unrealized gain
(loss) on investments (b) 3.43 4.76 (0.87) 1.08 0.85
------- ------- ------- ------- -------
Total from investment operations 3.67 5.00 (0.67) 1.37 1.08
------- ------- ------- ------- -------
Less Distributions --
Dividends from net investment income (0.24) (0.24) (0.20) (0.29) (0.23)
Distributions from net realized
gain on investments (2.38) -- (0.38) (0.21) (1.81)
------- ------- ------- ------- -------
Total distributions (2.62) (0.24) (0.58) (0.50) (2.04)
------- ------- ------- ------- -------
Net asset value, end of period $19.32 $18.27 $13.51 $14.76 $13.89
======= ======= ======= ======= =======
Total investment return at net asset value (c) 22.44% 37.25% -4.66% 10.10% 8.13%
Net assets, end of period ($ millions) $1,658.6 $1,173.1 $721.8 $534.5 $231.0
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 1.41% 1.53% 1.52% 2.17% 1.90%
Portfolio turnover rate 223% 184% 135% 243% 230%
Average Commission Rate (e) $0.0629 n/a n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD PORTFOLIO 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.94 $9.18 $10.76 $9.62 $9.07
------- ------- ------- ------- -------
Income From Investment Operations --
Net investment income 0.98 0.96 0.97 0.96 1.02
Net realized and unrealized gain
(loss) on investments (b) 0.12 0.76 (1.40) 1.16 0.71
------- ------- ------- ------- -------
Total from investment operations 1.10 1.72 (0.43) 2.12 1.73
------- ------- ------- ------- -------
Less Distributions --
Dividends from net investment income (0.98) (0.96) (0.97) (0.96) (1.02)
Distributions from net realized
gain on investments -- -- (0.18) (0.02) (0.16)
------- ------- ------- ------- -------
Total distributions (0.98) (0.96) (1.15) (0.98) (1.18)
------- ------- ------- ------- -------
Net asset value, end of period $10.06 $9.94 $9.18 $10.76 $9.62
======= ======= ======= ======= =======
Total investment return at net asset value (c) 11.55% 19.62% -4.38% 22.91% 20.08%
Net assets, end of period ($ millions) $1,026.7 $792.5 $595.6 $444.5 $154.3
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 9.83% 9.94% 9.75% 9.29% 10.69%
Portfolio turnover rate 107% 67% 44% 68% 80%
</TABLE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.08 $9.04 $10.36 $9.87 $10.01
------- ------- ------- ------- -------
Income From Investment Operations --
Net investment income 0.63 0.65 0.64 0.63 0.73
Net realized and unrealized gain
(loss) on investments (b) (0.33) 1.04 (1.11) 0.49 0.15
------- ------- ------- ------- -------
Total from investment operations 0.30 1.69 (0.47) 1.12 0.88
------- ------- ------- ------- -------
Less Distributions --
Dividends from net investment income (0.63) (0.65) (0.64) (0.63) (0.73)
Distributions from net realized
gain on investments -- -- (0.21) -- (0.29)
------- ------- ------- ------- -------
Total distributions (0.63) (0.65) (0.85) (0.63) (1.02)
------- ------- ------- ------- -------
Net asset value, end of period $9.75 $10.08 $9.04 $10.36 $9.87
======= ======= ======= ======= =======
Total investment return at net asset value (c) 3.21% 19.36% -4.68% 11.66% 9.23%
Net assets, end of period ($ millions) $801.2 $762.1 $608.2 $566.9 $254.7
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 6.54% 6.81% 6.78% 6.23% 7.29%
Portfolio turnover rate 150% 132% 139% 153% 115%
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<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 investment operations 0.05 0.06 0.04 0.03 0.03
Less: Dividends from net investment income (0.05) (0.06) (0.04) (0.03) (0.03)
------- ------- ------- ------- -------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
Total return (c) 5.20% 5.71% 4.00% 2.87% 3.53%
Net assets, end of period ($ millions) $103.9 $66.1 $41.9 $24.9 $26.6
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 5.07% 5.55% 4.03% 2.83% 3.45%
Notes to Financial Highlights:
(a) All per share amounts have been rounded to the nearest cent.
(b) The amount shown is a balancing figure and may not accord with the change in aggregate gains
and losses of portfolio securities due to the timing of sales and redemption of fund shares.
(c) Total investment return assumes dividend reinvestment and does not reflect the effect of a sales charge.
(d) Computed on an annualized basis.
(e) Average commission rate is based on total broker commissions incurred in connection with execution of
portfolio transactions during the period, divided by the sum of all portfolio shares purchased and sold
during the period that were subject to a commission. Broker commissions are treated as capital items
that increase the cost basis of securities purchased, or reduce the proceeds of securities sold.
See accompanying notes to the financial statements.
</TABLE>
Notes to Financial Statements
December 31, 1996
(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 in each of 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.
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, Financial Futures and Forward Foreign Currency Contracts
The Fund, with the exception of the Money Market Portfolio, may 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 foreign currency contracts to protect
against adverse foreign exchange rate fluctuation.
Option contracts are valued daily and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon
expiration or closing of the option transaction. When an option is
exercised, the proceeds on sale for a written call option or the cost of
a security for purchased put and call options is adjusted by the amount
of premium received or paid.
Upon entering into a futures contract, the Fund is required to deposit
initial margin, either cash or securities in an amount equal to a
certain percentage of the contract value. Subsequent variation margin
payments are made or received by the Fund each day. The variation margin
payments are equal to the daily changes in the contract value and are
recorded as unrealized gains and losses. The Fund realizes a gain or
loss when the contract is closed or expires.
Forward 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.
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 $653,713 from such
fees.
Distributions to Shareholders
Dividends from net investment income, if available, are declared and
reinvested daily for the High Yield, Income and Money Market Portfolios,
quarterly for the Growth Portfolio, and annually for the Opportunity
Growth and World Growth Portfolios. With the exception of the Money
Market Portfolio, net realized gains from securities transactions, if
any, are distributed at least annually after the close of the Fund's
fiscal year. Short-term gains and 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.
It is the policy of the Fund to reclassify the net effect of permanent
differences between book and taxable income to trust capital accounts on
the statements of assets and liabilities. As a result of permanent book-
to-tax differences for the year ended December 31, 1996, accumulated net
realized gain or loss from the sale of investments was decreased by
$231,939 and undistributed net investment income was increased by
$231,939 for the World Growth Portfolio. These reclassifications have no
effect on net assets, net asset value per share, the change in net
assets resulting from operations, or on the amount of income available
for distribution to shareholders.
Other
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
Investment Advisory Fees
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, Growth, High Yield, Income and
Money Market Portfolios, 0.40%; World Growth Portfolio, 0.85%.
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.
Other Expenses
All other expenses associated with operating the Fund are paid or
reimbursed to the Fund by LB and LBVIP pursuant to an Expense
Reimbursement Agreement. The Expense Reimbursement Agreement can be
terminated at any time by the mutual agreement of the Fund, LB and
LBVIP, but the Fund, LB and LBVIP currently contemplate that the Expense
Reimbursement Agreement will continue so long as the Fund remains in
existence.
The Fund has adopted a deferred compensation plan which allows the
independent directors of the Fund to defer the receipt of all or a
portion of directors fees that are payable on or after January 1, 1996.
Participation in the plan is voluntary. Amounts that are deferred are
invested in the Lutheran Brotherhood Family of Funds until distribution
in accordance with the plan.
Certain officers and non-independent directors of the Fund are officers
of Lutheran Brotherhood and officers or directors of LBVIP; however,
they receive no compensation from the Fund.
(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, 1996.
(5) DISTRIBUTIONS FROM CAPITAL GAINS
During the year ended December 31, 1996, a distribution from net
realized capital gains of $156,587,523 was paid by the Growth Portfolio.
This distribution relates to net capital gains realized during the year
ended December 31, 1995.
(6) CAPITAL LOSS CARRYOVER
During the year ended December 31, 1996, the High Yield Portfolio
utilized $20,382,802 of its capital loss carryover against net realized
capital gains. At December 31, 1996, the High Yield and Income
Portfolios had accumulated net realized capital loss carryovers expiring
as follows:
High Yield Income
Year Portfolio Portfolio
-------- ------------ --------------
2002 -- $21,666,184
2003 $5,055,282 --
2004 -- 3,667,020
------------ ------------
$5,055,282 $25,333,204
------------ ------------
To the extent these Portfolios realize future net capital gains, taxable
distributions will be reduced by any unused capital loss carryovers.
Temporary differences of $3,697,869, $264,497, $6,625,013, $2,115,211
and $532,835 existed between accumulated net realized capital gains or
losses for financial statement and tax purposes as of December 31, 1996
for the Opportunity Growth, World Growth, Growth, High Yield and Income
Portfolios, respectively. These differences are due primarily to
deferral of capital losses for tax purposes.
(7) INVESTMENT TRANSACTIONS
Purchases and Sales of Investment Securities
For the year ended December 31, 1996, the cost of purchases and the
proceeds from sales of investment securities other than U.S. Government
and short term securities were as follows:
In thousands
----------------------------------
Portfolio Purchases Sales
- ------------------------------------------------------------------------
Opportunity Growth $ 413,268 $ 179,194
World Growth 157,872 7,525
Growth 3,128,687 2,890,296
High Yield 1,125,381 914,903
Income 575,421 420,227
Purchases and sales of U.S. Government securities were:
In thousands
----------------------------------
Portfolio Purchases Sales
- ------------------------------------------------------------------------
Growth $ 7,904 $ 13,233
Income 562,417 695,266
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 $346,500 at December 31, 1996 which
represented 0.03% 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 underlying an option or
futures contract may not correlate perfectly with the movement in the
prices of the portfolio securities being hedged. A lack of correlation
could render the Fund's hedging strategy unsuccessful and could result
in a loss to the Fund. In the event that a liquid secondary market would
not exist, the Fund could be prevented from entering into a closing
transaction which could result in additional losses to the Fund.
<TABLE>
<CAPTION>
Open Option Contracts
The number of contracts and premium amounts associated with call option
contracts written during the year ended December 31, 1996 were as
follows:
Opportunity Growth Portfolio Growth Portfolio Income Portfolio
---------------------------- ------------------------- -------------------------
Number of Premium Number of Premium Number of Premium
Contracts Amount Contracts Amount Contracts Amount
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 -- -- -- -- -- --
Opened 532 100,924 17,785 3,102,639 11,825 730,514
Closed (532) (100,924) (10,784) (1,993,875) (11,275) (513,869)
Expired -- -- (4,742) (476,033) (400) (117,448)
Exercised -- -- (1,261) (298,489) -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 -- $ -- 998 $334,242 150 $99,197
============ ============ ============ ============ ============ ============
</TABLE>
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.
(8) 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 400,000,000 $ 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:
<TABLE>
<CAPTION>
Opportunity World High Money
Growth Growth Growth Yield Income Market
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Shares outstanding at
December 31, 1994 N/A N/A 53,435,175 64,885,392 67,282,998 41,882,501
Shares sold N/A N/A 10,639,507 9,776,871 7,399,297 52,883,017
Shares issued on reinvestment
of dividends and distributions N/A N/A 860,983 7,060,502 4,735,997 2,645,101
Shares redeemed N/A N/A (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
Shares sold 20,829,993 15,909,365 12,716,616 15,616,822 8,257,064 75,776,304
Shares issued on reinvestment
of dividends and distributions 741,927 130,856 10,462,909 8,924,334 5,273,056 4,152,037
Shares redeemed (141,181) (139,490) (1,544,344) (2,175,610) (6,968,350) (42,157,682)
------------ ------------ ------------ ------------ ------------ ------------
Shares outstanding at
December 31, 1996 21,430,739 15,900,731 85,832,808 102,107,904 82,175,962 103,920,626
============ ============ ============ ============ ============ ============
</TABLE>
LB Series Fund, Inc.
Opportunity Growth Portfolio
World Growth Portfolio
Growth Portfolio
High Yield Portfolio
Income Portfolio
Money Market Portfolio
Directors
Rolf F. Bjelland
Charles W. Arnason
Herbert F. Eggerding, Jr.
Connie M. Levi
Bruce J. Nicholson
Ruth E. Randall
Officers
Rolf F. Bjelland James M. Odland
Chairman and President Assistant Secretary
Otis F. Hilbert Randall L. Wetherille
Secretary and Vice President Assistant Secretary
James R. Olson Wade M. Voigt
Vice President Treasurer
James M. Walline Rand E. Mattsson
Vice President Assistant Treasurer
Richard B. Ruckdashel
Vice President
This report is authorized for distribution to prospective
investors only when preceded or accompanied by the
current prospectuses.
[LUTHERAN BROTHERHOOD LOGO]
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PRINTED ON THE CIRCLE OF THE COMPASS]
Semiannual Report
for Variable Products
June 30, 1997
[LUTHERAN BROTHERHOOD LOGO OMITTED]
[PHOTO OF MR. BJELLAND OMITTED]
Our Message to You
June 30, 1997
Dear Shareholder,
Enclosed is the Semiannual Report for the LB Series Fund, Inc. (the
Fund), which is the underlying investment vehicle for all variable
annuity and variable life insurance contracts issued by Lutheran
Brotherhood and Lutheran Brotherhood Variable Insurance Products
Company. This report covers the six months ended June 30, 1997, and
provides a summary of the economic and market trends that influenced
the returns from stocks, bonds and money market instruments during the
period. The report also includes reviews of recent investment
strategies that the individual portfolio managers used to benefit from
these trends -- as well as financial statements for each portfolio.
The last six months may have resembled a roller-coaster ride for many
investors. After a strengthening economy helped major stock market
indexes break new records, fears of higher inflation and interest
rates caused stocks to tumble. Once investors realized that inflation
was under control, however, stock prices rebounded sharply to deliver
exceptional gains for the first half of the year. Bond prices also
dipped early in the year and then recovered later in the period.
Such market fluctuations demonstrate the importance of taking a long-
term approach toward investing. Individual markets and sectors often
experience temporary weakness, only to emerge with greater strength
and potential for gains. Investors who stuck with their long-term
strategies during the recent market downturns kept themselves
positioned to benefit from the market rallies that followed.
The behavior of financial markets over the last six months also
underscores the value of allocating your investments over different
asset classes. Although the stock and bond markets weakened this
spring, their weaknesses occurred for different lengths of time and
varied in intensity. This is because the bond market often views
economic conditions differently from the stock market, and vice versa.
Likewise, individual sectors within the stock and bond markets can
respond differently to the same economic climate. By investing in many
asset classes and market sectors, you have a better chance that some
portion of your investments is performing well. Over time, this can
smooth out your investment returns and make it easier to reach your
financial goals.
These are remarkable times for investors in the securities markets. As
you'll read in our Economic and Market Overview that follows, the U.S.
economy is thriving and attracting investors from around the globe.
Meanwhile, new and exciting growth stories are emerging in countries
outside of the United States from Europe to the Pacific Rim to Latin
America -- creating plentiful opportunities for investors in foreign
securities.
Yet, we caution investors to not get overly excited when the market
sets new highs or overly concerned as it stumbles through its
inevitable corrections. These events, though exciting from a
historical standpoint, are merely shorter legs of a much longer
journey. Staying focused on a longer-term investment horizon and
remaining disciplined in your investing strategy will provide the
surest route to your destination.
We hope this Semiannual Report will be useful as you review your
financial program. If you have questions or would like additional
information, please contact your Lutheran Brotherhood representative,
or call us toll-free at 1-800-423-7056.
Sincerely,
/S/ROLF F. BJELLAND
Rolf F. Bjelland
President and Chairman
LB Series Fund, Inc.
Economic and Market Overview June 30, 1997
Continued strong economic expansion, with relatively low inflation and
interest rates, helped stocks and bonds earn solid returns in the
first half of 1997.
Although nervousness about higher future inflation caused the stock
market to weaken from February to April, it quickly recovered and set
new highs. During the period the Standard & Poor's 500 Index earned a
total return of 20.55%, a six-month return that nearly doubled the
average 12-month return that stocks have enjoyed in recent decades.
Stocks rallied on unexpected strength in corporate earnings and a
positive balance of supply and demand. Demand increased in large part
as a result of continued strong cash flow into equity mutual funds and
variable insurance and annuities. Meanwhile, new mergers, acquisitions
and corporate stock buyback programs acted to reduce stock supplies.
Moderate economic growth with low inflation also benefited stocks
overseas. As Japanese stocks rebounded sharply from earlier weakness
and stocks in Europe and Latin America continued to gain, Morgan
Stanley Capital International's Europe, Australia and Far East (EAFE)
Index returned 11.36% during the period.
Hit hard by inflation concerns, U.S. bonds earned more modest returns.
Although the Federal Reserve raised interest rates just 0.25%, strong
growth and low unemployment caused investors to fear additional rate
hikes for much of the period. Eventually, however, greater optimism
took hold in May and June, and bond prices recovered the ground they'd
lost. This left the Lehman Brothers Aggregate Bond Index with a six-
month total return of 3.09%.
Low Inflation Calms Interest Rate Fears
The year started with strong economic growth and unexpected gains in
corporate earnings. And, though investors feared the Fed might enact a
series of rate hikes to thwart inflation, inflation remained moderate
without them. Confident that the seven-year-old economic expansion
would continue, investors continued to add cash to equity mutual
funds.
Meanwhile, bond yields were rising on expectations of higher
inflation. Eventually, this put downward pressure on stock prices --
which gave back most of their earlier gains by the middle of April.
Soon, however, signs of slower growth and lower inflation had
investors convinced that the Fed would suspend any additional interest
rate increases. After the yield for 30-year Treasury bonds reached a
nine-month high of 7.17%, bond yields began to fall. By the end of
June, long-term Treasury yields were back to February levels, with
bond prices rebounding sharply and stock prices once again setting new
highs.
Though they have lagged large-company issues since the middle of 1996,
prices for small-company stocks responded well during the spring
rally. However, stocks of large companies continued to dominate, with
drug stocks and other consumer staples remaining the top performers,
along with stocks of large technology and financial firms. In the
fixed-income market, prices for corporate bonds outperformed U.S.
Treasury bonds when rates were falling, but lagged Treasuries when
rates rose.
A Bright Outlook
Stock prices have risen strongly for two and a half years, supported
in large part by rapid growth in corporate earnings. If the economy
continues to grow moderately, inflation remains modest, and earnings
remain healthy, stock prices could have further room to advance. Of
course, with prices at historic highs, the occasional market
correction is also to be expected.
Because the current economic expansion has been less robust than many
before it, and is less inclined toward inflation, we believe this
expansion may have greater durability. Although consumer debt is
relatively high, low unemployment and solid wages have sustained
consumer demand for goods. Ample supplies of goods, without excess
inventories, argues for continued low levels of inflation and further
production gains.
Although inflation fears may temporarily drive bond yields higher, we
believe the very positive economic climate could encourage lower
yields and higher prices in the second half of the year. We are also
encouraged by recent legislative progress in reducing federal budget
deficits. Finally, we will continue to monitor the value of the U.S.
dollar versus other world currencies. Should the dollar remain strong,
we believe U.S. stocks and bonds will continue to attract foreign
investors.
Opportunity Growth Portfolio Review LB Series Fund, Inc.
[GRAPHIC OMITTED: PHOTO OF MICHAEL A. BINGER]
Michael A. Binger is a Chartered Financial Analyst and portfolio
manager for the Opportunity Growth Portfolio. He has been with
Lutheran Brotherhood since 1987.
Investment Objective: To seek long-term growth of capital by investing
in small-company stocks.
For several years, the rally in stock prices was led by small
companies and industries with above-average potential for long-term
growth -- such as technology and health care. This benefited the
Opportunity Growth Portfolio, which invests heavily in these sectors.
However, from the middle of 1996 through the first quarter of 1997,
investors favored stocks of larger companies and industries with
closer ties to the economy. Stocks of companies with market
capitalizations below $250 million, where the Portfolio also invests
heavily, suffered most in this shift.
Eventually, investors realized that declines in the prices of smaller-
cap issues had been exaggerated. During 1997's second quarter,
investors were reawakening to the growth potential of small stocks,
and this end of the market rebounded strongly. This, plus minor
adjustments in the mix of its investments, helped the Portfolio regain
most of the ground it lost in the first quarter. Weak performances by
stocks of very small companies, however, caused the Portfolio to
underperform. For the six months ended June 30, 1997, the Fund had a
total return (based on NAV) of -3.67%, versus 10.20% for the Russell
2000 Index.
Increasing Diversification
As stocks of small companies rebounded, the Portfolio enjoyed strong
returns from technology companies such as Avant and health care
companies such as PDT, Inc. There were also solid gains from
individual issues -- such as Fairfield Communities, a vacation
timeshare firm. Software companies like Project Software and Unison
Software continued to underperform.
[GRAPHIC WORM CHART OMITTED: GROWTH OF $10,000 INVESTED SINCE 1/31/96]
Performance Through June 30,1997
Growth of $10,000 Invested Since 1/31/96
INSET BOX ON CHART READS:
Opportunity Growth Portfolio
Annualized Total Returns*
- -------------------------------
Since Inception
1/18/96 9.97%
- -------------------------------
1 Year -8.29%
Initial Investment: $10,000
Date of Investment: 1/31/96
Russell 2000
Opp. Growth W/ Reinvest CPI Valued
Month End Total Total Total
Date Value Value Value
1/31/96 $10,000 $10,000 $10,000
2/29/96 10,416 10,312 10,032
3/31/96 10,722 10,525 10,084
4/30/96 11,944 11,089 10,123
5/31/96 12,716 11,525 10,142
6/30/96 11,871 11,052 10,149
7/31/96 10,855 10,087 10,168
8/31/96 11,499 10,673 10,188
9/30/96 12,342 11,090 10,220
10/31/96 11,364 10,920 10,253
11/30/96 10,954 11,369 10,272
12/31/96 11,302 11,667 10,272
1/31/97 11,528 11,901 10,304
2/28/97 10,533 11,613 10,337
3/31/97 9,415 11,065 10,363
4/30/97 9,009 11,095 10,376
5/31/97 10,338 12,329 10,369
6/30/97 10,887 12,858 10,382
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Throughout the period we emphasized companies with unique products,
strong earnings growth and quality management. With investors nervous
about earnings, we carefully re-examined every holding to identify any
companies with potential earnings problems. We continued to believe
that technology and health care firms enjoy the greatest opportunities
for growth among American businesses today and remained heavily
invested in those areas. We sold some technology shares during the
period, however, to buy shares of energy and financial companies and
increase the Portfolio's diversification.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Short-Term
Securities 14.0%
Common Stocks 85.6%
Bonds 0.4%
We also added firms with market capitalizations greater than $500
million -- a natural evolution for small-company stock funds with
growing assets. By adding slightly larger firms, we hope to reduce
future price volatility without adversely affecting the Portfolio's
potential for growth. We will continue to invest in the smaller end of
the market, though the weighted average market capitalization of
stocks in the Portfolio has climbed slightly to about $300 million.
Attractive Valuations
While small-cap stocks tend to be more volatile than large-cap stocks,
they typically offer stronger potential for growth over time. Because
small-cap stocks still have better valuations than large-cap issues,
the small-cap sector may outperform in coming months as the economy
expands and investors look for greater growth opportunities.
In this environment, we will continue to exchange stocks that have
already met our growth expectations for shares with better growth
potential. As we look for attractive investments and the Portfolio's
assets grow, we expect to continue adding firms with slightly larger
market capitalizations.
[GRAPHIC OMITTED: TOP TEN HOLDINGS]
Top 10 Holdings
% of
Company Portfolio
BMC Industries, Inc. 2.7%
Signature Resorts 2.3%
DataWorks Corp. 2.2%
Complete Management, Inc. 2.1%
Xpedite Systems, Inc. 2.0%
Horizon Mental Health
Management, Inc. 1.9%
Cameron Ashley
Building Products 1.9%
AXENT Technologies, Inc. 1.9%
Steiner Leisure Ltd. 1.8%
PDT, Inc. 1.8%
Footnote reads:
These holdings represent 20.6% of the total investment portfolio.
World Growth Portfolio Review LB Series Fund, Inc.
[GRAPHIC OMITTED: PHOTO OF MARTIN G. WADE]
Martin G. Wade is president of Rowe Price-Fleming, the investment
subadvisor for the World Growth Portfolio. He leads a team of 12
portfolio managers who have managed the assets of the World Growth
Portfolio since its inception. Mr. Wade has 29 years of experience in
research and investment management, including 17 years with Rowe
Price-Fleming.
Investment Objective: To seek long-term capital growth by investing
primarily in common stocks issued by established companies outside the
United States.**
Continued economic growth with low inflation pushed foreign stock
prices higher in the six months ended June 30, 1997. During that time
Latin American markets advanced sharply and European markets made
steady gains. After weakening in the first quarter of 1997, Japanese
stocks rose strongly in the second -- earning positive returns for the
six-month period.
The Japanese market rally had a positive influence on Morgan Stanley
Capital International's Europe, Australia, Far East (EAFE) Index,
which has a greater weight in Japan stocks than the Portfolio. During
the period, the Portfolio earned a total return (based on NAV) of
11.01% compared to the EAFE Index return of 11.36%.
Country Selection is Key
Many of the Portfolio's individual investments performed well over the
period. It was the Portfolio's country weightings that contributed
most to performance, however. The Portfolio continued to benefit from
overweighted positions in Brazil and other Latin American markets,
which have no representation in the EAFE Index. An overweighting in
the Netherlands also helped Portfolio returns. Although the
Portfolio's underweighted position in Japan reduced returns as Japan
rallied in the second quarter, it served the Portfolio well in the
first quarter.
[GRAPHIC WORM CHART OMITTED: GROWTH OF $10,000 INVESTED SINCE 1/31/96]
Performance Through June 30, 1997
Growth Of $10,000 Invested Since 1/31/96
INSET BOX ON CHART READS:
World Growth Portfolio
Annualized Total Returns*
- -------------------------------
Since Inception
1/18/96 15.04%
- -------------------------------
1 Year 16.92%
Initial Investment: $10,000
Date of Investment: 1/31/96
MSCI EAFE
World Growth W/ Reinvest CPI Valued
Month End Total Total Total
Date Value Value Value
1/31/96 $10,000 $10,000 $10,000
2/29/96 9,974 10,036 10,032
3/31/96 10,098 10,252 10,084
4/30/96 10,355 10,552 10,123
5/31/96 10,336 10,360 10,142
6/30/96 10,468 10,421 10,149
7/31/96 10,137 10,119 10,168
8/31/96 10,290 10,143 10,188
9/30/96 10,534 10,415 10,220
10/31/96 10,481 10,311 10,253
11/30/96 10,965 10,723 10,272
12/31/96 11,025 10,588 10,272
1/31/97 10,871 10,220 10,304
2/28/97 10,983 10,389 10,337
3/31/97 10,967 10,430 10,363
4/30/97 11,035 10,487 10,376
5/31/97 11,738 11,172 10,369
6/30/97 12,239 11,791 10,382
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
During the period we took profits in stocks that had performed well --
which reduced the Portfolio's weightings in Brazil, France, Hong Kong,
the United Kingdom, and the Netherlands. Concerned about high stock
prices and economic problems in Southeast Asia, we also trimmed
holdings there. We used the proceeds from these sales to add
investments in Switzerland, where prices had lagged early in the year,
as well as in Argentina and Mexico. When Japanese stock prices
weakened in the first quarter, we added to existing positions there --
continuing to focus on large exporters and domestic cyclical firms.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Short-Term
Securities 3.3%
Common and Preferred
Stocks 96.7%
Further Growth Likely
Although recent market strength has pushed stock prices to expensive
levels in some regions, we believe a generally healthy world economic
outlook should sustain these levels in months to come. Economic growth
seems to be accelerating in Continental Europe and has been better
than expected in Japan. If the recent pattern of stronger growth with
moderate inflation remains in place, as we think it will, foreign
stock prices should have further room to advance.
With corporate earnings somewhat vulnerable in the U.K. and Japan, we
expect to remain underweighted in those countries. Because Japan's
economic prospects are better than they've been for some time,
however, we plan to add modestly to holdings there when prices are
attractive. Although we believe the Portfolio is well-positioned with
its current weighting in Latin America, we expect to adjust the mix of
investments in that region --trading positions in Brazil for
investments in other markets with better growth potential.
[GRAPHIC OMITTED: TOP TEN HOLDINGS]
Top 10 Holdings
% of
Company Portfolio
Royal Dutch Petroleum 2.5%
Telecomunicacoes
Brasileiras 2.4%
SmithKline Beecham 2.1%
Novartis AG 2.0%
National Westminster 1.8%
Wolters Kluwer NV 1.8%
Reed International 1.3%
Eaux (Cie Generale) 1.3%
Elsevier NV 1.3%
Shell Transport & Trading 1.3%
Footnote reads:
These holdings represent 17.8% of the total investment portfolio.
Growth Portfolio Review LB Series Fund, Inc.
[GRAPHIC OMITTED: PHOTO OF SCOTT A. VERGIN]
Scott A. Vergin is a Chartered Financial Analyst and portfolio manager
for the Growth Portfolio. He began managing the Portfolio in November
1994, and has managed securities at Lutheran Brotherhood since 1983.
Investment Objective: Investment Objective: To seek long-term growth
of capital by investing primarily in common stocks of established
corporations.
With large-company stock prices rising to record levels in the six
months ended June 30, 1997, investors continued to favor blue-chip
stocks of issuers with good growth potential. In this environment the
Growth Portfolio enjoyed strong performances by holding individual
issues that matched this profile. During the period the Portfolio
earned a total return (based on NAV) of 17.20%. Over the same time the
S&P 500 Index had a return of 20.55%.
Catalysts for Growth
In selecting investments for the Growth Portfolio, we look for
companies with the opportunity to benefit from near-term catalysts for
growth. These catalysts might be new products or improving market and
industry conditions that can cause an acceleration in company
earnings.
Throughout 1996, we found many growth opportunities in large
technology and health care stocks. This continued in the first half of
1997. During that time, the Growth Portfolio enjoyed strong gains from
shares of technology stocks such as Microsoft, Tellabs, Motorola, IBM,
Oracle and Cisco Systems -- as well as from health care stocks such as
Warner-Lambert and Eli Lilly. Oil services stocks such as Halliburton,
Baker Hughes and Falcon Drilling also provided good returns. These
performances far outweighed disappointments from retail stocks such as
Federated Department Stores and certain other consumer issues like
Eastman Kodak and Walt Disney.
[GRAPHIC WORM CHART OMITTED: GROWTH OF $10,000 INVESTED SINCE 6/30/87]
Performance Through June 30, 1997
Growth Of $10,000 Invested Since 6/30/87
INSET BOX ON CHART READS:
Growth Portfolio
Annualized Total Returns*
- ------------------------------------------------------------
10 Years 12.72%
- ------------------------------------------------------------
5 Years 18.11%
- ------------------------------------------------------------
1 Year 30.87%
Initial Investment: $10,000
Date of Investment: 6/30/87
S & P 500
Growth W/ Reinvest CPI Valued
Month End Total Total Total
Date Value Value Value
6/30/87 $10,000 $10,000 $10,000
7/31/87 10,436 10,508 10,021
8/31/87 10,863 10,900 10,076
9/30/87 10,601 10,661 10,126
10/31/87 7,833 8,364 10,153
11/30/87 7,267 7,672 10,168
12/31/87 7,800 8,257 10,165
1/31/88 7,932 8,616 10,191
2/29/88 8,413 9,001 10,218
3/31/88 8,441 8,727 10,262
4/30/88 8,335 8,836 10,314
5/31/88 8,238 8,893 10,350
6/30/88 8,569 9,308 10,394
7/31/88 8,419 9,285 10,438
8/31/88 8,153 8,956 10,482
9/30/88 8,373 9,340 10,552
10/31/88 8,417 9,611 10,587
11/30/88 8,257 9,458 10,596
12/31/88 8,448 9,625 10,614
1/31/89 8,986 10,340 10,667
2/28/89 8,816 10,066 10,711
3/31/89 9,041 10,306 10,772
4/30/89 9,491 10,854 10,843
5/31/89 9,860 11,271 10,905
6/30/89 9,691 11,216 10,931
7/31/89 10,514 12,240 10,957
8/31/89 10,930 12,467 10,975
9/30/89 10,988 12,417 11,010
10/31/89 10,434 12,139 11,063
11/30/89 10,661 12,374 11,090
12/31/89 10,693 12,672 11,107
1/31/90 9,861 11,833 11,222
2/28/90 10,090 11,964 11,274
3/31/90 10,421 12,289 11,336
4/30/90 10,268 11,994 11,354
5/31/90 11,361 13,139 11,380
6/30/90 11,445 13,061 11,442
7/31/90 11,213 13,028 11,486
8/31/90 10,287 11,838 11,592
9/30/90 9,635 11,264 11,688
10/31/90 9,616 11,229 11,759
11/30/90 10,209 11,941 11,785
12/31/90 10,483 12,274 11,785
1/31/91 11,157 12,821 11,856
2/28/91 11,979 13,715 11,873
3/31/91 12,295 14,053 11,891
4/30/91 12,295 14,099 11,909
5/31/91 12,953 14,687 11,944
6/30/91 12,296 14,021 11,979
7/31/91 12,968 14,691 11,997
8/31/91 13,433 15,022 12,032
9/30/91 13,315 14,772 12,085
10/31/91 13,613 14,990 12,102
11/30/91 13,156 14,367 12,138
12/31/91 14,817 16,011 12,147
1/31/92 14,787 15,730 12,164
2/28/92 14,928 15,914 12,208
3/31/92 14,560 15,605 12,270
4/30/92 14,615 16,083 12,287
5/31/92 14,737 16,138 12,305
6/30/92 14,409 15,901 12,349
7/31/92 14,888 16,571 12,376
8/31/92 14,576 16,215 12,411
9/30/92 14,777 16,404 12,446
10/31/92 15,158 16,480 12,490
11/30/92 15,920 17,017 12,508
12/31/92 16,022 17,231 12,499
1/31/93 16,299 17,390 12,560
2/28/93 16,255 17,608 12,605
3/31/93 16,707 17,980 12,649
4/30/93 16,401 17,566 12,684
5/31/93 16,825 18,007 12,701
6/30/93 16,840 18,066 12,719
7/31/93 16,793 18,013 12,719
8/31/93 17,410 18,679 12,754
9/30/93 17,570 18,535 12,781
10/31/93 17,725 18,937 12,834
11/30/93 17,249 18,736 12,842
12/31/93 17,640 18,971 12,842
1/31/94 18,195 19,629 12,878
2/28/94 17,703 19,077 12,922
3/31/94 16,843 18,249 12,966
4/30/94 16,821 18,499 12,983
5/31/94 16,842 18,771 12,992
6/30/94 16,268 18,311 13,036
7/31/94 16,656 18,932 13,071
8/31/94 17,414 19,695 13,124
9/30/94 17,132 19,211 13,159
10/31/94 17,373 19,658 13,168
11/30/94 16,690 18,929 13,186
12/31/94 16,818 19,207 13,186
1/31/95 17,188 19,720 13,239
2/28/95 17,865 20,473 13,292
3/31/95 18,374 21,085 13,336
4/30/95 18,906 21,716 13,380
5/31/95 19,490 22,552 13,406
6/30/95 20,343 23,077 13,433
7/31/95 21,433 23,860 13,433
8/31/95 21,499 23,907 13,468
9/30/95 22,171 24,914 13,494
10/31/95 22,233 24,842 13,538
11/30/95 23,047 25,912 13,529
12/31/95 23,086 26,412 13,521
1/31/96 23,645 27,329 13,600
2/28/96 24,138 27,564 13,644
3/31/96 24,222 27,834 13,714
4/30/96 25,089 28,257 13,767
5/31/96 25,641 28,955 13,794
6/30/96 25,307 29,068 13,802
7/31/96 24,217 27,795 13,829
8/31/96 25,169 28,373 13,855
9/30/96 26,700 29,965 13,899
10/31/96 27,156 30,810 13,943
11/30/96 28,883 33,127 13,970
12/31/96 28,259 32,471 13,970
1/31/97 30,128 34,520 14,014
2/28/97 29,748 34,772 14,058
3/31/97 28,348 33,339 14,093
4/30/97 29,666 35,343 14,111
5/31/97 31,769 37,467 14,102
6/30/97 33,121 39,149 14,120
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Short-Term
Securities 7.8%
Common Stocks 92.0%
Bonds 0.2%
As in the past, we also emphasized financial stocks in the Portfolio.
At the same time, we maintained a broadly diversified mix of
investments that cut across industry sectors. During the period we
enhanced this diversification by adding shares of real estate
investment trusts. We believe the attractive prices of these issues
and a strong real estate market can help them outperform in the second
half of the year. We also trimmed some positions in utilities and
automobile firms in order to add shares of paper and chemical
companies.
Stock Selection Remains Key
Although a positive outlook for growth in the economy and corporate
earnings could extend the current bull market, stock valuations remain
quite overextended. In this environment we think individual stock
selection will remain key to the Portfolio's returns. Keeping the
Portfolio invested across many industry sectors and focusing on
companies with strong opportunities to outperform will allow it to
participate fully in future market growth while helping to limit its
vulnerability during market corrections.
[GRAPHIC OMITTED: TOP TEN HOLDINGS]
Top 10 Holdings
% of
Company Portfolio
Merck and Co., Inc. 1.7%
General Electric Co. 1.6%
American International
Group, Inc. 1.6%
International Business
Machines 1.5%
Federal National
Mortgage Assoc. 1.4%
Procter & Gamble Co. 1.4%
Pfizer Inc. 1.3%
Cisco Systems, Inc. 1.3%
Warner-Lambert Co. 1.3%
Eli Lilly & Co. 1.3%
Footnote reads:
These holdings represent 14.4% of the total investment portfolio.
High Yield Portfolio Review LB Series Fund, Inc.
[GRAPHIC OMITTED: PHOTO OF THOMAS N. HAAG]
Thomas N. Haag, assistant vice president, is a Chartered Financial
Analyst and portfolio manager for the High Yield Portfolio. He has
managed the Portfolio since January 1992.
Investment Objective: Investment Objective: To seek high current
income and growth of capital by investing primarily in high-yielding
("junk") corporate bonds.
High-yield corporate bonds continued to outpace other fixed-income
securities in the first half of 1997. Although prices for higher-
yielding issues declined between February and April just like prices
for high-quality issues, they rebounded strongly in the months that
followed. This was especially true for zero-coupon bonds and issues of
media and telecommunications companies, which represent a large
portion of the High Yield Portfolio. Good performances by these and
other holdings from April to June helped the Portfolio enjoy a healthy
return for the six months ended June 30, 1997. During that time the
High Yield Portfolio earned a total return (based on NAV) of 6.19%.
That compares with a return of 5.82% for the Lehman Brothers High-
Yield Index.
Lowering Volatility
For several years the Portfolio has held a greater percentage of zero-
coupon and media/telecommunications issues than would be found in its
market benchmark. We believe industry deregulation, among other
factors, gives these investments great potential for long-term
performance. Because they have somewhat lower credit quality and
longer maturities, however, these issues tend to be more volatile when
the outlook for interest rates is unclear. Although they lagged other
sectors of the high-yield market when interest rates were rising in
the middle of the period, they outperformed when interest rates were
falling at the beginning and end of the period.
[GRAPHIC WORM CHART OMITTED: GROWTH OF $10,000 INVESTED
SINCE 11/30/87]
Performance Through June 30, 1997
Growth Of $10,000 Invested Since 11/30/87
INSET BOX ON CHART READS:
High Yield Portfolio
Annualized Total Returns*
- ------------------------------------------------------------
Since inception
11/2/87 12.77%
- ------------------------------------------------------------
5 Years 12.20%
- ------------------------------------------------------------
1 Year 12.88%
Initial Investment: $10,000
Date of Investment: 11/30/87
Lehman High
Series HYLD Yield Index CPI Valued
Month End Total Total Total
Date Value Value Value
11/30/87 $10,000 $10,000 $10,000
12/31/87 10,194 10,241 9,997
1/31/88 10,612 10,583 10,023
2/29/88 11,036 10,926 10,049
3/31/88 10,885 10,812 10,092
4/30/88 10,885 10,894 10,144
5/31/88 10,869 10,911 10,179
6/30/88 11,120 11,070 10,222
7/31/88 11,177 11,143 10,266
8/31/88 11,172 11,126 10,309
9/30/88 11,283 11,267 10,378
10/31/88 11,407 11,403 10,413
11/30/88 11,395 11,470 10,422
12/31/88 11,553 11,524 10,439
1/31/89 11,823 11,727 10,491
2/28/89 11,903 11,753 10,534
3/31/89 11,822 11,661 10,595
4/30/89 11,762 11,710 10,664
5/31/89 12,079 11,937 10,725
6/30/89 12,403 12,085 10,751
7/31/89 12,379 12,070 10,777
8/31/89 12,489 12,111 10,794
9/30/89 12,266 11,907 10,829
10/31/89 11,937 11,625 10,881
11/30/89 11,971 11,602 10,907
12/31/89 11,914 11,620 10,924
1/31/90 11,685 11,370 11,037
2/28/90 11,473 11,136 11,089
3/31/90 11,567 11,428 11,149
4/30/90 11,577 11,409 11,167
5/31/90 11,941 11,629 11,193
6/30/90 12,116 11,910 11,253
7/31/90 12,325 12,231 11,297
8/31/90 11,935 11,535 11,401
9/30/90 11,464 10,693 11,496
10/31/90 11,111 10,131 11,565
11/30/90 11,301 10,447 11,591
12/31/90 11,471 10,506 11,591
1/31/91 11,589 10,795 11,660
2/28/91 12,354 11,976 11,678
3/31/91 12,893 12,681 11,695
4/30/91 13,331 13,201 11,712
5/31/91 13,479 13,225 11,747
6/30/91 13,842 13,616 11,782
7/31/91 14,209 14,052 11,799
8/31/91 14,438 14,375 11,834
9/30/91 14,677 14,575 11,886
10/31/91 15,200 15,062 11,903
11/30/91 15,432 15,140 11,938
12/31/91 15,523 15,358 11,946
1/31/92 16,162 15,899 11,964
2/28/92 16,614 16,291 12,007
3/31/92 16,903 16,493 12,068
4/30/92 17,055 16,556 12,085
5/31/92 17,346 16,789 12,102
6/30/92 17,448 16,947 12,146
7/31/92 17,804 17,203 12,172
8/31/92 18,063 17,429 12,206
9/30/92 18,275 17,606 12,241
10/31/92 17,915 17,358 12,284
11/30/92 18,247 17,577 12,301
12/31/92 18,640 17,777 12,293
1/31/93 19,391 18,295 12,353
2/28/93 19,706 18,616 12,397
3/31/93 20,132 18,857 12,440
4/30/93 20,253 19,021 12,475
5/31/93 20,613 19,247 12,492
6/30/93 21,312 19,651 12,509
7/31/93 21,523 19,842 12,509
8/31/93 21,696 20,009 12,544
9/30/93 21,696 20,061 12,570
10/31/93 22,434 20,466 12,622
11/30/93 22,525 20,564 12,631
12/31/93 22,911 20,819 12,631
1/31/94 23,619 21,271 12,665
2/28/94 23,534 21,215 12,709
3/31/94 22,641 20,414 12,752
4/29/94 22,349 20,275 12,769
5/31/94 22,463 20,285 12,778
6/30/94 22,558 20,348 12,821
7/31/94 22,393 20,521 12,856
8/31/94 22,567 20,666 12,908
9/30/94 22,450 20,668 12,943
10/31/94 22,515 20,718 12,951
11/30/94 22,033 20,457 12,969
12/31/94 21,904 20,608 12,969
1/31/95 21,975 20,889 13,021
2/28/95 22,833 21,605 13,072
3/31/95 23,060 21,838 13,116
4/30/95 23,627 22,393 13,159
5/31/95 24,131 23,020 13,185
6/30/95 24,248 23,174 13,211
7/31/95 25,017 23,466 13,211
8/31/95 25,124 23,539 13,246
9/30/95 25,362 23,829 13,272
10/31/95 25,481 23,976 13,315
11/30/95 25,778 24,187 13,306
12/31/95 26,197 24,567 13,298
1/31/96 26,807 25,000 13,376
2/29/96 27,485 25,020 13,419
3/31/96 27,225 25,002 13,488
4/30/96 27,408 25,057 13,540
5/31/96 27,715 25,207 13,566
6/30/96 27,492 25,417 13,575
7/31/96 27,297 25,534 13,601
8/31/96 27,736 25,809 13,627
9/30/96 28,685 26,431 13,670
10/31/96 28,605 26,635 13,714
11/30/96 28,902 27,160 13,740
12/31/96 29,222 27,355 13,740
1/31/97 29,573 27,623 13,783
2/28/97 30,005 28,057 13,826
3/31/97 29,049 27,639 13,861
4/30/97 29,054 27,929 13,878
5/31/97 30,167 28,527 13,869
6/30/97 31,031 28,923 13,887
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Throughout the period we remained committed to sizable investments in
the media/telecommunications sector, though we trimmed those positions
modestly once their prices had rebounded. We felt this would reduce
the Portfolio's share price volatility if investors remained worried
about market interest rates.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Short-Term
Securities 6.0%
Corporate Bonds 79.6%
Common and Preferred
Stocks 14.4%
We further reduced volatility by giving more attention to securities
with higher credit ratings and slightly shorter maturities. When
interest rates change course, these issues tend to have less price
movement than issues with lower ratings and longer maturities. The
Portfolio's new positions included investments in financial and energy
companies -- as well as a number of firms whose performance is closely
linked to the economy.
Greater Stability Ahead
We believe investments in "cyclical" sectors should perform well in
coming months if economic growth and inflation remain moderate and
interest rates are relatively stable. If further uncertainty about
inflation causes rates to fluctuate from time to time, the Portfolio
should continue to benefit from the greater emphasis on shorter
maturities and higher credit ratings.
We continue to like the added return potential of
media/telecommunications issues and have mostly completed the sales
we'd planned in that sector. We may take further profits there,
however, if prices continue to rise. As we find attractive prices for
higher-quality issues we may also make additional purchases in that
sector. We believe this strategy, combined with our continued focus on
strong yields, can help the Portfolio earn solid returns with less
volatility in the second half of the year.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: MOODY'S BOND QUALITY
RATING DISTRIBUTION]
Moody's Bond Quality
Rating Distribution
Baa 0.8%
Ba 12.8%
B 61.7%
Caa 8.4%
Ca 0.0%
C 0.0%
D 0.0%
Not
Rated 16.3%
Income Portfolio Review LB Series Fund, Inc.
[GRAPHIC OMITTED: PHOTO OF CHARLES E. HEEREN]
Charles E. Heeren, vice president, is a Chartered Financial Analyst
and portfolio manager for the Income Portfolio. He has managed the
Portfolio since its inception in January 1987.
Investment Objective: To seek a high level of income while preserving
principal by investing primarily in intermediate and long-term bonds.
Changing expectations for the economy, inflation and interest rates in
the last six months changed the spreads between yields for different
types of bonds. By adjusting the mix of investments in the Income
Portfolio to take advantage of attractive yield opportunities, we
helped the Portfolio earn a competitive return over this time.
For the six months ended June 30, 1997, the Income Portfolio earned a
total return (based on NAV) of 3.00%. That compares with a return of
3.09% for the Lehman Aggregate Bond Index.
Special Opportunities in Corporates
When 1997 began, corporate bonds represented about 45% of the
Portfolio's investments. As stronger economic growth raised concerns
about inflation, making bond prices more attractive, we sold U.S.
Treasury bonds and increased the Portfolio's position in longer-term
corporates. Many of the corporates we bought were issued by banks and
insurance firms, as well as electric utilities, gas and telephone
companies. Purchased at attractive prices and yields, these additions
performed well in the months that followed.
[GRAPHIC WORM CHART OMITTED: GROWTH OF $10,000 INVESTED SINCE 6/30/87]
Performance Through June 30, 1997
Growth Of $10,000 Invested Since 6/30/87
INSET BOX ON CHART READS:
Income Portfolio
Annualized Total Returns*
- ------------------------------------------------------------
10 Years 8.81%
- ------------------------------------------------------------
5 Years 7.23%
- ------------------------------------------------------------
1 Year 8.48%
Initial Investment: $10,000
Date of Investment: 6/30/87
Lehman Aggregate
Series Income Bond Index CPI Valued
Month End Total Total Total
Date Value Value Value
6/30/87 $10,000 $10,000 $10,000
7/31/87 9,943 9,992 10,021
8/31/87 9,892 9,939 10,076
9/30/87 9,631 9,727 10,126
10/31/87 9,859 10,074 10,153
11/30/87 9,994 10,154 10,168
12/31/87 10,154 10,292 10,165
1/31/88 10,531 10,655 10,191
2/29/88 10,662 10,781 10,218
3/31/88 10,490 10,680 10,262
4/30/88 10,401 10,622 10,314
5/31/88 10,303 10,551 10,350
6/30/88 10,545 10,805 10,394
7/31/88 10,489 10,748 10,438
8/31/88 10,511 10,776 10,482
9/30/88 10,796 11,021 10,552
10/31/88 11,038 11,228 10,587
11/30/88 10,904 11,091 10,596
12/31/88 10,973 11,103 10,614
1/31/89 11,139 11,263 10,667
2/28/89 10,980 11,182 10,711
3/31/89 11,043 11,230 10,772
4/30/89 11,258 11,465 10,843
5/31/89 11,502 11,766 10,905
6/30/89 11,866 12,124 10,931
7/31/89 12,070 12,382 10,957
8/31/89 11,961 12,199 10,975
9/30/89 11,974 12,261 11,010
10/31/89 12,151 12,563 11,063
11/30/89 12,284 12,682 11,090
12/31/89 12,315 12,716 11,107
1/31/90 12,187 12,565 11,222
2/28/90 12,227 12,605 11,274
3/31/90 12,268 12,614 11,336
4/30/90 12,109 12,498 11,354
5/31/90 12,480 12,868 11,380
6/30/90 12,672 13,075 11,442
7/31/90 12,826 13,256 11,486
8/31/90 12,618 13,078 11,592
9/30/90 12,539 13,187 11,688
10/31/90 12,658 13,354 11,759
11/30/90 12,955 13,641 11,785
12/31/90 13,167 13,854 11,785
1/31/91 13,340 14,026 11,856
2/28/91 13,643 14,145 11,873
3/31/91 13,808 14,243 11,891
4/30/91 14,006 14,396 11,909
5/31/91 14,168 14,480 11,944
6/30/91 14,189 14,473 11,979
7/31/91 14,375 14,674 11,997
8/31/91 14,706 14,991 12,032
9/30/91 15,024 15,295 12,085
10/31/91 15,187 15,465 12,102
11/30/91 15,293 15,607 12,138
12/31/91 15,768 16,071 12,147
1/31/92 15,710 15,852 12,164
2/28/92 15,814 15,955 12,208
3/31/92 15,824 15,866 12,270
4/30/92 15,878 15,980 12,287
5/31/92 16,182 16,282 12,305
6/30/92 16,406 16,507 12,349
7/31/92 16,788 16,843 12,376
8/31/92 16,954 17,014 12,411
9/30/92 17,155 17,216 12,446
10/31/92 16,879 16,987 12,490
11/30/92 16,944 16,990 12,508
12/31/92 17,222 17,261 12,499
1/31/93 17,581 17,592 12,560
2/28/93 17,950 17,900 12,605
3/31/93 18,055 17,975 12,649
4/30/93 18,189 18,101 12,684
5/31/93 18,221 18,124 12,701
6/30/93 18,597 18,452 12,719
7/31/93 18,764 18,558 12,719
8/31/93 19,101 18,882 12,754
9/30/93 19,160 18,933 12,781
10/31/93 19,199 19,003 12,834
11/30/93 19,331 18,842 12,842
12/31/93 19,124 18,944 12,842
1/31/94 19,232 19,199 12,878
2/28/94 19,093 18,865 12,922
3/31/94 18,465 18,399 12,966
4/29/94 18,267 18,252 12,983
5/31/94 18,301 18,250 12,992
6/30/94 18,167 18,210 13,036
7/31/94 18,559 18,573 13,071
8/31/94 18,606 18,595 13,124
9/30/94 18,280 18,321 13,159
10/31/94 18,212 18,305 13,168
11/30/94 18,216 18,265 13,186
12/31/94 18,331 18,391 13,186
1/31/95 18,663 18,755 13,239
2/28/95 19,090 19,201 13,292
3/31/95 19,198 19,318 13,336
4/30/95 19,527 19,589 13,380
5/31/95 20,373 20,347 13,406
6/30/95 20,540 20,495 13,433
7/31/95 20,422 20,450 13,433
8/31/95 20,679 20,698 13,468
9/30/95 20,877 20,899 13,494
10/31/95 21,199 21,170 13,538
11/30/95 21,529 21,488 13,529
12/31/95 21,879 21,789 13,521
1/31/96 22,004 21,932 13,600
2/29/96 21,541 21,551 13,644
3/31/96 21,328 21,400 13,714
4/30/96 21,196 21,280 13,767
5/31/96 21,183 21,238 13,794
6/30/96 21,447 21,522 13,802
7/31/96 21,490 21,580 13,829
8/31/96 21,411 21,544 13,855
9/30/96 21,829 21,918 13,899
10/31/96 22,335 22,405 13,943
11/30/96 22,797 22,788 13,970
12/31/96 22,588 22,576 13,970
1/31/97 22,659 22,646 14,014
2/28/97 22,766 22,703 14,058
3/31/97 22,431 22,451 14,093
4/30/97 22,694 22,788 14,111
5/31/97 22,932 23,004 14,102
6/30/97 23,264 23,278 14,120
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
As worries about higher interest rates persisted in March and April,
driving bond prices lower, we deemphasized investments in corporate
securities. Having outperformed earlier in the period, we expected
corporates to underperform government securities as higher interest
rates threatened to slow the economy. By the end of April, it was clear
that economic growth and inflation were moderate enough to forestall
further increases in interest rates. With the prices for long-term
corporates more attractive again, we increased the Portfolio's
investments in that sector. We continued to favor debt of financial
firms, while adding select bonds of utility companies that provided
good investment opportunities.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Short-Term
Securities 17.8%
Corporate Bonds 43.8%
Common and Preferred
Stocks 0.8%
Mortgage-Backed
Securities 14.4%
U.S. Government
Bonds 6.7%
Foreign Bonds 3.7%
Asset-Backed
Securities 12.8%
Some of the most attractive prices occurred among corporate securities
with lower credit ratings. With the economy showing promise for
sustained growth, and many corporate issues enjoying rating upgrades,
we added positions in issues rated Baa and Ba by Moody's, believing
they offered special value for the Portfolio. As always, we kept the
Portfolio well-diversified with respect to the credit quality, asset
mix and blend of bond maturities.
Preparing for New Price Gains
Added attention to corporates and longer-term issues served the
Portfolio well when bond prices rallied in May and June and should
continue to enhance returns in coming months. If a healthy combination
of moderate growth and benign inflation pushes bond prices higher, we
believe corporates and longer-term issues can outperform, since
longer-term issues tend to be more responsive to falling interest
rates than shorter-term issues, and corporate bonds tend to thrive in
a positive economic climate.
Because declining interest rates usually increase home-loan
prepayments, we've reduced the Portfolio's investments in mortgage-
backed securities slightly. The Portfolio should continue to enjoy
strong income from its remaining mortgage-backed issues, as well as
its large commitment to corporate bonds and asset-backed securities.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: MOODY'S BOND QUALITY
RATING DISTRIBUTION]
Moody's Bond Quality
Rating Distribution
Government/
AAA 42.2%
Aa 5.2%
A 19.5%
Baa 18.6%
Ba 11.6%
B 2.9%
Money Market Portfolio Review LB Series Fund, Inc.
[GRAPHIC OMITTED: PHOTO OF GAIL R. ONAN]
Gail R. Onan was named portfolio manager for the Money Market
Portfolio in January 1994. She has been with Lutheran Brotherhood
since 1969. Prior to her appointment as manager of the Portfolio, she
served as associate manager for the Portfolio.
Investment Objective: To seek current income with stability of
principal by investing in high quality, short-term debt securities.***
Although they fluctuated significantly during the period, short-term
yields ended the six-month period nearly unchanged from where they
began. When the year started, the annualized yield for three-month
U.S. Treasury securities stood at 5.21%. As a strengthening economy
prompted the Federal Reserve to preempt inflation with a 0.25% hike in
short-term interest rates, three-month Treasury yields hit 5.44% in
late March. By the end of June, when slower growth had eased fears of
another Fed rate hike, three-month Treasuries were yielding 5.25%.
By adjusting the mix of investments and maturities in the Money Market
Portfolio to make the most of these changes, we helped the Portfolio
earn a total return of 2.59% for the six months ended June 30, 1997.
Keeping the Portfolio Flexible
Because short-term yields continued to fluctuate, we kept the average
maturity of the Portfolio's investments slightly shorter than that for
its benchmark in the first months of the year. We believed this
positioned us to invest more quickly in higher-yielding instruments
when interest rates rose. To achieve this flexibility while
maintaining the Portfolio's yield, we balanced money market
instruments that matured in 30 days or less with instruments that
matured in six to 12 months. Many of the Portfolio's shortest-term
investments were floating-rate securities, whose coupons reset
frequently.
When it was clear that short-term yields were peaking, we focused more
attention on longer-term issues to lock in the higher yields for
longer periods. As the spread narrowed between yields for shorter- and
longer-maturity issues in May and June, we then gave more attention to
intermediate-term securities. Where possible, however, we maintained
the slightly longer average maturity for the Portfolio that we'd
adopted in April.
We also enhanced the Portfolio's yield by adding investments in
taxable municipal paper. These high-quality securities are issued by
state and local governments to fund commercial projects. Because they
represent a relatively small segment of the money market that few
analysts follow, there is a lower demand for these issues. As a
result, their prices and yields can be quite attractive.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Certificates
of Deposit 6.1%
Adjustable Rate
Notes 3.4%
Other 0.7%
Commercial
Paper 89.8%
More Diversification
Throughout the period, we increased the diversity of the Portfolio's
investments while maintaining its high quality. We believe such a
strategy will be important in coming months, as investors try to
predict the direction of the economy and interest rate trends.
With yields lower and the economy growing, we believe money market
yields could rise. As a result, we do not plan a further increase in
the Portfolio's longer-term holdings. Because money market supplies
have been somewhat tight relative to demand, the Portfolio should also
benefit from our continued emphasis on issues with good liquidity.
This, plus a diverse mix of investments, should help us respond
quickly to changing market conditions.
Money Market Portfolio
Annualized Total Returns*
Period Ending 6/30/97
- ------------------------------------------------------------
10 Years 5.74%
- ------------------------------------------------------------
5 Years 4.39%
- ------------------------------------------------------------
1 Year 5.24%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Footnotes
*The annualized total returns for the Portfolio reflect changes in
share prices, the reinvestment of all dividends and capital gains,
and the effects of compounding for the periods indicated. These
returns have not been adjusted for charges associated with the
variable life insurance and variable annuity contracts that invest
in the portfolios. (For additional information on the charges,
costs and benefits associated with the contracts, refer to the
contract prospectus or contact your LB representative.) Since
performance varies, the annualized total returns, which assume a
steady rate of growth, differ from the Portfolios' actual total
returns for the years indicated. All returns represent past
performance. The value of an investment fluctuates so that shares,
when redeemed, may be worth more or less than the original
investment.
**International investing has special risks, including currency
fluctuation and political volatility.
***Investments in the Money Market Portfolio are neither guaranteed
nor insured by the U.S. Government and there is no assurance that
the Portfolio will maintain a stable net asset value.
This report must be preceded or accompanied by a current prospectus.
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Opportunity Growth Portfolio
Portfolio of Investments
June 30, 1996
(unaudited)
Shares Value
- -------------- -------------
<S> <C> <C>
COMMON STOCKS - 85.6% (a)
Bank & Finance - 9.4%
83,200 Aames Financial Corp. $1,539,200
352,000 ACC Consumer Finance Corp. 3,915,999 (b)
56,600 American General Hospitality Corp. 1,400,849
52,700 AMRESCO, Inc. 1,133,049 (b)
50,000 Apartment Investment & Management Co. 1,412,499
15,000 ARM Financial Group, Inc. 299,999
17,000 Boston Properties, Inc. 467,499
37,500 Cali Realty Corp. 1,274,999
9,700 Charter One Financial, Inc. 522,587
85,000 Cityscape Financial Corp. 1,694,687
50,000 Delta Financial Corp. 956,250
57,800 Dime Bancorp, Inc. 1,011,499
65,600 First Republic Bancorp, Inc. 1,525,199
7,800 FirstFed Financial Corp. 242,287
79,200 Great Lakes REIT, Inc. 1,301,850
32,000 HealthCare Financial Partners, Inc. 652,000
56,300 Hibernia Corp., Class A 784,681
35,200 Highwoods Properties, Inc. 1,126,400
28,100 Imperial Bancorp 811,388
102,500 New Century Financial Corp. 1,486,250
80,000 Patriot American Hospitality, Inc. 2,040,000
72,000 Resource Bancshares Mortgage Group, Inc 1,422,000
80,100 Southern Pacific Funding Corp. 1,331,663
29,100 Sterling Financial Corp. 541,988
70,100 Sunstone Hotel Investors, Inc. 1,016,450
15,000 TCF Financial Corp. 740,625
----------------
30,651,897
----------------
Broadcasting - 0.3%
21,800 Emmis Broadcasting Corp., Class A 951,025
----------------
Building Products & Materials - 2.6%
380,600 Cameron Ashley Building Products 5,280,825 (b)
240,000 Dayton Superior Corp., Class A 3,060,000 (b)
----------------
8,340,825
----------------
Computer Software - 9.1%
118,550 Avant! Corp. 3,830,647 (b)
343,700 AXENT Technologies, Inc. 5,241,425 (b)
289,050 DataWorks Corp. 6,322,969 (b)
69,600 Infinity Financial Technology, Inc. 1,135,350 (b)
238,300 Pure Atria Corp. 3,365,988 (b)
223,200 Softquad International, Inc. 195,300 (b)
121,500 Summit Design, Inc. 987,188 (b)
273,900 Sunquest Information Systems, Inc. 4,108,500
45,000 Technology Modeling Associates, Inc. 613,125
296,150 Unison Software, Inc. 2,073,050 (b)
72,600 Wall Data, Inc. 1,914,825 (b)
----------------
29,788,367
----------------
Computers & Office Equipment - 0.7%
15,000 Pierce Leahy Corp 270,000
80,000 Premiere Technologies, Inc. 2,080,000
----------------
2,350,000
----------------
Drugs & Health Care - 13.9%
93,100 ADAC Labs, Inc. 2,199,488
7,300 Advance Paradigm, Inc. 135,050
378,050 Alpha-Beta Technology, Inc. 3,449,706 (b)
121,000 Amrion, Inc. 3,388,000 (b)
232,800 Amylin Pharmaceuticals, Inc. 3,201,000 (b)
281,500 Atrix Laboratories, Inc. 3,448,375 (b)
121,300 Bio-Technology General Corp. 1,637,550
121,200 Capstone Pharmacy Services, Inc. 1,318,050
91,100 Cephalon, Inc. 1,047,650 (b)
137,400 Cytyc Corp. 3,726,975 (b)
291,200 DepoTech Corp. 3,967,600 (b)
288,400 Eclipse Surgical Technologies, Inc. 2,307,200 (b)
120,500 Hologic, Inc. 3,208,313
108,100 Isis Pharmaceuticals, Inc. 1,574,206 (b)
336,300 Matritech, Inc. 2,333,081 (b)
141,600 PDT, Inc. 5,168,400 (b)
60,600 Sepracor, Inc. 1,564,238 (b)
47,600 STERIS Corp. 1,779,050 (b)
----------------
45,453,932
----------------
Electronics - 3.9%
123,700 Cypress Semiconductor Corp. 1,793,650 (b)
132,300 ESS Technology, Inc. 1,777,781 (b)
55,200 FSI International, Inc. 883,200 (b)
176,000 Integrated Silicon Solution 1,336,500 (b)
158,000 Intevac, Inc. 1,896,000 (b)
42,300 Reptron Electronics, Inc. 1,015,200
88,400 S3, Inc. 972,400 (b)
91,500 Silicon Valley Group, Inc. 2,413,313 (b)
58,900 Trident Microsystems, Inc. 662,625 (b)
----------------
12,750,669
----------------
Healthcare Management - 8.9%
159,000 American Oncology Resources, Inc. 2,683,125 (b)
35,700 CN Biosciences, Inc. 678,300
424,850 Complete Management, Inc. 6,054,113 (b)
182,700 FPA Medical Management, Inc. 4,327,706 (b)
485,450 Home Health Corp. of America, Inc. 4,611,775 (b)
243,450 Horizon Mental Health Management, Inc. 5,477,625 (b)
140,000 IRIDEX Corp. 1,277,500
84,800 UroCor, Inc. 795,000 (b)
435,000 U.S. Diagnostic Labs, Inc. 2,990,625 (b)
----------------
28,895,769
----------------
Leisure &
Entertainment - 6.6%
241,750 Cannondale Corp. 4,291,063 (b)
74,200 Fairfield Communities, Inc. 2,494,975 (b)
191,400 Signature Resorts, Inc. 6,615,263 (b)
195,600 Silverleaf Resorts, Inc. 3,007,350
186,300 Steiner Leisure Ltd. 5,193,113
----------------
21,601,764
----------------
Machinery & Equipment - 1.6%
207,800 Northwest Pipe Co. 3,818,325
49,100 Triumph Group, Inc. 1,522,100 (b)
----------------
5,340,425
----------------
Manufacturing - 2.8%
225,000 BMC Industries, Inc. 7,706,250
181,500 Zomax Optical Media, Inc. 1,338,563 (b)
----------------
9,044,813
----------------
Oil & Oil Service - 4.7%
48,100 American Exploration Co. 703,463
140,000 Domain Energy Corp. 1,890,000
48,500 Forcenergy, Inc. 1,473,188
13,000 Hanover Compressor Co. 253,500
89,500 Hugoton Energy Corp. 1,241,813
55,200 Lomak Petroleum, Inc. 983,250
57,700 Marine Drilling Companies, Inc. 1,132,363
9,000 Nuevo Energy Co. 369,000
24,000 Ocean Energy, Inc. 1,110,000
36,100 Petroleum Geo-Services ASA 1,764,388
135,000 Pool Energy Services Co. 2,446,875 (b)
39,500 Pride Petroleum Services, Inc. 948,000 (b)
38,400 Swift Energy Co. 916,800
----------------
15,232,640
----------------
Paper & Forest Products - 0.3%
72,200 Stone Container Corp. 1,033,363 (c)
----------------
Pollution Control - 2.3%
361,300 IDM Environmental Corp. 700,019 (b)
190,350 Memtec Ltd., ADR 5,139,450
652,300 Recycling Industries, Inc. 1,263,831 (b)
28,500 Waterlink, Inc. 370,500
----------------
7,473,800
----------------
Restaurants - 0.9%
120,700 Apple South, Inc. 1,840,675
72,000 Boston Chicken, Inc. 1,008,000
191,500 New World Coffee 233,391 (b)
----------------
3,082,066
----------------
Retail - 4.0%
249,900 Lithia Motors, Inc. 2,748,900 (b)
214,450 Movie Gallery, Inc. 1,367,119 (b)
71,300 Proffitt's, Inc. 3,128,288 (b)
103,700 The North Face, Inc. 1,892,525
216,900 Travis Boats & Motors, Inc. 2,846,813
232,600 West Coast Entertainment Corp. 1,221,150 (b)
----------------
13,204,795
----------------
Services - 5.2%
96,000 CORESTAFF, Inc. 2,592,000
145,500 Corporate Express, Inc. 2,100,656
189,800 Cotelligent Group, Inc. 2,609,750 (b)
99,900 F.Y.I., Inc. 2,397,600 (b)
30,000 Intelligroup, Inc. 288,750
53,400 MAXIMUS, Inc. 954,525
68,950 Personal Group of America, Inc. 1,986,622 (b)
59,000 PMT Services, Inc. 899,750
16,800 SOS Staffing Services, Inc. 260,400
40,000 Staff Leasing, Inc. 750,000
72,000 U.S. Office Products Company 2,200,500
----------------
17,040,553
----------------
Telecommunications Equipment - 4.1%
154,300 ACE*COMM Corp. 3,028,138 (b)
333,900 ACT Networks, Inc. 4,257,225 (b)
254,500 Larscom, Inc. 2,735,875 (b)
237,700 Orckit Communications Ltd. 3,446,650 (b)
----------------
13,467,888
----------------
Telephone & Telecommunications - 3.3%
31,200 Aerial Communications, Inc. 265,200
19,200 American Communications 139,200
186,700 LCC International, Inc., Class A 2,940,525 (b)
120,000 STAR Telecommunications, Inc. 1,590,000
335,600 Xpedite Systems, Inc. 5,789,100 (b)
----------------
10,724,025
----------------
Textiles & Apparel - 1.0%
770,300 Chaus (Bernard), Inc. 818,444 (b)
156,074 Cutter & Buck, Inc. 2,536,203 (b)
----------------
3,354,647
----------------
Total Common Stocks
(cost $288,201,936) 279,783,263
----------------
Principal
Amount Value
- -------------- -------------
CORPORATE BONDS - 0.4% (a)
$500,000 Complete Management, Inc., Convertible
Subordinated Debentures, 8.0%, due
8/15/2003 538,125
1,000,000 Kushner-Locke Co., Convertible
Subordinated Debentures, 8.0%,
due 12/15/2000 623,750
----------------
Total Corporate Bonds
(cost $1,394,348) 1,161,875
----------------
SHORT-TERM
SECURITIES - 14.0% (a)
Commercial Paper - 13.7%
5,000,000 AVCO Financial Services, Inc., 5.52%,
due 7/2/1997 4,999,233
5,000,000 CXC, Inc., 5.53%, due 7/16/1997 4,988,479
2,300,000 Dupont (E.I.) de Nemours, & Co. 5.55%,
due 7/9/1997 2,297,163
11,400,000 General Electric Capital Corp., 6.18%,
due 7/1/1997 11,400,000
1,000,000 Heinz (H.J.) Co., 5.58%, due 7/23/1997 996,590
6,700,000 Oyster Creek Co., 5.6%, due 7/8/1997 6,692,704
3,175,000 Preferred Receivables Funding Corp.,
5.56%, due 7/9/1997 3,171,077
5,000,000 Sheffield Receivable Corp., 5.5%,
due 7/10/1997 4,993,063
5,200,000 Toys R Us, Inc., 5.5%, Due 7/17/1997 5,187,289
----------------
44,725,598
----------------
U.S. Government
Agency - 0.3%
500,000 Federal National Mortgage Association
Discount Notes, 5.4%, due 7/7/1997 499,550
----------------
Total Short-Term Securities
(at amortized cost) 45,225,148
----------------
Total Investments
(cost $334,821,432) $326,170,286 (d)
================
Notes to Portfolio of Investments:
- ----------------------------------
(a) The categories of investments are shown as a percentage of total
investments of the Opportunity Growth Portfolio.
(b) Currently non-income producing.
(c) Includes stock rights that automatically traded with the stock and had
no separate value at June 30, 1997
(d) At June 30, 1997, the aggregate cost of securities for federal income
tax purposes was $334,821,432 and the net unrealized depreciation of
investments based on that cost was $8,651,146 which is comprised of
$25,735,952 aggregate gross unrealized appreciation and $34,387,098
aggregate gross unrealized depreciation.
Abbreviations:
- --------------
(ADR) -- American Depository Receipts
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
World Growth Portfolio
Portfolio of Investments
June 30, 1997
(unaudited)
Shares Value
- -------------- -------------
<S> <C> <C>
ARGENTINA - 0.8% (a)
COMMON STOCKS
8,273 Banco de Galicia Buenos Aires
"B" ADR (USD) $218,201
8,389 Banco Frances del Rio de la
Plata ADR (USD) 272,642
72,535 Naviera Perez "B" 582,546
560 Sociedad Comercial del Plata ADR (USD) 20,720 (b)
2,820 Telecom Argentina Stet "B" 14,723
630 Telecom Argentina Stet "B" ADR (USD) 33,075
16,490 Telefonica de Argentina ADR (USD) 570,966
1,370 Transportadora de Gas del Sur ADR (USD) 17,125
15,430 YPF Sociedad Anonima ADR (USD) 474,473
----------------
Total Argentina 2,204,471
----------------
AUSTRALIA - 1.7% (a)
COMMON STOCKS
84,528 Australia Gas & Light 498,280
24,000 Australia & New Zealand Banking Group Ltd. 179,566
34,000 Boral Ltd. 107,150
59,800 Broken Hill Proprietary 880,512
35,500 Commonwealth Instalment Receipt Trustee Ltd. 312,425
43,000 John Fairfax Holdings Ltd. 102,041
11,300 Lend Lease Corp. 239,119
16,303 National Australia Bank Ltd. 233,729
53,000 National Mutual Holdings Ltd. 85,717
72,159 News Corp. 346,292
37,000 Publishing & Broadcasting 213,356
31,027 St. George Bank Ltd. 206,583
50,700 Western Mining 319,943
30,000 Westpac Banking 180,700
44,000 Woodside Petroleum 379,084
----------------
Total Australia 4,284,497
----------------
AUSTRIA - 0.05% (a)
COMMON STOCKS
120 EVN Energie-Versorgung
Niederoesterreich AG 15,460
610 Flughafen Wien 25,766
----------------
Total Austria 41,226
----------------
BELGIUM - 1.2% (a)
COMMON STOCKS
1,973 Credit Communal Holding/Dexia 211,941
1,711 Generale de Banque S.A. 658,626
81 Generale de Banque S.A., VVPR
(reduced tax) Strips 36
4,750 Kredietbank 1,914,258
104 UCB 329,516
----------------
Total Belgium 3,114,377
----------------
BRAZIL - 3.4% (a)
COMMON STOCKS
1,030 Brazil Fund (USD) 31,672
23,712 Centrais Eletricas Brasileiras
S.A. ADR (USD) 679,112
6,360 Companhia Brasileira de
Distribuicao Grupo Pao
de Acucar GDR (USD) 130,380
320 Companhia Energetica Brasilia (USD) 16,960
18,848 Companhia Energetica
Minas Gerais ADR (USD) 958,892
4,000 Companhia Siderurgica Nacional (ADR) 130,500
40,500 Telecomunicacoes Brasilias ADR (USD) 6,145,875
56,020 Usinas Siderurgicas de
Minas Gerais ADR (USD) 616,220
----------------
Total Brazil 8,709,611
----------------
CANADA - 0.3% (a)
COMMON STOCKS
13,740 Alcan Aluminum 471,615
4,670 Royal Bank of Canada 211,865
----------------
Total Canada 683,480
----------------
CHILE - 0.5% (a)
COMMON STOCKS
1,635 Chile Fund (USD) 42,714
8,522 Chilectra ADR (USD) 253,529
4,467 Chilgener ADR (USD) 125,076
1,473 Chilgener ADR (USD),
Rights expiring 7/7/97 3,300 (b)
7,144 Compania de Telecomunicaciones de
Chile (ADR) 235,752
10,755 Empresa Nacional de Electric ADR (USD) 242,660
5,721 Enersis S.A. ADR (USD) 203,453
3,474 Santa Isabel (ADR) 112,037
----------------
Total Chile 1,218,521
----------------
CHINA - 0.3% (a)
COMMON STOCKS
15,360 Huaneng Power International
"N" ADR (USD) 391,680 (b)
821,000 Shanghai Petrochemical
"H" (HKD) 197,109
874,000 Yizheng Chemical Fibre "H" (HKD) 155,682
----------------
Total China 744,471
----------------
CZECH REPUBLIC - 0.05% (a)
COMMON STOCKS
700 SPT Telecom a.s. 73,409 (b)
----------------
DENMARK - 0.2% (a)
COMMON STOCKS
3,314 Den Danske Bank 322,421
807 Tele Danmark "B" 41,931
3,230 Unidanmark "A" 181,447
----------------
Total Denmark 545,799
----------------
FINLAND - 0.3% (a)
COMMON STOCKS
8,960 Oy Nokia "A" 669,315
----------------
FRANCE - 7.9% (a)
COMMON STOCKS
1,455 Accor 217,877
9,809 Alcatel Alsthom 1,228,483
5,740 Assurances Generales
de France 183,432
2,893 AXA 179,930
2,570 Canal Plus 500,294
2,772 Carrefour 2,013,187
757 Chargeurs International S.A. 43,616 (b)
6,510 Cie de St. Gobain 949,354
1,539 Credit Local de France 149,796
2,513 Credit Local de France -
Dexia France 244,599
25,247 Eaux Cie Generale 3,234,977
1,580 GTM Entrepose 79,071
2,880 Guilbert S.A. 407,739
1,260 Havas S.A. 90,801
4,350 Lapeyre 288,683
1,899 Legrand 334,451
824 L'Oreal 347,172
1,337 Pathe S.A. 265,275
3,621 Pinault Printemps Redoute 1,740,042
587 Primagaz 51,941
562 Rexel 172,520
9,849 Sanofi 965,342
20,490 Schneider S.A. 1,090,624
3,613 Societe Generale 403,309
9,715 Societe Nationale
Elf Aquitaine 1,048,090
2,340 Sodexho 1,198,132
9,320 Television Francaise 832,610
21,799 Total "B" 2,203,380
----------------
Total France 20,464,727
----------------
GERMANY - 4.5% (a)
COMMON STOCKS
4,890 Allianz AG 1,023,365
30,783 Bayer 1,182,889
18,262 Bayerische Hypotheken - und
Wechse - Bank 546,049
4,890 Bilfinger & Berger Bau AG 199,065
400 Buderas 220,171
7,940 Commerzbank AG 224,893
15,866 Deutsche Bank 926,980
22,618 Deutsche Telekom 544,668
25,767 Gehe AG 1,758,083
6,440 Hoechst AG 273,167
520 Hornbach Baumarkt 21,914
896 Mannesmann 399,170
1,370 Praktiker Bau und Heimwerker Markte 24,351
4,716 Rhoen Klinikum 621,914
3,090 SAP AG 620,091
1,443 Schering 154,179
4,397 Siemens AG 261,057
29,315 Veba 1,647,193
484 Veba International, Finance
Warrants Expiring 4/6/98 169,557 (b)
423 Volkswagen 324,265
----------------
11,143,021
----------------
PREFERRED STOCKS
1,200 Fielmann 35,984
2,490 Hornbach Holdings AG 211,295
160 Krones 65,317
1,117 SAP AG 231,841
----------------
544,437
----------------
Total Germany 11,687,458
----------------
HONG KONG - 4.0% (a)
COMMON STOCKS
247,000 Cathay Pacific Airways 511,707
49,000 China Light & Power Co. Ltd. 277,658
139,000 Doa Heng Bank Ltd. 760,729
492,188 First Pacific 628,950
167,000 Guoco Group 879,481
387,142 Hong Kong Land Holdings (USD) 1,029,798
207,000 Hutchison Whampoa 1,790,172
312,039 New World Development Co. Ltd. 1,860,803
117,000 Swire Pacific "A" 1,053,367
329,000 Wharf Holdings 1,426,871
----------------
Total Hong Kong 10,219,536
----------------
ITALY - 2.4% (a)
COMMON STOCKS
52,000 Banca Commerciale Italiana 107,698
74,580 Banca Fideuram 243,763
330,177 Credito Italiano 604,182
187,827 Ente Nazionale Idrocarburi 1,063,701
38,160 IMI SpA 343,527
9,074 Industrie Natuzzi SpA ADR (USD) 232,521
47,600 Italgas 154,039
28,729 Mediolanum SpA 324,044
17,600 Rinascente 97,808
135,000 Seat SpA 43,529 (b)
43,800 Seat SpA, RNC 9,149 (b)
167,000 Societa' Finaziaria Telefonica SpA 972,775
143,827 Telecom Italia 430,744
430,400 Telecom Italia Mobile 1,392,823
72,000 Telecom Italia Mobile RNC 128,785
----------------
Total Italy 6,149,088
----------------
JAPAN - 23.8% (a)
COMMON STOCKS
3,740 Advantest Corp. 287,140
23,000 Alps Electric 321,061
73,000 Amada 643,256
114,000 Canon 3,103,123
45,000 Citizen Watch Co. 347,060
54,000 Dai Nippon Screen
Manufacturing Co. Ltd. 508,812
8,000 Daifuku 105,392
74,000 Daiichi Pharmaceutical 1,304,135
91,000 Daiwa House 1,111,499
140 DDI Corp. 1,033,327
217 East Japan Railway 1,113,209
15,100 Fanuc 579,654
118,000 Hitachi 1,317,746
95,000 Hitachi Zosen 377,944
6,000 Honda Motor Co. 180,597
25,000 Inax 187,140
21,000 Ishihara Sangyo Kaisha 62,110 (b)
29,000 Ito-Yokado 1,682,516
49,000 Kao Corp. 679,724
3,000 Kawada Industries 13,453
33,000 Kokuyo 892,514
90,000 Komatsu 730,239
25,000 Komori 593,265
33,000 Kumagai Gumi 54,990
77,000 Kuraray 765,835
36,000 Kyocera 2,858,140
48,000 Makita 703,542
73,000 Marui 1,356,570
103,000 Matsushita Electric Industrial 2,075,816
55,000 Mitsubishi 686,180
307,000 Mitsubishi Heavy Industries 2,354,327
23,000 Mitsubishi Paper Mills 89,897
156,000 Mitsui Fudosan 2,150,410
16,000 Mitsui Petrochemical Industries 77,055
35,000 Murata Manufacturing 1,392,427
13,000 National House Industrial 171,262
203,000 NEC 2,833,712
96,000 Nippon Denso 2,294,888
9,000 Nippon Hodo 77,814
436,000 Nippon Steel 1,392,218
95 Nippon Telegraph & Telecom 911,708
107,000 Nomura Securities 1,474,961
36,000 Pioneer Electronic 873,146
4,000 Sangetsu Co. Ltd. 85,151
70,000 Sankyo 2,351,248
7,500 Sega Enterprises 248,648
107,000 Sekisui Chemical 1,082,883
65,000 Sekisui House 657,826
9,000 Seven-Eleven Japan 679,986
100,000 Sharp 1,378,468
58,300 Shin-Etsu Chemical 1,546,257
12,000 Shiseido Co. Ltd. 197,871
25,500 Sony 2,222,518
131,000 Sumitomo 1,245,769
148,000 Sumitomo Electric 2,479,149
36,000 Sumitomo Forestry 395,742
25,000 TDK 1,834,322
150,000 Teijin 706,683
23,000 Tokio Marine & Fire Insurance 300,995
13,900 Tokyo Electronics 664,561
22,300 Tokyo Steel Manufacturing 249,032
49,000 Toppan Printing 769,499
34,000 Uny Co. 664,456
8,400 Yurtec 97,470
----------------
Total Japan 61,628,348
----------------
MALAYSIA - 1.3% (a)
COMMON STOCKS
113,000 Affin Holdings BHD 268,621
156,000 Commerce Asset Holdings BHD 411,014
19,500 Commerce Asset Holdings BHD,
Rights expiring 7/23/1997 3,013 (b)
31,200 Commerce Asset Holdings
BHD, Rights expiring 7/23/1997 1,113 (b)
284,000 Multi-Purpose Holdings BHD,
Rights expiring 1/13/2002 95,642 (b)
429,000 Renong BHD 560,895
7,400 Renong BHD - 4% ICULS Rights 2,345 (b)
133,000 Technology Resources Industries BHD 228,693 (b)
128,000 Time Engineering BHD 193,724
216,000 United Engineers 1,557,528
----------------
Total Malaysia 3,322,588
----------------
MEXICO - 1.6% (a)
COMMON STOCKS
75,000 Cementos de Mexico ADR (USD) 656,250
17,850 Cemex "B" 86,920
262,783 Cifra "B" ADR (USD) 471,695
55,436 Gruma "B" 258,085 (b)
11,260 Gruma S.A. GDR (USD) 222,385 (b)
7,260 Grupo Embotellador de Mexico 15,036
700 Grupo Financiero Banamex Accival "L" 1,656
84,680 Grupo Financiero Banamex "B" 217,360
140,062 Grupo Industrial Maseca "B" 153,324
1,600 Grupo Televisa GDR (USD) 48,600 (b)
74,408 Kimberly-Clark Mexico "A" 299,598
19,020 Panamerican Beverages "A" ADR (USD) 625,283
23,435 Telefonos de Mexico "L" ADR (USD) 1,119,021
----------------
Total Mexico 4,175,213
----------------
NETHERLANDS - 10.4% (a)
COMMON STOCKS
63,096 ABN Amro Holdings N.V. 1,176,481
14,016 Ahold 1,182,459
1,640 Akzo Nobel 224,749
4,520 Baan Co. NV 311,315 (b)
21,779 CSM 1,091,779
193,419 Elsevier 3,232,026
19,815 Fortis Amev N.V. 882,282
5,642 Gucci Group N.V. (USD) 363,204
4,514 Hagemeyer N.V. 233,185
64,562 ING Groep N.V. 2,976,647
14,975 ING Groep N.V., Stock Warrants 172,492 (b)
8,490 Koninklijke PTT Nederland 333,043
3,140 Nutricia 495,899
1,940 Otra N.V. 31,133
32,005 Polygram 1,679,411
122,168 Royal Dutch Petroleum 6,354,553
9,310 Unilever 1,959,800
37,157 Wolters Kluwer 4,524,185
----------------
Total Netherlands 27,224,643
----------------
NEW ZEALAND - 0.5% (a)
COMMON STOCKS
74,000 Air New Zealand Ltd. 226,190
33,100 Carter Holt Harvey 85,661
72,000 Fletcher Challenge Building 216,654
3,000 Fletcher Challenge Energy 9,068
156,889 Fletcher Challenge Forests Division 228,053
3,000 Fletcher Challenge
Forests Division, New Shares 4,279 (b)
38,000 Fletcher Challenge Paper 92,147
54,000 Telecom Corp. of New Zealand 275,096
14,000 Tranz Rail Holdings Ltd. 79,880
----------------
Total New Zealand 1,217,028
----------------
NORWAY - 1.7% (a)
COMMON STOCKS
2,120 Bergesen "A" 50,185
41,834 Norsk Hydro 2,277,434
27,035 Orkla "A" 1,995,570
6,910 Saga Petroleum "B" 120,679
----------------
Total Norway 4,443,868
----------------
PANAMA - 0.05% (a)
COMMON STOCKS
1,676 Banco Latinoamericano de
Exportaciones S.A. "E" 72,278
----------------
PERU - 0.1% (a)
COMMON STOCKS
4,080 Credicorp Ltd. 89,760
6,361 Telefonica del Peru S.A. ADR (USD) 166,579
----------------
Total Peru 256,339
----------------
PHILIPPINES - 0.3% (a)
COMMON STOCKS
13,600 Philippine Long Distance
Telephone Company 440,856
52,250 Philippine National Bank 354,593
----------------
Total Philippines 795,449
----------------
PORTUGAL - 0.4% (a)
COMMON STOCKS
13,650 Jeronimo Martins 953,507
----------------
RUSSIA - 0.05% (a)
COMMON STOCKS
2,280 Gazprom ADR (USD) 39,216
----------------
SINGAPORE - 1.9% (a)
COMMON STOCKS
35,000 City Developments Ltd. 342,729
93,000 DBS Land 294,020
22,000 Development Bank of Singapore 276,981
34,400 Fraser & Neave Ltd. 245,422
1,500 Keppel "A" 6,505 (b)
6,000 Keppel 26,649
15,600 Oversea - Chinese Banking Corp. Ltd. 161,489
111,000 Overseas Union Bank 690,984
22,200 Overseas Union Bank Rights expiring 7/2/97 30,900 (b)
92,000 Singapore Land 418,270
47,000 Singapore Press 946,772
162,000 United Industrial 122,375
111,000 United Overseas Bank 1,141,288
67,000 Wing Tai Holdings Ltd. - Preference Shares 193,076
----------------
Total Singapore 4,897,460
----------------
SOUTH KOREA - 0.5% (a)
COMMON STOCKS
20,300 Korea Electric Power Corp. ADR (USD) 379,356
53,991 Korea Equity Fund (USD) 796,368
1,188 Samsung Electronics GDR (USD) 68,904 (b)
----------------
Total South Korea 1,244,628
----------------
SPAIN - 2.3% (a)
COMMON STOCKS
3,380 Banco Bilbao Vizcaya, S.A. 274,575
2,945 Banco Popular Espanol 721,510
37,050 Banco Santander SA 1,141,547
8,790 Centros Comerciales Pryca 190,296
6,362 Corporacion Bancaria de Espana S.A. 356,203
8,331 Empresa Nacional de Electridad 699,386
2,656 Gas Natural 580,228
52,270 Iberdrola 659,804
10,395 Repsol S.A. 439,503
41 Sociedade General de Aguas de Barcelona 1,656 (b)
33,677 Telefonica de Espana 973,628
----------------
Total Spain 6,038,336
----------------
SWEDEN - 2.9% (a)
COMMON STOCKS
34,800 ABB AB 488,113
149,600 Astra AB 2,639,829
18,290 Atlas Copco "B" 477,614
15,175 Electrolux "B" 1,094,648
2,000 Esselte "B" 47,056
6,582 Granges AB 87,215 (b)
36,500 Hennes & Mauritz AB 1,283,434
10,500 Nordbanken AB 354,276
4,860 Sandvik "A" 137,906
26,010 Sandvik "B" 738,051
2,720 Scribona "B" 31,646
----------------
Total Sweden 7,379,788
----------------
SWITZERLAND - 6.2% (a)
COMMON STOCKS
1,640 ABB AG 2,482,466
3,877 Adecco S.A. 1,487,068
2,988 Ciba Specialty Chemicals AG 276,288 (b)
2,900 Credit Suisse Group 372,431
2,055 Nestle 2,710,911
3,128 Novartis AG 5,000,515
334 Roche Holdings 3,020,870
3,096 Schwizerischer Bankverein 828,074
----------------
Total Switzerland 16,178,623
----------------
THAILAND - 0.1% (a)
COMMON STOCKS
7,950 Advanced Information Service
plc (Foreign Registered) 69,357
17,470 Bangkok Bank 120,041
6,830 Siam Cement 118,118
----------------
Total Thailand 307,516
----------------
UNITED KINGDOM - 14.9% (a)
COMMON STOCKS
80,000 Abbey National 1,092,437
105,066 Argos plc 953,568
287,000 Asda Group 592,647
62,000 BG plc 227,147
81,000 British Petroleum 1,007,624
195,000 Cable & Wireless 1,786,035
126,225 Cadbury Schweppes 1,126,686
190,800 Caradon plc 638,656
62,000 Centrica plc 75,371 (b)
39,000 Coats Viyella 81,833
68,000 Compass Group 760,976
114,000 David S. Smith 356,907
57,000 Electrocomponents 424,302
8,000 GKN 137,221
133,500 Glaxo Wellcome 2,762,297
11,000 Heywood Williams Group 37,553
37,000 Hillsdown Holdings 104,439
24,000 John Laing "A" 148,878
186,000 Kingfisher 2,112,468
341,000 National Westminster Bank 4,585,532
125,000 Rank Group plc 792,059
347,000 Reed International plc 3,351,585
57,000 Rolls Royce 217,372
88,000 RTZ 1,533,609
167,000 Safeway plc 966,416
471,000 Shell Transport & Trading 3,215,863
289,700 SmithKline Beecham 5,333,349
96,000 T & N 228,613
118,000 Tesco 729,036
367,700 Tomkins 1,592,061
149,000 United News & Media 1,728,225
----------------
Total United Kingdom 38,700,765
----------------
VENEZUELA - 0.1% (a)
COMMON STOCKS
4,200 Compania Anonima Nacional Telefonos de
Venezuela ADR (USD) 181,125
----------------
Principal
Amount
- --------------
SHORT-TERM
SECURITIES - 3.3% (a)
Commercial Paper - 2.0%
$ 150,000 Hyundai Motor Finance Co., 5.6%,
due 7/7/1997 (USD) 149,860
5,000,000 Triple A One Funding Corp., 5.6%,
due 7/9/1997 (USD) 4,993,778
----------------
5,143,638
----------------
Government Agency - 1.3%
3,300,000 Federal National Mortgage Association
Discount Notes, 5.6%,
due 7/1/1997 (USD) 3,300,000
----------------
Total Short-Term Securities 8,443,638
----------------
Total Investments $258,310,342 (c,d)
================
Notes to Portfolio of Investments:
- ---------------------------------
(a) The categories of investments are shown as a percentage of total investments
of the World Growth Portfolio.
(b) Currently non-income producing.
(c) Security Classification:
Percentage of
Cost Value Portfolio
------------ ------------ -------------
Common Stocks &
Warrants $218,504,815 $249,322,267 96.5%
Preferred Stocks 467,665 544,437 0.2%
Short-Term 8,443,638 8,443,638 3.3%
------------ ------------ ------
Total Investments $227,416,118 $258,310,342 100.0%
============ ============ ======
(d) At June 30, 1997, the aggregate cost of securities for federal income tax
purposes was $227,416,118 and the net unrealized appreciation of investments
based on that cost was $30,894,224 which is comprised of $35,871,521
aggregate gross unrealized appreciation and $4,977,297 aggregate gross
unrealized depreciation.
Abbreviations:
- --------------
(ADR) -- American Depository Receipts
(GDR) -- Global Depository Receipts
(HKD) -- Denominated in Hong Kong Dollars
(USD) -- Denominated in U.S. Dollars
The accompanying notes are an integral part of the Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Growth Portfolio
Portfolio of Investments
June 30, 1997
(unaudited)
Shares Value
- -------------- -------------
<S> <C> <C>
COMMON STOCKS - 92.0% (a)
Aerospace - 1.5%
300,000 Boeing Co. $15,918,749
174,200 United Technologies Corp. 14,458,599
----------------
30,377,348
----------------
Airlines - 0.3%
238,200 Southwest Airlines Co. 6,163,424
----------------
Automotive - 0.7%
273,200 General Motors Corp. 15,213,824
----------------
Bank & Finance - 15.0%
83,000 Ace Ltd. 6,131,624
242,000 American Express Co. 18,028,999
200,000 American International Group, Inc. 29,874,999
297,500 Bank of New York Co., Inc. 12,941,249
263,400 BankAmerica Corp. 17,005,762
224,600 Barnett Banks, Inc. 11,791,499
96,900 BB&T Corp. 4,360,499
223,000 Chase Manhattan Corp. 21,644,937
205,100 Citicorp 24,727,368
183,400 Crestar Financial Corp. 7,129,674 (c)
625,000 Federal National Mortgage Association 27,265,624
215,400 First Bank System, Inc. 18,389,774
219,600 First Chicago NBD Corp. 13,285,799
133,500 Fleet Financial Group, Inc. 8,443,874
173,800 Great Lakes REIT, Inc. 2,856,837
193,200 Great Western Financial Corp. 10,384,499
394,700 Hibernia Corp., Class A 5,501,130
138,100 Household International, Inc. 16,218,119
278,300 Lehman Brothers Holdings, Inc. 11,271,150
115,000 Provident Companies, Inc. 6,152,500
176,000 Salomon, Inc. 9,790,000
181,900 Stewart Enterprises, Inc. 7,639,800
127,500 Summit Bancorp 6,390,938
60,100 The Hartford Financial Services Group, Inc. 4,973,275
160,300 Washington Mutual, Inc. 9,577,925
----------------
311,777,854
----------------
Broadcasting - 0.7%
131,300 Cox Radio, Inc., Class A 3,364,563 (b)
119,500 Grupo Televisia S.A. 3,629,813 (b)
333,000 Tele-Communications, Inc.,
Liberty Media Group, Series A 7,908,750 (b)
----------------
14,903,126
----------------
Chemicals - 3.7%
163,900 Air Products & Chemicals, Inc. 13,316,875
315,000 E.I. du Pont de Nemours and Co. 19,805,625
118,300 Great Lakes Chemical Corp. 6,195,963
287,900 Monsanto Co. 12,397,694
295,600 Praxair, Inc. 16,553,600
146,300 W.R. Grace & Company 8,064,788
----------------
76,334,545
----------------
Computer Software - 5.2%
91,700 America Online, Inc. 5,100,813 (b)
210,900 Autodesk, Inc. 8,080,106
250,000 BMC Software, Inc. 13,843,750 (b)
73,500 Check Point Software Technologies Ltd. 1,718,063 (b)
197,300 Computer Associates
International, Inc. 10,987,144
237,300 DataWorks Corp. 5,190,938 (b)
175,000 Microsoft Corp. 22,115,625 (b)
422,000 Oracle Corp. 21,258,250 (b)
193,500 PeopleSoft, Inc. 10,207,125 (b)
150,000 Pure Atria Corp. 2,118,750 (b)
201,800 Sterling Commerce, Inc. 6,634,175 (b)
----------------
107,254,739
----------------
Computers & Office
Equipment - 5.5%
191,200 Avery Dennison Corp. 7,671,900
91,900 Bay Networks, Inc. 2,441,094 (b)
376,000 Cisco Systems, Inc. 25,239,000
100,000 Electronics for Imaging, Inc. 4,725,000 (b)
201,400 General Instrument Corp. 5,035,000 (b)
203,100 Hewlett Packard Co. 11,373,600
309,000 International Business Machines 27,867,938
165,500 Iomega Corp. 3,289,313 (b)
154,600 Premiere Technologies, Inc. 4,019,600
271,200 Sun Microsystems, Inc. 10,093,725 (b)
170,100 Xerox Corp. 13,416,638
----------------
115,172,808
----------------
Conglomerates - 3.7%
265,100 AlliedSignal, Inc. 22,268,400
147,200 Dover Corp. 9,052,800
239,200 Honeywell, Inc. 18,149,300
155,000 Minnesota Mining & Manufacturing Co. 15,810,000
200,000 Tyco International Ltd. 13,912,500
----------------
79,193,000
----------------
Drugs & Health Care - 10.2%
315,000 Abbott Laboratories 21,026,250
175,000 Alpha-Beta Technology, Inc. 1,596,875 (b)
20,000 Amgen, Inc. 1,162,500 (b)
139,300 Baxter International, Inc. 7,278,425
300,500 Becton, Dickinson & Co. 15,212,813
486,500 Biochem Pharma, Inc. 10,824,625 (b)
205,600 Biogen, Inc. 6,964,700 (b)
236,800 Centocor, Inc. 7,355,600 (b)
161,700 Cephalon, Inc. 1,859,550 (b)
226,900 Eli Lilly & Co. 24,803,006
261,100 Johnson & Johnson 16,808,313
316,900 Merck & Co., Inc. 32,799,150
97,200 PDT, Inc. 3,547,800 (b)
213,300 Pfizer, Inc. 25,489,350
145,800 Schering-Plough Corp. 6,980,175
103,600 STERIS Corp. 3,872,050 (b)
200,000 Warner-Lambert Co. 24,850,000
----------------
212,431,182
----------------
Electrical Equipment - 1.5%
466,500 General Electric Co. 30,497,438
----------------
Electronics - 4.4%
82,800 ASE Test Ltd. 3,498,300 (b)
277,700 Cypress Semiconductor Corp. 4,026,650 (b)
147,000 Intel Corp. 20,846,438
101,000 Linear Technology Corp. 5,226,750
68,800 Maxim Integrated Products, Inc. 3,913,000 (b)
266,100 Motorola, Inc. 20,223,600
215,400 National Semiconductor Corp. 6,596,625 (b)
170,100 Nokia Corp., ADR 12,544,875
106,300 Silicon Valley Group, Inc. 2,803,663 (b)
128,200 Synopsys, Inc. 4,711,350
124,100 Xilinx, Inc. 6,088,656 (b)
----------------
90,479,907
----------------
Food & Beverage - 2.8%
249,600 Coca-Cola Co. 16,848,000
500,000 PepsiCo, Inc. 18,781,250
62,500 Ralston-Ralston Purina Group 5,136,719
431,700 Sara Lee Corp. 17,969,513
----------------
58,735,482
----------------
Healthcare
Management - 1.7%
222,600 Beverly Enterprises, Inc. 3,617,250 (b)
205,900 FPA Medical Management, Inc. 4,877,256 (b)
185,000 Oxford Health Plans, Inc. 13,273,750 (b)
249,400 United Healthcare Corp. 12,968,800
----------------
34,737,056
----------------
Household Products - 4.6%
163,000 Avon Products, Inc. 11,501,688
104,400 Clorox Co. 13,780,800
140,000 Colgate Palmolive Co. 9,135,000
322,500 Dial Corp. 5,039,063
240,000 Gillette Co. 22,740,000
182,600 Procter & Gamble Co. 25,792,250
35,000 Unilever N.V., ADR 7,630,000
----------------
95,618,801
----------------
Leisure &
Entertainment - 3.0%
256,600 Disney (Walt) Co. 20,592,150
282,900 HFS, Inc. 16,408,200 (b)
505,900 Host Marriott Corp. 9,011,344 (b)
131,800 Signature Resorts, Inc. 4,555,338 (b)
236,600 Time Warner, Inc. 11,415,950
----------------
61,982,982
----------------
Machinery &
Equipment - 2.5%
178,800 AGCO Corp. 6,425,625
115,200 Case Corp. 7,934,400
160,000 Cummins Engine Co., Inc. 11,290,000
295,000 Deere & Co. 16,188,125
175,100 Lear Corp. 7,770,063 (b)
50,900 Magna International, Inc. 3,063,544
----------------
52,671,757
----------------
Manufacturing - 0.4%
134,000 BMC Industries, Inc. 4,589,500
119,500 Speedfam International, Inc. 4,287,063 (b)
----------------
8,876,563
----------------
Mining & Metals - 0.7%
200,000 Aluminum Co. of America 15,075,000
----------------
Oil & Oil Service - 6.9%
178,500 Apache Corp. 5,801,250
350,900 Baker Hughes, Inc. 13,575,444
250,500 British Petroleum Co., plc 18,756,188
178,300 Chevron Corp. 13,183,056
97,400 Falcon Drilling Co., Inc. 5,612,675 (b)
260,500 Halliburton Co. 20,644,625
209,200 Mobil Corp. 14,617,850
101,400 Noble Drilling Corp. 2,287,838 (b)
193,700 Santa Fe International Corp. 6,585,800 (b)
187,600 Sun Company, Inc. 5,815,600
205,300 Texaco, Inc. 22,326,375
82,600 Total SA 4,181,625
135,600 Triton Energy Ltd., Class A 6,212,175 (b)
138,000 Ultramar Diamond Shamrock Corp. 4,502,250
----------------
144,102,751
----------------
Paper & Forest Products - 0.9%
155,100 Champion International Corp. 8,569,275
328,200 Stone Container Corp. 4,697,363 (c)
78,300 Willamette Industries, Inc. 5,481,000 (c)
----------------
18,747,638
----------------
Photography - 0.5%
122,500 Eastman Kodak Co. 9,401,875
----------------
Pollution Control - 0.6%
321,900 USA Waste Services, Inc. 12,433,388 (b)
----------------
Restaurants - 0.3%
221,000 Applebee's International, Inc. 5,911,750
----------------
Retail - 5.7%
238,100 American Stores Co. 11,756,188
350,000 Borders Group, Inc. 8,443,750 (b)
270,600 CompUSA, Inc. 5,817,900 (b)
293,500 CVS Corp. 15,041,875
123,300 Dole Food, Inc. 5,271,075
131,100 Eagle Hardware & Garden, Inc. 2,998,913 (b)
348,300 Federated Department Stores 12,103,425 (b)
201,500 General Nutrition Companies 5,642,000 (b)
119,500 Kmart Corp. 1,463,875
426,500 Kroger Co. 12,368,500 (b)
174,500 Movie Gallery, Inc. 1,112,438 (b)
69,800 Proffitt's, Inc. 3,062,475 (b)
299,500 Safeway, Inc. 13,814,438 (b)
58,400 Talbots, Inc. 1,985,600
500,000 Wal-Mart Stores, Inc. 16,906,250
----------------
117,788,702
----------------
Services - 2.2%
332,892 AccuStaff, Inc. 7,885,379 (b)
175,000 Computer Sciences Corp. 12,621,875 (b)
545,440 First Data Corp. 23,965,270
----------------
44,472,524
----------------
Telecommunications
Equipment - 2.3%
169,200 ACT Networks, Inc. 2,157,300 (b)
349,500 ADC Telecommunications, Inc. 11,664,563 (b)
93,000 Ascend Communications, Inc. 3,661,875 (b)
205,442 Lucent Technologies, Inc. 14,804,664 (b)
277,000 Tellabs, Inc. 15,477,375 (b)
----------------
47,765,777
----------------
Telephone &
Telecommunications - 4.5%
206,400 AirTouch Communications, Inc. 5,650,200 (b)
301,300 Ameritech Corp. 20,469,569
129,000 AT&T Corp. 4,523,063
372,500 BellSouth Corp. 17,274,688
66,700 Cincinnati Bell, Inc. 2,101,050
252,000 LCI International, Inc. 5,512,500 (b)
327,500 MobileMedia Corp., Class A 61,406 (b)
357,900 SBC Communications, Inc. 22,145,063
466,800 WorldCom, Inc. 14,937,600 (b)
----------------
92,675,139
----------------
Total Common Stock
(cost $1,633,351,145) 1,910,796,380
----------------
Principal
Amount
- --------------
CORPORATE
BONDS - 0.2% (a)
$6,250,000 Broadband Technologies, Inc.,
Convertible Subordinated Notes,
5.0% due 5/15/2001 (cost $6,249,273) 4,664,063
----------------
U.S. GOVERNMENT - 0.001% (a)
300,000 U.S. Treasury Notes, 8.75%,
due 10/15/1997 (cost $300,673) 302,813
----------------
SHORT-TERM
SECURITIES - 7.8% (a)
Commercial Paper - 7.5%
20,000,000 American Express Credit Corp., 5.52%,
due 7/10/1997 19,972,400
4,800,000 Assets Securitization Corp., 5.6%,
due 7/28/1997 4,779,840
17,600,000 Ciesco L P, 5.5%, due 7/18/1997 17,554,289
2,400,000 Ciesco L P, 5.52%, due 7/18/1997 2,393,744
900,000 General Electric Capital Corp., 5.53%,
due 7/23/1997 896,959
4,550,000 General Electric Capital Corp., 5.54%,
due 7/23/1997 4,534,596
16,400,000 General Electric Capital Corp., 5.55%,
due 7/23/1997 16,344,377
10,000,000 Great Lakes Chemical Corp., 5.52%,
due 7/14/1997 9,980,067
40,000,000 Koch Industries, Inc. 6.08%,
due 7/1/1997 40,000,000
20,000,000 Sheffield Receivables Corp., 5.57%,
due 7/3/1997 19,993,811
10,000,000 Unilever Capital Corp., 5.65%,
due 7/8/1997 9,989,014
10,000,000 USAA Capital Corp., 5.5%, due 7/16/1997 9,977,083
----------------
156,416,180
----------------
U.S. Government
Agency - 0.3%
5,600,000 Federal Home Loan Bank Discount Notes,
5.415%, due 7/25/1997 5,579,784
----------------
Total Short-Term Securities
(at amortized cost) 161,995,964
----------------
Total Investments
(cost $1,801,897,055) 2,077,759,220 (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 June 30, 1997.
(d) At June 30, 1997, the aggregate cost of securities for federal income tax
purposes was $1,801,897,055 and the net unrealized appreciation of
investments based on that cost was $275,862,165 which is comprised of
$301,988,519 aggregate gross unrealized appreciation and $26,126,354
aggregate gross unrealized depreciation.
Abbreviations:
- --------------
(ADR) -- American Depository Receipts
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
High Yield Portfolio
Portfolio of Investments
June 30, 1997
(unaudited)
Principal Maturity
Amount Rate Date Value
- ---------------- ------ -------------- ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 79.6% (a)
Airlines - 1.0%
$ 4,200,000 Northwest Airlines, Inc., Notes 8.7% 3/15/2007 $4,326,692
3,000,000 Northwest Airlines, Inc., Notes 8.375% 3/15/2004 3,045,905
4,500,000 U.S. Air, Inc., Sr. Secured Equipment Trust, Series 1993-A-3 10.375% 3/1/2013 4,938,749
-------------
12,311,346
-------------
Automotive - 1.0%
7,200,000 Chief Auto Parts, Inc., Sr. Notes 10.5% 5/15/2005 7,253,999
7,050,000 Exide Corp., Convertible Sr. Subordinated Notes 2.9% 12/15/2005 4,379,812
-------------
11,633,811
-------------
Bank & Finance - 7.7%
7,250,000 AmeriCredit Corp., Sr. Notes 9.25% 2/1/2004 7,141,249
4,750,000 Chevy Chase Savings Bank, Subordinated Debentures 9.25% 12/1/2005 4,749,999
7,800,000 Dollar Financial Group, Inc., Sr. Notes, Series A 10.875% 11/15/2003 8,384,999
11,850,000 First Nationwide Holdings, Inc., Sr. Notes 12.5% 4/15/2003 13,360,875
3,896,000 HomeSide, Inc., Sr. Secured Second Priority Bonds, Series B 11.25% 5/15/2003 4,548,580
8,400,000 Integon Capital I, Capital Securities 10.75% 2/15/2027 10,248,000
7,300,000 Mego Mortgage Corp., Sr. Subordinated Notes 12.5% 12/1/2001 7,281,750
4,800,000 Residential Reinsurance Ltd., Notes 11.4475% 12/15/2008 4,824,000 (e)
5,400,000 Riggs Capital Trust II, Trust Preferred Securities, Series C 8.875% 3/15/2027 5,441,213
2,010,000 Trizec Finance Ltd., Sr. Notes 10.875% 10/15/2005 2,271,300
6,950,000 Veritas Holdings GMBH, Sr. Notes 9.625% 12/15/2003 7,193,250
7,500,000 Williams Scotsman, Inc., Sr. Notes 9.875% 6/1/2007 7,537,500
8,400,000 Wilshire Financial Services Group, Inc., Notes 13.0% 1/1/2004 8,526,000
-------------
91,508,715
-------------
Broadcasting - 11.8%
4,936,850 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 6/15/2004 1,555,108
5,100,000 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 8/15/2005 1,402,500
3,600,000 Australis Holdings Pty Ltd., Sr. Discount Notes Zero Coupon 11/1/2002 2,646,000
12,724,290 Australis Media Ltd., Sr. Discount Notes Zero Coupon 5/15/2003 9,352,353
6,600,000 Benedek Communications Corp., Sr. Discount Notes Zero Coupon 5/15/2006 4,042,500
6,900,000 Cablevision Industries, Debentures, Series B 9.25% 4/1/2008 7,445,017
9,000,000 CS Wireless Systems, Inc., Sr. Discount Notes, Series B Zero Coupon 3/1/2006 2,115,000
2,400,000 Echostar DBS Corp., Sr. Secured Notes 12.5% 7/1/2002 2,388,000
9,000,000 EchoStar Satellite Broadcasting Corp., Sr. Secured
Discount Notes Zero Coupon 3/15/2004 6,457,500
9,695,885 Falcon Holdings Group L.P., Sr. Subordinated Notes, Series B 11.0% 9/15/2003 9,744,364
11,900,000 Grupo Televisa S.A., Sr. Notes 11.875% 5/15/2006 13,476,750
9,000,000 Intermedia Capital Partners, Sr. Notes 11.25% 8/1/2006 9,855,000
1,800,000 International CableTel, Inc., Convertible Subordinated Notes 7.25% 4/15/2005 1,948,500
5,900,000 International CableTel, Inc., Convertible Subordinated Notes 7.0% 6/15/2008 5,597,625
4,200,000 International CableTel, Inc., Sr. Notes 10.0% 2/15/2007 4,294,500
6,300,000 International CableTel, Inc., Sr. Notes, Series A Zero Coupon 4/15/2005 4,851,000
6,000,000 Jacor Communications, Inc., Convertible Liquid
Yield Option Notes Zero Coupon 6/12/2011 3,367,500
7,050,000 Rogers Cablesystems Ltd., Sr. Secured Second Priority Notes 9.625% 8/1/2002 7,455,375
7,000,000 Rogers Communications, Inc., Convertible Debentures 2.0% 11/26/2005 3,841,250
3,750,000 Rogers Communications, Inc., Sr. Notes 9.125% 1/15/2006 3,806,250
4,964,750 Scott Cable Communications, Debentures 15.0% 4/15/2001 4,294,509
703,583 Scott Cable Communications, Jr. Subordinated Notes,
Payment-In-Kind 16.0% 7/18/2002 $ 84,430
9,800,000 Sinclair Broadcast Group, Sr. Subordinated Notes 9.0% 7/15/2007 9,530,500
5,400,000 TKR Cable I, Inc., Sr. Debentures 10.5% 10/30/2007 5,943,704
6,600,000 UIH Australia/Pacific, Inc., Sr. Discount Notes, Series B Zero Coupon 5/15/2006 4,191,000
7,200,000 United International Holdings, Inc., Sr. Discount Notes Zero Coupon 11/15/1999 5,598,000
6,000,000 Wireless One, Inc., Sr. Notes 13.0% 10/15/2003 3,750,000
-------------
139,034,235
-------------
Building Products & Materials - 1.6%
6,100,000 Atrium Companies, Inc., Sr. Subordinated Notes 10.5% 11/15/2006 6,374,500
7,200,000 CEMEX S.A. de C.V., Notes 12.75% 7/15/2006 8,370,000
4,200,000 Nortek, Inc., Sr. Notes 9.25% 3/15/2007 4,305,000
-------------
19,049,500
-------------
Computers & Office Equipment - 2.1%
9,000,000 Dictaphone Corp., Sr. Subordinated Notes 11.75% 8/1/2005 8,325,000
3,100,000 Pierce Leahy Corp., Sr. Subordinated Notes 9.125% 7/15/2007 3,100,000
8,200,000 Unisys Corp., Sr. Notes 11.75% 10/15/2004 8,897,000
4,600,000 Unisys Corp., Sr. Notes 12.0% 4/15/2003 5,002,500
-------------
25,324,500
-------------
Construction & Home Building - 1.4%
9,600,000 Peters (J.M.) Co., Inc., Sr. Notes 12.75% 5/1/2002 9,840,000
6,600,000 The Fortress Group, Inc., Sr. Notes 13.75% 5/15/2003 6,996,000
-------------
16,836,000
-------------
Containers & Packaging - 1.1%
2,866,000 Silgan Holdings, Inc., Subordinated Debentures, Payment-In-Kind 13.25% 7/15/2006 3,224,250
3,000,000 Vicap, S.A. de C.V., Sr. Guaranteed Notes 11.375% 5/15/2007 3,157,500
6,000,000 Vicap, S.A. de C.V., Sr. Guaranteed Notes 10.25% 5/15/2002 6,202,500
-------------
12,584,250
-------------
Drugs & Health Care - 0.7%
3,550,000 Owens & Minor, Inc., Sr. Subordinated Notes 10.875% 6/1/2006 3,896,125
4,100,000 UROHEALTH Systems, Inc., Units 12.5% 4/1/2004 3,997,500
-------------
7,893,625
-------------
Electric Utilities - 1.5%
7,200,000 CMS Energy Corp., Sr. Unsecured Notes 8.125% 5/15/2002 7,254,670
3,250,000 Midland Cogen Venture Fund II, Secured Lease Obligation Bonds, Series A 11.75% 7/23/2005 3,794,375
2,000,000 Midland Cogen Venture Fund II, Subordinated
Secured Lease Obligation Bonds 13.25% 7/23/2006 2,460,000
4,200,000 Panda Global Energy Co., Sr. Secured Notes 12.5% 4/15/2004 4,116,000
-------------
17,625,045
-------------
Electrical Equipment - 1.7%
3,600,000 EV International, Inc., Sr. Subordinated Notes 11.0% 3/15/2007 3,834,000
6,000,000 Protection One Alarm Monitoring, Convertible Sr. Subordinated Notes 6.75% 9/15/2003 6,112,500
3,000,000 Protection One Alarm Monitoring, Sr. Subordinated Discount Notes Zero Coupon 6/30/2005 3,120,000
7,200,000 Telex Communications, Inc., Sr. Notes 10.5% 5/1/2007 7,542,000
-------------
20,608,500
-------------
Food & Beverage - 2.2%
4,500,000 Cott Corp., Sr. Notes 8.5% 5/1/2007 4,500,000
9,000,000 Fresh Del Monte Corp., Sr. Notes, Series B 10.0% 5/1/2003 9,270,000
8,400,000 Gorges/Quik-to-Fix Foods, Sr. Subordinated Notes, Series B 11.5% 12/1/2006 8,694,000
3,000,000 International Home Foods, Inc., Sr. Subordinated Notes 10.375% 11/1/2006 3,105,000
-------------
25,569,000
-------------
Hospital Management - 4.2%
6,600,000 Integrated Health Services, Inc., Sr. Subordinated Notes 9.5% 9/15/2007 6,781,500
6,600,000 Merit Behavioral Care Corp., Sr. Subordinated Notes 11.5% 11/15/2005 7,293,000
4,200,000 PhyMatrix Corp., Convertible Subordinated Debentures 6.75% 6/15/2003 3,753,750
4,200,000 Regency Health Services, Inc., Sr. Subordinated Notes 9.875% 10/15/2002 4,305,000
4,850,000 Regency Health Services, Inc., Subordinated Notes 12.25% 7/15/2003 5,262,250
4,500,000 Rotech Medical Corp., Convertible Subordinated Debentures 5.25% 6/1/2003 4,370,625
7,800,000 Tenet Healthcare Corp., Sr. Subordinated Notes 8.625% 1/15/2007 7,995,000
11,400,000 Unison HealthCare Corp., Sr. Notes 12.25% 11/1/2006 9,405,000
-------------
49,166,125
-------------
Household Products - 2.1%
6,850,000 BPC Holding Corp., Sr. Secured Notes, Series B 12.5% 6/15/2006 7,500,750
9,000,000 Coleman Escrow Corp., Sr. Discount Notes Zero Coupon 5/15/2001 5,737,500
4,750,000 Radnor Holdings Corp., Sr. Notes 10.0% 12/1/2003 4,892,500
6,000,000 Simmons Co., Sr. Subordinated Notes 10.75% 4/15/2006 6,345,000
-------------
24,475,750
-------------
Leisure & Entertainment - 1.7%
12,600,000 AMF Group, Inc., Sr. Subordinated Discount Notes, Series B Zero Coupon 3/15/2006 9,024,750
3,000,000 IMAX Corp., Sr. Notes 7.0% 3/1/2001 3,157,500
7,200,000 Lodgenet Entertainment, Sr. Notes 10.25% 12/15/2006 7,380,000
-------------
19,562,250
-------------
Machinery & Equipment - .4%
4,200,000 Navistar Financial Corp., Sr. Subordinated Notes 9.0% 6/1/2002 4,341,750
-------------
Mining & Metals - 1.9%
4,850,000 Altos Hornos de Mexico, Bonds 11.875% 4/30/2004 5,231,938
7,500,000 CSN Iron Panama, Guaranteed Notes 9.125% 6/1/2007 7,368,750
3,000,000 Wells Aluminum Corp., Sr. Notes 10.125% 6/1/2005 3,097,500
6,600,000 Westmin Resources Ltd., Sr. Notes 11.0% 3/15/2007 6,930,000
-------------
22,628,188
-------------
Oil & Gas - 3.9%
10,200,000 Abraxas Petroleum Corp., Sr. Notes, Series B 11.5% 11/1/2004 11,067,000
9,200,000 Belden & Blake Corp., Sr. Subordinated Notes 9.875% 6/15/2007 9,177,000
3,000,000 Bellwether Exploration Co., Sr. Subordinated Notes 10.875% 4/1/2007 3,232,500
6,400,000 Forcenergy, Inc., Sr. Subordinated Notes, Series B 8.5% 2/15/2007 6,288,000
4,800,000 National Energy Group, Inc., Sr. Notes 10.75% 11/1/2006 4,968,000
6,167,000 Petroleum Heat & Power Co., Inc., Subordinated Debentures 12.25% 2/1/2005 6,506,185
5,100,000 Pride Petroleum Services, Inc., Sr. Notes 9.375% 5/1/2007 5,329,500
-------------
46,568,185
-------------
Paper & Forest Products - 3.6%
3,600,000 APP International Finance, Guaranteed Secured Notes 11.75% 10/1/2005 3,973,500
9,000,000 Doman Industries Ltd., Sr. Notes 8.75% 3/15/2004 8,775,000
7,800,000 Fonda Group, Inc., Sr. Subordinated Notes 9.5% 3/1/2007 7,488,000
7,250,000 FSW International Finance Co. B.V., Guaranteed Secured Notes 12.5% 11/1/2006 7,503,750
8,100,000 National Fiberstock Corp., Sr. Notes Series B 11.625% 6/15/2002 8,363,250
5,900,000 Tembec Finance Corp., Sr. Notes 9.875% 9/30/2005 6,113,875
-------------
42,217,375
-------------
Pollution Control - 0.4%
4,000,000 Norcal Waste Systems, Inc., Sr. Notes, Series B 12.75% 11/15/2005 4,500,000
-------------
Publishing & Printing - 2.9%
2,500,000 K-III Communications Corp., Sr. Notes 10.25% 6/1/2004 2,700,000
7,500,000 MDC Communications Corp., Sr. Subordinated Notes 10.5% 12/1/2006 8,006,250
13,800,000 Neodata Services, Inc., Sr. Notes, Series B 12.0% 5/1/2003 14,904,000
4,000,000 News America Holdings, Inc.,
Convertible Liquid Yield Option Notes Zero Coupon 3/11/2013 1,785,000
750,000 News America Holdings, Inc., Subordinated Notes Zero Coupon 3/31/2002 564,375
5,850,000 Sullivan Graphics, Inc., Sr. Subordinated Notes 12.75% 8/1/2005 5,996,250
-------------
33,955,875
-------------
Restaurants - .7%
7,800,000 AFC Enterprises, Sr. Subordinated Notes 10.25% 5/15/2007 7,839,000
-------------
Retail - 2.6%
4,300,000 Brazos Sportswear, Inc., Sr. Notes 10.5% 7/1/2007 4,246,250
6,300,000 Di Giorgio Corp., Sr. Notes 12.0% 2/15/2003 6,158,250
2,750,000 F & M Distributors, Inc., Sr. Subordinated Notes 11.5% 4/15/2003 10,313(c)
2,400,000 Leslie's Poolmart, Sr. Notes 10.375% 7/15/2004 2,460,000
6,000,000 Lifestyle Furnishings International Ltd., Sr. Subordinated Notes 10.875% 8/1/2006 6,660,000
2,700,000 Riddell Sports, Inc., Sr. Notes 10.5% 7/15/2007 2,774,250
2,100,000 Specialty Retailers, Inc., Sr. Notes 8.5% 7/15/2005 2,126,250
1,800,000 Specialty Retailers, Inc., Sr. Subordinated Notes 9.0% 7/15/2007 1,818,000
4,800,000 TravelCenters Of America, Inc., Sr. Subordinated Notes 10.25% 4/1/2007 4,944,000
-------------
31,197,313
-------------
Retail: Food - 2.3%
4,800,000 Jitney-Jungle Stores of America, Sr. Notes 12.0% 3/1/2006 5,370,000
6,300,000 Pueblo Xtra International, Inc., Sr. Notes 9.5% 8/1/2003 6,079,500
600,000 Pueblo Xtra International, Inc., Sr. Notes, Series B 9.5% 8/1/2003 579,000
7,250,000 Ralphs Grocery Co., Sr. Notes 10.45% 6/15/2004 7,820,938
7,600,000 Smith's Food & Drug Centers, Pass Through Certificates 8.64% 7/2/2012 7,790,000
-------------
27,639,438
-------------
Services - 1.0%
4,200,000 Intertek Finance plc, Sr. Subordinated Notes 10.25% 11/1/2006 4,399,500
7,200,000 KinderCare Learning Centers, Inc., Sr. Subordinated Notes 9.5% 2/15/2009 7,056,000
-------------
11,455,500
-------------
Telecommunications - 15.9%
12,000,000 American Communications Services, Sr. Discount Notes Zero Coupon 11/1/2005 7,080,000
9,600,000 Clearnet Communications, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 6,432,000
6,600,000 Comcast Cellular Holdings, Inc., Sr. Notes 9.5% 5/1/2007 6,649,500
7,800,000 Dobson Communications Corp., Sr. Notes 11.75% 4/15/2007 7,605,000
7,800,000 Globalstar, L.P., Sr. Notes 11.25% 6/15/2004 7,351,500
3,000,000 GST Equipment Funding, Inc., Sr. Secured Notes 13.25% 5/1/2007 3,240,000
1,445,000 GST Telecommunications, Inc., Sr. Subordinated Notes Zero Coupon 12/15/2005 953,700
6,750,000 GST USA, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 4,201,875
13,200,000 Hyperion Telecommunications, Sr. Discount Notes, Series B Zero Coupon 4/15/2003 6,699,000
6,050,000 IntelCom Group (U.S.A.), Inc., Sr. Discount Notes Zero Coupon 5/1/2003 3,993,000
4,800,000 InterCel, Inc., Sr. Notes 11.125% 6/1/2007 4,848,000
4,700,000 Intermedia Communications of Florida, Sr. Notes, Series B 13.5% 6/1/2005 5,757,500
12,600,000 Ionica plc, Sr. Notes 13.5% 8/15/2006 13,482,000
6,000,000 IXC Communications, Inc., Sr. Notes, Series B 12.5% 10/1/2005 6,840,000
8,400,000 McCaw International Ltd., Units Zero Coupon 4/15/2007 4,074,000
10,200,000 Microcell Telecommunications, Inc., Sr. Discount Notes Zero Coupon 6/1/2006 5,712,000
13,200,000 Millicom International Cellular, Sr. Discount Notes Zero Coupon 6/1/2006 9,570,000
5,400,000 NEXTLINK Communications LLC, Sr. Discount Notes 12.5% 4/15/2006 5,805,000
6,000,000 Olympus Communications, L.P., Sr. Notes 10.625% 11/15/2006 6,330,000
8,400,000 ORBCOMM Global, L.P., Sr. Notes 14.0% 8/15/2004 8,526,000
9,000,000 PageMart Nationwide, Inc., Sr. Discount Exchange Notes Zero Coupon 2/1/2005 6,840,000
8,650,000 Phonetel Technologies, Inc., Sr. Notes 12.0% 12/15/2006 8,779,750
9,000,000 RSL Communications Ltd., Units 12.25% 11/15/2006 9,270,000
13,500,000 UNIFI Communications, Inc., Units 14.0% 3/1/2004 13,432,500
4,900,000 USA Mobile Communications, Inc., Sr. Notes 14.0% 11/1/2004 5,439,000
12,000,000 Viatel, Inc., Sr. Discount Notes Zero Coupon 1/15/2005 8,220,000
6,750,000 WinStar Communications, Inc., Convertible Sr. Subordinated
Discount Notes Zero Coupon 10/15/2005 4,050,000
12,000,000 WinStar Communications, Inc., Sr. Discount Notes Zero Coupon 10/15/2005 6,780,000
-------------
187,961,325
-------------
Textiles & Apparel - 1.1%
7,200,000 Anvil Knitwear, Inc., Sr. Notes 10.875% 3/15/2007 7,308,000
6,000,000 CMI Industries, Inc., Sr. Subordinated Notes 9.5% 10/1/2003 6,075,000
-------------
13,383,000
-------------
Transportation - 1.1%
9,850,000 Equimar Shipholdings Ltd., First Priority Mortgage Notes 9.875% 7/1/2007 9,751,500
4,500,000 TFM, S.A. de C.V., Sr. Discount Debentures Zero Coupon 6/15/2009 2,621,250
900,000 TFM, S.A. de C.V., Sr. Notes 10.25% 6/15/2007 915,750
-------------
13,288,500
-------------
Total Corporate Bonds (cost $920,159,864) 940,158,101
-------------
<CAPTION>
Shares
- ----------------
<S> <C> <C>
PREFERRED STOCKS - 11.4% (a)
6,000,000 APP Finance II Mauritus Ltd., Preferred Stock 6,195,000
38,738 Cablevision Systems Corp., Preferred Stock 3,902,854
52,986 Cablevision Systems Corp., Redeemable Exchangeable Preferred Stock, Series H 5,497,298
42,000 California Federal Bank, Noncumulative Preferred Stock 4,725,000
42,000 Chancellor Radio Broadcasting, Exchangeable Preferred Stock 4,798,500
90,000 Chevy Chase Capital Corp., Noncumulative Exchangeable Preferred Stock, Series A 4,770,000
4,900 Citadel Broadcasting Co., Payment-In-Kind Preferred Stock 490,000
43,288 Communications & Power Industries, Inc., Convertible Preferred Stock, Series B 4,696,748
4,350 Consolidated Hydro, Inc., Preferred Stock 437,175(b)
60,000 Evergreen Media Corp., Convertible Preferred Stock 3,270,000
49,500 Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 0(b,d)
194,000 Granite Broadcasting Corp., Convertible Preferred Stock 9,991,000
3,704 Granite Broadcasting Corp., Cumulative Exchangeable Preferred Stock 3,606,770
396,146 Harvard Industries, Inc., Exchangeable Payment-In-Kind Preferred Stock 495,183(c)
90,000 Host Marriott Financial Trust, Convertible Preferred Stock 5,265,000
3,728 ICG Communications, Inc., Preferred Stock 3,970,320
3,653 Intermedia Communications, Inc., Preferred Stock 3,789,988
15,000 Jitney-Jungle Stores of America, Sr. Exchangeable Preferred Stock, Class A 2,137,500
37,000 K-III Communications Corp., Exchangeable Preferred Stock 994,375
50,696 K-III Communications Corp., Exchangeable Preferred Stock, Series B 5,487,854
52,000 K-III Communications Corp., Preferred Stock, Series D 5,304,000
83,800 Network Imaging Corp., Convertible Preferred Stock, Series A 879,900
125,520 NEXTLINK Communications, Inc., Payment-In-Kind Preferred Stock 6,621,180
4,900 Paxson Communications Corp., Payment-In-Kind Preferred Stock 5,108,250
240,000 Petroleum Heat & Power, Preferred Stock 5,700,000
147,500 River Bank America, Preferred Stock 3,466,250
50,895 SFX Broadcasting, Inc., Payment-In-Kind Preferred Stock 5,509,384
5,400 Spanish Broadcasting Systems, Payment-In-Kind Preferred Stock 5,022,000
60,000 TIMET Capital Trust I, Convertible Preferred Stock 3,255,000
150,000 USX Corp. (Marathon Group), Convertible Preferred Stock 3,806,250
135,000 WorldCom, Inc., Convertible Preferred Stock 15,221,250
-------------
Total Preferred Stocks (cost $131,313,531) 134,414,029
-------------
COMMON STOCKS & STOCK WARRANTS - 3.0% (a,b)
16,800 American Communications Services, Stock Warrants 798,000
34,000 American Telecasting, Inc., Stock Warrants 34,000
3,600 American Telecasting, Inc., Stock Warrants 3,600
175,000 Arch Communications Group, Common Stock 1,334,375
3,400 Australis Holdings Pty Ltd., Stock Warrants 102
16,400 Australis Media Ltd., Stock Warrants 164
162,000 Bell & Howell Co., Common Stock 4,991,625
35,475 Clearnet Communications, Inc., Stock Warrants 297,103
2,310 Communications & Power Industries, Inc., Common Stock 346,500
7,830 Consolidated Hydro, Inc., Stock Warrants 0(d)
3,597 CS Wireless Systems, Inc., Common Stock 4
79,500 Envirotest Systems Corp., Class A Common Stock 198,750
101,377 Gaylord Container Corp., Class A Common Stock 779,336
127,902 Gaylord Container Corp., Stock Warrants 1,015,222
18,126 Grand Union Co., Stock Warrants 906
36,251 Grand Union Co., Stock Warrants 363
65,000 Harvard Industries, Inc., Class B Common Stock 36,563
12,600 Hyperion Telecommunications, Stock Warrants 378,000
198,000 IntelCom Group Communications, Inc., Common Stock 3,811,500
68,300 IntelCom Group (U.S.A.), Inc., Stock Warrants 887,900
179,000 InterCel, Inc., Common Stock 2,461,250
5,900 Intermedia Communications of Florida, Stock Warrants 236,000
14,800 Ionica plc, Stock Warrants 3,256,000
38,000 JPS Textiles Group, Common Stock, Class A 380
129,371 Magellan Health Services, Common Stock 3,816,445
50,379 Memorex Telex N.V., ADR, Common Stock 693
1,728 Memorex Telex N.V., ADR, Stock Warrants 0
40,800 Microcell Telecommunications, Inc., Stock Warrants 510,000
40,800 Microcell Telecommunications, Inc., Stock Warrants 25,500
384,500 MobileMedia Corp., Class A Common Stock 72,094
3,750 NEXTEL Communications, Stock Warrants 38
3,086 NEXTEL Communications, Stock Warrants 31
120,000 NEXTLINK Communications, Inc., Stock Warrants 1,200
33,250 PageMart Nationwide, Inc., Common Stock 249,375
179,000 Pagemart Wireless, Inc., Class A Common Stock 1,521,500
46,600 Plantronics, Inc., Common Stock 2,335,825
23,840 Protection One Alarm Monitoring, Stock Warrants 226,480
9,000 RSL Communications Ltd., Stock Warrants 270,000
5,000 Triangle Wire & Cable, Inc., Stock Warrants 0(d)
118,000 United International Holdings, Inc., Class A Common Stock 1,224,250
27,000 United International Holdings, Inc., Stock Warrants 337,500
240,666 Viatel, Inc., Common Stock 1,624,496
6,363 Wherehouse Entertainment, Inc., Class B Stock Warrants 6,363
6,363 Wherehouse Entertainment, Inc., Class C Stock Warrants 64
36,654 Wherehouse Entertainment, Inc., Class A Stock Warrants 279,303
138,000 Wireless One, Inc., Common Stock 353,625
19,200 Wireless One, Inc., Stock Warrants 192
-------------
Total Common Stocks & Stock Warrants (cost $35,784,410) 33,722,617
-------------
<CAPTION>
Principal Maturity
Amount Rate Date Value
- ---------------- ------ -------------- ------------
<S> <C> <C> <C> <C>
SHORT-TERM SECURITIES - 6.0% (a)
Commercial Paper - 5.2 %
$ 2,000,000 AVCO Financial Services, Inc. 5.57% 7/17/1997 1,995,049
2,300,000 CPC International, Inc. 5.65% 7/2/1997 2,299,639
5,000,000 CXC, Inc. 5.6% 7/24/1997 4,982,111
4,400,000 Dupont E.I. de Nemours & Co. 5.5% 7/8/1997 4,395,294
11,400,000 General Electric Capital Corp. 6.18% 7/1/1997 11,400,000
3,000,000 General Electric Capital Corp. 5.6% 7/21/1997 2,990,667
5,000,000 Household Finance Corp. 5.47% 7/1/1997 5,000,000
495,000 Oyster Creek Co. 5.6% 7/8/1997 494,461
2,281,000 Preferred Receivables Funding Corp. 5.56% 7/9/1997 2,278,182
10,449,000 President & Fellows Harvard Co. 6.06% 7/1/1997 10,449,000
2,000,000 Sheffield Receivables Corp. 5.55% 7/10/1997 1,997,225
5,000,000 Sheffield Receivables Corp. 5.6% 7/15/1997 4,989,111
1,128,000 St. Paul Cos., Inc. 5.5% 7/7/1997 1,126,966
7,400,000 Unilever Capital Corp. 5.53% 7/7/1997 7,393,180
1,850,000 Yale University 5.56% 7/14/1997 1,846,286
-------------
63,637,171
-------------
U.S. Government Agency - 0.8%
9,800,000 Federal National Mortgage Association, Discount Notes 5.6% 7/1/1997 9,800,000
-------------
Total Short-Term Securities (at amortized cost) 73,437,171
-------------
Total Investments (cost $1,160,694,976) $1,181,731,918(f)
=============
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 June 30, 1997,
by obtaining quotations from brokers who are active with the issues. The following table indicates the acquisition
date and cost of restricted securities the Portfolio owned as of June 30, 1997.
<CAPTION>
Acquisition
Security Date Cost
-------------------------------------------------------------------- ------------ ------------------
<S> <C> <C>
Consolidated Hydro, Inc., Stock Warrants 2/8/1994 $ 171,277
Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 6/14/1993 5,703,525
Triangle Wire & Cable, Inc., Stock Warrants 1/3/1992 500
(e) Denotes variable rate obligations for which the current yield and the next scheduled interest reset date are shown.
(f) At June 30, 1997, the aggregate cost of securities for federal tax purposes was $1,160,694,976 and the net unrealized
appreciation of investments based on that cost was $21,036,942 which is comprised of $75,087,311 aggregate gross
unrealized appreciation and $54,050,369 aggregate gross unrealized depreciation.
Abbreviations:
- --------------
(ADR) -- American Depository Receipts
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Income Portfolio
Portfolio of Investments
June 30, 1997
(unaudited)
Principal Maturity
Amount Rate Date Value
- ---------------- ------ -------------- ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 43.8% (a)
Automotive - 0.5%
$ 5,000,000 Ford Motor Credit Co., Notes 6.375% 10/6/2000 $4,958,054
-------------
Bank & Finance - 13.4%
3,500,000 Aon Capital A, Capital Securities 8.205% 1/1/2027 3,588,833
5,000,000 Associates Corp. of North America, Sr. Notes 9.125% 4/1/2000 5,317,249
4,000,000 Banc One Corp., Subordinated Debentures 8.0% 4/29/2027 4,141,988
6,000,000 Chase Manhattan Corp., Subordinated Notes 9.375% 7/1/2001 6,545,796
2,000,000 Chase Manhattan Corp., Subordinated Notes 10.375% 3/15/1999 2,127,722
5,000,000 Chemical New York Corp., Debentures 9.75% 6/15/1999 5,302,060
3,000,000 Delphi Funding, LLC, Capital Securities, Series A 9.31% 3/25/2027 3,091,851
12,000,000 Equitable Life Assurance Society of the United States, Surplus Notes 6.95% 12/1/2005 11,808,204
8,000,000 GenAmerica Capital I, Capital Securities 8.525% 6/30/2027 8,073,696
6,500,000 General Electric Capital Corp., Debentures 8.85% 4/1/2005 7,271,303
10,000,000 Mellon Capital I, Capital Trust Preferred Securities 7.72% 12/1/2026 9,716,710
10,000,000 Metropolitan Life Insurance Co., Surplus Notes 7.7% 11/1/2015 9,949,840
5,000,000 New York Life Insurance Co., Surplus Notes 6.4% 12/15/2003 4,856,500
8,000,000 Prudential Insurance Co., Surplus Notes 8.3% 7/1/2025 8,230,152
5,500,000 Riggs Capital Trust II, Trust Preferred Securities, Series C 8.875% 3/15/2027 5,541,976
5,000,000 Riggs Capital Trust, Capital Trust Preferred Securities, Series A 8.625% 12/31/2026 4,908,330
4,000,000 Salomon, Inc., Notes 6.7% 7/5/2000 3,991,108
6,000,000 Societe-Generale- New York, Subordinated Notes 9.875% 7/15/2003 6,821,106
5,000,000 Societe-Generale- New York, Subordinated Notes 7.4% 6/1/2006 5,045,775
7,000,000 Wells Fargo Capital, Capital Trust Preferred Securities 7.73% 12/1/2026 6,725,509
-------------
123,055,708
-------------
Broadcasting - 2.4%
3,500,000 Grupo Televisa S.A., Sr. Notes, Series A 11.375% 5/15/2003 3,836,875
3,000,000 Rogers Cablesystems, Inc., Sr. Secured Second Priority Notes 9.625% 8/1/2002 3,172,500
2,500,000 TCI Communications, Inc., Sr. Notes 8.65% 9/15/2004 2,651,010
8,000,000 TKR Cable I, Inc., Sr. Debentures 10.5% 10/30/2007 8,805,488
4,000,000 Viacom, Inc., Subordinated Debentures 8.0% 7/7/2006 3,880,000
-------------
22,345,873
-------------
Chemicals - 0.5%
4,000,000 Uniroyal Chemical Co., Sr. Notes 9.0% 9/1/2000 4,170,000
-------------
Computers & Office Equipment - 0.6%
6,000,000 International Business Machines Corp., Debentures 7.125% 12/1/2096 5,727,150
-------------
Containers & Packaging - 0.8%
7,000,000 Owens-Illinois, Inc., Sr. Notes 7.85% 5/15/2004 7,139,902
-------------
Electric Utilities - 4.3%
2,000,000 AES Corp., Sr. Subordinated Notes 10.25% 7/15/2006 2,195,000
4,000,000 Cleveland Electric Illumination Co., Secured Notes, Series A 7.19% 7/1/2000 4,047,996
4,000,000 CMS Energy Corp., Sr. Unsecured Notes 8.125% 5/15/2002 4,030,372
5,000,000 ComEd Financing II Capital Securities 8.5% 1/15/2027 5,037,615
4,000,000 Commonwealth Edison Co., Notes 7.625% 1/15/2007 4,023,872
5,000,000 Connecticut Light & Power Co., First Mortgage Notes 7.75% 6/1/2002 4,985,405
4,000,000 El Paso Electric Co., First Mortgage Bonds, Series D 8.9% 2/1/2006 4,280,000
6,500,000 Empresa Electrica Pehuienche S.A., Notes 7.3% 5/1/2003 6,538,734
4,000,000 NRG Energy, Inc., Sr. Notes 7.5% 6/15/2007 4,019,356
-------------
39,158,350
-------------
Electrical Equipment - 0.6%
5,000,000 Westinghouse Electric Corp., Notes 8.375% 6/15/2002 5,179,965
-------------
Electronics - 0.1%
500,000 Motorola, Inc., Convertible Liquid Yield Option Notes Zero Coupon 9/27/2013 449,375
-------------
Hospital Management - 2.3%
5,000,000 Allegiance Corp., Debentures 7.8% 10/15/2016 5,058,980
2,000,000 Columbia/HCA Healthcare Corp., Medium Term Notes 6.87% 9/15/2003 1,990,330
5,000,000 Columbia/HCA Healthcare Corp., Notes 6.41% 6/15/2000 4,975,570
4,000,000 Quorum Health Group, Inc., Sr. Subordinated Notes 8.75% 11/1/2005 4,130,000
2,500,000 Tenet Healthcare Corp., Sr. Notes 7.875% 1/15/2003 2,506,250
2,500,000 Tenet Healthcare Corp., Sr. Subordinated Notes 8.625% 1/15/2007 2,562,500
-------------
21,223,630
-------------
Household Products - 0.7%
5,000,000 Procter & Gamble, Guaranteed ESOP Debentures 9.36% 1/1/2021 6,062,045
-------------
Leisure & Entertainment - 1.0%
5,000,000 Time Warner, Inc., Debentures 9.125% 1/15/2013 5,557,215
4,000,000 Time Warner, Inc., Notes 7.75% 6/15/2005 4,065,232
-------------
9,622,447
-------------
Natural Gas - 0.9%
5,000,000 Columbia Gas Systems, Inc., Series A Notes 6.39% 11/28/2000 4,953,775
3,000,000 Columbia Gas Systems, Inc., Series B Notes 6.61% 11/28/2002 2,976,315
-------------
7,930,090
-------------
Paper & Forest Products - 0.4%
3,750,000 Indah Kiat Finance Mauritius, Sr. Guaranteed Notes 10.0% 7/1/2007 3,745,313
-------------
Petroleum - 2.9%
2,000,000 Flores & Rucks, Inc., Sr. Subordinated Notes 9.75% 10/1/2006 2,120,000
5,437,388 Mobil Oil Corp., ESOP Sinking Fund Debentures 9.17% 2/29/2000 5,671,646
1,500,000 Oryx Energy Co., Notes 8.125% 10/15/2005 1,546,767
4,000,000 Oryx Energy Co., Notes 8.375% 7/15/2004 4,176,484
5,000,000 Petroliam Nasional BHD, Notes 7.75% 8/15/2015 5,102,200
5,000,000 Phillips 66 Capital Trust II 8.0% 1/15/2037 4,999,750
3,000,000 United Meridian Corp., Sr. Subordinated Notes 10.375% 10/15/2005 3,270,000
-------------
26,886,847
-------------
Publishing & Printing - 0.9%
3,000,000 Belo (A.H.) Corp., Sr. Notes 7.125% 6/1/2007 2,995,200
5,000,000 Belo (A.H.) Corp., Sr. Notes 6.875% 6/1/2002 5,010,090
500,000 Omnicom Group, Inc., Convertible Subordinated Debentures 4.25% 1/3/2007 592,500
-------------
8,597,790
-------------
Retail - 6.0%
1,500,000 Boston Chicken, Inc., Subordinated Debentures 7.75% 5/1/2004 1,353,750
8,500,000 Dayton Hudson Corp., Notes 6.4% 2/15/2003 8,317,097
4,500,000 Eagle Food Centers, Inc., Sr. Notes 8.625% 4/15/2000 4,477,500
6,000,000 Federated Department Stores, Sr. Notes 10.0% 2/15/2001 6,585,054
4,000,000 Federated Department Stores, Sr. Notes 8.5% 6/15/2003 4,261,800
1,300,000 Kroger Co. (The), Sr. Notes 8.15% 7/15/2006 1,378,820
8,000,000 Penney (J.C.) Co., Inc., Notes 6.95% 4/1/2000 8,094,600
4,000,000 Safeway, Inc., Sr. Subordinated Debentures 9.875% 3/15/2007 4,741,876
6,000,000 Sears Roebuck Acceptance Corp., Medium Term Notes, Series III 7.03% 6/4/2003 6,034,530
10,000,000 Sears Roebuck Acceptance Corp., Medium Term Notes, Series II 6.86% 7/3/2001 10,022,310
-------------
55,267,337
-------------
Services - 0.7%
6,000,000 Electronic Data Systems Corp., Notes 6.85% 5/15/2000 6,050,916
-------------
Telecommunications - 0.2%
2,000,000 Comcast Cellular Holdings, Inc., Sr. Notes 9.5% 5/1/2007 2,015,000
-------------
Telephone - 2.2%
4,000,000 New York Telephone Co., Debentures 9.375% 7/15/2031 4,455,748
6,000,000 Philippine Long Distance Telephone, Notes 7.85% 3/6/2007 5,760,000
10,000,000 U.S. West Capital Funding, Inc., Notes 6.85% 1/15/2002 10,002,090
-------------
20,217,838
-------------
Textiles & Apparel - 0.8%
7,000,000 Levi Strauss & Co., Notes 6.8% 11/1/2003 6,959,589
-------------
Transportation - 1.6%
3,000,000 CSX Corp., Debentures 7.25% 5/1/2027 3,069,546
4,000,000 Norfolk Southern Corp., Notes 6.95% 5/1/2002 4,043,684
8,000,000 Norfolk Southern Corp., Notes 6.875% 5/1/2001 8,080,936
-------------
15,194,166
-------------
Total Corporate Bonds (cost $397,916,219) 401,957,385
-------------
FOREIGN GOVERNMENT BONDS - 3.7% (a,c)
2,500,000 African Development Bank, Subordinated Notes 6.875% 10/15/2015 2,417,740
5,000,000 British Columbia Hydro & Power, Debentures 12.5% 9/1/2013 5,540,350
8,000,000 Korea Development Bank (The), Bonds 7.25% 5/15/2006 7,973,200
8,000,000 Korea Electric Power Corp., Debentures 6.38% 12/1/2003 7,692,824
6,000,000 Ontario Province, Canada, Debentures 11.75% 4/25/2013 6,546,360
2,500,000 Ontario Province, Canada, Sr. Bonds 7.375% 1/27/2003 2,573,973
2,000,000 Republic of Poland, Unsecured Bonds 4.0% 10/27/2014 1,712,500
-------------
Total Foreign Government Bonds (cost $35,144,302) 34,456,947
-------------
ASSET-BACKED SECURITIES - 12.8% (a)
8,000,000 Bridgestone/Firestone Master Trust, Series 96-1-A 6.17% 7/1/2003 7,946,320
11,000,000 Chase Manhattan Credit Card, Series 1996-4, Class A 6.73% 2/15/2002 11,118,580
9,031,285 Chase Manhattan Grantor Trust, Series 1996-B-A 6.61% 9/15/2002 9,112,115
5,000,000 CS First Boston Mortgage Security Corp., 1996-2 Class A4 6.62% 9/25/2009 4,969,800
5,000,000 CS First Boston Mortgage Security Corp., Series 1997-1-A3 6.91% 5/25/2007 5,029,300
5,000,000 CS First Boston Mortgage Security Corp., Series 1997-1-A4 7.15% 5/25/2010 5,045,200
20,000,000 Deutsche Floorplan Receivables Master Trust, Series 1994-1-A 5.58% 2/15/2001 20,062,400(b)
10,000,000 Discover Card Master Trust I, Series 1996-3-A 6.05% 8/18/2008 9,465,800
12,000,000 Standard Credit Master Trust 1, Credit Card Participation
Certificates, Series 1995-9-A 6.55% 10/7/2007 11,759,280
15,000,000 World Financial Network Credit Card Master Trust, Series 1996-B 6.95% 4/15/2006 15,217,650
18,000,000 World Omni Auto Lease Trust Certificates 6.9% 6/25/2003 18,246,600
-------------
Total Asset-Backed Securities (cost $117,787,848) 117,973,045
-------------
MORTGAGE-BACKED SECURITIES - 14.4% (a)
14,122,711 Federal Home Loan Mortgage Corp., Participation Certificates 6.0% 4/1/2011 13,654,529
7,440,288 Federal Home Loan Mortgage Corp., Participation Certificates 6.0% 3/1/2011 7,193,635
12,000,000 Federal Home Loan Mortgage Corp., Participation Certificates 6.0% 4/1/2027 11,587,500(d)
63,000,000 Federal National Mortgage Association, Modified
Pass Through Certificates 7.0% 2/1/2027 61,759,688(d)
40,000,000 Government National Mortgage Association, Modified
Pass Through Certificates 6.5% 12/15/2026 38,287,500(d)
-------------
Total Mortgage-Backed Securities (cost $131,947,316) 132,482,852
-------------
U.S. GOVERNMENT - 6.7% (a)
47,500,000 U.S. Treasury Bonds 6.5-12.0% 2005-2026 54,156,394
8,000,000 U.S. Treasury Notes 6.25-7.875% 2002-2007 8,075,623
-------------
Total U.S. Government (cost $60,480,770) 62,232,017
-------------
<CAPTION>
Shares
- ----------------
<S> <C> <C>
COMMON STOCKS - 0.2% (a)
10,000 CarrAmerica Realty Corp., Common Stock 287,500
1,000 Crescent Operating, Inc., Common Stock 12,000
10,000 Cresent Real Estate Equities, Common Stock 317,500
10,000 First Industrial Realty Trust, Common Stock 292,500
5,000 Highwoods Properties, Inc., Common Stock 160,000
10,000 Simon Debartolo Group, Inc., Common Stock 320,000
10,000 Spieker Properties, Inc., Common Stock 351,875
-------------
Total Common Stocks (cost $1,654,900) 1,741,375
-------------
PREFERRED STOCKS - 0.6% (a)
20,000 K-III Communications Corp., Preferred Stock, Series D 2,040,000
17,500 Security Capital Industrial Trust, Preferred Stock 487,813
17,500 Security Capital Pacific, Preferred Stock 533,750
100,000 TransCanada Pipelines Ltd., Preferred Stock 2,575,000
-------------
Total Preferred Stocks (cost $5,508,496) 5,636,563
-------------
<CAPTION>
Principal Maturity
Amount Rate Date Value
- ---------------- ------ -------------- ------------
<S> <C> <C> <C> <C>
SHORT-TERM SECURITIES - 17.8% (a)
Commercial Paper - 15.5%
$2,200,000 AES Barbers Points, Inc. 5.57% 7/24/1997 2,192,171
12,000,000 Beneficial Corp. 5.53% 7/16/1997 11,972,350
15,000,000 Corporate Asset Funding Co., Inc. 5.54% 7/21/1997 14,953,833
15,000,000 Delaware Funding Corp. 5.55% 7/18/1997 14,960,688
10,000,000 Nestle Capital Corp. 5.55% 7/25/1997 9,963,000
2,400,000 New Center Asset Trust 5.67% 7/7/1997 2,397,732
3,500,000 New Center Asset Trust 5.65% 7/9/1997 3,495,606
6,033,000 Oyster Creek Co. 5.55% 7/17/1997 6,018,119
15,000,000 Penney (J.C.) Funding Corp. 5.53% 7/11/1997 14,976,958
200,000 President & Fellows Harvard Co. 6.06% 7/1/1997 200,000
12,947,000 Security Market Savings 5.52% 7/14/1997 12,921,192
20,500,000 Shell Oil Co. 6.15% 7/1/1997 20,500,000
10,000,000 St. Paul Cos., Inc. 6.2% 7/1/1997 10,000,000
20,000,000 UBS Finance Delaware, Inc. 6.2% 7/1/1997 20,000,000
-------------
144,551,649
-------------
U.S. Government Agency - 2.3%
20,000,000 Federal National Mortgage Association, Discount Notes 5.43% 7/8/1997 19,978,883
-------------
Total Short-Term Securities (at amortized cost) 164,530,532
-------------
Total Investments (cost $914,970,383) $921,010,716(e)
=============
Notes to Portfolio of Investments:
- ----------------------------------
(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 June 30, 1997, the aggregate cost of securities for federal income tax purposes was $914,970,383 and the net unrealized
appreciation of investments based on that cost was $6,040,333 which is comprised of $9,460,091 aggregate gross unrealized
appreciation and $3,419,758 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of these Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Money Market Portfolio
Portfolio of Investments
June 30, 1997
(unaudited)
Principal Yield to Maturity
Amount Maturity Date Value
- ---------------- ------ -------------- ------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER - 89.8% (a,c)
Banking-Domestic - 4.0%
$2,000,000 Allegheny University Hospitals, (PNC Bank, N.A.,
Direct Pay Letter of Credit) 5.61% 7/21/97 $1,993,822
500,000 Enterprise Funding Corp. 5.75% 7/31/97 497,629
429,000 Enterprise Funding Corp. 5.65% 7/31/97 427,002
1,716,000 Enterprise Funding Corp. 5.60% 8/15/97 1,704,095
-------------
4,622,548
-------------
Banking-Foreign - 11.1%
5,000,000 Banco Real S.A., Grand Cayman (Barclays Bank plc,
Direct Pay Letter of Credit) 5.59% 7/7/97 4,995,358
2,000,000 Finance One Funding Corp., (Credit Suisse, Direct
Pay Letter of Credit) 5.82% 9/24/97 1,973,319
2,000,000 Formosa Plastics Corp., U.S.A. Series A (ABN AMRO
Bank N.V., Direct Pay Letter of Credit) 5.69% 9/4/97 1,979,742
2,000,000 Glencore Finance Bermuda Ltd., (Union Bank of Switzerland,
Direct Pay Letter of Credit) 5.61% 8/28/97 1,982,375
2,000,000 PEMEX Capital, Inc., (Credit Suisse,
Direct Pay Letter of Credit) 5.67% 10/10/97 1,968,690
-------------
12,899,484
-------------
Computer & Office Equipment - 2.9%
2,000,000 Electronic Data Systems Corp. 5.57% 7/9/97 1,997,542
1,000,000 IBM Credit Corp. 5.59% 7/16/97 997,688
415,000 IBM Credit Corp. 5.59% 7/21/97 413,716
-------------
3,408,946
-------------
Drugs & Healthcare - 0.3%
350,000 Schering Corp. 5.87% 10/16/97 344,070
-------------
Education - 4.3%
2,000,000 Duke University 5.61% 7/31/97 1,990,733
2,000,000 Leland H. Stanford Junior University 5.55% 7/17/97 1,995,200
1,000,000 Leland H. Stanford Junior University 5.89% 10/9/97 984,111
-------------
4,970,044
-------------
Finance-Automotive - 5.7%
150,000 Ford Motor Credit Co. 5.64% 9/2/97 148,535
1,000,000 Ford Motor Credit Co. 5.63% 7/3/97 999,690
2,000,000 Ford Motor Credit Co. - Puerto Rico 5.84% 12/1/97 1,951,805
2,000,000 General Motors Acceptance Corp. 5.96% 11/10/97 1,957,540
1,500,000 General Motors Acceptance Corp. 5.58% 8/25/97 1,487,556
-------------
6,545,126
-------------
Finance-Commercial - 6.7%
1,487,000 C.I.T. Group Holdings, Inc. 5.60% 8/13/97 1,477,142
2,000,000 C.I.T. Group Holdings, Inc. 5.67% 8/19/97 1,984,783
2,000,000 C.I.T. Group Holdings, Inc. 5.64% 8/11/97 1,987,244
300,000 General Electric Capital Corp. 5.77% 8/28/97 297,260
2,000,000 General Electric Credit Services - Puerto Rico 5.52% 7/8/97 1,997,912
-------------
7,744,341
-------------
Finance-Consumer - 10.9%
500,000 Associates Corp. of North America 5.64% 8/5/97 497,278
1,149,000 Associates Corp. of North America 5.62% 7/29/97 1,144,022
2,000,000 Associates Corp. of North America 5.62% 8/5/97 1,989,170
2,000,000 AVCO Financial Services, Inc. 5.63% 9/3/97 1,980,231
2,000,000 Commercial Credit Co. 5.61% 8/25/97 1,983,011
2,000,000 Household Finance Corp. 5.57% 7/11/97 1,996,928
1,000,000 Household Finance Corp. 5.74% 7/21/97 996,900
2,000,000 Household Finance Corp. 5.63% 7/21/97 1,993,722
-------------
12,581,262
-------------
Finance-Retail - 3.5%
2,000,000 Sears Roebuck Acceptance Corp. 5.66% 9/10/97 1,977,990
2,000,000 Sears Roebuck Acceptance Corp. 5.70% 7/22/97 1,993,432
-------------
3,971,422
-------------
Finance-Structured - 16.7%
2,000,000 Asset Securitization Corp. 5.75% 8/7/97 1,988,324
2,000,000 Asset Securitization Corp. 5.61% 7/16/97 1,995,358
5,500,000 CXC, Inc. 6.25% 7/1/97 5,500,000
412,000 Delaware Funding Corp 5.64% 8/25/97 408,488
2,000,000 Delaware Funding Corp 5.64% 8/18/97 1,985,120
704,000 Delaware Funding Corp 5.73% 7/18/97 702,122
230,199 Norwest Automobile Trust, Series 1996-A-1 5.59% 12/5/97 230,199
1,500,000 Preferred Receivables Funding Corp. 5.71% 8/12/97 1,490,148
2,000,000 Preferred Receivables Funding Corp. 5.71% 7/1/97 2,000,000
2,000,000 Preferred Receivables Funding Corp. 5.73% 7/14/97 1,995,919
1,015,000 Triple-A One Funding Corp. (Guaranteed CapMAC) 5.66% 9/16/97 1,002,864
-------------
19,298,542
-------------
Financial Services - 4.3%
2,000,000 American Express Credit Corp. 5.58% 7/15/97 1,995,785
1,000,000 USAA Capital Corp. 5.74% 9/9/97 989,033
2,000,000 USAA Capital Corp. 5.79% 8/21/97 1,983,878
-------------
4,968,696
-------------
Industrial - 8.2%
2,000,000 Chevron Transport Corp. 5.68% 9/19/97 1,975,156
2,500,000 Du Pont (E.I.) de Nemours and Co. 5.67% 8/26/97 2,478,261
785,000 Du Pont (E.I.) de Nemours and Co. 5.59% 7/8/97 784,161
900,000 Monsanto Co. 5.74% 8/25/97 892,231
2,000,000 Monsanto Co. 5.67% 10/21/97 1,965,342
1,410,000 Monsanto Co. 5.67% 7/7/97 1,408,679
-------------
9,503,830
-------------
Insurance - 4.4%
1,500,000 A.I. Credit Corp. 5.73% 9/2/97 1,485,221
730,000 A.I.G. Funding, Inc. 5.57% 7/21/97 727,831
943,000 MetLife Funding, Inc. 5.59% 8/12/97 936,894
2,000,000 MetLife Funding, Inc. 5.59% 8/7/97 1,988,612
-------------
5,138,558
-------------
Sovereign/Foreign Government - 1.5%
1,000,000 Kingdom of Sweden 5.77% 8/8/97 994,004
800,000 Kingdom of Sweden 5.61% 8/28/97 792,847
-------------
1,786,851
-------------
U.S. Municipal - 5.3%
1,000,000 California Pollution Control Finance Authority
(Guaranteed Shell Oil Co.) 5.73% 7/23/97 1,000,000
3,100,000 New York City, New York, Series 95-B (Guaranteed
General Electric Capital Corp.) 5.86% 8/21/97 3,100,000
2,000,000 Whiting, IN. Sewage & Waste Disposal
(Guaranteed Amoco Oil) 5.72% 7/28/97 2,000,000
-------------
6,100,000
-------------
Total Commercial Paper 103,883,720
-------------
CERTIFICATES OF DEPOSIT - 6.1% (a,c)
Domestic - 4.3%
2,000,000 Bankers Trust Co., N.A.- New York 5.75% 9/17/97 2,000,000
1,000,000 Morgan Guaranty Bank, New York 5.63% 8/12/97 1,000,055
2,000,000 Wachovia Bank of Georgia, N.A. 6.20% 4/6/98 1,998,544
-------------
4,998,599
-------------
Euro Dollar - 1.8%
2,000,000 Westdeutcshe Landesbank, New York 5.83% 11/24/97 2,000,009
-------------
Total Certificates of Deposit 6,998,608
-------------
VARIABLE RATE NOTES - 3.4% (a,b)
2,000,000 First Bank, N.A., Minneapolis, Bank Note 5.59% 8/20/97 1,999,634
2,000,000 PNC Bank, N.A., Pittsburgh, Medium Term Bank Note 5.77% 7/2/97 1,999,995
-------------
Total Variable Rate Notes 3,999,629
-------------
OTHER - 0.7% (a,b)
800,000 Federated Master Trust 5.23% 7/1/97 800,000
-------------
Total Investments (at amortized cost) $115,681,957(d)
=============
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 the next scheduled interest reset date are shown.
(c) Yield to maturity is calculated at date of purchase.
(d) Also represents cost for federal income tax purposes.
The accompanying notes are an integral part of these Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
OPPORTUNITY GROWTH PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
June 30, 1997
(unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $334,821,432) $326,170,286
Cash 51,830
Receivable for investment securities sold 6,884,597
Dividend and interest receivable 53,266
------------
Total assets 333,159,979
------------
LIABILITIES:
Payable for investment securities purchased 11,469,500
------------
NET ASSETS $321,690,479
============
NET ASSETS CONSIST OF:
Paid-in capital (29,041,385 shares of capital
stock outstanding) $334,616,504
Undistributed net investment income 521,626
Accumulated net realized loss from sale
of investments (4,796,505)
Unrealized net depreciation of investments (8,651,146)
------------
NET ASSETS $321,690,479
============
Net asset value and public offering price per share
($321,690,479 (divided by) 29,041,385 shares of capital
stock outstanding) $11.08
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended June 30, 1997
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $ 58,622
Interest income 993,455
------------
Total income 1,052,077
------------
Expenses --
Investment advisory fee 530,451
------------
Net investment income 521,626
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investment transactions (1,157,365)
Net realized gain on closed or expired option
contracts written 58,729
------------
Net realized loss on investments (1,098,636)
Net change in unrealized depreciation of investments (4,310,235)
------------
Net loss on investments (5,408,871)
------------
Net change in net assets resulting
from operations $ (4,887,245)
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months For the period from
Ended January 18, 1996
6/30/97 (effective date) to
(unaudited) December 31, 1996
------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 521,626 $ 344,855
Net realized gain (loss) on investments (1,098,636) 4,492,663
Net change in unrealized appreciation or depreciation
of investments (4,310,235) (4,340,911)
------------ ------------
Net change in net assets resulting from operations (4,887,245) 496,607
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income -- (344,855)
Net realized gain on investments -- (8,190,532)
------------ ------------
Total distributions -- (8,535,387)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 82,103,630 247,867,947
Reinvested dividend distributions -- 8,535,387
Cost of shares redeemed (2,077,205) (1,813,255)
------------ ------------
Net increase in net assets from capital stock transactions 80,026,425 254,590,079
------------ ------------
Net increase in net assets 75,139,180 246,551,299
NET ASSETS:
Beginning of period 246,551,299 --
------------ ------------
End of period (including undistributed net investment
income of $521,626 and $0, respectively $321,690,479 $246,551,299
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
WORLD GROWTH PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
June 30, 1997
(unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $227,416,118) $258,310,342
Cash (including foreign currency holdings
of $2,917,109) 2,958,127
Receivable for investment securities sold 4,400
Dividend and interest receivable 678,645
------------
Total assets 261,951,514
------------
LIABILITIES:
Payable for investment securities purchased 2,196,495
Unrealized depreciation of foreign currency
contracts held 1,797
------------
Total liabilities 2,198,292
------------
NET ASSETS $259,753,221
============
NET ASSETS CONSIST OF:
Paid-in capital (21,387,297 shares of capital
stock outstanding) $224,511,362
Undistributed net investment income 1,948,485
Accumulated net realized gain from sale of
investments and foreign currency transactions 2,404,528
Unrealized net appreciation of investments and
on translation of assets and liabilities in
foreign currencies 30,888,846
------------
NET ASSETS $259,753,221
============
Net asset value and public offering price per share
($259,753,221 (divided by) 21,387,297 shares of capital
stock outstanding) $12.15
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended June 30, 1997
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income (net of foreign taxes of $352,926) $ 2,489,735
Interest income 348,080
------------
Total income 2,837,815
------------
Expenses --
Investment advisory fee 889,330
------------
Net investment income 1,948,485
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain on investment transactions 2,605,797
Net realized gain on foreign currency transactions 63,228
------------
Net realized gain on investments and foreign
currency transactions 2,669,025
------------
Net change in unrealized appreciation
of investments 20,561,333
Net change in unrealized appreciation on translation
of assets and liabilities in foreign currencies (14,264)
------------
Net change in unrealized appreciation of investments
and on translation of assets and liabilities in
foreign currencies 20,547,069
------------
Net gain on investments and foreign currency 23,216,094
------------
Net increase in net assets resulting
from operations $ 25,164,579
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months For the period from
Ended January 18, 1996
6/30/97 (effective date) to
(unaudited) December 31, 1996
------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 1,948,485 $ 1,200,906
Net realized gain on investments
and foreign currency transactions 2,669,025 128,544
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and liabilities
in foreign currencies 20,547,069 10,341,777
------------ ------------
Net increase in net assets resulting from operations 25,164,579 11,671,227
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income -- (1,432,845)
Net realized gain on investments (161,102) --
------------ ------------
Total distributions (161,102) (1,432,845)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 61,276,077 163,860,587
Reinvested dividend distributions 161,102 1,432,845
Cost of shares redeemed (779,983) (1,439,266)
------------ ------------
Net increase in net assets from capital stock transactions 60,657,196 163,854,166
------------ ------------
Net increase in net assets 85,660,673 174,092,548
NET ASSETS:
Beginning of period 174,092,548 --
------------ ------------
End of period (including undistributed net investment
income of $1,948,485 and $0, respectively) $259,753,221 $174,092,548
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
GROWTH PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
June 30, 1997
(unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $1,801,897,055.) $2,077,759,220
Cash 83,382
Receivable for investment securities sold 20,804,610
Dividend and interest receivable 1,370,643
--------------
Total assets 2,100,017,855
--------------
LIABILITIES:
Payable for investment securities purchased 19,374,772
--------------
NET ASSETS $2,080,643,083
==============
NET ASSETS CONSIST OF:
Paid-in capital (106,109,365 shares of capital
stock outstanding) $1,658,908,741
Accumulated net realized gain from sale
of investments 145,872,177
Unrealized net appreciation of investments 275,862,165
--------------
NET ASSETS $2,080,643,083
==============
Net asset value and public offering price per share
($2,080,643,083 (divided by) 106,109,365 shares of capital
stock interest outstanding $19.61
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended June 30, 1997
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $ 10,513,195
Interest income 4,140,416
------------
Total income 14,653,611
------------
Expenses --
Investment advisory fee 3,649,462
------------
Net investment income 11,004,149
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 151,774,981
Net realized gain on closed or expired option
contracts written 722,209
------------
Net realized gain on investments 152,497,190
Net change in unrealized appreciation
of investments 134,524,571
------------
Net gain on investments 287,021,761
------------
Net increase in net assets resulting
from operations $298,025,910
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months
Ended
6/30/97 Year Ended
(unaudited) 12/31/96
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 11,004,149 $ 19,859,156
Net realized gain on investments 152,497,190 226,017,880
Net change in unrealized appreciation or depreciation
of investments 134,524,571 40,726,963
-------------- --------------
Net increase in net assets resulting from operations 298,025,910 286,603,999
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (11,004,149) (19,859,156)
Net realized gain on investments (230,991,248) (156,587,523)
-------------- --------------
Total distributions (241,995,397) (176,446,679)
-------------- --------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 136,638,417 226,899,132
Reinvested dividend distributions 241,995,397 176,446,679
Cost of shares redeemed (12,602,181) (28,066,347)
-------------- --------------
Net increase in net assets from capital stock transactions 366,031,633 375,279,464
-------------- --------------
Net increase in net assets 422,062,146 485,436,784
NET ASSETS:
Beginning of period 1,658,580,937 1,173,144,153
-------------- --------------
End of period $2,080,643,083 $1,658,580,937
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
HIGH YIELD PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
June 30, 1997
(unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $1,160,694,976) $1,181,731,918
Cash 738,118
Receivable for investment securities sold 4,223,634
Interest and dividend receivable 16,983,347
--------------
Total assets 1,203,677,017
--------------
LIABILITIES:
Payable for investment securities purchased 25,278,326
--------------
NET ASSETS $1,178,398,691
==============
NET ASSETS CONSIST OF:
Paid-in capital (115,979,339 shares of capital
stock outstanding) $1,162,049,679
Accumulated net realized loss from sale
of investments (4,687,930)
Unrealized net appreciation of investments 21,036,942
--------------
NET ASSETS $1,178,398,691
===============
Net asset value and public offering price per share
($1,178,398,691 (divided by) 115,979,339 shares of capital
stock outstanding) $10.16
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended June 30, 1997
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $ 50,925,815
Dividend income 5,447,318
------------
Total income 56,373,133
------------
Expenses --
Investment advisory fee 2,162,094
------------
Net investment income 54,211,039
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investment transactions 2,482,563
Net change in unrealized appreciation
of investments 10,824,722
------------
Net gain on investments 13,307,285
------------
Net increase in net assets resulting
from operations $ 67,518,324
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months
Ended
6/30/97 Year Ended
(unaudited) 12/31/96
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 54,211,039 $ 89,021,168
Net realized gain on investment transactions 2,482,563 19,530,710
Net change in unrealized appreciation or depreciation
of investments 10,824,722 (9,358,262)
-------------- --------------
Net increase in net assets resulting from operations 67,518,324 99,193,616
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (54,211,039) (89,021,168)
-------------- --------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 92,370,895 156,539,510
Reinvested dividend distributions 54,211,039 89,367,857
Cost of shares redeemed (8,227,044) (21,833,105)
-------------- --------------
Net increase in net assets from capital stock transactions 138,354,890 224,074,262
-------------- --------------
Net increase in net assets 151,662,175 234,246,710
NET ASSETS:
Beginning of period 1,026,736,516 792,489,806
-------------- --------------
End of period $1,178,398,691 $1,026,736,516
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
INCOME PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
June 30, 1997
(unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $914,970,383) $921,010,716
Receivable for investment securities sold 5,720,857
Interest and dividend receivable 10,046,557
------------
Total assets 936,778,130
------------
LIABILITIES:
Payable for investment securities purchased 120,511,306
------------
NET ASSETS $816,266,824
============
NET ASSETS CONSIST OF:
Paid-in capital (84,086,388 shares of capital
stock outstanding) $838,187,965
Accumulated net realized loss from sale
of investments (27,961,474)
Unrealized net appreciation of investments 6,040,333
------------
NET ASSETS $816,266,824
============
Net asset value and public offering price per share
($816,266,824 (divided by) 84,086,388 shares of capital
stock outstanding) $ 9.71
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended June 30, 1997
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $ 28,089,411
Dividend income 608,556
------------
Total income 28,697,967
------------
Expenses --
Investment advisory fee 1,587,581
------------
Net investment income 27,110,386
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investment transactions (1,994,746)
Net realized gain on closed or expired option
contracts written 122,889
Net realized loss on closed futures contracts (223,578)
------------
Net realized loss on investments (2,095,435)
Net change in unrealized appreciation
of investments (1,186,442)
------------
Net loss on investments (3,281,877)
------------
Net increase in net assets resulting
from operations $ 23,828,509
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months
Ended
6/30/97 Year Ended
(unaudited) 12/31/96
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 27,110,386 $ 50,838,355
Net realized loss on investment transactions (2,095,435) (3,738,656)
Net change in unrealized appreciation or depreciation
of investments (1,186,442) (21,236,306)
------------ ------------
Net increase in net assets resulting from operations 23,828,509 25,863,393
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (27,110,386) (50,838,355)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 27,112,676 80,241,834
Reinvested dividend distributions 27,110,386 51,093,053
Cost of shares redeemed (35,834,345) (67,256,668)
------------ ------------
Net increase in net assets from capital stock transactions 18,388,717 64,078,219
------------ ------------
Net increase in net assets 15,106,840 39,103,257
NET ASSETS:
Beginning of period 801,159,984 762,056,727
------------ ------------
End of period $816,266,824 $801,159,984
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
MONEY MARKET PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
June 30, 1997
(unaudited)
<S> <C>
ASSETS:
Investments in securities, at amortized
cost and value $115,681,957
Cash 24,331
Interest receivable 194,680
------------
Total assets 115,900,968
------------
NET ASSETS $115,900,968
============
NET ASSETS CONSIST OF:
Paid-in capital (115,900,968 shares of capital
stock outstanding) $115,900,968
============
Net asset value and public offering price per share
($115,900,968 (divided by) 115,900,968 shares of capital
stock outstanding) $ 1.00
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six Months Ended June 30, 1997
(unaudited)
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $ 3,032,848
------------
Expenses --
Investment advisory fee 217,993
------------
Net investment income $ 2,814,855
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months
Ended
6/30/97 Year Ended
(unaudited) 12/31/96
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 2,814,855 $ 4,132,461
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (2,814,855) (4,132,461)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 39,351,310 75,776,304
Reinvested dividend distributions 2,814,855 4,152,037
Cost of shares redeemed (30,185,823) (42,157,682)
------------ ------------
Net increase in net assets from capital stock transactions 11,980,342 37,770,659
------------ ------------
Net increase in net assets 11,980,342 37,770,659
NET ASSETS:
Beginning of period 103,920,626 66,149,967
------------ ------------
End of period $115,900,968 $103,920,626
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Financial Highlights
For a share outstanding throughout each period (a)
Six Months For the period from
Ended January 18, 1996
6/30/97 (effective date) to
OPPORTUNITY GROWTH PORTFOLIO (unaudited) December 31, 1996
------------ ------------------
<S> <C> <C>
Net asset value, beginning of period $11.50 $10.00
------ ------
Income From Investment Operations --
Net investment income 0.02 0.02
Net realized and unrealized gain
(loss) on investments (b) (0.44) 1.90
------ ------
Total from investment operations (0.42) 1.92
------ ------
Less Distributions --
Dividends from net investment income -- (0.02)
Distributions from net realized
gain on investments -- (0.40)
------ ------
Total distributions -- (0.42)
------ ------
Net asset value, end of period $11.08 $11.50
====== ======
Total investment return at net asset value (c) -3.67% 19.17%
Net assets, end of period ($ millions) $321.7 $246.6
Ratio of expenses to average net assets 0.40%(d) 0.40%(d)
Ratio of net investment income to
average net assets 0.39%(d) 0.27%(d)
Portfolio turnover rate 53% 155%
Average Commission Rate (e) $0.0554 $0.0342
Six Months For the period from
Ended January 18, 1996
6/30/97 (effective date) to
WORLD GROWTH PORTFOLIO (unaudited) December 31, 1996
------------ ------------------
Net asset value, beginning of period $10.95 $10.00
------ ------
Income From Investment Operations --
Net investment income 0.09 0.08
Net realized and unrealized gain on investments (b) 1.12 0.96
------ ------
Total from investment operations 1.21 1.04
------ ------
Less Distributions --
Dividends from net investment income -- (0.09)
Distributions from net realized gain on investments (0.01) --
------ ------
Total distributions (0.01) (0.09)
------ ------
Net asset value, end of period $12.15 $10.95
====== ======
Total investment return at net asset value (c) 11.01% 10.41%
Net assets, end of period ($ millions) $259.8 $174.1
Ratio of expenses to average net assets 0.85%(d) 0.85%(d)
Ratio of net investment income to
average net assets 1.86%(d) 1.34%(d)
Portfolio turnover rate 9% 9%
Average Commission Rate (e) $0.0264 $0.0265
See accompanying notes to the financial highlights.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Financial Highlights (continued)
Six Months
Ended
6/30/97
GROWTH PORTFOLIO (unaudited) 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $19.32 $18.27 $13.51 $14.76 $13.89 $14.85
-------- -------- -------- -------- -------- --------
Income From Investment Operations --
Net investment income 0.11 0.24 0.24 0.20 0.29 0.23
Net realized and unrealized gain
(loss) on investments (b) 2.92 3.43 4.76 (0.87) 1.08 0.85
-------- -------- -------- -------- -------- --------
Total from investment operations 3.03 3.67 5.00 (0.67) 1.37 1.08
-------- -------- -------- -------- -------- --------
Less Distributions --
Dividends from net investment income (0.11) (0.24) (0.24) (0.20) (0.29) (0.23)
Distributions from net realized
gain on investments (2.63) (2.38) -- (0.38) (0.21) (1.81)
-------- -------- -------- -------- -------- --------
Total distributions (2.74) (2.62) (0.24) (0.58) (0.50) (2.04)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $19.61 $19.32 $18.27 $13.51 $14.76 $13.89
======== ======== ======== ======== ======== ========
Total investment return at net asset value (c) 17.20% 22.44% 37.25% -4.66% 10.10% 8.13%
Net assets, end of period ($ millions) $2,080.6 $1,658.6 $1,173.1 $721.8 $534.5 $231.0
Ratio of expenses to average net assets 0.40%(d) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets 1.21%(d) 1.41% 1.53% 1.52% 2.17% 1.90%
Portfolio turnover rate 113% 223% 184% 135% 243% 230%
Average Commission Rate (e) $0.0601 $0.0629 n/a n/a n/a n/a
Six Months
Ended
6/30/97
HIGH YIELD PORTFOLIO (unaudited) 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- --------
Net asset value, beginning of period $10.06 $ 9.94 $ 9.18 $10.76 $ 9.62 $ 9.07
-------- -------- -------- -------- -------- --------
Income From Investment Operations --
Net investment income 0.50 0.98 0.96 0.97 0.96 1.02
Net realized and unrealized gain
(loss) on investments (b) 0.10 0.12 0.76 (1.40) 1.16 0.71
-------- -------- -------- -------- -------- --------
Total from investment operations 0.60 1.10 1.72 (0.43) 2.12 1.73
-------- -------- -------- -------- -------- --------
Less Distributions --
Dividends from net investment income (0.50) (0.98) (0.96) (0.97) (0.96) (1.02)
Distributions from net realized
gain on investments -- -- -- (0.18) (0.02) (0.16)
-------- -------- -------- -------- -------- --------
Total distributions (0.50) (0.98) (0.96) (1.15) (0.98) (1.18)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $10.16 $10.06 $ 9.94 $ 9.18 $10.76 $ 9.62
======== ======== ======== ======== ======== ========
Total investment return at net asset value (c) 6.19% 11.55% 19.62% -4.38% 22.91% 20.08%
Net assets, end of period ($ millions) $1,178.4 $1,026.7 $792.5 $595.6 $444.5 $154.3
Ratio of expenses to average net assets 0.40%(d) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets 10.06%(d) 9.83% 9.94% 9.75% 9.29% 10.69%
Portfolio turnover rate 62% 107% 67% 44% 68% 80%
See accompanying notes to the financial highlights.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Financial Highlights (continued)
Six Months
Ended
6/30/97
INCOME PORTFOLIO (unaudited) 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.75 $10.08 $ 9.04 $10.36 $ 9.87 $10.01
-------- -------- -------- -------- -------- --------
Income From Investment Operations --
Net investment income 0.33 0.63 0.65 0.64 0.63 0.73
Net realized and unrealized gain
(loss) on investments (b) (0.04) (0.33) 1.04 (1.11) 0.49 0.15
-------- -------- -------- -------- -------- --------
Total from investment operations 0.29 0.30 1.69 (0.47) 1.12 0.88
-------- -------- -------- -------- -------- --------
Less Distributions --
Dividends from net investment income (0.33) (0.63) (0.65) (0.64) (0.63) (0.73)
Distributions from net realized
gain on investments -- -- -- (0.21) -- (0.29)
-------- -------- -------- -------- -------- --------
Total distributions (0.33) (0.63) (0.65) (0.85) (0.63) (1.02)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 9.71 $ 9.75 $10.08 $ 9.04 $10.36 $ 9.87
======== ======== ======== ======== ======== ========
Total investment return at net asset value (c) 3.00% 3.21% 19.36% -4.68% 11.66% 9.23%
Net assets, end of period ($ millions) $816.3 $801.2 $762.1 $608.2 $566.9 $254.7
Ratio of expenses to average net assets 0.40%(d) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets 6.83%(d) 6.54% 6.81% 6.78% 6.23% 7.29%
Portfolio turnover rate 67% 150% 132% 139% 153% 115%
Six Months
Ended
6/30/97
MONEY MARKET PORTFOLIO (unaudited) 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- --------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Net investment income from investment operations 0.03 0.05 0.06 0.04 0.03 0.03
Less: Dividends from net investment income (0.03) (0.05) (0.06) (0.04) (0.03) (0.03)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Total investment return at net asset value (c) 2.59% 5.20% 5.71% 4.00% 2.87% 3.53%
Net assets, end of period ($ millions) $115.9 $103.9 $66.1 $41.9 $24.9 $26.6
Ratio of expenses to average net assets 0.40%(d) 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income to
average net assets 5.17%(d) 5.07% 5.55% 4.03% 2.83% 3.45%
Notes to Financial Highlights:
(a) All per share amounts have been rounded to the nearest cent.
(b) The amount shown is a balancing figure and may not accord with the change in aggregate gains and losses of
portfolio securities due to the timing of sales and redemption of fund shares.
(c) Total return is based on the change in net asset value during the period and assumes reinvestment of all
distributions.
(d) Computed on an annualized basis.
(e) Average commission rate is based on total broker commissions incurred in connection with execution of portfolio
transactions during the period, divided by the sum of all portfolio shares purchased and sold during the period
that were subject to a commission. Broker commissions are treated as capital items that increase the cost basis of
securities purchased, or reduce the proceeds of securities sold.
The accompanying notes are an integral part of the financial statements.
</TABLE>
LB SERIES FUND, INC.
Notes to Financial Statements
June 30, 1997
(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 (LB) 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.
Foreign Currency Translations
The accounting records of the Fund are maintained in U.S. dollars.
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.
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, Financial Futures and
Forward Foreign Currency Contracts
The Fund, with the exception of the Money Market Portfolio, may 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 foreign currency contracts to protect against
adverse foreign exchange rate fluctuation.
Option contracts are valued daily and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon
expiration or closing of the option transaction. When an option is
exercised, the proceeds on sale for a written call option or the cost
of a security for purchased put and call options is adjusted by the
amount of premium received or paid.
Upon entering into a futures contract, the Fund is required to deposit
initial margin, either cash or securities in an amount equal to a certain
percentage of the contract value. Subsequent variation margin payments
are made or received by the Fund each day. The variation margin payments
are equal to the daily changes in the contract value and are recorded as
unrealized gains and losses. The Fund realizes a gain or loss when the
contract is closed or expires.
Forward 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.
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 $736,172 from such fees.
Distributions to Shareholders
Dividends from net investment income, if available, are declared and
reinvested daily for the High Yield, Income and Money Market Portfolios,
quarterly for the Growth Portfolio, and annually for the Opportunity
Growth and World Growth Portfolios. With the exception of the Money Market
Portfolio, net realized gains from securities transactions, if any, are
distributed at least annually after the close of the Fund's fiscal year.
Short-term gains and 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.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of distributions made
during the year from net investment income or net realized gains may differ
from their ultimate characterization for federal income tax purposes.
Also, due to timing of 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
Investment transactions are accounted for on the date the investments 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.
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income
and expenses during the reporting period. Actual results could differ
from those estimates.
(3) INVESTMENT ADVISORY FEES AND OTHER EXPENSES
Investment Advisory Fees
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, Growth, High Yield, Income and
Money Market Portfolios, 0.40%; World Growth Portfolio, 0.85%.
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 LB World Growth Fund and the LB Series Fund, Inc. - World
Growth Portfolio at the following rates: 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 convert to a flat fee of 0.50% of the annual average daily net
assets.
Other Expenses
All other expenses associated with operating the Fund are paid or
reimbursed to the Fund by LB and LBVIP pursuant to an Expense
Reimbursement Agreement. The Expense Reimbursement Agreement can be
terminated at any time by the mutual agreement of the Fund, LB and
LBVIP, but the Fund, LB and LBVIP currently contemplate that the Expense
Reimbursement Agreement will continue so long as the Fund remains in
existence.
The Fund has adopted a director fee deferral plan which allows the
independent directors of the Fund to defer the receipt of all or a
portion of their director fees. Amounts that are deferred are invested
in the Lutheran Brotherhood Family of Funds until distribution in
accordance with the plan.
Certain officers and non-independent directors of the Fund are officers
of Lutheran Brotherhood and officers or directors of LBVIP; however,
they receive no compensation from the Fund.
(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 period.
(5) DISTRIBUTIONS FROM CAPITAL GAINS
During the six months ended June 30, 1997, a distribution from net
realized capital gains of $161,102 and $230,991,248 were paid by the
World Growth Portfolio and the Growth Portfolio, respectively. This
distribution relates to net capital gains realized during the year ended
December 31, 1996.
(6) CAPITAL LOSS CARRYOVER
During the year ended December 31, 1996, the High Yield Portfolio
utilized $20,382,802 of its capital loss carryover against net realized
capital gains. At December 31, 1996, the High Yield and Income
Portfolios had accumulated net realized capital loss carryovers expiring
as follows:
High Yield Income
Year Portfolio Portfolio
-------- ------------ --------------
2002 -- $21,666,184
2003 $5,055,282 --
2004 -- 3,667,020
------------ ------------
$5,055,282 $25,333,204
------------ ------------
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 $3,697,869, $264,497, $6,625,013,
$2,115,211 and $532,835 existed between accumulated net realized capital
gains or losses for financial statement and tax purposes as of December
31, 1996 for the Opportunity Growth, World Growth, Growth, High Yield
and Income Portfolios, respectively. These differences are due primarily
to deferral of capital losses for tax purposes.
(7) INVESTMENT TRANSACTIONS
Purchases and Sales of Investment Securities
For the six months ended June 30, 1997, the cost of purchases and the
proceeds from sales of investment securities other than U.S. Government
and short term securities were as follows:
In thousands
----------------------------------
Portfolio Purchases Sales
- ---------------------------------------------------------------------
Opportunity Growth $ 179,142 $ 126,356
World Growth 84,431 18,504
Growth 1,973,208 1,909,219
High Yield 726,291 632,651
Income 363,707 377,504
Purchases and sales of U.S. Government securities were:
In thousands
----------------------------------
Portfolio Purchases Sales
- ---------------------------------------------------------------------
Growth $ 1,017 $ 1,000
Income 136,867 191,384
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. At June 30, 1997, the
restricted securities held by the High Yield Portfolio had no market
value.
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 underlying an option or
futures contract may not correlate perfectly with the movement in the
prices of the portfolio securities being hedged. A lack of correlation
could render the Fund's hedging strategy unsuccessful and could result
in a loss to the Fund. In the event that a liquid secondary market would
not exist, the Fund could be prevented from entering into a closing
transaction which could result in additional losses to the Fund.
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.
Open Option Contracts
The number of contracts and premium amounts associated with call option
contracts written during the six months ended June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Opportunity Growth Portfolio Growth Portfolio Income Portfolio
----------------------------- ------------------------ ------------------------
Number of Premium Number of Premium Number of Premium
Contracts Amount Contracts Amount Contracts Amount
--------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 -- -- 998 $ 334,242 150 $ 99,197
Opened 528 $ 63,389 14,619 2,050,698 1,500 385,696
Closed (403) (58,826) (10,036) (1,677,550) (1,150) (357,575)
Expired (125) (4,562) (3,080) (325,242) (500) (127,318)
Exercised -- -- (2,501) (382,148) -- --
--------- ------------ --------- ------------ --------- ------------
Balance at June 30, 1997 -- $ -- -- $ -- -- $ --
========= ============ ========= ============ ========= ============
</TABLE>
(8) 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 400,000,000 $ 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:
<TABLE>
<CAPTION>
Opportunity World High Money
Growth Growth Growth Yield Income Market
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares outstanding at
December 31, 1995 -- -- 64,197,627 79,742,358 75,614,192 66,149,967
Shares sold 20,829,994 15,909,365 12,716,616 15,616,822 8,257,064 75,776,304
Shares issued on reinvestment
of dividends and distributions 741,927 130,856 10,462,909 8,924,334 5,273,056 4,152,037
Shares redeemed (141,181) (139,490) (1,544,344) (2,175,610) (6,968,350) (42,157,682)
----------- ----------- ----------- ----------- ----------- -----------
Shares outstanding at
December 31, 1996 21,430,740 15,900,731 85,832,808 102,107,904 82,175,962 103,920,626
Shares sold 7,632,064 5,484,510 6,876,726 8,711,696 1,129,276 39,351,310
Shares issued on reinvestment
of dividends and distributions -- 14,781 13,646,320 5,437,216 2,808,486 2,814,855
Shares redeemed (21,419) (12,725) (246,489) (277,477) (2,027,336) (30,185,823)
----------- ----------- ----------- ----------- ----------- -----------
Shares outstanding at
June 30, 1997 29,041,385 21,387,297 106,109,365 115,979,339 84,086,388 115,900,968
=========== =========== =========== =========== =========== ===========
</TABLE>
LB SERIES FUND, INC.
Opportunity Growth Portfolio
World Growth Portfolio
Growth Portfolio
High Yield Portfolio
Income Portfolio
Money Market Portfolio
DIRECTORS
Rolf F. Bjelland
Charles W. Arnason
Herbert F. Eggerding, Jr.
Noel K. Estenson
Connie M. Levi
Bruce J. Nicholson
Ruth E. Randall
OFFICERS
Rolf F. Bjelland James M. Odland
Chairman and President Assistant Secretary
Otis F. Hilbert Randall L. Wetherille
Secretary and Vice President Assistant Secretary
James R. Olson Wade M. Voigt
Vice President Treasurer
James M. Walline Rand E. Mattsson
Vice President Assistant Treasurer
Richard B. Ruckdashel
Vice President
This report is authorized for distribution to prospective
investors only when preceded or accompanied by the
current prospectuses.
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