<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. __22__ X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. __24__ X
LB SERIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
625 Fourth Avenue South, Minneapolis, Minnesota 55415
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (612) 340-7215
Otis F. Hilbert, Secretary
LB Series Fund, Inc.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on May 1, 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 March 25, 1998; or
_____ intends to file the Notice required by that Rule on or about date);
or
_____ during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
<PAGE>
LB SERIES FUND, INC.
Cross Reference Sheet
Pursuant to Rule 485(b)
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 Report of Independent Accountants
and Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
LB SERIES FUND, INC.
625 Fourth Avenue South * Minneapolis, Minnesota 55415
(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 May 1,
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 May 1, 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 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, 1997.
The tables should be read in conjunction with the financial statements and
notes thereto that appear in such reports, which are incorporated by
reference into the Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION
Growth Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <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
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Income From
Investment Operations--
Net investment income..... 0.21 0.24 0.24 0.20 0.29 0.23 0.27 0.28 0.22 0.22
Net realized and
unrealized gain (loss)
on investments.(f)..... 4.97 3.43 4.76 (0.87) 1.08 0.85 4.13 (0.51) 2.27 0.51
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total from investment
operations.... 5.18 3.67 5.00 (0.67) 1.37 1.08 4.40 (0.23) 2.49 0.73
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Less Distributions --
Dividends from net
investment income....... (0.21) (0.24) (0.24) (0.20) (0.29) (0.23) (0.27) (0.28) (0.22) (0.22)
Distributions from net
realized gain
on investments.......... (2.71) (2.38) -- (0.38) (0.21) (1.81) -- (0.47) -- --
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total distributions.... (2.92) (2.62) (0.24) (0.58) (0.50) (2.04) (0.27) (0.75) (0.22) (0.22)
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Net asset value,
end of period........... $21.58 $19.32 $18.27 $13.51 $14.76 $13.89 $14.85 $10.72 $11.70 $9.43
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total investment return
at net asset value (c)... 30.18% 22.44% 37.25% -4.66% 10.10% 8.13% 41.35% -1.97% 26.57% 8.31%
Net assets, end of period
(millions).............. $2,426.1 $1,658.6 $1,173.1 $721.8 $534.5 $231.0 $96.2 $35.2 $17.5 $4.3
Ratio of expenses to
average net assets...... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment
income to average
net assets.... 1.11% 1.41% 1.53% 1.52% 2.17% 1.90% 2.24% 2.79% 2.37% 2.64%
Portfolio turnover rate.... 193% 223% 184% 135% 243% 230% 247% 195% 167% 116%
Average Commission Rate (e) $0.0600 $0.0629 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
High Yield Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <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
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Income From
Investment Operations--
Net investment income..... 0.98 0.98 0.96 0.97 0.96 1.02 1.08 1.08 1.25 1.21
Net realized and
unrealized gain (loss)
on investments.(f)..... 0.37 0.12 0.76 (1.40) 1.16 0.71 1.45 (1.37) (0.94) 0.05
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total from investment
operations.... 1.35 1.10 1.72 (0.43) 2.12 1.73 2.53 (0.29) 0.31 1.26
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Less Distributions --
Dividends from net
investment income....... (0.97) (0.98) (0.96) (0.97) (0.96) (1.02) (1.08) (1.08) (1.25) (1.21)
Distributions from net
realized gain
on investments.......... -- -- -- (0.18) (0.02) (0.16) -- (0.01) -- (0.04)
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total distributions.... (0.97) (0.98) (0.96) (1.15) (0.98) (1.18) (1.08) (1.09) (1.25) (1.25)
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Net asset value,
end of period........... $10.44 $10.06 $ 9.94 $9.18 $10.76 $9.62 $9.07 $7.62 $9.00 $9.94
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total investment return
at net asset value (c)... 14.10% 11.55% 19.62% -4.38% 22.91% 20.08% 35.32% -3.72% 3.13% 13.33%
Net assets, end of period
(millions).............. $1,344.6 $1,026.7 $792.5 $595.6 $444.5 $154.3 $56.7 $25.9 $20.1 $6.3
Ratio of expenses to
average net assets...... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment
income to average
net assets.... 9.58% 9.83% 9.94% 9.75% 9.29% 10.69% 12.62% 13.04% 12.96% 12.12%
Portfolio turnover rate.... 105% 107% 67% 44% 68% 80% 145% 111% 79% 63%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Income Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <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
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Income From
Investment Operations--
Net investment income..... 0.65 0.63 0.65 0.64 0.63 0.73 0.81 0.84 0.86 0.77
Net realized and
unrealized gain (loss)
on investments.(f)..... 0.17 (0.33) 1.04 (1.11) 0.49 0.15 0.91 (0.24) 0.21 (0.06)
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total from investment
operations.... 0.82 0.30 1.69 (0.47) 1.12 0.88 1.72 0.60 1.07 0.71
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Less Distributions --
Dividends from net
investment income....... (0.65) (0.63) (0.65) (0.64) (0.63) (0.73) (0.81) (0.84) (0.86) (0.77)
Distributions from net
realized gain
on investments.......... -- -- -- (0.21) -- (0.29) -- (0.06) -- --
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total distributions.... (0.65) (0.63) (0.65) (0.85) (0.63) (1.02) (0.81) (0.90) (0.86) (0.77)
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Net asset value,
end of period........... $ 9.92 $ 9.75 $10.08 $ 9.04 $10.36 $ 9.87 $10.01 $ 9.10 $ 9.40 $ 9.19
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total investment return
at net asset value (c)... 8.75% 3.21% 19.36% -4.68% 11.66% 9.23% 19.76% 6.91% 12.22% 8.07%
Net assets, end of period
(millions).............. $880.4 $801.2 $762.1 $608.2 $566.9 $254.7 $100.0 $43.5 $19.8 $3.5
Ratio of expenses to
average net assets...... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment
income to average
net assets.... 6.68% 6.54% 6.81% 6.78% 6.23% 7.29% 8.43% 9.25% 9.33% 8.46%
Portfolio turnover rate.... 117% 150% 132% 139% 153% 115% 137% 164% 165% 102%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Money Market Portfolio
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <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
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Income From
Investment Operations--
Net investment income..... 0.05 0.05 0.06 0.04 0.03 0.03 0.06 0.08 0.09 0.07
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Less Distributions --
Dividends from net
investment income....... (0.05) (0.05) (0.06) (0.04) (0.03) (0.03) (0.06) (0.08) (0.09) (0.07)
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
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
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total investment return
at net asset value (c)... 5.43% 5.20% 5.71% 4.00% 2.87% 3.53% 5.89% 8.00% 9.07% 7.31%
Net assets, end of period
(millions).............. $121.2 $103.9 $66.1 $41.9 $24.9 $26.6 $23.0 $20.0 $10.4 $3.9
Ratio of expenses to
average net assets...... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment
income to average
net assets.... 5.27% 5.07% 5.55% 4.03% 2.83% 3.45% 5.72% 7.76% 8.69% 7.16%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Opportunity Growth Portfolio
- ----------------------------------------------------------------------------------
Period Ended
December 31,
1997 1996(g)
------------------------------
<S> <C> <C>
Net asset value, beginning of period $11.50 $10.00
------ ------
Income From Investment Operations -
Net investment income 0.06 0.02
Net realized and unrealized gain
on investments.(e) 0.05 1.90
------ ------
Total from investment operations 0.11 1.92
------ ------
Less Distributions --
Dividends from net investment income (0.06) (0.02)
Distributions from net realized gain
on investments -- (0.40)
------ ------
Total Distributions (0.06) (0.42)
------ ------
Net asset value, end of period $11.55 $11.50
====== ======
Total investment return at
net asset value (c) 0.93% 19.17%
Net assets, end of period ($ millions) $391.5 $246.6
Ratio of expenses to average
net assets 0.40%(d) 0.40%(d)
Ratio of net investment income to
average net assets 0.65%(d) 0.27%(d)
Portfolio turnover rate 147% 155%
Average commission rate (e) $0.0531 $0.0342
____________________________
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
World Growth Portfolio
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Period Ended
December 31,
1997 1996(g)
------------------------------
<S> <C> <C>
Net asset value, beginning of period $10.95 $10.00
------ ------
Income From Investment Operations -
Net investment income 0.10 0.08
Net realized and unrealized gain
on investments.(e) 0.21 0.96
------ ------
Total from investment operations 0.31 1.04
------ ------
Less Distributions --
Dividends from net investment income (0.13) (0.09)
Distributions from net realized gain
on investments (0.01) --
------ ------
Total Distributions (0.14) (0.09)
------ ------
Net asset value, end of period $11.12 $10.95
====== ======
Total investment return at
net asset value (c) 2.81% 10.41%
Net assets, end of period ($ millions) $287.2 $174.1
Ratio of expenses to average
net assets 0.85%(d) 0.85%(d)
Ratio of net investment income to
average net assets 1.08%(d) 1.34%(d)
Portfolio turnover rate 19% 9%
Average commission rate (e) $0.0245 $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 T. Rowe Price Associates, Inc. ("T.
Rowe Price") as investment sub-advisor for the Opportunity Growth Portfolio.
T. Rowe Price was founded in 1937 and has its principal offices in
Baltimore, Maryland. As of December 31, 1997, T. Rowe Price and its
affiliates managed over $124 billion. Richard T. Whitney, Managing Director
of T. Rowe Price, is primarily responsible for day-to-day management of the
Opportunity Growth Portfolio and developing and executing the Portfolio's
investment program.
Lutheran Brotherhood pays the Sub-advisor for the Opportunity Growth
Portfolio an annual sub-advisory fee for the performance of sub-advisory
services. The fee payable is equal to .30% of that Portfolio's average daily
net assets.
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
("Flemings"). Price-Fleming is one of the world's largest international
mutual fund asset managers with approximately the U.S. equivalent of $30
billion under management as of December 31, 1997 in its offices in
Baltimore, London, Tokyo, Singapore, Hong Kong, and Buenos Aires. Price-
Fleming has an investment advisory group that has day-to-day responsibility
for managing the World Growth Portfolio and developing and executing the
Portfolio's investment program.
Lutheran Brotherhood pays Price-Fleming an annual sub-advisory fee for
the performance of sub-advisory services for the World Growth Portfolio. The
fee payable is equal to a percentage of the Portfolio's average daily net
assets. The percentage varies with the size of Portfolio's net assets,
decreasing as the Portfolio's assets increase. The formula for determining
the sub-advisory fee is described fully in the section of the Prospectus
entitled, "Management of the Fund--Investment Adviser".
The Portfolio managers of the Money Market, Income, High Yield, Growth,
and Mid Cap Growth Portfolios, as well as the Portfolio manager from T. Rowe
Price for the Opportunity Growth Portfolio and 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.
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, 1997 and December 31, 1996 were 117% and 150%,
respectively.
In order to help minimize credit risk, the Portfolio diversifies its
holdings among many issuers. As of December 31, 1997, the Portfolio held
securities of 120 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................................ 7.1%
Government obligations............................... 22.9
Corporate obligations
AAA/Aaa....................................... 15.8
AA/Aa......................................... 5.3
A/A........................................... 18.9
BBB/Baa....................................... 13.9
BB/Ba......................................... 13.4
B/B........................................... 3.5
CCC/Caa....................................... --
CC/Ca......................................... --
D/D........................................... --
Not rated..................................... --
Other Net Assets/Liabilities.................. -0.8
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, 1997 and December 31, 1996 were 105% and 107%,
respectively.
In order to help minimize credit risk, the Portfolio diversifies its
holdings among many issuers. As of December 31, 1997, the Portfolio held
securities of 239 corporate issuers, and the Portfolio's holdings had the
following credit quality characteristics:
Percent of
Investment Net Assets
Short-term securities--
Aaa equivalent.............................. 4.2
Government obligations............................ --
Corporate obligations
AAA/Aaa..................................... --
AA/Aa....................................... --
A/A......................................... --
BBB/Baa..................................... 1.4
BB/Ba....................................... 10.8
B/B......................................... 52.2
CCC/Caa..................................... 7.7
CC/Ca....................................... 0.2
D/D......................................... 0.5
Not rated................................... 7.2
Other Net Assets............................ 15.8
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, 1997 and December 31, 1996 were 193% and 223%,
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 T. Rowe Price have a
potential for above average sales and earnings growth that is expected to
lead to capital appreciation. T. Rowe Price believes that over a long period
of time, smaller companies that have a competitive advantage will be able to
grow faster than larger companies, leading to a higher rate of growth in
capital. 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), foreign stocks 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 (excluding cash and U.S. Government Securities). Debt
obligations may be rated less than investment grade, which is defined as
having a quality rating below "Baa", as rated by Moody's Investors Service,
Inc. ("Moody's"), or below "BBB", as rated by Standard & Poor's Corporation
("S&P"). For a description of Moody's and S&P's ratings, see "Description of
Debt Ratings". Securities rated below investment grade are considered to be
speculative and involve certain risks, including a higher risk of default
and greater sensitivity to interest rate and economic changes.
T. Rowe Price will use a number of proprietary quantitative models to
seek out those companies that have a competitively superior product or
service in an unsaturated market with large potential for growth and measure
the major characteristics of stocks in the small capitalization growth
sector. These will often be companies with shorter histories and less
seasoned operations. Based on these models, stocks are selected in a "top
down" manner so that the portfolio as a whole reflects the specific
characteristics that the sub-adviser considers important, such as valuation
and projected earnings growth. Many of such companies will have market
capitalizations that are less than $1.5 billion, with lower daily trading
volume in their stocks and less overall liquidity than larger, more well
established companies. T. Rowe Price anticipates that the common stocks of
such companies may increase in market value more rapidly than the stocks of
other companies.
The Portfolio will focus primarily on companies that possess superior
earnings prospects. 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 T.
Rowe Price believes such disposition to be advisable. 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 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 rates for the Opportunity Growth Portfolio for the
fiscal year ended December 31, 1997 and the period January 18, 1996 through
December 31, 1996 were 147% and 155% respectively.
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 (excluding cash and U.S. Government securities). Debt
obligations may be rated less than investment grade, which is defined as
having a quality rating below "Baa", as rated by Moody's Investors Service,
Inc. ("Moody's"), or below "BBB", as rated by Standard & Poor's Corporation
("S&P"). Debt obligations rated "Baa" or "BBB" are considered to have
speculative characteristics. For a description of Moody's and S&P's ratings,
see "Description of Debt Ratings". Securities rated below investment grade
are considered to be speculative and involve certain risks, including a
higher risk of default and greater sensitivity to interest rate and economic
changes.
In determining the appropriate distribution of investments among
various countries and geographic regions, Price-Fleming considers the
following factors: prospects for relative economic growth between foreign
countries; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range
of individual investment opportunities available to international investors.
In analyzing companies for investment, Price-Fleming looks for one or
more of the following characteristics: an above-average earnings growth per
share; high return on invested capital; healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management;
and general operating characteristics which will enable the companies to
compete successfully in their market place. While current dividend income is
not a prerequisite in the selection of portfolio companies, the companies in
which the 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 Price-Fleming 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 Price-Fleming
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 Price-Fleming believes that the currency of a
particular foreign country may suffer or enjoy a substantial movement
against another currency, it may enter into a forward contract to sell or
buy the former foreign currency (or another currency which acts as a proxy
for that currency) approximating the value of some or all of the 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. Price-Fleming
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 rates
for the World Growth Portfolio for the fiscal year ended December 31, 1997
and for the period January 18, 1996 through December 31, 1996 were 19% and
9% respectively.
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
(All Portfolios except the LB Money Market Portfolio)
Selling ("Writing") Covered Call Options: The Portfolios may from time
to time sell ("write") covered call options on any portion of their
portfolios as a hedge to provide partial protection against adverse
movements in the prices of securities in such Portfolio and, subject to the
limitations described below, for the non-hedging purpose of attempting to
create additional income. A call option gives the buyer of the option, upon
payment of a premium, the right to call upon the writer to deliver a
specified amount of a security on or before a fixed date at a predetermined
("strike") price. As the writer of a call option, the Portfolio assumes the
obligation to deliver the underlying security to the holder of the option on
demand at the strike price.
If the price of a security hedged by a call option falls below or
remains below the strike price of the option, the Portfolio will generally
not be called upon to deliver the security. The Portfolio will, however,
retain the premium received for the option as additional income, offsetting
all or part of any decline in the value of the security. If the price of a
hedged security rises above or remains above the strike price of the option,
the Portfolio will generally be called upon to deliver the security. In this
event the Portfolio limits its potential gain by limiting the value it can
receive from the security to the strike price of the option plus the option
premium.
Buying Call Options: The Portfolios may also from time to time purchase
call options on securities in which such Portfolio may invest. As the holder
of a call option, the Fund has the right to purchase the underlying security
or currency at the exercise price at any time during the option period
(American style) or at the expiration of the option (European style). The
Portfolio generally will purchase such options as a hedge to provide
protection against adverse movements in the prices of securities which the
Portfolio intends to purchase. In purchasing a call option, the Portfolio
would realize a gain if, during the option period, the price of the
underlying security increased by more than the amount of the premium paid.
The Portfolio would realize a loss equal to all or a portion of the premium
paid if the price of the underlying security decreased, remained the same,
or did not increase by more than the premium paid. In instances involving
the purchase of call options, the Portfolio will hold cash or cash
equivalents in its portfolio in an amount equal to the exercise value of the
options. "Cash or cash equivalents" may include cash, government securities,
or liquid high quality debt obligations.
Buying Put Options: The Portfolios may from time to time purchase put
options on any portion of their portfolios. A put option gives the buyer of
the option, upon payment of a premium, the right to deliver a specified
amount of a security to the writer of the option on or before a fixed date
at a predetermined ("strike") price. The Portfolio generally will purchase
such options as a hedge to provide protection against adverse movements in
the prices of securities in the Portfolio. In purchasing a put option, the
Portfolio would realize a gain if, during the option period, the price of
the security declined by an amount in excess of the premium paid. The
Portfolio would realize a loss equal to all or a portion of the premium paid
if the price of the security increased, remained the same, or did not
decrease by more than the premium paid.
Options on Foreign Currencies: The Fund may also write covered call
options and purchase put and call options on foreign currencies as a hedge
against changes in prevailing levels of currency exchange rates.
Selling Put Options: The Portfolios may not sell put options, except in
the case of a closing purchase transaction (see "Closing Transactions").
Index Options: As part of their options transactions, The Portfolios
may also purchase and sell call options and purchase put options on stock
and bond indices. Options on securities indices are similar to options on a
security except that, upon the exercise of an option on a securities index,
settlement is made in cash rather than in specific securities.
Closing Transactions: The Portfolios may dispose of an option which it
has written by entering into a "closing purchase transaction". A Portfolio
may dispose of an option which it has purchased by entering into a "closing
sale transaction". A closing transaction terminates the rights of a holder,
or the obligation of a writer, of an option and does not result in the
ownership of an option.
The Portfolio realizes a profit from a closing purchase transaction if
the premium paid to close the option is less than the premium received by
the Portfolio from writing the option. The Portfolio realizes a loss if the
premium paid is more than the premium received. The Portfolio may not enter
into a closing purchase transaction with respect to an option it has written
after it has been notified of the exercise of such option.
The Portfolio realizes a profit from a closing sale transaction if the
premium received to close out the option is more than the premium paid for
the option. The Portfolio realizes a loss if the premium received is less
than the premium paid.
Spreads and Straddles: Certain of the Portfolios may also engage in
"straddle" and "spread" transactions in order to enhance return which is a
speculative, non-hedging purpose. A straddle is established by buying both a
call and a put option on the same underlying security, each with the same
exercise price and expiration date. A spread is a combination of two or more
call options or put options on the same security with differing exercise prices
or times to maturity. The particular strategies employed by a Portfolio will
depend on Lutheran Brotherhood's or the Sub-advisor's perception of anticipated
market movements.
Negotiated Transactions: The Growth Portfolio, the Opportunity Growth
Portfolio, 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
(All Portfolios except the LB Money Market Portfolio)
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 purchase financial futures
contracts as a hedge against adverse movements in the prices of securities
which such Portfolio intends to purchase. The Opportunity Growth and World
Growth Portfolios may buy and sell futures contracts for a number of
reasons, including to manage their exposure to changes in securities prices
and foreign currencies as an efficient means of adjusting their overall
exposure to certain markets in an effort to enhance income; and to protect
the value of portfolio securities. A futures contract purchase creates an
obligation by 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 the above 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, 1997 were $13.2 billion.
Additionally, through an indirect subsidiary, Lutheran Brotherhood Research
Corp., Lutheran Brotherhood also manages $4.10 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:
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 T. Rowe Price Associates, Inc. ("T.
Rowe Price") as investment sub-advisor for the Opportunity Growth Portfolio.
T. Rowe Price was founded in 1937 and has its principal offices in
Baltimore, Maryland. As of December 31, 1997, T. Rowe Price and its
affiliates managed over $124 billion. Richard T. Whitney, Managing Director
of T. Rowe Price, is primarily responsible for day-to-day management of the
Opportunity Growth Portfolio and developing and executing the Portfolio's
investment program.
T. Rowe Price has an Investment Advisory Committee for the Opportunity
Growth Portfolio composed of the following members: Richard T. Whitney,
Chairman, Marc L. Baylin, Kristen F. Culp, John H. Laporte, and Donald J.
Peters. The committee chairman has day-to-day responsibility for managing
the portfolio and works with the committee in developing and executing the
portfolio's investment program. Mr. Whitney is chairman of the portfolio's
committee. Mr. Whitney joined T. Rowe Price in 1985 and has been managing
investments since 1986.
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. ("T. Rowe Price") and Robert Fleming Holdings Limited
("Flemings"). The common stock of Price-Fleming is 50% owned by a wholly-
owned subsidiary of T. Rowe Price, 25% by a subsidiary of Flemings and 25%
by Jardine Fleming Group Limited ("Jardine Fleming"). (Half of Jardine
Fleming is owned by Flemings and half by Jardine Matheson Holdings Limited.)
T. Rowe Price has the right to elect a majority of the board of directors of
Price-Fleming, and Flemings has the right to elect the remaining directors,
one of whom will be nominated by Jardine Fleming.
Price-Fleming is one of the world's largest international mutual fund
asset managers with the U.S. equivalent of approximately $30 billion under
management as of December 31, 1997 in its offices in Baltimore, London,
Tokyo, Singapore, Hong Kong, and Buenos Aires. Price-Fleming has an
investment advisory group that has day-to-day responsibility for managing
the World Growth Portfolio and developing and executing the Portfolio's
investment program. The members of the advisory group are listed below:
Martin G. Wade, Mark J.T. Edwards, John R. Ford, James B.M. Seddon,
Mark Bickford-Smith and David J.L. Warren.
Martin Wade joined Price-Fleming in 1979 and has 29 years of experience
with the Fleming Group in research, client service and investment
management, including assignments in the Far East and the United States.
(Fleming Group includes Flemings and/or Jardine Fleming.)
Mark Edwards joined Price-Fleming in 1987 and has 16 years of
experience in financial analysis, including three years in Fleming European
research. John Ford joined Price-Fleming in 1982 and has 18 years of
experience with the Fleming Group in research and portfolio management,
including assignments in the Far East and the United States. James Seddon
joined Price-Fleming in 1987 and has 11 years of experience in investment
management. Mark Bickford-Smith joined Price-Fleming in 1995 and has 13
years of experience with the Fleming Group in research and financial
analysis. David Warren joined Price-Fleming in 1983 and has 17 years
experience in equity research, fixed income research and portfolio
management.
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 Fund and its Adviser have conducted a review of their computer
systems to identify the internal systems that could be affected by the "Year
2000" problem and are developing an implementation plan to resolve the
issue. The Year 2000 problem is the result of computer programs being
written using two digits (rather than four) to define the applicable year.
Any of the Fund's and its Adviser's computer programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Fund and its Adviser presently believe that, with
modifications to existing software and conversions to new software, the Year
2000 problem will not pose significant operational problems for their
computer systems as so modified and converted. However, if such
modifications and conversions are not completed timely, the Year 2000
problem may have a material impact on the operations of the Fund and its
Adviser. The Year 2000 readiness of other third parties whose system
failures could have an impact on the Fund's and its Adviser's operations is
currently being evaluated. The potential materiality of any such impact is
not known at this time.
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 T. Rowe Price an annual sub-advisory fee for
the performance of sub-advisory services for the Opportunity Growth
Portfolio. The fee payable is equal to .30% of the average daily net assets
for that Portfolio.
Lutheran Brotherhood pays Price-Fleming an annual sub-advisory fee for
the performance of sub-advisory services or the World Growth Portfolio. 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 Price-Fleming also provides sub-advisory services. The sub-
advisory fee Lutheran Brotherhood pays Price-Fleming 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. Price-Fleming has agreed to waive its fees so that when the combined
assets of the World Growth Portfolio and World Growth Fund exceed $500
million, the sub-advisory fee for the World Growth Portfolio is equal to
.45% of all the Portfolio's average daily net assets. As of December 31,
1997, the combined assets of the World Growth Portfolio and World Growth
Fund totaled $363.3 million.
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 Portfolio Capital Stock, and
World Growth Portfolio Capital Stock. Unissued shares of any of the classes
of capital stock may be reallocated to any new or existing class or classes
as determined by the Fund's Board of Directors. The Fund may in the future
issue shares of additional classes through the creation of one or more new
portfolios.
Each share of stock will have a pro rata interest in the assets of the
Portfolio to which the stock of that class relates and will have no interest
in the assets of any other Portfolio. Holders of shares of any Portfolio are
entitled to redeem their shares as set forth under "Purchase and Redemption
of Shares".
Voting Rights
The voting rights of Contract owners, and limitations on those rights,
are explained in the accompanying prospectus relating to the Contracts.
Lutheran Brotherhood and LBVIP, as the owners of the assets in the Accounts,
are entitled to vote all of the shares of the Fund held to fund the benefits
under the Contracts, but it will generally do so in accordance with the
instructions of Contract owners. Any such shares of a Portfolio attributable
to a Contract for which no timely voting instructions are received, and any
shares of that Portfolio held by Lutheran Brotherhood, LBVIP or any of their
affiliates for their own account, will be voted by Lutheran Brotherhood or
LBVIP in proportion to the voting instructions that are received with
respect to all Contracts participating in that Portfolio. Under certain
circumstances described in the accompanying Contract prospectus, however,
Lutheran Brotherhood and LBVIP may disregard voting instructions received
from Contract owners.
Shareholders are entitled to one vote for each share held. Because the
per share purchase price of shares of different Portfolios will not,
generally, be the same (initial purchase price for shares of the Growth
Portfolio, the High Yield Portfolio and the Income Portfolio was $10 per
share, as compared to $1 per share for the Money Market Portfolio), the
number of votes obtained as a result of a particular amount invested will
generally vary depending on which Portfolio's shares are purchased (for
example, using the initial purchase prices set forth above, a $100
investment in the Money Market Portfolio would result in 100 votes, whereas
the same investment in any one of the other Portfolios would result in only
10 votes).
The Fund's Bylaws provide that regular meetings of the shareholders of
the Fund may be held on an annual or less frequent basis as determined by
the Board of Directors of the Fund; provided, however, that if a regular
meeting has not been held during the immediately preceding 15 months, a
shareholder or shareholders holding 3% or more of the voting power of all
shares entitled to vote may demand a regular meeting of shareholders by
written demand given to the Chief Executive Officer or Chief Financial
Officer of the Fund.
Calculation of Performance
From time to time the Fund advertises the Money Market Portfolio's
"yield" and "effective yield". Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of
the Portfolio refers to the income generated by an investment in the
Portfolio over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized". That is, the, amount of
income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of
the investment. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the Portfolio is assumed
to be reinvested. The "effective yield" will be slightly higher than the
"yield" because of the compounding effect of this assumed reinvestment. The
annualized current yield and effective yield for the seven-day base period
ended December 31, 1997, was 5.60% and 5.76%, 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, 1997
for the High Yield Portfolio was 9.23%. The current yield for the same 30-
day base period for the Income Portfolio was 6.50%. 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, 5 and 10-year periods (or such
shorter time period during which the Portfolio's shares have been offered),
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
Portfolio'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, 5 or 10-year periods (or such shorter time
period during which the Portfolio's shares have been offered).
The average annual total returns for the 1-year, 5-year and 10-year
periods for the Portfolios, or for such shorter period from the Portfolio's
effective date through December 31, 1997 are as follows:
1 5 10 From
Year Years Years
Inception
Opportunity Growth
Portfolio (1/18/96) 0.93% N/A N/A 9.90%
World Growth Portfolio 1/18/96) 2.81% N/A N/A 6.69%
Growth Portfolio (1/9/87) 30.18% 18.09% 16.78% N/A
High Yield Portfolio (11/2/87) 14.10% 12.33% 12.58 N/A
Income Portfolio (1/9/87) 8.75% 7.35% 9.24% N/A
Money Market Portfolio (1/9/87) 5.43% 4.64% 5.68% N/A
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.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
LB SERIES FUND, INC.
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Prospectus for LB Series Fund, Inc. (the
"Fund") dated May 1, 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
AFFILIATED TRANSACTIONS OF THE SUB-ADVISORS
CAPITAL STOCK
DETERMINATION OF THE NET ASSET VALUE
CALCULATION OF PERFORMANCE
Money Market Portfolio
Other Portfolios
TAX STATUS
ADDITIONAL INFORMATION
REPORT OF INDEPENDENT ACCOUNTANTS AND
FINANCIAL STATEMENTS
The date of this Statement of Additional
Information is May 1, 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 have been found by the Portfolio's Adviser to have minimal
credit risk and, except as noted below, are rated "high quality" by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P"), or any other similar nationally recognized statistical rating
organization ("NRSRO"), 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 any
comparable rating by any other NRSRO or, if not rated, issued by domestic
corporations which have an outstanding senior long-term debt issue rated A
or lower by Moody's or A or lower 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. When a security has received ratings by two or more different NRSROs
and at least two of the ratings are the highest rating given by such NRSROs,
the security will be considered "high quality". When a security has
received ratings by two or more different NRSROs and only one of the ratings
is the highest rating given by such NRSROs, the security will not be
considered "high quality". The Portfolio will not invest more than 5% of
its assets in securities that have received ratings from two or more
different NRSROs and less than two of the ratings are the highest rating
given by such NRSROs, and will invest no more than 1% of its assets in the
securities of any one issuer, when the issuer's securities have received
ratings from two or more different NRSROs and less than two of the ratings
are the highest rating given by such NRSROs. 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 Opportunity Growth
Portfolio, World Growth Portfolio, Income Portfolio, High Yield Portfolio,
and Growth Portfolio for the fiscal years ended December 31, 1996 and 1997
are as follows:
Fiscal Years Ended December 31, 1996 1997
Opportunity Growth Portfolio* 155% 147%
World Growth Portfolio* 9% 19%
Growth Portfolio 223% 193%
High Yield Portfolio 107% 105%
Income Portfolio 150% 117%
* The portfolio turnover rate shown for the Opportunity Growth Portfolio
and the World Growth Portfolio for 1996 are for the period January 18,
1996 through December 31, 1996.
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 $8,000.
Investors should understand that all investments have a risk factor.
There can be no guarantee against loss resulting from an investment in the
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, in 1991, the existing
government in Thailand was overthrown in a military coup. In addition,
significant external political risks currently affect some foreign
countries. Both Taiwan and China still claim sovereignty of one another and
there is a demilitarized border between North and South Korea.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economics. Action by these governments could have a significant
effect on market prices of securities and payment of dividends. The
economies of many foreign countries are heavily dependent upon international
trade and are accordingly affected by protective trade barriers and economic
conditions of their trading partners. The enactment by these trading
partners of protectionist trade legislation could have a significant adverse
effect upon the securities markets of such countries.
INFORMATION AND SUPERVISION. There is generally less publicly available
information about foreign companies comparable to reports and ratings that
are published about companies in the United States. Foreign companies are
also generally not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those
applicable to United States companies.
TAXES. The dividends and interest payable on certain of a Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Fund's
shareholders.
COSTS. Investors should understand that the expense ratio of the 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 10% restriction on investing in illiquid securities.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in
which the respective principal offices of the issuers of the various
securities are located, if that is the best available market.
The 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 60
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
59
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 Coolidge Road, West Hartford, CT, Age 69
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 42
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 61
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, 1997, 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 $14,630 $31,500
Director
Herbert F. Eggerding, Jr. $14,630 $31,500
Director
Noel K. Estenson $ 7,179 $16,250
Director
Connie M. Levi $14,630 $31,500
Director
Bruce J. Nicholson(2) $0 $0
Director
Ruth E. Randall $14,630 $31,500
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 Opportunity Growth Portfolio are made by
T. Rowe Price Associates, Inc. ("T. Rowe Price"), which Lutheran Brotherhood
and the Fund have engaged as the sub-advisor for the Opportunity Growth
Portfolio. T. Rowe Price manages the Opportunity Growth Portfolio in
accordance with the Fund's investment objectives, policies and restrictions,
subject to the supervision of Lutheran Brotherhood and the Fund's Board of
Directors.
T. Rowe Price was founded in 1937 and has its principal offices in
Baltimore, Maryland. As of December 31, 1997, T. Rowe Price and its
affiliates managed over $124 billion.
Investment decisions for the World Growth Portfolio are made by Rowe
Price-Fleming International, Inc. ("Price-Fleming"), which Lutheran
Brotherhood and the Fund have engaged as the sub-advisor for the World
Growth Portfolio. Price-Fleming manages the World Growth Portfolio of
Lutheran Brotherhood and the Fund's Board of Directors.
Price-Fleming was founded in 1979 as a joint venture between T. Rowe
Price Associates, Inc. and Robert Fleming Holdings Limited ("Flemings").
Price-Fleming is one of the world's largest international mutual fund asset
managers with approximately the U.S. equivalent of $30 billion under
management as of December 31, 1997 in its offices in Baltimore, London,
Tokyo, Singapore, Hong Kong, and Buenos Aires.
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 Investment Sub-advisory Contract between Lutheran Brotherhood, the
Fund and T. Rowe Price (the "T. Rowe Price Sub-advisory Contract") provides
that it shall continue in effect with respect to the Opportunity 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 T. Rowe Price 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 T. Rowe Price Sub-advisory Contract may be
terminated on 60 days' written notice by each 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 Investment Sub-advisory Contract between Lutheran Brotherhood, the
Fund and Price-Fleming (the "Price-Fleming Sub-advisory Contract") 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 Price-Fleming 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 Price-Fleming 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, 1997, 1996,
and 1995, the Adviser earned $20,167,422, $13,945,681, and $9,372,835,
respectively, as gross advisory fees.
Lutheran Brotherhood pays T. Rowe Price, the sub-advisor, for the
Opportunity Growth Portfolio, an annual sub-advisory fee for the performance
of sub-advisory services. The fee payable is equal to .30% of that
Portfolio's average daily net assets.
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. Price-Fleming has agreed to waive its fees so that when the
combined assets of the World Growth Portfolio and World Growth Fund exceed
$500 million, the sub-advisory fee for the World Growth Portfolio is equal
to .45% of all the Portfolio's average daily net assets. As of December 31,
1997, the combined assets of the World Growth Portfolio and the World Growth
Fund totaled $363.3 million.
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 Opportunity Growth Portfolio and 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. T. Rowe Price and Price-Fleming (each, a "Sub-advisor") are responsible
for such functions for the Opportunity Growth Porfolio and the World Growth
Portfolio, respectively. 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, 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.
T. Rowe Price and Price-Fleming receive a wide range of research
services from brokers and dealers. These services include information on the
economy, industries, groups of securities, individual companies, statistical
information, accounting and tax law interpretations, political developments,
legal developments affecting portfolio securities, technical market action,
pricing and appraisal services, credit analysis, risk measurement analysis,
performance analysis, and analysis of corporate responsibility issues.
These services provide both domestic and international perspective. Research
services are received primarily in the form of written reports, computer
generated services, telephone contacts and personal meetings with security
analysts. In addition, such services may be provided in the form of meetings
arranged with corporate and industry spokespersons, economists, academicians
and government representatives. In some cases, research services are
generated by third parties but are provided to T. Rowe Price and Price-
Fleming by or through broker-dealers.
Research services received from brokers and dealers are supplemental to
T. Rowe Price's own research effort and, when utilized, are subject to
internal analysis before being incorporated by T. Rowe Price into its
investment process. As a practical matter, it would not be possible for T.
Rowe Price's Equity Research Division to generate all of the information
presently provided by brokers and dealers. T. Rowe Price pays cash for
certain research services received from external sources. T. Rowe Price also
allocates brokerage for research services which are available for cash.
While receipt of research services from brokerage firms has not reduced T.
Rowe Price's normal research activities, the expenses of T. Rowe Price could
be materially increased if it attempted to generate such additional
information through its own staff. To the extent that research services of
value are provided by brokers or dealers, T. Rowe Price may be relieved of
expenses which it might otherwise bear.
T. Rowe Price and Price-Fleming have a policy of not allocating
brokerage business in return for products or services other than brokerage
or research services. In accordance with the provisions of Section 28(e) of
the Securities Exchange Act of 1934, T. Rowe Price and Price-Fleming may
from time to time receive services and products which serve both research
and non-research functions. In such event, T. Rowe Price and Price-Fleming
make a good faith determination of the anticipated research and non-research
use of the product or services and allocate brokerage only with respect to
the research component.
Certain brokers and dealers who provide quality brokerage and execution
services also furnish research services to T. Rowe Price and Price-Fleming.
With regard to the payment of brokerage commissions, T. Rowe Price and
Price-Fleming have adopted a brokerage allocation policy embodying the
concepts of Section 28(e) of the Securities Act of 1934, which permits an
investment adviser to cause an account to pay commission rates in excess of
those another broker or dealer would have charged for effecting the same
transaction, if the adviser determines in good faith that the commission
paid is reasonable in relation to the value of the brokerage and research
services provided. The determination may be viewed in terms of either the
particular transaction involved or the overall responsibilities of the
adviser with respect to the accounts over which it exercises investment
discretion. Accordingly, T. Rowe Price and Price-Fleming may assess the
reasonableness of commissions in light of the total brokerage and research
services provided by each particular broker. T. Rowe Price may receive
research, as defined in Section 28(e), in connection with selling
concessions and designations in fixed price offerings in which the Funds
participate.
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:
12/31/97 12/31/96 12/31/95
Opportunity Growth
Portfolio $ 789,032 $ 353,407 $ --
World Growth Portfolio 492,771 441,571 --
Growth Portfolio 6,961,631 6,346,524 3,876,957
High Yield Portfolio 8,418 44,558 60,767
Income Portfolio 135,832 89,581 35,118
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:
12/31/97 12/31/96 12/31/95
Opportunity Growth
Portfolio 5.52% 0.30% --
World Growth Portfolio 1.90% 1.30% --
Growth Portfolio 18.19% 9.79% 10.21%
High Yield Portfolio -- -- 19.00%
Income Portfolio 3.29% 4.78% 8.37%
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 such 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, 1997, the Fund paid $11,272 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, 1997:
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* $1.001072198
Net change in account value $0.001072198
Base Period Return
Net change in account value divided by beginning
account value = 0.001072198
Annualized Current Yield [0.001072198 x (365/7)] 5.60%
Effective Yield** [0.001072198 + 1)365/7 - 1 5.76%
* 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, 1997:
Dividends and interest earned by the High Yield
Portfolio during the base period $10,476,003
Expenses accrued for the base period $ (436,706)
$10,039,297 (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 ($10.429549 x 127,577,905 shares) = $1,330,580,012 (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) = 0.00754505(C)
Adding one and raising total to the 6th power
(C + 1)6 = 1.046133(D)
Annualized current yield [2(D - 1) x 100] = 9.23%
The following example illustrates the annualized current yield
calculation for the Income Portfolio for the 30-day base period ended
December 31, 1997:
Dividends and interest earned by the Income
Portfolio during the base period $4,960,503
Expenses accrued for the base period $ (286,915)
$4,673,588 (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 (9.916808 x 88,212,199 shares) = $874,783,441 (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) = 0.005343 (C)
Adding one and raising total to the 6th power
(C + 1)6 = 1.0324866 (D)
Annualized current yield [2(D - 1) x 100] = 6.50%
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, 1997:
Hypothetical $1,000 initial investment on
January 18, 1996 $1,000
Ending redeemable value of the investment on
December 31, 1997 1,203
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%) 20.27%
Average annual total return from inception through
December 31, 1997 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 one year and
347 days; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 9.90%
The following example illustrates the average annual total return for
the World Growth Portfolio from the date of inception through December 31,
1997:
Hypothetical $1,000 initial investment on
January 18, 1996 $1,000
Ending redeemable value of the investment on
December 31, 1997 1,135
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%) 13.51%
Average annual total return from inception through
December 31, 1997 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 one year and
347 days; the result is reduced by one and is
expressed in terms of a percentage
(For example, 0.2 equals 20%) 6.69%
The following example illustrates the average annual total return for
the Growth Portfolio from the date of inception through December 31, 1997:
Hypothetical $1,000 initial investment on
January 9, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1997 4,228
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%) 322.76%
Average annual total return from inception
through December 31, 1997 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 ten years and 356 days; the result is
reduced by one and is expressed in terms of a
percentage (For example, 0.2 equals 20%) 14.03%
The following example illustrates the average annual total return for
the High Yield Portfolio from the date of inception through December 31,
1997:
Hypothetical $1,000 initial investment on
November 2, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1997 3,433
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%) 243.30%
Average annual total return from inception
through December 31, 1997 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 ten years and 59 days; the result is reduced
by one and is expressed in terms of a percentage
(For example, 0.2 equals 20%) 12.89%
The following example illustrates the average annual total return for
the Income Portfolio from the date of inception through December 31, 1997:
Hypothetical $1,000 initial investment on
January 9, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1997 2,410
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%) 141.04%
Average annual total return from inception
through December 31, 1997 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 ten years and 356 days; the result is
reduced by one and is expressed in terms of a
percentage (For example, 0.2 equals 20%) 8.34%
The following example illustrates the average annual total return for
the Money Market Portfolio from the date of inception through December 31,
1997:
Hypothetical $1,000 initial investment on January
9, 1987 $1,000
Ending redeemable value of the investment on
December 31, 1997 1,845
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%) 84.55%
Average annual total return from inception
through December 31, 1997 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 ten years and 356 days; the result is
reduced by one and is expressed in terms of a
percentage (For example, 0.2 equals 20%) 5.74%
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 statements included
in the Annual Report to Shareholders for the fiscal year ended December 31,
1997 of the Fund are a separate report to be furnished with this Statement
of Additional Information and are incorporated herein by reference.
<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, World Growth
Portfolio and Mid Cap Growth Portfolio (6)
(2) Part B: Financial Statements for Growth Portfolio, Income
Portfolio, High Yield Portfolio, Money Market
Portfolio, Opportunity Growth Portfolio, World Growth
Portfolio and Mid Cap Growth Portfolio (6)
(b) Exhibits
(1) Articles of Incorporation of the Registrant (6)
(2) By-Laws of the Registrant (3), (6)
(3) Not applicable
(4) Not applicable
(5)(a) Investment Advisory Contract between the Registrant
and Lutheran Brotherhood Research Corp. (6)
(5)(b) Investment Advisory Contract between the Registrant
and Lutheran Brotherhood. (6)
(5)(c) Form of Sub-Advisory Agreement between Lutheran Brotherhood,
the Registrant and Rowe Price-Fleming International, Inc. (1)
(5)(d) Form of Investment Advisory Contract between the Registrant
and Lutheran Brotherhood. (3)
(5)(e) Form of Sub-Advisory Agreement between Lutheran Brotherhood,
the Registrant and T. Rowe Price Associates, Inc. (5)
(6) Not Applicable
(7) Not applicable
(8)(a) Custodian Contract between the Registrant and State
Street Bank and Trust Company (6)
(8)(b) Transfer Agency Agreement between the Registrant and
State Street Bank and Trust Company (6)
(8)(c) Amendment to Custodian Contract dated February 1, 1989 (1)
(8)(d) Amendment to Custodian Contract dated January 11, 1990 (1)
(8)(e) Amendment to Custodian Contract (1)
(8)(f) Letter Agreement between the Registrant and State Street
Bank and Trust Company (2)
(8)(g) Form of Letter Agreement between the Registrant and State Street
Bank and Trust Company (3)
(9) Not applicable
(10)(a) Opinion and consent of counsel in connection with the issuance
of shares of the Opportunity Growth Portfolio and the World
Growth Portfolio (1)
(10)(b) Opinion and consent of counsel in connection with the issuance
of shares of the Mid Cap Growth Portfolio (3)
(10)(c) Opinion and consent of counsel in connection with Post-Effective
Amendment No. 22 (6)
(11) Consent of independent accountants (6)
(12) Not applicable
(13)(a) Letter from Lutheran Brotherhood Variable Insurance Products
Company ("LBVIP")with respect to providing initial capital. (6)
(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. (1)
(13)(c) Letter from Lutheran Brotherhood with respect to
providing initial capital Letter with respect to the Opportunity
Growth Portfolio (2)
(13)(d) Letter from Lutheran Brotherhood with respect to providing
initial capital Letter with respect to the World Growth
Portfolio (2)
(13)(e) Letter from Lutheran Brotherhood Variable Insurance Products
Company with respect to providing initial capital Letter
with respect to the Opportunity Growth Portfolio (2)
(13)(f) Letter from Lutheran Brotherhood Variable Insurance Products
Company with respect to providing initial capital Letter
with respect to the World Growth Portfolio (2)
(13)(g) Letter from Lutheran Brotherhood with respect to providing
initial capital Letter with respect to the Mid Cap Growth
Portfolio (3)
(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 (3)
(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 (6)
(18)(a) Reimbursement Agreement between the Registrant and LBVIP. (6)
(18)(b) Powers of Attorney for Rolf F. Bjelland, Charles W. Arnason,
Herbert F. Eggerding, Jr. and Ruth E. Randall. (6)
(18)(c) Power of Attorney for Wade M. Voigt (6)
(18)(d) Power of Attorney for Bruce J. Nicholson (1)
(18)(e) Power of Attorney for Noel K. Estenson (3)
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote
Reference Securities Act of 1933 Amendment Date Filed
--------- -------------------------------- ----------
(1) Post-effective Amendment No. 14 November 1, 1995
(2) Post-effective Amendment No. 15 January 17, 1996
(3) Post-effective Amendment No. 18 November 12, 1997
(4) Post-effective Amendment No. 19 January 30, 1998
(5) Post-effective Amendment No. 21 March 13, 1998
(6) Enclosed
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 February 27, 1998 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
Mid Cap 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 $13.2 billion on December
31, 1997. The Adviser also has owned a subsidiary investment advisory
company since 1970 that acts as investment adviser to eight registered
investment companies with combined net assets of approximately $4.1 billion
on December 31, 1998.
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;
Richard W. Duesenberg, Director;
Director of Liberty Fund, Indianapolis, IN; Formerly Senior Vice
President, General Counsel and Secretary of Monsanto Company, St. Louis, MO.
Robert P. Gandrud, President & Chief Executive Officer 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;
Director and President of The Economic Club of Detroit, Detroit, MI;
Director of SelectCare, Inc., Troy, MI; Director of Compuware Corporation,
Farmington Hills, MI; Director of Detroit Legal News, Detroit, MI; Director
of Standard Federal Bank, Troy, MI.
James M. Hushagen, Director
Attorney-at-Law, Tacoma, 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 AC Nielsen, Schaumburg, IL; formerly 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.
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
Jerald E. Sourdiff, Senior Vice President and Chief Financial Officer
David K. Stewart, Vice President and Treasurer
J. Keith Both, Senior Vice President
Edward A. Lindell, Senior Vice President
Michael E. Loken, Senior Vice President
James R. Olson, Senior Vice President
Jennifer H. Smith, Senior Vice President
Mary M. Abbey, Vice President
Galen R. Becklin, Vice President
Larry A. Borlaug, Vice President
Collen 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 T. Rowe
Price Associates, Inc. ("Sub-advisor for Opportunity Growth Portfolio") are
set forth in the Form ADV of Sub-advisor currently on file with the
Securities and Exchange Commission (File No.801-856).
The business and other connections of the officers and directors of Rowe
Price-Fleming International, Inc. ("Sub-advisor for World Growth Portfolio")
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant has duly caused this amendment to
Registration Statement on Form N-1A to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Minneapolis and State
of Minnesota, on the 27th day of April, 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, this amendment
to this registration statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title Date
* Director and President April 27, 1998
- ------------------------ (Principal Executive Officer)
Rolf F. Bjelland
* Treasurer April 27, 1998
- ------------------------ (Principal Financial and
Wade M. Voigt Accounting Officer)
* Director April 27, 1998
- ------------------------
Charles W. Arnason
* Director April 27, 1998
- -------------------------
Herbert F. Eggerding, Jr.
* Director April 27, 1998
- ------------------------
Noel K. Estenson
* Director April 27, 1998
- ------------------------
Bruce J. Nicholson
* Director April 27, 1998
- ------------------------
Ruth E. Randall
By: /s/ Randall L. Wetherille
-------------------------
Randall L. Wetherille,
Attorney-in-Fact under Powers
of Attorney filed herewith and
incorporated by reference from
Post-Effective Amendment Nos.
14 and 18.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER
Item 24(a)
- ----------
(1) Part A: Financial Highlights for Growth Portfolio, Income
Portfolio, High Yield Portfolio, Money Market
Portfolio, Opportunity Growth Portfolio, World Growth
Portfolio and Mid Cap Growth Portfolio
(2) Part B: Financial Statements for Growth Portfolio, Income
Portfolio, High Yield Portfolio, Money Market
Portfolio, Opportunity Growth Portfolio, World Growth
Portfolio and Mid Cap Growth Portfolio
Item 24(b)
- ----------
(1) Articles of Incorporation of the Registrant
(2) By-Laws of the Registrant
(5)(a) Investment Advisory Contract between the Registrant
and Lutheran Brotherhood Research Corp.
(5)(b) Investment Advisory Contract between the Registrant
and Lutheran Brotherhood.
(8)(a) Custodian Contract between the Registrant and State
Street Bank and Trust Company
(8)(b) Transfer Agency Agreement between the Registrant and
State Street Bank and Trust Company
(10)(c) Opinion and consent of counsel in connection with Post-Effective
Amendment No. 22
(11) Consent of independent accountants
(13)(a) Letter from Lutheran Brotherhood Variable Insurance Products
Company ("LBVIP")with respect to providing initial capital.
(16) Schedule of computation of performance data provided in response
to Item 22 of this Registration Statement
(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.
(18)(b) Powers of Attorney for Rolf F. Bjelland, Charles W. Arnason,
Herbert F. Eggerding, Jr. and Ruth E. Randall.
(18)(c) Power of Attorney for Wade M. Voigt
</TABLE>
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- ------------------------------------------------------
LB SERIES FUND, INC.
- ------------------------------------------------------
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Annual Report
for Variable Products
December 31, 1997
[LUTHERAN BROTHERHOOD LOGO OMITTED]
[GRAPHIC OMITTED: PHOTO OF ROLF F. BJELLAND]
Our Message To You
December 31, 1997
Dear Shareholder:
Enclosed is the Annual Report for the LB Series Fund, Inc., 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
covers the 12-months ended December 31, 1997. Inside, you'll find an
overview of the economic and market climate that drove returns from
stocks, bonds, and money market instruments during the year. There are
also commentaries by individual portfolio managers that describe the
strategies used to make the most of this environment. Financial
statements for each portfolio follow at the end of the report.
In 1997, investors once again earned exceptional returns from stocks
and bonds that far outpaced historical averages. Market volatility
increased during the year, however, as investors second guessed trends
in economic growth, inflation and interest rates. Because the economic
climate remained ideal for most of the year, the markets rebounded
quickly from each period of weakness.
This was the case in October of 1997, when currency and economic
problems in Asia rocked stock markets across the globe. On October 27,
the Dow Jones Industrial Average fell 7% -- an eerie reminder of the
one-day price drop of 23% that had occurred in October of 1987. In
1987, as in 1997, stock prices quickly regained lost ground --
providing substantial rewards for investors who stayed in the market.
From their low in October 1987 to their high in August 1997, stock
prices, as measured by the Standard & Poor's 500 Index, gained more
than 350%.
In recent years, Lutheran Brotherhood has made several moves to give
you greater control over your investments. As part of our
commitment to provide a broad range of investment options, we
introduced the new Mid Cap Growth Portfolio to the LB Series Fund,
Inc. Launched on January 30, 1998, the Portfolio invests primarily in
common stocks of medium-sized companies. The earnings of these
companies tend to be more stable than earnings of smaller companies
and have greater growth potential than earnings of larger firms. The
Mid Cap Portfolio looks for quality companies with records of superior
growth, market leadership, proven business concepts, sound management
and strong financials.
In addition, we've developed two computer software programs to
simplify your financial planning. The Lutheran Brotherhood
AssetMatchsm program allows you and your LBSC registered
representative to blend a diversified portfolio of investments suited
to your specific objectives, time horizon and tolerance for risk. The
Lutheran Brotherhood Retirement Planner, available from your LBSC
Registered Representative, can help you 1) identify how much income
you'll need to retire, 2) decide whether you're on track for that
goal, and 3) take the actions necessary to turn your goal into
reality.
If you'd like more information on AssetMatch, the Lutheran Brotherhood
Retirement Planner, or the Mid Cap Growth Portfolio, please call us
toll-free at 1-800-423-7056.
Sincerely,
/S/ ROLF F. BJELLAND
Rolf F. Bjelland
President and Chairman
LB Series Fund, Inc.
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Economic and Market Overview
Investors were again well rewarded in 1997. With a nearly ideal
economic mixture of moderate growth, healthy corporate earnings and
low inflation, returns for stocks and bonds remained well above
historical averages. Although inflation jitters and a financial
"earthquake" in Asia raised market volatility around the world, the
Standard & Poor's 500 Index posted a total return of 33.36%, and the
Lehman Brothers Aggregate Bond Index returned 9.65%.
A Nurturing Environment
The U.S. economy is closer to achieving the textbook goals of full
employment, growth and price stability than it has been in over three
decades. Real Gross Domestic Product grew in 1997 by 3.9%, while
inflation, as measured by the Consumer Price Index, fell to 1.7% and
the unemployment rate finished at 4.7%. After raising short-term
interest rates a modest 0.25% in March, the Federal Reserve left rates
unchanged for the rest of the year. This, plus stronger demand for
bonds and tighter supplies of U.S. Treasury issues in the midst of
falling inflation, pushed down the yield for 30-year Treasuries from
6.64% to 5.92% at year end.
Meanwhile, corporate earnings remained better than analysts expected.
Stocks also benefited from a positive balance of market supply and
demand. As cash continued to flow into stock mutual funds, heavy
corporate merger activity and widespread stock repurchase programs far
outpaced the addition of new shares from an active market in initial
public offerings.
Stock returns were more modest overseas, with Morgan Stanley Capital
International's Europe, Australia, Far East (EAFE) Index earning a 12-
month total return of 2.06%. Although stocks in Europe earned strong
returns as economies in that region improved, stocks in Japan, the
rest of the Far East, and emerging markets suffered significant
setbacks from worsening currency and debt problems in Asia.
Sector Performance
The rally in U.S. stock prices benefited some market sectors more than
others. Concerned that either higher inflation or lower exports might
curb corporate earnings, investors tended to favor stocks of larger
companies whose earnings are more reliable. In the second and third
quarters, however, when prices for large-company issues had grown
quite expensive, investors discovered value in many small-company
shares. This helped the Russell 2000 Index, a market benchmark for
small-cap stocks, return 22.36% for the year.
In the bond market, U.S. Treasury issues outperformed corporate
securities. This was due, in part, to uncertainty about corporate
earnings and, in part, to the "flight to quality" that occurred late
in the year, as Asia's troubles drove foreign investors to markets
with greater stability. During the year, yields for long-term
corporate bonds fell an average of 0.45%, versus a drop of 0.72% for
long-term Treasuries. Because the benefits of lower inflation are
greater for long-term issues than short-term issues, long-term bonds
outperformed for the year.
Slower Growth Ahead
Although the world's financial markets have mostly digested Asia's
recent woes, we expect further adjustments as the long-term effects of
those problems unfold. As in recent months, the greatest impact on
investments will probably take place in the Far East -- with markets
like Thailand, Malaysia and Indonesia continuing to bear most of the
burden. Although emerging markets in Latin America may also suffer,
the overall strength of their economies should make them relatively
resilient.
In the United States and Europe, there should be even less fallout
from Asia's problems. U.S. exports to the Far East account for only 5%
of domestic goods and services. In addition, real (inflation-adjusted)
earnings and income are rising and should improve further if inflation
continues to fall. This should support additional spending by U.S.
businesses and consumers.
Lower exports may reduce earnings for some U.S. companies, keeping
stock prices volatile. However, the market has made adjustments over
the past several quarters in anticipation of slower corporate
earnings. As Asia's problems cut import costs for many U.S. firms,
inflation and interest rates could continue to fall. This might set
the stage for further gains in stock prices. These gains should be
more modest than the outstanding advances of recent years. In a
climate of low inflation, falling budget deficits, and a positive
balance of demand and supply, prices for bonds may also continue to
rise.
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 primarily in common
stocks of small companies.
Portfolio Facts
Inception Date: 1/18/96
Total Assets
(in millions): $391.5
The stock market's advance in 1997 greatly benefited stocks of small
companies, which earned returns far above their historical averages.
Throughout the year, however, investors worried frequently that future
earnings might not meet analysts' expectations. When investors were
most concerned about earnings, they tended to favor stocks of larger
companies with strong earnings records. This caused large-company
issues to outperform small companies in the first and last quarters of
the year. However, early in the second quarter, as large issues became
expensive, investors turned to shares of smaller firms. This helped
small-company issues outperform large companies in the second and
third quarters of the year.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
Top 10 Holdings % of Portfolio
- --------------------------------------------------------------
FPA Medical Management, Inc. 1.9%
Signature Resorts, Inc. 1.8%
Steiner Leisure Ltd. 1.7%
Horizon Health Corp. 1.4%
Coach USA, Inc. 1.4%
AXENT Technologies, Inc. 1.4%
Silverleaf Resorts, Inc. 1.4%
US Office Products Company 1.4%
Atrix Laboratories, Inc. 1.3%
ICN Pharmaceuticals, Inc. 1.3%
These holdings represent 15% of the Fund's total investment portfolio.
Within the small-cap sector, investors tended to favor stocks whose
prices were particularly attractive compared with the earnings
potential of their companies. As a result, "value" stocks in the
sector outperformed "growth" stocks, where the Opportunity Growth
Portfolio focuses its investments. During the year, we managed the
Portfolio to minimize the adverse effects of this investment climate,
while maintaining the basic investment strategies that have
outperformed over time. However, the strong preference for value by
investors caused the Portfolio to underperform significantly for the
year. For the 12- months ended December 31, 1997, the Portfolio had a
total return (based on NAV) of 0.93%, versus 22.36% for the Russell
2000 Index.
[GRAPHIC PIE CHART OMITTED:
PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Common Stocks 89.0%
Corporate Bonds 0.7%
Short-Term Securities 10.3%
Focus on Earnings
Throughout 1997 we continued to emphasize stocks in industries with
above-average potential for growth over time. This included companies
with strong earnings, quality management and unique products. With
investors very concerned about earnings, we examined every holding for
any sign of long-term earnings problems. Believing that technology and
health care stocks enjoy some of the best opportunities for growth in
the American economy, we chose to remain overweighted in those
sectors.
[GRAPHIC BAR CHART OMITTED: TOP 10 SECTORS]
Top 10 Sectors
Consumer Growth 36.7%
Technology 20.7%
Financial 15.4%
Energy 6.5%
Capital Goods 6.3%
Consumer Cyclical 3.9%
Basic Industry 3.9%
Credit Cyclical 2.8%
Transportation 2.4%
Consumer Staples 1.4%
Footnote reads:
These sectors represent 100% of the Fund's
total investment portfolio.
To give the Portfolio further diversification, however, we trimmed
some positions in technology and health care firms in favor of shares
in energy and financial firms whose prices were especially attractive.
In the financial sector, we emphasized purchases of real estate
investment trusts. In the energy sector, we focused on oil exploration
and production companies.
As part of the natural evolution for a small-company stock fund whose
assets are increasing, we began to de-emphasize micro-cap issues ($200
million or less in market capitalization), and added investments in
firms with market capitalizations over $500 million. Over time, this
should help to reduce volatility in the Portfolio, but should have
little effect on its potential for long-term growth.
[GRAPHIC WORM CHART OMITTED:
Performance Through December 31, 1997
GROWTH OF $10,000 INVESTED SINCE 1/31/96]
Performance Through December 31, 1997
Growth of $10,000 Invested Since 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
2/28/96 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
7/31/97 11,454 13,456 10,395
8/31/97 11,721 13,764 10,415
9/30/97 13,018 14,772 10,440
10/31/97 12,246 14,123 10,466
11/30/97 11,776 14,032 10,460
12/31/97 11,407 14,277 10,447
INSET LEGEND READS:
Opportunity Growth Portfolio
$11,407
Russell 2000 Index
$14,277
Consumer Price Index
$10,447
INSET BOX ON CHART READS:
Opportunity Growth
Portfolio
Annualized Total Returns*
- -----------------------------------------------------------
Since Inception
1/18/96 9.90%
1 Year 0.93%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Looking Homeward
If investors remain concerned about earnings, prices for stocks of
small companies may remain quite choppy. Prices for technology stocks
may be especially volatile, since many technology companies have a
large export business with Asia. With continued growth and low
inflation, however, small-cap stocks could perform relatively well.
Small-cap stocks remain much cheaper than stocks of larger companies,
and smaller companies tend to focus more on domestic sales which, with
the exception of technology firms, makes them less vulnerable to the
Asian economic crisis.
As before, we will emphasize stocks with above-average potential for
long-term growth -- stressing shares of companies that concentrate
their businesses in the United States. We plan to remain cautious
about the technology sector, given its greater exposure to problems
in Asia.
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. Martin has been working in research and
investment management since 1968 and has been with Rowe Price-Fleming
since 1979.
Investment Objective:
To seek long-term capital growth by investing primarily in common
stocks issued by established companies outside the United States.**
Portfolio Facts
Inception Date: 1/18/96
Total Assets
(in millions): $287.2
During 1997 there were exceptional performances by many stocks in
Europe and Latin America. These gains offset sharp losses from stocks
in Asia, and the return-dampening affects of a stronger U.S. dollar,
to provide modest returns for U.S. investors venturing abroad.
European stocks in Morgan Stanley Capital International's Europe,
Australia, Far East (EAFE) Index returned 38% in local currency terms
- -- benefiting from increased European economic strength and a wave of
mergers and acquisitions. Despite a fourth-quarter slump in sympathy
with plummeting Asian markets, stocks in Latin America also returned
38% in local currency terms, as investors recognized the attractive
stock market values there.
[GRAPHIC OMITTED: PORTFOLIO COMPOSITION TOP 10 COUNTRIES]
Portfolio Composition
Top 10 Countries
- -----------------------------
Japan 18.6%
United Kingdom 17.7%
Netherlands 10.8%
France 9.0%
Switzerland 6.9%
Germany 5.8%
Italy 3.9%
Sweden 3.5%
Brazil 2.4%
Spain 2.4%
These holdings represent 81.0%
of the Fund's total investment portfolio.
Already shackled by a fragile economy, stocks in Japan were hit hard
as the currencies and economies of other Asian nations deteriorated.
For the year, the Japanese market lost 14% when measured in local
currency terms and 24% when measured in U.S. dollars. Other Asian
markets (excluding Japan) lost 19% in local currency terms and 31% in
U.S. dollar terms.
[GRAPHIC PIE CHART OMITTED:
PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Common Stocks & Warrants 94.1%
Preferred Stocks 0.6%
Short-Term Securities 5.3%
During the year, we under-weighted the World Growth Portfolio in
Japanese stocks in comparison to the EAFE Index. We overweighted
holdings in Latin America, which is not represented in the Index. This
helped the Portfolio earn a total return (based on NAV) of 2.81% for
the 12-months ended December 31, 1997, versus a return of 2.06% for
the Index.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
% of
Top 10 Holdings Country Portfolio
- --------------------------------------------------------------------
Royal Dutch Petroleum Netherlands 2.6%
National Westminster Bank United Kingdom 2.4%
Novartis AG Switzerland 2.2%
SmithKline Beecham plc United Kingdom 2.0%
Wolters Kluwer Netherlands 1.7%
Telecomunicacoes
Brasilias ADR (USD) Brazil 1.6%
Eaux Cie Generale France 1.5%
Roche Holdings Switzerland 1.5%
Reed International plc United Kingdom 1.4%
Shell Transport & Trading United Kingdom 1.4%
These holdings represent 18.3% of the Fund's total investment
portfolio.
Less Emphasis on Asia
At the start of 1997, Japanese stocks represented 21% of Portfolio
assets, compared with 32% of the EAFE Index. Because the Japanese
economy was weak, we favored stocks of companies that do a large
portion of their business outside of Japan -- such as Sony, TDK and
Honda. These issues outperformed other Japanese stocks for most of the
year. Although we started the year with an overweighting in the
emerging markets of Asia, such as Malaysia and Singapore, we reduced
positions there as the outlook for their stocks worsened. By the end
of 1997 the Portfolio was underweighted in emerging Asian markets
compared to the EAFE Index.
European stocks accounted for 54% of Portfolio assets at the start of
the year, versus a representation in the EAFE Index of 57%. We
maintained a similar weighting in Europe for most of the year.
Throughout 1997 we looked for European issues with strong potential
for long-term earnings growth at attractive valuations. Although these
issues lagged earlier in the year, especially in the Netherlands and
Germany, they made positive contributions in the months that followed.
[GRAPHIC WORM CHART OMITTED:
Performance Through December 31, 1997
GROWTH OF $10,000 INVESTED SINCE 1/31/96]
Performance Through December 31, 1997
Growth of $10,000 Invested Since 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
2/28/96 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
7/31/97 12,568 11,985 10,395
8/31/97 11,433 11,092 10,415
9/30/97 12,195 11,715 10,440
10/31/97 11,306 10,816 10,466
11/30/97 11,276 10,708 10,460
12/31/97 11,335 10,805 10,447
INSET LEGEND READS:
World Growth Portfolio
$11,335
MSCI EAFE Index
$10,805
Consumer Price Index
$10,447
INSET BOX ON CHART READS:
World Growth Portfolio
Annualized Total Returns*
- ----------------------------------------------------------
Since Inception
1/18/96 6.69%
1 Year 2.81%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
For most of the year we kept 4% to 6% of the Portfolio's assets in
Latin America. We focused these investments on Brazil -- emphasizing
large utility stocks, like Telecomunicacoes Brasilias, which are major
beneficiaries of that country's privatization reform. Mexico
represented our second largest allocation in the region.
Becoming More Selective
We believe that Asia's economic troubles may remain a drag on world
stock prices through the first half of 1998. Because investors are
concerned about the impact of these troubles on exports and earnings
in other regions of the world, stock evaluation and selection will be
even more important than it was in 1997.
Because European companies tend to have a more limited exposure to
Asia, we believe stocks in Europe should continue to perform well.
While equity markets in Latin America may be volatile, they could also
thrive on further economic growth. By remaining focused on Europe and
Latin America, cautiously optimistic in Asia, and very selective in
the stocks that we hold, we hope to help the Portfolio make the most
of this investment climate.
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:
To seek long-term growth of capital by investing primarily in common
stocks of established corporations.
Portfolio Facts
Inception Date: 1/9/87
Total Assets
(in millions): $2,426.1
In another year of outstanding gains for stocks, investors
increasingly favored shares with exceptional earnings potential. By
emphasizing such issues, the Growth Portfolio performed well in this
environ-ment. For the 12-months ended December 31, 1997, the Portfolio
earned a total return (based on NAV) of 30.18%. Over the same period,
the Standard & Poor's 500 Index returned 33.36%.
Sticking with Technology and Health Care
As in 1996, we found many opportunities for above-average growth in
the technology and health care sectors. During 1997, the Portfolio
also enjoyed strong performances from pharmaceutical stocks like
Pfizer, Bristol-Myers and Eli Lilly. Although technology stocks were
quite volatile, there were solid returns from shares of companies like
Cisco Systems, Microsoft, BMC Software, and Peoplesoft. Though
disappointing in the second half of 1997, oil-services stocks like
Halliburton and Baker Hughes performed well in the first half. After
lagging earlier in 1997, retail stocks like Dayton Hudson and Wal-mart
made positive contributions later in the year.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
Top 10 Holdings % of Portfolio
- --------------------------------------------------------------
General Electric Co. 1.6%
Merck & Co., Inc. 1.6%
Cisco Systems, Inc. 1.5%
International Business Machines 1.3%
Disney (Walt) Co. 1.3%
Procter & Gamble Co. 1.3%
Coca-Cola Co. 1.3%
Gillette Co. 1.2%
Bristol-Myers Squibb Co. 1.2%
Eli Lilly & Co. 1.1%
Footnote reads:
These holdings represent 13.4% of the Fund's total investment
portfolio.
[GRAPHIC PIE CHART OMITTED:
PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Common Stocks 92.1%
Short-Term Securities 7.4%
Preferred Stocks 0.3%
Corporate Bonds 0.2%
Over the year we increased investments in financial stocks -- which
benefited from falling interest rates, as well as mergers and
acquisitions in the industry. We enhanced diversification in this
sector by adding shares of real estate investment trusts. We also
boosted investments in transportation shares -- adding positions in
airlines like American, United and Continental.
To make these purchases we took profits in oil-services stocks that
had performed well. We also reduced shares of technology and basic
materials companies. In these, and other sectors, we eliminated firms
whose dependence on exports to Asia might jeopardize future earnings
growth.
[GRAPHIC BAR CHART OMITTED: TOP 10 SECTORS]
Top 10 Sectors
Technology 22.2%
Consumer Growth 21.8%
Financial 19.5%
Consumer Staples 9.5%
Energy 5.7%
Capital Goods 4.7%
Basic Industry 4.2%
Consumer Cyclical 4.1%
Utilities 4.0%
Conglomerates 2.5%
Footnote reads:
These sectors represent 98.2% of the Fund's
total investment portfolio.
Further Selectivity Likely
If Asia's troubles persist, and the growth in earnings slows, stock
prices could remain quite volatile. After an unprecedented three years
of market returns in excess of 20%, gains for U.S. stocks will
probably be more modest in 1998. In a choppy market environment, the
selection of individual stocks may become much more important than the
weightings of industry sectors -- as investors give increasing
scrutiny to company earnings reliability and exposure to Asia.
[GRAPHIC WORM CHART OMITTED:
Performance Through December 31, 1997
GROWTH OF $10,000 INVESTED SINCE 12/31/87]
Performance Through December 31, 1997
Growth of $10,000 Invested Since 12/31/87
S & P 500
Growth w/ reinvest CPI Valued
Month End Total Total Total
Date Value Value Value
- --------------------------------------------------------------------
12/31/87 $10,000 $10,000 $10,000
1/31/88 10,168 10,434 10,026
2/29/88 10,786 10,900 10,052
3/31/88 10,821 10,569 10,095
4/30/88 10,686 10,701 10,147
5/31/88 10,561 10,770 10,182
6/30/88 10,986 11,273 10,225
7/31/88 10,793 11,244 10,269
8/31/88 10,453 10,846 10,312
9/30/88 10,734 11,312 10,381
10/31/88 10,791 11,640 10,416
11/30/88 10,585 11,454 10,425
12/31/88 10,831 11,657 10,442
1/31/89 11,520 12,522 10,494
2/28/89 11,302 12,190 10,537
3/31/89 11,590 12,480 10,598
4/30/89 12,168 13,145 10,667
5/31/89 12,641 13,650 10,728
6/30/89 12,424 13,583 10,754
7/31/89 13,479 14,823 10,780
8/31/89 14,013 15,098 10,797
9/30/89 14,087 15,037 10,832
10/31/89 13,376 14,701 10,884
11/30/89 13,668 14,985 10,910
12/31/89 13,709 15,346 10,927
1/31/90 12,642 14,330 11,040
2/28/90 12,935 14,489 11,092
3/31/90 13,360 14,882 11,153
4/30/90 13,164 14,525 11,170
5/31/90 14,565 15,912 11,196
6/30/90 14,672 15,817 11,256
7/31/90 14,376 15,778 11,300
8/31/90 13,188 14,337 11,404
9/30/90 12,353 13,642 11,499
10/31/90 12,328 13,598 11,568
11/30/90 13,087 14,460 11,594
12/31/90 13,439 14,864 11,594
1/31/91 14,304 15,527 11,664
2/28/91 15,357 16,610 11,681
3/31/91 15,762 17,018 11,698
4/30/91 15,762 17,075 11,716
5/31/91 16,606 17,786 11,750
6/30/91 15,764 16,980 11,785
7/31/91 16,625 17,792 11,802
8/31/91 17,221 18,192 11,837
9/30/91 17,070 17,889 11,889
10/31/91 17,452 18,153 11,906
11/30/91 16,866 17,398 11,941
12/31/91 18,995 19,390 11,950
1/31/92 18,957 19,050 11,967
2/28/92 19,138 19,273 12,010
3/31/92 18,666 18,898 12,071
4/30/92 18,737 19,477 12,088
5/31/92 18,894 19,543 12,106
6/30/92 18,472 19,257 12,149
7/31/92 19,087 20,069 12,175
8/31/92 18,686 19,637 12,210
9/30/92 18,944 19,865 12,244
10/31/92 19,433 19,958 12,288
11/30/92 20,409 20,608 12,305
12/31/92 20,540 20,867 12,296
1/31/93 20,895 21,060 12,357
2/28/93 20,839 21,324 12,400
3/31/93 21,419 21,775 12,444
4/30/93 21,027 21,273 12,478
5/31/93 21,569 21,807 12,496
6/30/93 21,590 21,879 12,513
7/31/93 21,529 21,814 12,513
8/31/93 22,320 22,620 12,548
9/30/93 22,525 22,446 12,574
10/31/93 22,724 22,933 12,626
11/30/93 22,113 22,690 12,634
12/31/93 22,615 22,974 12,634
1/31/94 23,326 23,771 12,669
2/28/94 22,695 23,103 12,712
3/31/94 21,593 22,101 12,756
4/30/94 21,565 22,403 12,773
5/31/94 21,592 22,733 12,782
6/30/94 20,856 22,176 12,825
7/31/94 21,353 22,927 12,860
8/31/94 22,325 23,851 12,912
9/30/94 21,963 23,265 12,946
10/31/94 22,273 23,807 12,955
11/30/94 21,397 22,923 12,972
12/31/94 21,561 23,260 12,972
1/31/95 22,036 23,882 13,024
2/28/95 22,903 24,794 13,076
3/31/95 23,555 25,535 13,120
4/30/95 24,238 26,299 13,163
5/31/95 24,987 27,311 13,189
6/30/95 26,080 27,947 13,215
7/31/95 27,478 28,895 13,215
8/31/95 27,562 28,953 13,250
9/30/95 28,424 30,172 13,276
10/31/95 28,502 30,084 13,319
11/30/95 29,546 31,381 13,310
12/31/95 29,596 31,986 13,302
1/31/96 30,313 33,096 13,380
2/29/96 30,946 33,381 13,423
3/31/96 31,053 33,708 13,492
4/30/96 32,164 34,220 13,544
5/31/96 32,872 35,066 13,570
6/30/96 32,444 35,202 13,579
7/31/96 31,047 33,661 13,605
8/31/96 32,267 34,361 13,631
9/30/96 34,230 36,288 13,674
10/31/96 34,815 37,312 13,718
11/30/96 37,028 40,117 13,744
12/31/96 36,229 39,323 13,744
1/31/97 38,624 41,804 13,787
2/28/97 38,137 42,110 13,830
3/31/97 36,342 40,375 13,865
4/30/97 38,032 42,801 13,882
5/31/97 40,728 45,374 13,873
6/30/97 42,461 47,411 13,891
7/31/97 46,220 51,185 13,908
8/31/97 44,383 48,308 13,934
9/30/97 46,839 50,970 13,969
10/31/97 45,282 49,288 14,003
11/30/97 46,507 51,550 13,995
12/31/97 47,162 52,437 13,995
INSET LEGEND READS:
Growth Portfolio
$47,162
S & P 500 Index
$52,437
Consumer Price Index
$13,995
INSET BOX ON CHART READS:
Growth Portfolio
Annualized Total Returns*
- ----------------------------------------------------------
10 Years 16.78%
5 Years 18.09%
1 Year 30.18%
*See accompanying notes to Portfolio Management Reviews.
In this climate, we will continue to be highly selective in our choice
of holdings for the Growth Portfolio. As always, we will look for the
"cherry picking" opportunities that accompany most periods of market
weakness -- focusing on companies that can benefit from near-term
catalysts for long-term growth, such as new products or improving
industry conditions.
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. Tom has been with Lutheran
Brotherhood since 1986.
Investment Objective:
To seek high current income and growth of capital by investing
primarily in high-yielding ("junk") corporate bonds.***
Portfolio Facts
Inception Date: 11/2/87
Total Assets
(in millions): $1,344.6
In a nearly perfect investment climate of falling interest rates and
continued economic growth, high-yield corporate bonds outperformed
other income-oriented securities in 1997. Although high-yield issues
underperformed when bond prices fell between February and April, and
when Asia's economic troubles threatened stock prices at year-end, the
sector benefited for 1997 as a whole from positive earnings growth and
strong investor demand for issues with higher yields.
[GRAPHIC BAR CHART OMITTED: MOODY'S BOND QUALITY RATING DISTRIBUTION]
Moody's Bond Quality
Rating Distribution
Aaa 0.0%
Aa 0.0%
A 0.0%
Baa 1.7%
Ba 13.5%
B 65.3%
Caa 9.6%
Ca 0.2%
C 0.0%
D 0.7%
Not Rated 9.0%
Within the high-yield sector, longer-term bonds and issues of
media/telecommunications firms performed especially well. By remaining
overweighted in these securities, the High Yield Portfolio made the
most of the bond market rally and outperformed its benchmark. For the
12-months ended December 31, 1997, the Portfolio earned a total return
(based on NAV) of 14.10%. That compares with a return of 12.76% for
the Lehman Brothers High-Yield Index.
[GRAPHIC PIE CHART OMITTED:
PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Non-Convertible Preferred Stocks 8.2%
Short-Term Securities 4.3%
Corporate Bonds 80.9%
Common Stocks & Warrants 2.4%
Convertible Preferred Stocks 4.2%
Boosting Quality
and Diversification
The Portfolio has been heavily invested in media/telecommunications
and zero-coupon issues for several years -- believing that industry
deregulation, among other factors -- can enhance the long-term
performance potential for those securities. Although the somewhat
lower credit quality and longer maturities of these issues further
increases their upside potential, it also makes them more vulnerable
to the kind of price corrections that took place early in 1997.
To decrease the Portfolio's overall volatility, we took advantage of
market strength between April and October, trimming the Portfolio's
media/telecommunications holdings when their prices rebounded,
simultaneously locking in current profits on those issues. For further
stability, we bought bonds with higher credit ratings and shorter
maturities.
Among the investments we added were issues of energy and financial
firms -- as well as companies with earnings tied to a growing economy.
These issues performed well as oil prices rose, interest rates fell,
and the economy continued to expand. In the final months of the year
we also added debt of utility firms, which benefited from the
worldwide "flight to quality" that resulted from the economic turmoil
in Asia.
[GRAPHIC BAR CHART OMITTED: TOP 10 SECTORS]
Top 10 Sectors
Consumer Growth 23.8%
Technology 22.9%
Financial 10.6%
Consumer Staples 9.5%
Energy 6.9%
Basic Industry 6.1%
Utilities 3.7%
Consumer Cyclical 3.4%
Transportation 3.1%
Credit Cyclical 2.5%
Footnote reads:
These sectors represent 92.5% of the Fund's
total investment portfolio.
Despite these changes, the Portfolio remained strongly committed to
media/telecommunications bonds, as well as investments with longer
maturities. By year's end, the Portfolio was underweighted in zero-
coupon bonds with an increased weighting of firms in "light cyclical"
industries that can thrive in a slower-growing economy.
[GRAPHIC WORM CHART OMITTED:
Performance Through December 31, 1997
GROWTH OF $10,000 INVESTED SINCE 12/31/87]
Performance Through December 31, 1997
Growth of $10,000 Invested Since 12/31/87
Lehman High
Series HYLD Yield Index CPI Valued
Month End Total Total Total
Date Value Value Value
- --------------------------------------------------------------------
12/31/87 $10,000 $10,000 $10,000
1/31/88 10,410 10,334 10,026
2/29/88 10,827 10,669 10,052
3/31/88 10,679 10,558 10,095
4/30/88 10,678 10,638 10,147
5/31/88 10,663 10,654 10,182
6/30/88 10,909 10,810 10,225
7/31/88 10,965 10,881 10,269
8/31/88 10,960 10,865 10,312
9/30/88 11,069 11,002 10,381
10/31/88 11,190 11,135 10,416
11/30/88 11,179 11,200 10,425
12/31/88 11,333 11,253 10,442
1/31/89 11,598 11,451 10,494
2/28/89 11,677 11,476 10,537
3/31/89 11,598 11,387 10,598
4/30/89 11,539 11,435 10,667
5/31/89 11,850 11,656 10,728
6/30/89 12,168 11,801 10,754
7/31/89 12,144 11,786 10,780
8/31/89 12,252 11,826 10,797
9/30/89 12,034 11,627 10,832
10/31/89 11,711 11,351 10,884
11/30/89 11,744 11,329 10,910
12/31/89 11,688 11,347 10,927
1/31/90 11,463 11,103 11,040
2/28/90 11,255 10,874 11,092
3/31/90 11,348 11,159 11,153
4/30/90 11,358 11,140 11,170
5/31/90 11,715 11,355 11,196
6/30/90 11,886 11,630 11,256
7/31/90 12,091 11,943 11,300
8/31/90 11,708 11,263 11,404
9/30/90 11,247 10,441 11,499
10/31/90 10,900 9,893 11,568
11/30/90 11,087 10,201 11,594
12/31/90 11,254 10,259 11,594
1/31/91 11,370 10,541 11,664
2/28/91 12,120 11,694 11,681
3/31/91 12,649 12,383 11,698
4/30/91 13,079 12,890 11,716
5/31/91 13,223 12,914 11,750
6/30/91 13,580 13,296 11,785
7/31/91 13,940 13,721 11,802
8/31/91 14,164 14,037 11,837
9/30/91 14,399 14,232 11,889
10/31/91 14,912 14,707 11,906
11/30/91 15,139 14,784 11,941
12/31/91 15,229 14,997 11,950
1/31/92 15,856 15,525 11,967
2/28/92 16,299 15,908 12,010
3/31/92 16,583 16,105 12,071
4/30/92 16,732 16,166 12,088
5/31/92 17,017 16,394 12,106
6/30/92 17,117 16,548 12,149
7/31/92 17,466 16,798 12,175
8/31/92 17,721 17,018 12,210
9/30/92 17,928 17,192 12,244
10/31/92 17,576 16,950 12,288
11/30/92 17,901 17,163 12,305
12/31/92 18,287 17,359 12,296
1/31/93 19,023 17,864 12,357
2/28/93 19,332 18,178 12,400
3/31/93 19,751 18,413 12,444
4/30/93 19,869 18,573 12,478
5/31/93 20,222 18,794 12,496
6/30/93 20,908 19,189 12,513
7/31/93 21,115 19,375 12,513
8/31/93 21,285 19,538 12,548
9/30/93 21,284 19,588 12,574
10/31/93 22,008 19,984 12,626
11/30/93 22,098 20,080 12,634
12/31/93 22,477 20,329 12,634
1/31/94 23,171 20,770 12,669
2/28/94 23,088 20,716 12,712
3/31/94 22,211 19,933 12,756
4/30/94 21,926 19,798 12,773
5/31/94 22,037 19,807 12,782
6/30/94 22,130 19,869 12,825
7/31/94 21,969 20,038 12,860
8/31/94 22,139 20,180 12,912
9/30/94 22,025 20,182 12,946
10/31/94 22,088 20,230 12,955
11/30/94 21,616 19,976 12,972
12/31/94 21,489 20,123 12,972
1/31/95 21,558 20,397 13,024
2/28/95 22,400 21,097 13,076
3/31/95 22,623 21,325 13,120
4/30/95 23,179 21,866 13,163
5/31/95 23,674 22,478 13,189
6/30/95 23,788 22,629 13,215
7/31/95 24,543 22,914 13,215
8/31/95 24,647 22,985 13,250
9/30/95 24,881 23,268 13,276
10/31/95 24,998 23,412 13,319
11/30/95 25,289 23,618 13,310
12/31/95 25,700 23,989 13,302
1/31/96 26,299 24,411 13,380
2/28/96 26,963 24,431 13,423
3/31/96 26,708 24,414 13,492
4/30/96 26,889 24,467 13,544
5/31/96 27,189 24,614 13,570
6/30/96 26,971 24,818 13,579
7/31/96 26,780 24,933 13,605
8/31/96 27,210 25,202 13,631
9/30/96 28,141 25,809 13,674
10/31/96 28,063 26,008 13,718
11/30/96 28,354 26,520 13,744
12/31/96 28,668 26,711 13,744
1/31/97 29,012 26,973 13,787
2/28/97 29,436 27,397 13,830
3/31/97 28,498 26,988 13,865
4/30/97 28,503 27,272 13,882
5/31/97 29,595 27,855 13,873
6/30/97 30,443 28,243 13,891
7/31/97 31,489 29,019 13,908
8/31/97 31,593 28,952 13,934
9/30/97 32,576 29,526 13,969
10/31/97 32,287 29,552 14,003
11/30/97 32,391 29,836 13,995
12/31/97 32,709 30,099 13,995
INSET LEGEND READS:
High Yield Portfolio
$32,709
Lehman High Yield Index
$30,099
Consumer Price Index
$13,995
INSET BOX ON CHART READS:
High Yield Portfolio
Annualized Total Returns*
- ----------------------------------------------------------
10 Years 12.58%
5 Years 12.33%
1 Year 14.10%
*See accompanying notes to Portfolio Management Reviews.
Solid Returns,
Greater Stability
The extra attention to quality and stability should serve the
Portfolio well in 1998 -- especially if Asia's economic problems cause
further concern about U.S. growth. For the most part, however, we
expect high-yield issues to earn solid returns in an environment of
continued growth, low inflation, and stable interest rates.
If the prices of media/telecommunications issues become more
attractive, we may add to investments in that sector. Conversely, if
prices in that sector rise significantly, we may take further profits
there. In either case, we expect to remain overweighted in these
issues -- believing that they continue to offer added performance
potential.
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. Chuck has been with
Lutheran Brotherhood since 1976.
Investment Objective:
To seek a high level of income while preserving principal by investing
primarily in intermediate and long-term bonds.
Portfolio Facts
Inception Date: 1/9/87
Total Assets
(in millions): $880.4
Even as bonds rallied in 1997, investors remained nervous about future
growth and inflation. This caused frequent changes in the spreads
between yields of different sectors of the bond market. During the
year we adjusted the investment mix of the Income Portfolio to make
the most of these changes. We also gave greater attention to longer-
term issues -- which enjoy added benefit from lower inflation. With
these strategies, the Portfolio earned a total return (based on NAV)
of 8.75% for the 12-months ended December 31, 1997. Over the same
time, the Lehman Aggregate Bond Index returned 9.65%.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
% of
Top 10 Holdings Security Portfolio
- -------------------------------------------------------------------
Government National Mortgage Association Mortgage-backed 4.3%
Federal National Mortgage Association Mortgage-backed 3.5%
U.S. Treasury Note U.S. Government 3.3%
U.S. Treasury Bond U.S. Government 2.9%
Deutsche Floorplan Receivables
Master Trust, Series 1994-1-A Asset-backed 2.2%
World Omni Auto Lease Trust Asset-backed 2.0%
U.S. Treasury Bond U.S. Government 1.8%
World Financial Network Credit Card
Master Trust, Series 1996-B Asset-backed 1.7%
Federal Home Loan Mortgage Corp.,
Participation Certificates Mortgage-backed 1.5%
Equitable Life Assurance Society of the
United States, Surplus Notes Corporate Bonds 1.4%
Footnote reads:
These holdings represent 24.6% of the Fund's total investment
portfolio.
Greater Commitment
to Corporates
Early in 1997, strong economic growth rekindled fears that inflation
would lead to higher interest rates. As a result, bond prices declined
to levels that made them attractive for purchase. In this environment,
we bought longer-term corporate issues -- focusing on the debt of
banks, insurance firms and utilities. These issues performed well in
the months that followed, as falling interest rates led to higher bond
prices.
[GRAPHIC PIE CHART OMITTED:
PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Foreign Government Bonds 3.3%
U.S. Government 11.0%
Asset-Backed Securities 14.6%
Common Stocks 0.4%
Mortgage-Backed Securities 11.3%
Corporate Bonds 50.9%
Preferred Stocks 1.6%
Short-Term Securities 6.9%
We trimmed corporates somewhat in March and April, concerned that the
sector might be especially vulnerable to new fears of inflation.
Subsequently, we made some selective purchases of attractively-priced
bonds. In doing so, we continued to favor debt of utility and
financial firms. When their prices were especially appealing, we
bought corporate issues with slightly lower credit ratings --
believing the issues might benefit from rating upgrades as the economy
continued to grow.
In the final months of the year, the economic crisis in Asia created a
"flight to quality" that favored U.S. Treasury securities over
corporate bonds. With investors growing nervous about future corporate
earnings, we traded some corporates in the Portfolio for longer-term
Treasuries and gave greater attention to corporates with strong credit
quality. We also reduced investments in mortgage-backed securities --
especially those with higher coupons -- due to an increased level of
home loan prepayments as interest rates fell.
[GRAPHIC BAR CHART OMITTED: MOODY'S BOND QUALITY RATING DISTRIBUTION]
Moody's Bond Quality
Rating Distribution
Government/Aaa 41.3%
Aa 5.7%
A 20.2%
Baa 14.8%
Ba 14.3%
B 3.7%
Caa 0.0%
Ca 0.0%
C 0.0%
We continued to hold dollar-denominated "yankee" bonds issued in the
United States by foreign firms and governments. Some of these bonds
were from Asian issuers, and underperformed in the last quarter.
Nonetheless, they had excellent credit ratings when the Asian crisis
began and we believe they could rebound strongly as the crisis is
resolved.
[GRAPHIC WORM CHART OMITTED:
Performance Through December 31, 1997
GROWTH OF $10,000 INVESTED SINCE 12/31/87]
Performance Through December 31, 1997
Growth of $10,000 Invested Since 12/31/87
Lehman Aggregate
Series Income Bond Index CPI Valued
Month End Total Total Total
Date Value Value Value
- --------------------------------------------------------------------
12/31/87 $10,000 $10,000 $10,000
1/31/88 10,372 10,352 10,026
2/29/88 10,500 10,475 10,052
3/31/88 10,331 10,377 10,095
4/30/88 10,244 10,321 10,147
5/31/88 10,147 10,252 10,182
6/30/88 10,385 10,499 10,225
7/31/88 10,330 10,443 10,269
8/31/88 10,351 10,470 10,312
9/30/88 10,632 10,708 10,381
10/31/88 10,870 10,909 10,416
11/30/88 10,739 10,776 10,425
12/31/88 10,807 10,788 10,442
1/31/89 10,971 10,943 10,494
2/28/89 10,814 10,864 10,537
3/31/89 10,876 10,911 10,598
4/30/89 11,088 11,139 10,667
5/31/89 11,328 11,432 10,728
6/30/89 11,686 11,780 10,754
7/31/89 11,887 12,031 10,780
8/31/89 11,780 11,853 10,797
9/30/89 11,793 11,913 10,832
10/31/89 11,967 12,206 10,884
11/30/89 12,098 12,322 10,910
12/31/89 12,128 12,355 10,927
1/31/90 12,002 12,208 11,040
2/28/90 12,042 12,247 11,092
3/31/90 12,082 12,256 11,153
4/30/90 11,926 12,143 11,170
5/31/90 12,291 12,503 11,196
6/30/90 12,480 12,704 11,256
7/31/90 12,632 12,879 11,300
8/31/90 12,427 12,707 11,404
9/30/90 12,349 12,812 11,499
10/31/90 12,466 12,975 11,568
11/30/90 12,758 13,254 11,594
12/31/90 12,967 13,460 11,594
1/31/91 13,138 13,627 11,664
2/28/91 13,436 13,743 11,681
3/31/91 13,598 13,838 11,698
4/30/91 13,793 13,987 11,716
5/31/91 13,953 14,069 11,750
6/30/91 13,974 14,062 11,785
7/31/91 14,157 14,257 11,802
8/31/91 14,483 14,565 11,837
9/30/91 14,797 14,861 11,889
10/31/91 14,957 15,026 11,906
11/30/91 15,061 15,164 11,941
12/31/91 15,529 15,614 11,950
1/31/92 15,472 15,402 11,967
2/28/92 15,574 15,502 12,010
3/31/92 15,584 15,415 12,071
4/30/92 15,637 15,526 12,088
5/31/92 15,937 15,820 12,106
6/30/92 16,157 16,038 12,149
7/31/92 16,534 16,365 12,175
8/31/92 16,697 16,530 12,210
9/30/92 16,895 16,727 12,244
10/31/92 16,623 16,505 12,288
11/30/92 16,688 16,508 12,305
12/31/92 16,961 16,770 12,296
1/31/93 17,314 17,092 12,357
2/28/93 17,677 17,391 12,400
3/31/93 17,782 17,465 12,444
4/30/93 17,913 17,587 12,478
5/31/93 17,945 17,610 12,496
6/30/93 18,315 17,928 12,513
7/31/93 18,479 18,031 12,513
8/31/93 18,812 18,346 12,548
9/30/93 18,869 18,396 12,574
10/31/93 19,038 18,464 12,626
11/30/93 18,834 18,307 12,634
12/31/93 18,940 18,406 12,634
1/31/94 19,220 18,654 12,669
2/28/94 18,804 18,330 12,712
3/31/94 18,185 17,877 12,756
4/30/94 17,990 17,734 12,773
5/31/94 18,024 17,732 12,782
6/30/94 17,891 17,693 12,825
7/31/94 18,278 18,045 12,860
8/31/94 18,324 18,067 12,912
9/30/94 18,002 17,801 12,946
10/31/94 17,936 17,785 12,955
11/30/94 17,940 17,746 12,972
12/31/94 18,053 17,868 12,972
1/31/95 18,380 18,222 13,024
2/28/95 18,801 18,656 13,076
3/31/95 18,907 18,770 13,120
4/30/95 19,231 19,032 13,163
5/31/95 20,064 19,769 13,189
6/30/95 20,229 19,913 13,215
7/31/95 20,112 19,870 13,215
8/31/95 20,365 20,110 13,250
9/30/95 20,561 20,305 13,276
10/31/95 20,878 20,569 13,319
11/30/95 21,203 20,878 13,310
12/31/95 21,547 21,170 13,302
1/31/96 21,671 21,310 13,380
2/28/96 21,214 20,939 13,423
3/31/96 21,005 20,792 13,492
4/30/96 20,875 20,676 13,544
5/31/96 20,862 20,634 13,570
6/30/96 21,122 20,911 13,579
7/31/96 21,164 20,967 13,605
8/31/96 21,087 20,932 13,631
9/30/96 21,498 21,296 13,674
10/31/96 21,997 21,769 13,718
11/30/96 22,451 22,141 13,744
12/31/96 22,246 21,935 13,744
1/31/97 22,315 22,003 13,787
2/28/97 22,421 22,058 13,830
3/31/97 22,091 21,813 13,865
4/30/97 22,350 22,140 13,882
5/31/97 22,585 22,351 13,873
6/30/97 22,911 22,617 13,891
7/31/97 23,588 23,227 13,908
8/31/97 23,339 23,030 13,934
9/30/97 23,714 23,371 13,969
10/31/97 23,904 23,710 14,003
11/30/97 24,011 23,819 13,995
12/31/97 24,192 24,059 13,995
INSET LEGEND READS:
Income Portfolio
$24,192
Lehman Aggregate Bond Index
$24,059
Consumer Price Index
$13,995
INSET BOX ON CHART READS:
Income Portfolio
Annualized Total Returns*
- ----------------------------------------------------------
10 Years 9.24%
5 Years 7.35%
1 Year 8.75%
Footnote reads:
*See accompanying notes to Portfolio Management Reviews.
Getting Defensive
Bonds should continue to perform well in the months ahead. If growth
slows, and inflation remains low, as we expect, bond prices could
rally further. Bonds should also benefit as the anticipated federal
budget surplus shrinks supplies of new Treasury issues. In addition,
budget surpluses generally result in declines in interest rates.
Given the attractive yield spreads between corporates and Treasuries,
we expect to remain slightly overweighted in corporates. We may,
however, increase the weighting of Treasuries in the Portfolio if the
economy slows or relative yields in these two sectors change. Although
credit ratings for corporate bonds should remain intact, further
concern about earnings could cause some corporates to underperform. To
protect the Portfolio against this event, we will give more attention
to higher-quality issues and to debt of firms whose earnings can grow
in a slowing economy.
Money Market Portfolio Review LB Series Fund, Inc.
[GRAPHIC PHOTO OMITTED: 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. Gail has been with
Lutheran Brotherhood since 1969.
Investment Objective:
To seek current income with stability of principal by investing in
high quality, short-term debt securities.****
Portfolio Facts
Inception Date: 1/9/87
Total Assets
(in millions): $121.2
While yields for other fixed-income sectors trended downward in 1997,
yields for money market funds ended the year slightly higher.
Nevertheless, money market yields fluctuated during the period, as
investors tried to predict the Federal Reserve's management of short-
term interest rates. After starting 1997 with an average yield of
4.89%, money market funds in the IBC Donoghue's Index rose to 5.06%
after the Fed boosted short-term rates in March. Money market yields
remained steady for the rest of 1997, but moved higher
during December, ending the year at 5.12%.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
% of
Top 10 Holdings Industry Portfolio
- -------------------------------------------------------------------
Merck and Co., Inc. Industrial 4.3%
IBM Credit Corp. Computer & Office
Equipment 4.1%
Gulf Coast Waste
Disposal Authority U.S. Municipal 3.3%
Metrocrest Hospital
Authority, Series 1989 Banking-Domestic 3.0%
City of New York Government
Bonds, Fiscal 1995, Series B U.S. Municipal 2.6%
U.S. Prime Property, Inc. Banking-Foreign 1.8%
Abbey National Treasury
Service PLC Banking-Foreign 1.7%
Bank of America, National
Trust & Savings Association Banking-Domestic 1.7%
Illinois Student Assistance
Commission U.S. Municipal 1.7%
California Pollution Control
Finance Authority U.S. Municipal 1.7%
Footnote reads:
These holdings represent 25.9% of the Fund's total investment
portfolio.
Throughout this time there were also changes in spreads between yields
of different instruments. By adjusting the mix of investments and
maturities in the Money Market Portfolio to optimize these changes,
and the general fluctuation in yields, we helped the Portfolio earn a
total return of 5.43% for the 12-months ended December 31, 1997.
[GRAPHIC PIE CHART OMITTED:
PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition (% of Portfolio)
Bank Notes 3.3%
Medium Term Notes 1.7%
Certificates of Deposit 0.8%
Commercial Paper 86.1%
Variable Rate Notes 7.5%
Other 0.6%
Maximizing Yield Opportunities
With strong economic growth and the prospect of higher interest rates,
we emphasized shorter-maturity issues in the first half of the year.
This let us invest more quickly in higher yields as they became
available. To maintain a solid yield as we waited for rates to rise,
we balanced issues having shorter maturities of 30 days or less with
issues having longer maturities of six to 12 months. We also invested
in floating-rate issues, whose interest rates reset frequently.
We continued this strategy through the summer. Even though interest
rates stabilized, we did not feel the yields for longer maturities
were especially attractive. In the fall, we let the Portfolio's
maturity structure shorten -- preparing to take advantage of the
higher yields that commonly occur late in a calendar year. As yields
became more attractive in November and December, we locked them in
with longer maturities. Balancing liquidity needs of the Portfolio and
attractive yields for longer investments, at year-end the Portfolio
had a weighted average investment maturity of 47 days.
During the year we also enhanced the Portfolio's yield by adding
taxable municipal paper, which is issued by state and local
governments for commercial projects with credit enhancements from
major corporations and banks. In addition, the Portfolio enjoyed
strong returns from U.S. dollar-denominated investments of foreign
issuers. None of these instruments represented credits from Asia,
however, shielding the Portfolio from exposure to the Asian economic
crisis in the final quarter.
[GRAPHIC OMITTED: MONEY MARKET PORTFOLIO]
Money Market Portfolio
Annualized Total Returns*
Period Ending 12/31/97
- ----------------------------------------------------------
10 Years 5.68%
5 Years 4.64%
1 Year 5.43%
Seven-Day Yields+
- ----------------------------------------------------------
Current 5.60%
Effective 5.76%
A Good Mix for the
Months Ahead
We expect to maintain the current maturity structure and asset mix in
the months ahead. As before, we'll look for opportunities to lock in
attractive yields with longer maturities. Although inflation may
remain low, we do not expect a substantial decrease in short-term
interest rates. If rising wages put upward pressure on inflation, and
it looks like market rates might rise, we would probably reduce
maturities once again.
Notes to Portfolio Management Reviews
*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.
***High-yield bonds carry greater volatility and risk than
investment-grade bonds.
****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.
+Seven-day yields of the LB Money Market Portfolio refer to the
income generated by an investment in the Portfolio over a
specified seven-day period. Effective yields reflect the
reinvestment of income. Yields are subject to daily fluctuation
and should not be considered an indication of future results.
This report must be preceded or accompanied by a current prospectus.
3100 Multifoods Tower
33 South Sixth Street
Minneapolis, MN 55402-3795
Price Waterhouse LLP [GRAPHIC OMITTED] 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, 1997, the results of each of
their operations for the year then ended 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 and 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, 1997 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
Price Waterhouse LLP
February 11, 1998
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
OPPORTUNITY GROWTH PORTFOLIO
Portfolio of Investments
December 31, 1997
Shares Value
------------ --------------
<S> <C> <C>
COMMON STOCKS - 89.0% (a)
Airlines - 0.2%
35,800 America West Holdings Corp. $666,775 (b)
--------------
Automotive - 2.3%
42,400 Aftermarket Technology Corp. 768,500 (b)
48,000 Exide Corp. 1,242,000
86,500 Group 1 Automotive, Inc. 783,906 (b)
338,000 Lithia Motors, Inc. 4,985,500 (b)
26,000 Stoneridge, Inc. 416,000 (b)
32,800 Tower Automotive, Inc. 1,379,650 (b)
--------------
9,575,556
--------------
Bank & Finance - 9.0%
28,500 Affiliated Managers Group, Inc. 826,500 (b)
120,000 Annaly Mortgage Management, Inc. 1,320,000
11,600 Berkley (WR) Corp. 508,950
33,100 CMAC Investment Corp. 1,998,412
5,800 Community First Bank Shares, Inc. 308,850
34,900 Delta Financial Corp. 466,787
71,800 Dime Bancorp, Inc. 2,171,950
7,800 FirstFed Financial Corp. 302,250
144,000 Franchise Mortgage Acceptance Co. LLC 2,646,000 (b)
30,000 Fremont General Corp. 1,642,500
53,400 Frontier Insurance Group, Inc. 1,221,525
67,500 IMC Mortgage Co. 801,563 (b)
131,300 Imperial Credit Commercial
Mortgage Investment Corp. 1,920,262
37,100 IPC Holdings Ltd. 1,194,156
115,700 New Century Financial Corp. 1,185,925
58,000 North Fork Bancorporation, Inc. 1,946,625 (c)
42,900 Peoples Heritage Financial Group, Inc. 1,973,400
13,000 Provident Financial Group, Inc. 630,500
137,260 Resource Bancshares
Mortgage Group, Inc. 2,239,054
283,500 Southern Pacific Funding Corp. 3,720,937
34,800 Sovereign Bancorp, Inc. 722,100
29,100 Sterling Financial Corp. 632,925
35,400 TIG Holdings, Inc. 1,174,838
29,600 Union Planters Corp. 2,010,950
85,300 UST Corp. 2,367,075
23,400 Vesta Insurance Group, Inc. 1,389,375
--------------
37,323,409
--------------
Broadcasting - 1.4%
20,900 Chancellor Media Corp. 1,559,663 (b)
15,800 Emmis Broadcasting Corp.,
Class A 720,875
138,100 Four Media Co. 1,242,900 (b)
33,400 Sinclair Broadcast Group, Inc. 1,557,275
15,800 Westwood One, Inc. 586,575
--------------
5,667,288
--------------
Building Products & Materials - 2.3%
66,600 Advanced Lighting
Technologies, Inc. 1,265,400 (b)
240,000 Dayton Superior Corp.,
Class A 3,960,000 (b)
31,300 Shaw Group, Inc. 719,900 (b)
18,600 Texas Industries, Inc. 837,000 (b)
113,400 Watsco, Inc. 2,799,563
--------------
9,581,863
--------------
Chemicals - 0.6%
32,200 Crompton & Knowles Corp. 853,300
17,900 Cytec Industries, Inc. 840,181 (b)
27,900 Lilly Industries, Inc. 575,438
--------------
2,268,919
--------------
Computer Software - 4.5%
72,400 Activision, Inc. 1,294,150
54,300 Autodesk, Inc. 2,009,100
329,200 AXENT Technologies, Inc. 5,678,700 (b)
72,200 Cognicase, Inc. 875,425 (b)
46,800 Electronic Arts, Inc. 1,769,625
175,000 Macromedia, Inc. 1,454,687
29,400 Mercury Interactive Corp. 786,450
96,800 MicroProse, Inc. 211,750 (b)
105,000 Midway Games, Inc. 1,909,688
78,700 Rational Software Corp. 895,213
73,700 Summit Design, Inc. 764,638 (b)
20,300 Viasoft, Inc. 857,675
--------------
18,507,101
--------------
Computers & Office Equipment - 3.3%
57,100 CHS Electronics, Inc. 977,837 (b)
101,300 CKS Group, Inc. 1,430,862 (b)
51,800 FORE Systems, Inc. 789,950 (b)
28,300 Gateway 2000, Inc. 923,288 (b)
64,700 Harbinger Corp. 1,819,687
136,700 Hypercom Corporation 1,930,888 (b)
52,000 Integrated Measurement
Systems, Inc. 890,500 (b)
43,500 MRV Communications, Inc. 1,038,563 (b)
133,400 System Software
Associates, Inc. 1,167,250 (b)
37,700 Waters Corp. 1,418,462 (b)
86,300 Western Digital Corp. 1,386,194 (b,c)
--------------
13,773,481
--------------
Construction - 0.1%
30,500 UNIFAB International, Inc. 587,125 (b)
--------------
Drugs & Health Care - 5.8%
95,100 ADAC Labs, Inc. 1,878,225
369,500 Atrix Laboratories, Inc. 5,450,125 (b)
209,600 DepoTech Corp. 746,700 (b)
369,000 Eclipse Surgical
Technologies, Inc. 2,167,875 (b)
111,200 ICN Pharmaceuticals, Inc. 5,427,950
248,600 IRIDEX Corp. 1,895,575
18,900 Isis Pharmaceuticals, Inc. 232,706 (b)
130,800 Kendle International, Inc. 2,190,900
373,600 Matritech, Inc. 1,821,300 (b)
48,200 Miravant Medical Technologies 1,928,000 (b)
--------------
23,739,356
--------------
Electrical Equipment - 0.9%
30,900 Chicago Miniature Lamp, Inc. 1,042,875 (b)
51,300 Elsag Bailey Process
Automation N.V. 846,450 (b)
113,000 OSI Systems, Inc. 1,384,250 (b)
27,900 Power-One, Inc. 383,625 (b)
--------------
3,657,200
--------------
Electronics - 3.9%
146,300 Cypress Semiconductor Corp. 1,243,550 (b)
54,300 DII Group, Inc. 1,479,675 (b)
155,700 ESS Technology, Inc. 1,182,347 (b)
11,400 Etec Systems, Inc. 530,100 (b)
34,400 GenRad, Inc. 1,038,450 (b)
28,500 Integrated Circuit Systems, Inc. 812,250 (b)
204,200 Integrated Silicon Solution 1,557,025 (b)
174,000 International Manufacturing
Services, Inc. 1,261,500 (b)
38,300 IFR Systems, Inc. 593,650 (c)
98,900 Kulicke & Soffa
Industries, Inc. 1,842,012 (b)
48,900 National Semiconductor Corp. 1,268,344 (b)
46,100 Semitool, Inc. 602,181
78,400 Sensormatic Electronics Corp. 1,288,700
12,700 Speedfam International, Inc. 336,550 (b)
50,300 ThermoQuest Corp. 911,687 (b)
--------------
15,948,021
--------------
Food & Beverage - 0.5%
43,100 Authentic Specialty Foods, Inc. 587,237 (b)
41,400 J & J Snack Foods Corp. 677,925 (b)
58,000 Worthington Foods, Inc. 812,000
--------------
2,077,162
--------------
Healthcare Management - 4.5%
95,900 American Oncology Resources, Inc. 1,534,400 (b)
269,250 Complete Management, Inc. 3,769,500 (b)
408,900 FPA Medical Management, Inc. 7,615,762 (b)
301,150 Home Health Corp. of America, Inc. 3,124,431 (b)
158,700 Renex Corp. 833,175 (b)
422,100 U.S. Diagnostic Labs, Inc. 1,556,494 (b)
--------------
18,433,762
--------------
Hospital Management - 2.0%
253,700 Horizon Health Corp. 5,898,525
144,600 PhyMatrix Corp. 2,277,450
--------------
8,175,975
--------------
Household Products - 0.5%
49,900 Benckiser NV 2,052,137 (b)
--------------
Industrial - 0.8%
48,300 Innovative Valve Technologies, Inc. 978,075 (b)
118,900 TETRA Technologies, Inc. 2,504,331
--------------
3,482,406
--------------
Leisure & Entertainment - 6.6%
247,650 Cannondale Corp. 5,386,387 (b)
33,734 Fairfield Communities, Inc. 1,488,493 (b)
60,300 Preview Travel, Inc. 456,019 (b)
334,700 Signature Resorts, Inc. 7,321,563 (b)
228,800 Silverleaf Resorts, Inc. 5,605,600
231,500 Steiner Leisure Ltd. 7,147,562
--------------
27,405,624
--------------
Machinery & Equipment - 1.6%
170,200 Denison International plc 2,935,950
10,000 Input/Output, Inc. 296,875
215,500 Miller Industries, Inc. 2,316,625
49,300 Stewart & Stevenson Services, Inc. 1,257,150
--------------
6,806,600
--------------
Manufacturing - 1.2%
194,800 BMC Industries, Inc. 3,141,150
181,500 Zomax Optical Media, Inc. 1,678,875 (b)
--------------
4,820,025
--------------
Medical Products - 0.4%
74,800 Physician Sales & Service, Inc. 1,608,200 (b)
--------------
Mining & Metals - 2.3%
237,400 Battle Mountain Gold Co. 1,394,725
48,100 Birmingham Steel Corp. 757,575
113,000 Cambior, Inc. 663,875
17,400 Carpenter Technology Corp. 836,288
282,600 Dayton Mining Corp. 547,537 (b)
14,600 Getchell Gold Corp. 350,400 (b)
118,600 Greenstone Resources Ltd. 578,175 (b)
226,100 Meridian Gold, Inc. 664,169 (b)
42,600 Placer Dome, Inc. 540,487
32,700 Reliance Steel & Aluminum Co. 972,825
46,400 Steel Dynamics, Inc. 742,400 (b)
46,000 Titanium Metals Corp. 1,328,250 (b)
12,700 Universal Stainless &
Alloy Products, Inc. 184,150 (b)
--------------
9,560,856
--------------
Natural Gas - 0.6%
90,200 The Meridian Resource Corp. 862,538 (b)
57,200 United Meridian Corp. 1,608,750 (b)
--------------
2,471,288
--------------
Oil & Oil Service - 5.7%
19,400 Cooper Cameron Corp. 1,183,400 (b)
218,100 Domain Energy Corp. 3,435,075
117,900 Eagle Geophysical, Inc. 1,532,700
22,800 EVI Inc. 1,179,900 (b)
82,000 Forcenergy, Inc. 2,147,375
45,200 Global Marine, Inc. 1,107,400 (b)
117,400 Lomak Petroleum, Inc. 1,907,750
54,300 Marine Drilling Companies, Inc. 1,126,725 (b)
35,800 Nuevo Energy Co. 1,458,850
30,300 Ocean Energy, Inc. 1,494,169
31,600 Pool Energy Services Co. 703,100 (b)
45,300 Pride International, Inc. 1,143,825 (b)
34,200 Rowan Companies, Inc. 1,043,100 (b)
129,060 Swift Energy Co. 2,718,326
62,500 Vintage Petroleum, Inc. 1,187,500
--------------
23,369,195
--------------
Paper & Forest Products - 0.4%
57,200 Mead Corp. 1,601,600
--------------
Pollution Control - 3.0%
90,800 Allied Waste Industries, Inc. 2,116,775
431,100 IDM Environmental Corp. 3,017,700 (b)
381,400 Recycling Industries, Inc. 2,288,400 (b)
169,800 U.S. Filter Corp. 5,083,388
--------------
12,506,263
--------------
Real Estate Investment Trust - 4.7%
106,900 American General Hospitality Corp. 2,859,575
27,700 Apartment Investment & Management Co. 1,017,975
38,500 First Industrial Realty Trust, Inc. 1,390,812
103,800 Glimcher Realty Trust 2,341,988
44,900 Highwoods Properties, Inc. 1,669,719
156,600 InnKeepers USA Trust 2,427,300
132,600 Kilroy Realty Corp. 3,812,250
130,181 Patriot American Hospitality, Inc. 3,750,840
--------------
19,270,459
--------------
Restaurants - 1.2%
57,500 Apple South, Inc. 754,687
163,700 Buffets, Inc. 1,534,688
17,300 Dave & Busters, Inc. 389,250 (b)
319,700 New World Coffee 599,438 (b)
37,400 Outback Steakhouse, Inc. 1,075,250 (b)
36,600 Planet Hollywood
International, Inc. 484,950 (b)
--------------
4,838,263
--------------
Retail - 5.0%
10,800 Consolidated Stores Corp. 474,525 (b)
29,000 Dole Food, Inc. 1,326,750
35,100 Dollar General Corp. 1,272,375
19,700 Dominicks Supermarkets, Inc. 719,050 (b)
132,300 Food Lion, Inc. 1,091,475
48,100 Hot Topic, Inc. 1,094,275
139,400 Paul Harris Stores, Inc. 1,402,712
33,000 Ross Stores, Inc. 1,200,375
41,200 Stein Mart, Inc. 1,102,100 (b)
237,800 Sunglass Hut International 1,501,113
102,200 The Children's Place
Retail Stores, Inc. 523,775
129,200 Travis Boats & Motors, Inc. 3,116,950
284,000 US Office Products Company. 5,573,500
224,300 West Coast Entertainment Corp. 336,450 (b)
--------------
20,735,425
--------------
Services - 8.1%
174,600 Coach USA, Inc. 5,849,100
29,000 Computer Horizons Corp. 1,305,000 (b)
67,600 CORESTAFF, Inc. 1,791,400
268,500 Corporate Express, Inc. 3,456,938
148,000 Cotelligent Group, Inc. 2,830,500 (b)
99,900 F.Y.I., Inc. 2,297,700 (b)
111,100 Gartner Group, Inc. 4,138,475 (b)
42,800 ImageMAX,, Inc. 433,350 (b)
196,900 NovaCare Employee Services, Inc. 1,575,200 (b)
68,800 OfficeMax, Inc. 980,400
144,900 PharMerica, Inc. 1,503,337 (b)
133,200 PMT Services, Inc. 1,848,150
126,000 Professional Staff plc 2,142,000
65,500 SPR, Inc. 1,113,500 (b)
34,500 Syntel, Inc. 491,625
70,100 Vestcom International, Inc. 1,568,488
--------------
33,325,163
--------------
Telecommunications Equipment - 2.5%
126,200 DSC Communications Corp. 3,028,800
57,500 Gilat Satellite Networks Ltd. 1,645,938
211,100 Larscom, Inc. 2,005,450 (b)
29,900 Nice - Systems Ltd. 1,255,800 (b)
128,200 Orckit Communications Ltd. 2,387,725 (b)
--------------
10,323,713
--------------
Telephone & Telecommunications - 2.3%
197,700 Aerial Communications, Inc. 1,408,612
72,600 LCC International, Inc., Class A 1,052,700 (b)
127,800 LCI International, Inc. 3,929,850
99,500 STARTEC Global
Communications Corp. 2,226,313 (b)
57,500 Teledata Communications Ltd. 1,049,375 (b)
--------------
9,666,850
--------------
Textiles & Apparel - 0.2%
43,200 Tefron Ltd. 993,600
--------------
Trucking - 0.6%
51,700 Heartland Express, Inc. 1,389,438 (b)
30,200 USFreightways Corp. 981,500
--------------
2,370,938
--------------
Total Common Stocks
(cost $369,785,286) 367,191,598
--------------
<CAPTION>
Principal
Amount
--------------
CORPORATE BONDS - 0.7% (a)
$ 2,675,000 Complete Management, Inc.,
Convertible Subordinated
Debentures, 8%,
Due 8/15/2003
(cost $3,451,953) $ 2,835,500
--------------
SHORT-TERM SECURITIES - 10.3% (a)
Commercial Paper
4,900,000 American Express Credit Corp.,
6.15%, Due 1/7/1998 4,894,977
10,000,000 Centerior Fuel Corp., 6.25%,
Due 1/5/1998 9,993,056
6,800,000 Disney (Walt) Co., 6.6%,
Due 1/2/1998 6,798,753
1,000,000 Enterprise Funding Corp.,
5.75%, Due 1/30/1998 995,368
8,800,000 Ford Motor Credit Co.,
6.75%, Due 1/2/1998 8,798,350
10,600,000 Koch Industries, Inc.,
6.75%, Due 1/2/1998 10,598,012
501,000 Triple-A One Funding Corp.,
6.35%, Due 1/5/1998 500,647
--------------
Total Short-Term Securities
(at amortized cost) 42,579,163
--------------
Total Investments
(cost $415,816,402) $412,606,261
==============
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, 1997
(d) At December 31, 1997, the aggregate cost of securities for federal
income tax purposes was $418,268,235 and the net unrealized
depreciation of investments based on that cost was $5,661,974 which
is comprised of $35,673,692 aggregate gross unrealized appreciation
and $41,335,666 aggregate gross unrealized depreciation.
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, 1997
Shares Value
------------ --------------
<S> <C> <C>
ARGENTINA - 1.0% (a)
COMMON STOCKS
10,613 Banco de Galicia Buenos Aires
'B' ADR (USD) $273,285
10,799 Banco Frances del Rio de la
Plata ADR (USD) 295,623
72,535 Naviera Perez 'B' 517,998
16,490 Telefonica de Argentina ADR (USD) 614,253
36,566 YPF Sociedad Anonima ADR (USD) 1,250,100
--------------
Total Argentina 2,951,259
--------------
AUSTRALIA - 1.8% (a)
COMMON STOCKS
73,528 Australia Gas & Light 512,764
8,000 Brambles Industries Ltd. 158,766
57,849 Broken Hill Proprietary 537,269
25,684 Colonial Ltd., Options Expiring 2/2/98 1,205 (b)
58,400 Commonwealth Bank of Australia 669,895
78,000 FXF Trust 13,217 (b)
111,000 John Fairfax Holdings Ltd. 231,502
19,485 Lend Lease Corp. 380,980
22,868 National Australia Bank Ltd. 319,397
92,401 News Corp. 510,083
78,000 Publishing & Broadcasting 351,483
190,000 Telstra Corp. Ltd. 401,217 (b)
50,700 Western Mining 176,784
57,000 Westpac Banking 364,662
55,000 Woodside Petroleum 387,856
--------------
5,017,080
--------------
PREFERRED STOCKS
29,830 News Corp. 147,640
--------------
Total Australia 5,164,720
--------------
BELGIUM - 1.4% (a)
COMMON STOCKS
2,693 Credit Communal Holding/Dexia 361,601
2,091 Generale de Banque S.A. 910,026
81 Generale de Banque S.A.,
VVPR (reduced tax) Strips 22
5,730 Kredietbank 2,404,834
104 UCB 343,289
--------------
Total Belgium 4,019,772
--------------
BRAZIL - 2.4% (a)
COMMON STOCKS
1,030 Brazil Fund (USD) 21,630
23,712 Centrais Eletricas Brasileiras
S.A. ADR (USD) 589,836
10,360 Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar GDR (USD) 200,725
320 Companhia Energetica Brasilia (USD) 13,920
20,848 Companhia Energetica Minas
Gerais ADR (USD) 906,888
2,800 Companhia Siderurgica Nacional (ADR) 72,275
40,500 Telecomunicacoes Brasilias ADR (USD) 4,715,719
76,020 Usinas Siderurgicas de Minas
Gerais ADR (USD) 418,110
--------------
Total Brazil 6,939,103
--------------
CANADA - 0.3% (a)
COMMON STOCKS
16,090 Alcan Aluminum 444,740
5,900 Royal Bank of Canada 312,949
--------------
Total Canada 757,689
--------------
CHILE - 0.3% (a)
COMMON STOCKS
8,522 Chilectra ADR (USD) 231,159
5,940 Chilgener ADR (USD) 145,530
10,755 Empresa Nacional de
Electric ADR (USD) 190,229
7,608 Enersis S.A. ADR (USD) 220,632
3,474 Santa Isabel (ADR) 60,795
--------------
Total Chile 848,345
--------------
CHINA - 0.3% (a)
COMMON STOCKS
41,360 Huaneng Power International
'N' ADR (USD) 959,035 (b)
--------------
CZECH REPUBLIC - 0.03% (a)
COMMON STOCKS
700 SPT Telecom a.s. 74,886 (b)
--------------
DENMARK - 0.3% (a)
COMMON STOCKS
4,054 Den Danske Bank 540,186
807 Tele Danmark 'B' 50,055
4,510 Unidanmark 'A' 331,080
--------------
Total Denmark 921,321
--------------
FINLAND - 0.2% (a)
PREFERRED STOCKS
8,960 Oy Nokia 'A' 636,131
--------------
FRANCE - 9.0% (a)
COMMON STOCKS
2,005 Accor 372,783
8,909 Alcatel Alsthom 1,132,406
7,520 Assurances Generales de France 398,459
11,640 AXA 900,681
2,570 Canal Plus 477,832
1,041 Carrefour 543,115
10,250 Cie de St. Gobain 1,456,135
7,034 Credit Commercial de France 482,101
1,539 Credit Local de France 178,231
2,513 Credit Local de France -
Dexia France 291,029
31,977 Eaux Cie Generale 4,463,019
5,160 Groupe Danone 921,658
2,820 GTM Entrepose 189,765
2,880 Guilbert S.A. 410,574
2,730 Havas S.A. 196,409
5,500 Lapeyre 302,941
2,319 Legrand 461,989
1,094 L'Oreal 428,075
1,877 Pathe S.A. 364,266
4,931 Pinault Printemps Redoute 2,630,795
587 Primagaz 49,059
14,319 Sanofi 1,594,040
22,810 Schneider S.A. 1,238,566
5,253 Societe Generale 715,703
9,045 Societe Nationale Elf Aquitaine 1,052,006
1,746 Sodexho 935,010
166 Sodexho Allinance SA (New) 86,744 (b)
9,320 Television Francaise 952,364
27,309 Total 'B' 2,972,069
--------------
Total France 26,197,824
--------------
GERMANY - 5.8% (a)
COMMON STOCKS
6,510 Allianz AG 1,686,350
28,122 Bayer 1,050,501
22,272 Bayerische Hypotheken - und
Wechse - Bank 1,087,013
17,022 Bayerische Vereinsbank AG 1,113,699
6,720 Bilfinger & Berger Bau AG 208,442
400 Buderas 179,216
10,380 Commerzbank AG 408,518
24,741 Deutsche Bank AG 1,746,634
30,878 Deutsche Telekom 581,017
7,730 Dresdner Bank AG 356,647
17,778 Dresdner Bank AG Warrants
Expiring 4/30/2002 316,238 (b)
29,347 Gehe AG 1,468,206
9,000 Hoechst AG 315,184
520 Hornbach Baumarkt 14,742
942 Mannesmann 475,988
4,716 Rhoen Klinikum 461,389
4,290 SAP AG 1,303,252
9,593 Siemens AG 567,917
36,705 Veba AG 2,499,437
603 Volkswagen 339,218
--------------
16,179,608
--------------
PREFERRED STOCKS
1,200 Fielmann 26,682
1,450 Fresenius AG 266,795
2,490 Hornbach Holdings AG 172,326
1,077 SAP AG 352,325
--------------
818,128
--------------
Total Germany 16,997,736
--------------
HONG KONG - 2.3% (a)
COMMON STOCKS
40,000 Cheung Kong Holdings Ltd. 261,969
67,000 China Light & Power Co. Ltd. 371,790
169,000 Doa Heng Bank Ltd. 420,919
12,188 First Pacific 5,898
374,142 Hong Kong Land Holdings (USD) 718,353
12,000 Hong Kong Shanghai Bank Holdings 295,780
272,000 Hutchison Whampoa 1,705,923
360,039 New World Development Co. Ltd. 1,245,199
41,000 Sun Hung Kai Properties Ltd. 285,714
139,000 Swire Pacific 'A' 762,356
356,000 Wharf Holdings 781,004
--------------
Total Hong Kong 6,854,905
--------------
INDIA - 0.2% (a)
COMMON STOCKS
27,000 Mahanager Telephone
Nigam Ltd. (GDR) 423,900 (b)
--------------
ITALY - 3.9% (a)
COMMON STOCKS
41,000 Assicurazioni Generali 1,007,038
52,000 Banca Commerciale Italiana 180,780
459,177 Credito Italiano 1,415,947
297,491 Ente Nazionale Idrocarburi 1,686,735
64,160 IMI SpA 761,651
9,074 Industrie Natuzzi SpA ADR (USD) 187,151
71,600 Italgas 295,466
35,729 Mediolanum SpA 672,570
17,600 Rinascente 131,328
530,400 Telecom Italia Mobile 2,448,115
72,000 Telecom Italia Mobile RNC 204,726
357,903 Telecom Italia SpA 2,286,209
--------------
Total Italy 11,277,716
--------------
JAPAN - 18.6% (a)
COMMON STOCKS
4,940 Advantest Corp. 279,972
42,000 Alps Electric 395,650
73,000 Amada 271,157
144,000 Canon 3,352,684
45,000 Citizen Watch Co. 301,562
71,000 Dai Nippon Screen
Manufacturing Co. Ltd. 326,262
13,000 Daifuku 63,223
85,000 Daiichi Pharmaceutical 956,958
103,000 Daiwa House 544,306
140 DDI Corp. 369,917
242 East Japan Railway 1,091,660
19,600 Fanuc 741,549
137,000 Hitachi 975,798
95,000 Hitachi Zosen 152,064
8,000 Honda Motor Co. 293,482
25,000 Inax 72,566
21,000 Ishihara Sangyo Kaisha 23,321 (b)
34,000 Ito-Yokado 1,731,638
63,000 Kao Corp. 907,100
33,000 Kokuyo 568,660
90,000 Komatsu 451,482
31,000 Komori 460,596
33,000 Kumagai Gumi 17,944
88,000 Kuraray 727,885
44,000 Kyocera 1,994,945
56,000 Makita 536,111
90,000 Marui 1,399,249
140,000 Matsushita Electric Industrial 2,047,944
92,000 Mitsubishi 725,741
424,000 Mitsubishi Heavy Industries 1,766,531
23,000 Mitsubishi Paper Mills 32,236
207,000 Mitsui Fudosan 1,997,549
16,000 Mitsui Petrochemical Industries 29,410
42,000 Murata Manufacturing 1,055,066
18,000 National House Industrial 123,382
246,000 NEC 2,618,825
128,000 Nippon Denso 2,303,745
17,000 Nippon Hodo 54,683
503,000 Nippon Steel 743,502
106 Nippon Telegraph & Telecom 909,244
133,000 Nomura Securities 1,772,383
42,000 Pioneer Electronic 646,550
4,000 Sangetsu Co. Ltd. 41,051
89,000 Sankyo Co. 2,010,799
10,400 Sega Enterprises 187,976
107,000 Sekisui Chemical 543,318
65,000 Sekisui House 417,669
11,000 Seven-Eleven Japan 778,433
116,000 Sharp Corp. 797,794
73,300 Shin-Etsu Chemical 1,397,848
32,000 Shiseido Co. Ltd. 436,241
32,300 Sony 2,869,572
152,000 Sumitomo 849,812
195,000 Sumitomo Electric 2,658,344
36,000 Sumitomo Forestry 176,181
31,000 TDK 2,336,218
183,000 Teijin 382,622
32,000 Tokio Marine & Fire Insurance 362,717
16,900 Tokyo Electronics 541,028
31,800 Tokyo Steel Manufacturing 107,404
68,000 Toppan Printing 885,349
34,000 Uny Co. 466,110
8,400 Yurtec 51,531
--------------
Total Japan 54,132,549
--------------
MALAYSIA - 0.01% (a)
COMMON STOCKS
64,000 Time Engineering BHD 16,455
--------------
MEXICO - 1.7% (a)
COMMON STOCKS
75,000 Cementos de Mexico ADR (USD) 675,000
47,850 Cemex 'B' 255,540
37,473 Cifra 'B' ADR (USD) 84,900
73,436 Gruma 'B' 291,178 (b)
11,260 Gruma S.A. GDR (USD) 168,900 (b)
700 Grupo Financiero Banamex
Accival 'L' 1,804
108,680 Grupo Financiero Banamex 'B' 325,212
140,062 Grupo Industrial Maseca 'B' 144,739
8,600 Grupo Televisa GDR (USD) 332,713 (b)
110,408 Kimberly-Clark Mexico 'A' 540,377
29,435 Telefonos de Mexico 'L'
ADR (USD) 1,650,200
20,700 TV Azteca S.A. ADR (USD) 467,044 (b)
--------------
Total Mexico 4,937,607
--------------
NETHERLANDS - 10.8% (a)
COMMON STOCKS
86,746 ABN Amro Holdings N.V. 1,689,871
2,290 Akzo Nobel 394,833
12,589 Baan Co. N.V. 415,437 (b)
18,060 Baan Co. N.V. 591,416 (b)
26,559 CSM 1,178,857
225,499 Elsevier 3,647,753
30,375 Fortis Amev N.V. 1,324,267
10,231 Gucci Group N.V. (USD) 428,423
83,482 ING Groep N.V. 3,516,072
20,765 ING Groep N.V.,
Stock Warrants 217,517 (b)
16,094 Koninklijke Ahold NV 419,881
18,700 Koninklijke Nutricia Verenigde
Bedrijven NV 567,184
8,490 Koninklijke PTT Nederland 354,230
1,940 Otra N.V. 27,746
25,975 Polygram 1,242,608
138,258 Royal Dutch Petroleum 7,589,138
43,890 Unilever NV 2,705,718
38,967 Wolters Kluwer 5,033,145
--------------
Total Netherlands 31,344,096
--------------
NEW ZEALAND - 0.3% (a)
COMMON STOCKS
74,000 Air New Zealand Ltd. 148,240
73,130 Fletcher Challenge Building 149,470
63,042 Fletcher Challenge Energy 220,730
87,000 Telecom Corp. of New Zealand 421,813
--------------
Total New Zealand 940,253
--------------
NORWAY - 1.9% (a)
COMMON STOCKS
5,570 Bergesen 'A' 131,222
48,654 Norsk Hydro 2,368,208
33,855 Orkla 'A' 2,910,710
6,910 Saga Petroleum 'B' 104,785
--------------
Total Norway 5,514,925
--------------
PANAMA - 0.3% (a)
COMMON STOCKS
1,676 Banco Latinoamericano de
Exportaciones S.A. 'E' 69,345
22,020 Panamerican Beverages 'A'
ADR (USD) 718,404
--------------
Total Panama 787,749
--------------
PERU - 0.09% (a)
COMMON STOCKS
5,710 Credicorp Ltd. 102,780
6,361 Telefonica del Peru S.A.
ADR (USD) 148,291
--------------
Total Peru 251,071
--------------
PORTUGAL - 0.4% (a)
COMMON STOCKS
13,650 Jeronimo Martins 433,121
20,475 Jeronimo Martins (New Shares) 649,682 (b)
--------------
Total Portugal 1,082,803
--------------
RUSSIA - 0.07% (a)
COMMON STOCKS
2,280 Gazprom ADR (USD) 55,005
1,880 Lukoil Holding AB 173,430
--------------
Total Russia 228,435
--------------
SINGAPORE - 0.6% (a)
COMMON STOCKS
28,000 City Developments Ltd. 129,576
22,600 Oversea - Chinese Banking
Corp. Ltd. 131,403
67,200 Overseas Union Bank 257,158
122,000 Singapore Land 267,814
52,000 Singapore Press 650,964
60,000 United Overseas Bank 332,839
--------------
Total Singapore 1,769,754
--------------
SOUTH KOREA - 0.1% (a)
COMMON STOCKS
53,991 Korea Equity Fund (USD) 357,690
12 Samsung Electronics
GDR (USD) 168
--------------
Total South Korea 357,858
--------------
SPAIN - 2.4% (a)
COMMON STOCKS
12,260 Banco Bilbao Vizcaya S.A. 396,730
13,430 Banco Popular Espanol S.A. 938,822
37,492 Banco Santander SA 1,252,604
8,790 Centros Comerciales Pryca 130,970
8,152 Corporacion Bancaria de
Espana S.A. 496,023
46,304 Endesa S.A. 822,135
9,366 Gas Natural SDG, S.A. 485,667
59,060 Iberdrola 777,258
13,325 Repsol S.A. 568,510
40,337 Telefonica de Espana 1,151,729
--------------
Total Spain 7,020,448
--------------
SWEDEN - 3.5% (a)
COMMON STOCKS
57,930 ABB AB 685,830
158,010 Astra AB 2,656,751
32,540 Atlas Copco 'B' 969,245
18,765 Electrolux 'B' 1,302,222
7,770 Esselte 'B' 157,555
6,582 Granges AB 103,208 (b)
41,220 Hennes & Mauritz AB 1,817,025
243,661 Nordbanken Holding AB 1,377,899 (b)
4,860 Sandvik 'A' 138,334
29,620 Sandvik 'B' 846,829
2,720 Scribona 'B' 30,318
--------------
Total Sweden 10,085,216
--------------
SWITZERLAND - 6.9% (a)
COMMON STOCKS
1,060 ABB AG 1,331,166
4,317 Adecco S.A. 1,251,197
4,140 Credit Suisse Group 640,323
2,595 Nestle 3,887,527
3,878 Novartis AG 6,289,940
444 Roche Holdings 4,407,487
620 Schweizerische Bankgesellschaft 896,140
4,716 Schwizerischer Bankverein 1,465,278
--------------
Total Switzerland 20,169,058
--------------
UNITED KINGDOM - 17.7% (a)
COMMON STOCKS
117,000 Abbey National 2,106,212
116,066 Argos plc 1,047,558
362,000 Asda Group 1,064,961
91,764 BG plc 412,979
89,000 British Petroleum 1,177,339
222,000 Cable & Wireless 1,950,797
159,225 Cadbury Schweppes 1,607,032
257,800 Caradon plc 749,483
62,000 Centrica plc 91,142 (b)
95,000 Compass Group 1,168,721
114,000 David S. Smith 371,681
79,000 Electrocomponents 587,801
13,000 GKN 266,266
169,500 Glaxo Wellcome 4,040,975
11,000 Heywood Williams Group 37,761
64,000 Hillsdown Holdings 155,578
58,000 John Laing 'A' 307,230
242,000 Kingfisher 3,378,623
423,000 National Westminster Bank 7,031,148
167,000 Rank Group plc 929,869
439,000 Reed International plc 4,182,134
84,000 Rolls Royce 324,230
105,000 RTZ 1,294,331
204,000 Safeway plc 1,149,290
595,000 Shell Transport & Trading 4,173,018
562,400 SmithKline Beecham plc 5,796,481
133,000 T & N 557,054
168,000 Tesco 1,385,329
470,700 Tomkins 2,226,599
186,000 United News & Media 2,117,150
--------------
Total United Kingdom 51,688,772
--------------
VENEZUELA - 0.1% (a)
COMMON STOCKS
8,372 Compania Anonima Nacional
Telefonos de Venezuela
ADR (USD) 348,485
--------------
<CAPTION>
Principal
Amount
--------------
SHORT-TERM SECURITIES - 5.3% (a)
Commercial Paper
$ 2,500,000 Disney (Walt) Co. 6.6%
Due 1/2/98 2,499,542
13,000,000 Ford Motor Credit Co. 6.75%
Due 1/2/98 12,997,563
--------------
Total Short term Securities
(at amortized cost) 15,497,105
--------------
Total Investments $291,196,981 (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:
<CAPTION>
Percentage of
Cost Value Portfolio
-------------- -------------- --------------
Common Stocks &
Warrants $264,019,189 $274,097,977 94.1%
Preferred Stocks 1,327,487 1,601,899 0.6%
Short-Term 15,497,105 15,497,105 5.3%
-------------- -------------- ---------
Total Investments $280,843,781 $291,196,981 100.0%
============== ============== =========
(d) At December 31, 1997, the aggregate cost of securities for federal
income tax purposes was $281,637,883 and the net unrealized
appreciation of investments based on that cost was $9,559,098 which
is comprised of $36,645,610 aggregate gross unrealized appreciation
and $27,086,512 gross unrealized depreciation.
Abbreviations:
(ADR) - American Depository Receipts
(GDR) - Global Depository Receipts
(USD) - Denominated in U.S. Dollars
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
GROWTH PORTFOLIO
Portfolio of Investments
December 31, 1997
Shares Value
------------ ------------
<S> <C> <C>
COMMON STOCKS - 92.1% (a)
Aerospace - 0.6%
138,600 Boeing Co. $6,782,738
14,743 Raytheon Company 727,014
92,500 United Technologies Corp. 6,735,156
--------------
14,244,908
--------------
Airlines - 1.5%
85,000 AMR Corp. 10,922,500
150,800 Continental Airlines
Holding, Inc., Class B 7,257,250 (b)
283,500 Southwest Airlines Co. 6,981,187
130,000 UAL Corp. 12,025,000 (b)
--------------
37,185,937
--------------
Automotive - 1.7%
295,800 Chrysler Corp. 10,408,462
254,300 General Motors Corp. 15,416,938
115,400 Goodyear Tire & Rubber Co. (The) 7,342,325
186,000 Lear Corp. 8,835,000
--------------
42,002,725
--------------
Bank & Finance - 16.3%
195,000 Allstate Corp. 17,720,625
231,700 American Express Co. 20,679,225
245,300 American International Group, Inc. 26,676,375
92,000 Banco Rio de La Plata S.A. 1,288,000 (b)
325,000 Bank of New York Co., Inc. 18,789,062
220,000 BankAmerica Corp. 16,060,000
249,700 Barnett Banks, Inc. 17,947,188
185,000 Chase Manhattan Corp. 20,257,500
190,000 Citicorp 24,023,125
159,900 CoreStates Financial Corporation 12,801,994
203,400 Crestar Financial Corp. 11,593,800
496,200 Federal Home Loan
Mortgage Corp. 20,809,387
340,000 Federal National Mortgage
Association 19,401,250
223,200 First Chicago NBD Corp. 18,637,200
95,000 First Union Corp. 4,868,750
323,000 Hibernia Corp., Class A 6,076,437
150,000 Household International, Inc. 19,134,375
278,300 Lehman Brothers Holdings, Inc. 14,193,300
293,300 MBNA Corp. 8,010,756
133,000 Mellon Bank Corp. 8,063,125
171,300 PaineWebber Group, Inc. 5,920,556
93,600 PMI Group 6,768,450
64,600 Provident Bankshares Corporation 4,126,325
235,000 Summit Bancorp 12,513,750
189,800 SunAmerica, Inc. 8,113,950
46,300 The CIT Group, Inc. 1,493,175 (b)
318,660 Travelers Group, Inc. 17,167,807
240,000 U.S. Bancorp 26,865,000
160,480 Washington Mutual, Inc. 10,240,630
--------------
400,241,117
--------------
Broadcasting - 0.7%
224,900 CBS Corp. 6,620,494
15,000 Echostar Communications Corp. 251,250 (b)
250,000 Tele-Communications, Inc.,
Liberty Media Group, Series A 9,062,500 (b)
106,200 TV Azteca, S.A. de C.V. 2,396,137
--------------
18,330,381
--------------
Chemicals - 2.0%
180,000 Air Products & Chemicals, Inc. 14,805,000
228,300 Avery Dennison Corp. 10,216,425
251,300 E.I. du Pont de Nemours and Co. 15,093,706
222,200 Praxair, Inc. 9,999,000
--------------
50,114,131
--------------
Computer Software - 5.1%
321,200 Autodesk, Inc. 11,884,400
271,800 BMC Software, Inc. 17,836,875 (b)
65,000 Check Point Software
Technologies Ltd. 2,648,750
393,450 Computer Associates
International, Inc. 20,803,669
87,800 J.D. Edwards & Company 2,590,100
175,000 Microsoft Corp. 22,618,750 (b)
78,200 Netscape Communications Corp. 1,906,125
335,400 Oracle Corp. 7,483,612 (b)
200,600 Parametric Technology Corp. 9,503,425 (b)
328,700 PeopleSoft, Inc. 12,819,300 (b)
188,400 Security Dynamics Technologies, Inc. 6,735,300 (b)
175,600 Symantec Corp. 3,852,225 (b)
124,500 Viasoft, Inc. 5,260,125
--------------
125,942,656
--------------
Computers & Office Equipment - 4.1%
121,700 Bay Networks, Inc. 3,110,956 (b)
88,400 CDW Computer Centers, Inc. 4,607,850 (b)
101,800 Compaq Computer Corp. 5,745,337
194,000 FORE Systems, Inc. 2,958,500 (b)
143,100 Gateway 2000, Inc. 4,668,638 (b)
311,500 Hewlett Packard Co. 19,468,750
299,900 Hypercom Corporation 4,236,087 (b)
316,300 International Business Machines 33,073,119
73,800 MRV Communications, Inc. 1,761,975
125,000 Storage Technology Corp. 7,742,187 (b)
313,500 Sun Microsystems, Inc. 12,500,813 (b)
40,800 Xylan Corp. 617,100 (b)
--------------
100,491,312
--------------
Conglomerates - 2.9%
530,200 AlliedSignal, Inc. 20,644,663
394,800 Dover Corp. 14,262,150
338,100 Thermo Electron Corp. 15,045,450 (b)
469,300 Tyco International Ltd. 21,147,831
--------------
71,100,094
--------------
Drugs & Health Care - 8.6%
326,500 Abbott Laboratories 21,406,156
110,000 American Home Products Corp. 8,415,000
300,500 Becton, Dickinson & Co. 15,025,000
300,000 Biochem Pharma, Inc. 6,262,500 (b)
300,700 Bristol-Myers Squibb Co. 28,453,738
193,100 Cephalon, Inc. 2,196,513 (b)
403,100 Eli Lilly & Co. 28,065,838
23,400 Guidant Corporation 1,456,650
216,900 Johnson & Johnson 14,288,288
358,900 Merck & Co., Inc. 38,133,125
242,900 Pfizer, Inc. 18,111,231
226,800 Schering-Plough Corp. 14,089,950
112,000 Warner-Lambert Co. 13,888,000 (b)
--------------
209,791,989
--------------
Electrical Equipment - 2.4%
546,300 General Electric Co. 40,084,763
275,000 Honeywell, Inc. 18,837,500
--------------
58,922,263
--------------
Electronics - 1.7%
288,600 Cypress Semiconductor Corp. 2,453,100 (b)
300,000 Intel Corp. 21,075,000
126,300 Kulicke & Soffa Industries, Inc. 2,352,338 (b)
115,700 Linear Technology Corp. 6,667,213
207,800 National Semiconductor Corp. 5,389,813 (b)
109,300 Speedfam International, Inc. 2,896,450 (b)
39,300 Vitesse Semiconductor Corp. 1,483,575 (b)
--------------
42,317,489
--------------
Food & Beverage - 4.6%
69,900 Campbell Soup Co. 4,062,938
465,000 Coca-Cola Co. 30,980,625
138,500 ConAgra, Inc. 4,544,531
69,800 General Mills, Inc. 4,999,425
129,300 Hershey Foods Corp. 8,008,519
184,600 Nabisco Holdings, Inc. 8,941,563
546,100 PepsiCo, Inc. 19,898,519
86,400 Ralston-Ralston Purina Group 8,029,800
381,200 Sara Lee Corp. 21,466,325
--------------
110,932,245
--------------
Healthcare Management - 1.1%
147,900 Capital Senior Living Corp. 1,543,706 (b)
241,700 FPA Medical Management, Inc. 4,501,663 (b)
384,400 Tenet Healthcare Corporation 12,733,250 (b)
174,400 United Healthcare Corp. 8,665,500
--------------
27,444,119
--------------
Household Products - 4.6%
203,000 Avon Products, Inc. 12,459,125
107,100 Benckiser NV 4,404,488 (b)
183,000 Colgate Palmolive Co. 13,450,500
305,000 Gillette Co. 30,633,438
202,000 Kimberly-Clark Corp. 9,961,125
391,400 Procter & Gamble Co. 31,238,613
165,200 Unilever N.V., ADR 10,314,675
--------------
112,461,964
--------------
Leisure & Entertainment - 3.0%
208,000 American Skiing Company 3,094,000 (b)
83,000 CapStar Hotel Co. 2,847,937 (b)
321,000 Disney (Walt) Co. 31,799,063
348,200 Host Marriott Corp. 6,833,425
152,600 Royal Caribbean Cruises Ltd. 8,135,488
255,600 Signature Resorts, Inc. 5,591,250 (b)
255,400 Time Warner, Inc. 15,834,800
--------------
74,135,963
--------------
Machinery & Equipment - 1.5%
137,300 Case Corp. 8,298,069
35,600 Cummins Engine Co., Inc. 2,102,625
248,500 Deere & Co. 14,490,656
69,600 PACCAR, Inc. 3,654,000
160,100 Parker-Hannifin Corp. 7,344,588
--------------
35,889,938
--------------
Manufacturing - 0.1%
113,900 BMC Industries, Inc. 1,836,638
--------------
Mining & Metals - 0.9%
160,000 Aluminum Co. of America 11,260,000
152,000 British Steel plc (ADR) 3,258,500
525,000 Homestake Mining Co. 4,659,375
187,500 Placer Dome, Inc. 2,378,906
--------------
21,556,781
--------------
Oil & Oil Service - 5.7%
123,400 Apache Corp. 4,326,712
246,500 Baker Hughes, Inc. 10,753,563
127,000 British Petroleum Co. plc 10,120,312
75,800 Camco International, Inc. 4,827,512
283,100 Chevron Corp. 21,798,700
114,800 Diamond Offshore Drilling, Inc. 5,524,750
347,900 Halliburton Co. 18,069,056
201,000 Input/Output, Inc. 5,967,188
271,600 Mobil Corp. 19,606,125
228,400 Noble Affiliates, Inc. 8,051,100
124,600 Santa Fe International Corp. 5,069,662
262,200 Texaco, Inc. 14,257,125
92,600 Total SA 5,139,300
166,400 Unocal Corp. 6,458,400
--------------
139,969,505
--------------
Paper & Forest Products - 0.5%
176,700 Boise Cascade Corp. 5,345,175
50,000 International Paper Co. 2,156,250
185,000 Mead Corp. 5,180,000
--------------
12,681,425
--------------
Photography - 0.4%
180,800 Eastman Kodak Co. 10,994,900
--------------
Pollution Control - 0.9%
421,300 USA Waste Services, Inc. 16,536,025
205,600 U.S. Filter Corp. 6,155,150
--------------
22,691,175
--------------
Publishing & Printing - 0.8%
201,100 Gannett Co., Inc. 12,430,494
99,200 New York Times Co. 6,559,600
--------------
18,990,094
--------------
Real Estate Investment Trust - 1.7%
172,500 Bedford Property Investors, Inc. 3,773,437
173,323 Equity Office Properties Trust 5,470,507
206,800 General Growth Properties 7,470,650
203,000 Glenborough Realty Trust, Inc. 6,013,875
166,200 Glimcher Realty Trust 3,749,888
198,600 InnKeepers USA Trust 3,078,300
185,800 Kilroy Realty Corp. 5,341,750
200,000 Prentiss Properties Trust 5,587,500
83,200 Sunstone Hotel Investors, Inc. 1,435,200
--------------
41,921,107
--------------
Restaurants - 0.5%
101,700 Boston Chicken, Inc. 654,694 (b)
213,400 Outback Steakhouse, Inc. 6,135,250
183,700 Wendy's International, Inc. 4,420,281
--------------
11,210,225
--------------
Retail - 5.3%
195,400 Borders Group, Inc. 6,118,463 (b)
168,500 Circuit City Stores, Inc. 5,992,281
96,900 Costco Companies, Inc. 4,324,162
274,600 CVS Corp. 17,591,563
123,100 Dayton Hudson Corp. 8,309,250
251,800 Federated Department Stores 10,843,137 (b)
114,000 General Nutrition Companies 3,876,000
400,200 Kroger Co. 14,782,388 (b)
156,200 Polo Ralph Lauren Corp. 3,797,612
400,000 Safeway, Inc. 25,300,000 (b)
239,700 Sunglass Hut International 1,513,106
385,350 US Office Products Company 7,562,494
525,000 Wal-Mart Stores, Inc. 20,704,688
--------------
130,715,144
--------------
Services - 2.6%
298,492 AccuStaff, Inc. 6,865,316 (b)
231,300 Budget Group, Inc. 7,994,306 (b)
750,000 Cendant Corporation 25,781,250 (b)
160,000 Computer Sciences Corp. 13,360,000 (b)
302,400 First Data Corp. 8,845,200
36,900 Stewart Enterprises, Inc. 1,720,462
--------------
64,566,534
--------------
Telecommunications Equipment - 5.2%
383,900 ADC Telecommunications, Inc. 16,027,825 (b)
140,000 CIENA Corp. 8,557,500
672,300 Cisco Systems, Inc. 37,480,725 (b)
253,800 DSC Communications Corp. 6,091,200
193,300 Lucent Technologies, Inc. 15,439,838
153,800 Motorola, Inc. 8,776,212
277,300 NextLevel Systems, Inc. 4,956,737
140,000 Nokia Corp., ADR 9,800,000
380,000 Tellabs, Inc. 20,092,500 (b)
--------------
127,222,537
--------------
Telephone & Telecommunications - 5.1%
200,000 Ameritech Corp. 16,100,000
109,600 AT&T Corp. 6,713,000
241,500 BellSouth Corp. 13,599,469
106,200 GTE Corp. 5,548,950
351,700 LCI International, Inc. 10,814,775
122,700 MasTec, Inc. 2,806,763 (b)
263,200 MCI Communications Corp. 11,268,250
327,500 MobileMedia Corp., Class A 40,937 (b)
207,500 SBC Communications, Inc. 15,199,375
95,000 Telecomunicacoes Brasileir
S.A. Telebras ADR 11,061,563
306,300 Teleport Communications Group, Inc. 16,808,212 (b)
258,500 Vanguard Cellular Systems, Inc. 3,295,875
328,100 WorldCom, Inc. 9,925,025 (b)
--------------
123,182,194
--------------
Total Common Stock
(cost $1,996,722,267) 2,259,087,490
--------------
PREFERRED STOCK - 0.3% (a)
134,100 EchoStar Communications Corporation
(cost $6,690,000) 6,235,650 (b)
--------------
<CAPTION>
Principal
Amount
--------------
CORPORATE BONDS - 0.2% (a)
$ 6,250,000 Broadband Technologies, Inc.,
Convertible Subordinated Notes
(cost $6,251,582) 3,968,750
--------------
SHORT-TERM SECURITIES - 7.4% (a)
Commercial Paper - 5.7%
3,797,000 Disney (Walt) Co., 6.1%,
Due 1/5/1998 3,794,426
10,500,000 Gillette Co., 6.75%,
Due 1/2/1998 10,498,031
28,800,000 Harvard University., 6.75%,
Due 1/2/1998 28,794,600
10,000,000 Hewlett Packard Co., 5.9%,
Due 1/7/1998 9,990,167
20,000,000 Koch Industries, Inc., 6.25%,
Due 1/5/1998 19,986,111
10,000,000 Monsanto Co., 5.97%,
Due 1/16/1998 9,975,125
6,490,000 Monsanto Co., 6.1%,
Due 1/7/1998 6,483,402
12,600,000 New Center Asset Trust,
6.75%, Due 1/2/1998 12,597,637
3,500,000 Peregrine Investment Holdings Ltd.,
6.45%, Due 1/13/1998 3,492,475
12,600,000 Sheffield Receivables Corp., 5.95%,
Due 1/23/1998 12,554,185
5,000,000 TMI-1 Fuel Corp., 6.5%,
Due 1/7/1998 4,994,583
8,000,000 UBS Finance (Delaware) Inc.,
7.0%, Due 1/2/1998 7,998,444
9,700,000 Warner-Lambert Co., 6.02%,
Due 1/6/1998 9,691,890
--------------
Total Commercial Paper 140,851,076
--------------
U.S. Government Agency - 1.7%
10,000,000 Federal Home Loan Bank,
Consolidated Discount Notes,
5.65%, Due 1/14/1998 9,979,597
20,000,000 Federal Home Loan Bank,
Consolidated Discount Notes,
5.68%, Due 1/20/1998 19,940,044
10,000,000 Federal National Mortgage
Association, Consolidated
Discount Notes, 5.64%,
Due 2/25/1998 9,913,833
--------------
Total U.S. Government Agency 39,833,474
--------------
Total Short-Term Securities
(at amortized cost) 180,684,550
--------------
Total Investments
(cost $2,190,348,401) $2,449,976,440 (c)
==============
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) At December 31, 1997, the aggregate cost of securities for federal
income tax purposes was $2,198,670,538 and the net unrealized
appreciation of investments based on that cost was $251,305,902
which is comprised of $321,745,403 aggregate gross unrealized
appreciation and $70,439,501 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
HIGH YIELD PORTFOLIO
Portfolio of Investments
December 31, 1997
Principal Maturity
Amount Rate Date Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 80.9% (a)
Aerospace - 0.3%
$4,200,000 Stellex Industries, Inc., Sr. Subordinated Notes 9.5% 11/1/2007 $4,263,000
-------------
Airlines - 1.1%
3,100,000 Constellation Finance, LLC, Airline Receivable Asset Backed Notes 9.8% 1/1/2001 3,131,000
3,000,000 Northwest Airlines, Inc., Notes 8.375% 3/15/2004 3,088,773
4,200,000 Northwest Airlines, Inc., Notes 8.7% 3/15/2007 4,349,293
3,000,000 U.S. Air, Inc., Sr. Secured Equipment Trust, Series 1993-A-3 10.375% 3/1/2013 3,356,250
-------------
13,925,316
-------------
Automotive - 0.5%
3,000,000 Chief Auto Parts, Inc., Sr. Notes 10.5% 5/15/2005 2,955,000
3,050,000 Delco Remy International, Inc., Sr. Notes 8.625% 12/15/2007 3,107,187
-------------
6,062,187
-------------
Bank & Finance - 7.6%
5,550,000 AmeriCredit Corp., Sr. Notes 9.25% 2/1/2004 5,550,000
3,550,000 Chevy Chase Savings Bank, Subordinated Debentures 9.25% 12/1/2005 3,656,500
4,200,000 Delta Financial Corp., Sr. Notes 9.5% 8/1/2004 4,200,000
7,200,000 Dollar Financial Group, Inc., Sr. Notes, Series A 10.875% 11/15/2003 7,812,000
6,000,000 Emergent Group, Inc., Sr. Notes 10.75% 9/15/2004 5,977,500
11,850,000 First Nationwide Holdings, Inc., Sr. Notes 12.5% 4/15/2003 13,538,625
3,896,000 HomeSide, Inc., Sr. Secured Second Priority Bonds, Series B 11.25% 5/15/2003 4,636,240
9,100,000 Mego Mortgage Corp., Sr. Subordinated Notes 12.5% 12/1/2001 7,598,500
4,250,000 Metris Companies, Inc., Sr. Notes 10% 11/1/2004 4,335,000
3,800,000 Residential Reinsurance Ltd., Notes 11.869% 1/15/1998 3,887,875 (e)
4,800,000 Riggs Capital Trust II, Trust Preferred Securities, Series C 8.875% 3/15/2027 5,213,030
4,800,000 Southern Pacific Funding, Sr. Notes 11.5% 11/1/2004 4,824,000
2,010,000 Trizec Finance Ltd., Sr. Notes 10.875% 10/15/2005 2,261,250
3,000,000 Veritas Capital Trust, Trust Preferred Securities 10% 1/1/2028 3,037,500
7,800,000 Veritas Holdings GMBH, Sr. Notes 9.625% 12/15/2003 8,346,000
7,500,000 Williams Scotsman, Inc., Sr. Notes 9.875% 6/1/2007 7,837,500
7,800,000 Wilshire Financial Services Group, Inc., Notes 13.0% 1/1/2004 7,975,500
-------------
100,687,020
-------------
Broadcasting - 10.8%
4,500,000 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 8/15/2005 1,327,500
3,136,850 American Telecasting, Inc., Sr. Discount Notes Zero Coupon 6/15/2004 1,050,845
3,600,000 Australis Holdings Pty Ltd., Sr. Discount Notes Zero Coupon 11/1/2002 2,088,000
16,502,221 Australis Media Ltd., Sr. Discount Notes Zero Coupon 5/15/2003 7,260,977
3,000,000 Cablevision Systems Corp., Sr. Notes 7.875% 12/15/2007 3,075,000
3,600,000 Century Communications Corp., Sr. Notes 8.375% 12/15/2007 3,609,000
9,750,000 Chancellor Media Corp., Sr. Subordinated Notes 8.125% 12/15/2007 9,591,562
6,000,000 CS Wireless Systems, Inc., Sr. Discount Notes, Series B Zero Coupon 3/1/2006 1,590,000
5,450,000 Diamond Cable Co., Sr. Discount Notes Zero Coupon 9/30/2004 4,905,000
2,400,000 Echostar DBS Corp., Sr. Secured Notes 12.5% 7/1/2002 2,604,000
7,800,000 EchoStar Satellite Broadcasting Corp., Sr. Secured Discount Notes Zero Coupon 3/15/2004 6,669,000
9,896,158 Falcon Holdings Group L.P., Sr. Subordinated Notes, Series B 11.0% 9/15/2003 10,737,331
10,800,000 Groupo Televisa S.A., Sr. Notes 11.875% 5/15/2006 12,271,500
8,500,000 Intermedia Capital Partners, Sr. Notes 11.25% 8/1/2006 9,350,000
5,900,000 International CableTel, Inc., Convertible Subordinated Notes 7.0% 6/15/2008 5,892,625
6,300,000 International CableTel, Inc., Sr. Notes, Series A Zero Coupon 4/15/2005 5,276,250
4,800,000 Jacor Communications, Inc., Convertible Liquid Yield Option Notes Zero Coupon 6/12/2011 3,546,000
3,050,000 James Cable Partners, L.P., Sr. Notes 10.75% 8/15/2004 3,233,000
4,200,000 NTL, Inc., Sr. Notes, Series B 10.0% 2/15/2007 4,441,500
6,000,000 Olympus Communications, L.P., Sr. Notes 10.625% 11/15/2006 6,675,000
7,050,000 Rogers Cablesystems Ltd., Sr. Secured Second Priority Notes 9.625% 8/1/2002 7,543,500
4,000,000 Rogers Cantel, Inc., Sr. Secured Notes 8.3% 10/1/2007 3,990,000
7,000,000 Rogers Communications, Inc., Convertible Debentures 2.0% 11/26/2005 4,191,250
3,000,000 Rogers Communications, Inc., Sr. Notes 9.125% 1/15/2006 3,060,000
703,583 Scott Cable Communications, Jr. Subordinated Notes, Payment-In-Kind 16.0% 7/18/2002 138,078
3,000,000 Sinclair Broadcast Group, Sr. Subordinated Notes 8.75% 12/15/2007 3,015,000
3,000,000 Sinclair Broadcast Group, Sr. Subordinated Notes 9% 7/15/2007 3,075,000
2,500,000 UIH Australia/Pacific, Inc., Sr. Discount Notes Zero Coupon 5/15/2006 1,662,500
4,900,000 UIH Australia/Pacific, Inc., Sr. Discount Notes, Series B Zero Coupon 5/15/2006 3,258,500
7,200,000 United International Holdings, Inc., Sr. Discount Notes Zero Coupon 11/15/1999 6,012,000
4,900,000 Wireless One, Inc., Sr. Notes 13.0% 10/15/2003 1,788,500
-------------
142,928,418
-------------
Building Products & Materials - 1.3%
6,150,000 Atrium Companies, Inc., Sr. Subordinated Notes 10.5% 11/15/2006 6,503,625
6,000,000 CEMEX S.A. de C.V., Notes 12.75% 7/15/2006 7,200,000
3,600,000 Nortek, Inc., Sr. Notes 9.125% 9/1/2007 3,672,000
-------------
17,375,625
-------------
Chemicals - 0.4%
4,800,000 Sovereign Specialty Chemicals, Inc., Sr. Subordinated Notes 9.5% 8/1/2007 4,944,000
-------------
Computers & Office Equipment - 1.2%
5,250,000 Dictaphone Corp., Sr. Subordinated Notes 11.75% 8/1/2005 5,118,750
3,600,000 Unisys Corp., Sr. Notes 12.0% 4/15/2003 4,095,000
6,000,000 Unisys Corp., Sr. Notes 11.75% 10/15/2004 6,885,000
-------------
16,098,750
-------------
Construction & Home Building - 1.2%
9,600,000 Peters (J.M.) Co., Inc., Sr. Notes 12.75% 5/1/2002 10,176,000
5,400,000 The Fortress Group, Inc., Sr. Notes 13.75% 5/15/2003 6,129,000
-------------
16,305,000
-------------
Containers & Packaging - 1.3%
1,850,000 Radnor Holdings Corp. 10.0% 12/1/2003 1,928,625
4,750,000 Radnor Holdings Corp., Sr. Notes 10.0% 12/1/2003 4,951,875
2,866,000 Silgan Holdings, Inc., Subordinated Debentures, Payment-In-Kind 13.25% 7/15/2006 3,281,570
3,100,000 Vicap, S.A. de C.V., Sr. Guaranteed Notes 10.25% 5/15/2002 3,255,000
3,700,000 Vicap, S.A. de C.V., Sr. Guaranteed Notes 11.375% 5/15/2007 3,996,000
-------------
17,413,070
-------------
Drugs & Health Care - 0.6%
4,100,000 ICN Pharmaceuticals, Inc., Sr. Notes 9.25% 8/15/2005 4,366,500
3,550,000 Owens & Minor, Inc., Sr. Subordinated Notes 10.875% 6/1/2006 3,931,625
-------------
8,298,125
-------------
Electric Utilities - 2.2%
2,400,000 AES Corp., Sr. Subordinated Notes 8.5% 11/1/2007 2,412,000
2,100,000 CMS Energy Corp., Sr. Notes 7.625% 11/15/2004 2,100,388
7,200,000 CMS Energy Corp., Sr. Unsecured Notes 8.125% 5/15/2002 7,420,010
5,100,000 Espirito Santo Centrais Eletricas S.A.-ELCELSA, Sr. Notes 10.0% 7/15/2007 4,577,250
3,550,000 Midland Cogen Venture Fund II, Secured Lease Obligation Bonds, Series A 11.75% 7/23/2005 4,259,666
3,000,000 Midland Cogen Venture Fund II, Subordinated Secured Lease
Obligation Bonds 13.25% 7/23/2006 3,809,193
4,200,000 Panda Global Energy Co., Sr. Secured Notes 12.5% 4/15/2004 3,843,000
-------------
28,421,507
-------------
Electrical Equipment - 1.7%
4,900,000 EV International, Inc., Sr. Subordinated Notes, Series A 11.0% 3/15/2007 5,034,750
5,400,000 Protection One Alarm Monitoring, Inc.,
Convertible Sr. Subordinated Notes 6.75% 9/15/2003 6,405,750
4,800,000 Protection One Alarm Monitoring, Inc.,
Sr. Subordinated Discount Notes Zero Coupon 6/30/2005 5,184,000
6,100,000 Telex Communications, Inc., Unsecured Sr. Notes 10.5% 5/1/2007 6,130,500
-------------
22,755,000
-------------
Food & Beverage - 3.1%
4,800,000 Ameriserve Food Distribution, Inc., Sr. Notes 8.875% 10/15/2006 4,848,000
1,200,000 CFP Holdings, Inc., Sr. Notes, Series B 11.625% 1/15/2004 1,206,000
4,200,000 Cott Corp., Sr. Notes 8.5% 5/1/2007 4,284,000
9,000,000 Fresh Del Monte Corp., Sr. Notes, Series B 10.0% 5/1/2003 9,405,000
9,000,000 Gorges/Quik-to-Fix Foods, Sr. Subordinated Notes, Series B 11.5% 12/1/2006 9,540,000
7,300,000 Imperial Holly Corp., Sr. Subordinated Notes 9.75% 12/15/2007 7,382,125
3,600,000 Southern Foods Group, L.P., Sr. Subordinated Notes 9.875% 9/1/2007 3,771,000
-------------
40,436,125
-------------
Hospital Management - 2.2%
7,900,000 Integrated Health Services, Inc., Sr. Subordinated Notes 9.25% 1/15/2008 8,077,750
6,600,000 Merit Behavioral Care Corp., Sr. Subordinated Notes 11.5% 11/15/2005 7,689,000
4,200,000 PhyMatrix Corp., Convertible Subordinated Debentures 6.75% 6/15/2003 3,874,500
4,300,000 Tenet Healthcare Corp., Sr. Subordinated Notes 8.625% 1/15/2007 4,450,500
5,400,000 Vencor, Inc., Sr. Subordinated Notes 8.625% 7/15/2007 5,420,250
-------------
29,512,000
-------------
Household Products - 1.6%
6,850,000 BPC Holding Corp., Sr. Secured Notes, Series B 12.5% 6/15/2006 7,569,250
3,000,000 Converse, Inc., Convertible Subordinated Notes 7% 6/1/2004 1,920,000
3,000,000 Sealy Mattress Company, Sr. Discount Notes Zero Coupon 12/15/2007 1,830,000
3,000,000 Sealy Mattress Company, Sr. Subordinated Notes 9.875% 12/15/2007 3,090,000
6,000,000 Simmons Co., Sr. Subordinated Notes 10.75% 4/15/2006 6,345,000
-------------
20,754,250
-------------
Industrial - 0.3%
4,200,000 Navistar Financial Corp., Sr. Subordinated Notes, Series B 9.0% 6/1/2002 4,373,250
-------------
Leisure & Entertainment - 2.9%
7,471,000 AMF Group, Inc., Sr. Subordinated Discount Notes, Series B Zero Coupon 3/15/2006 5,911,429
3,000,000 CapStar Hotel Company, Convertible Subordinated Notes 4.75% 10/15/2004 3,003,750
3,000,000 CapStar Hotel Company, Sr. Subordinated Notes 8.75% 8/15/2007 3,105,000
7,200,000 HMH Properties, Inc., Sr. Secured Notes 8.875% 7/15/2007 7,614,000
3,000,000 IMAX Corp., Sr. Notes 10.0% 3/1/2001 3,165,000
6,100,000 Lodgenet Entertainment, Sr. Notes 10.25% 12/15/2006 6,328,750
3,100,000 Production Resource Group LLC, Sr. Subordinated Notes 11.5% 1/15/2008 3,123,250
5,400,000 Signature Resorts, Inc., Sr. Subordinated Notes 9.75% 10/1/2007 5,427,000
-------------
37,678,179
-------------
Machinery & Equipment - 0.6%
4,200,000 Motors and Gears, Inc., Sr. Notes, Series C 10.75% 11/15/2006 4,483,500
3,000,000 Scotsman Group, Inc., Sr. Subordinated Notes 8.625% 12/15/2007 3,022,500
-------------
7,506,000
-------------
Mining & Metals - 1.4%
4,850,000 Altos Hornos de Mexico, Bonds, Series B 11.875% 4/30/2004 5,044,000
6,600,000 CSN Iron Panama, Guaranteed Notes 9.125% 6/1/2007 5,643,000
6,600,000 Westmin Resources Ltd., Sr. Notes 11.0% 3/15/2007 7,260,000
-------------
17,947,000
-------------
Oil & Gas - 5.6%
10,200,000 Abraxas Petroleum Corp., Sr. Notes, Series B 11.5% 11/1/2004 11,194,500
6,200,000 Belden & Blake Corp., Sr. Subordinated Notes 9.875% 6/15/2007 6,293,000
6,100,000 Benton Oil & Gas, Sr. Notes 9.375% 11/1/2007 6,267,750
4,800,000 Coho Energy, Inc., Sr. Subordinated Notes 8.875% 10/15/2007 4,836,000
4,200,000 Cross Timbers Oil Co., Sr. Subordinated Notes 8.75% 11/1/2009 4,289,250
9,050,000 National Energy Group, Inc., Sr. Notes, Series C 10.75% 11/1/2006 9,479,875
1,800,000 Newpark Resources, Inc., Sr. Subordinated Notes 8.625% 12/15/2007 1,838,250
4,250,000 Perez Companc S.A., Notes 8.125% 7/15/2007 4,101,250
6,167,000 Petroleum Heat & Power Co., Inc., Subordinated Debentures 12.25% 2/1/2005 6,136,165
5,100,000 Pride Petroleum Services, Inc., Sr. Notes 9.375% 5/1/2007 5,508,000
4,850,000 Snyder Oil Corp., Sr. Subordinated Notes 8.75% 6/15/2007 4,947,000
6,000,000 Southwest Royalties, Inc., Sr. Notes 10.5% 10/15/2004 6,000,000
3,650,000 Trico Marine Services, Inc., Sr. Unsecured Notes, Series E 8.5% 8/1/2005 3,718,437
-------------
74,609,477
-------------
Paper & Forest Products - 3.6%
6,100,000 Ainsworth Lumber Co. Ltd., Sr. Secured Notes, Payment-In-Kind 12.5% 7/15/2007 6,161,000
3,600,000 APP Finance (II) Mauritius Ltd., Guaranteed Preferred Securities,
Series B 12.0% 2/15/2004 3,105,000
4,900,000 APP International Finance, Guaranteed Secured Notes 11.75% 10/1/2005 4,520,250
3,000,000 Doman Industries Ltd., Sr. Notes 9.25% 11/15/2007 2,940,000
6,700,000 Fonda Group, Inc., Sr. Subordinated Notes, Series B 9.5% 3/1/2007 6,331,500
4,850,000 FSW International Finance Co. B.V., Guaranteed Secured Notes 12.5% 11/1/2006 3,698,125
8,100,000 National Fiberstok Corp., Sr. Notes Series B 11.625% 6/15/2002 8,545,500
3,600,000 Pindo Deli Finance Mauritius, Sr. Notes 10.25% 10/1/2002 3,222,000
5,900,000 Tembec Finance Corp., Sr. Notes 9.875% 9/30/2005 6,091,750
3,000,000 Tjiwi Kimia Financial Mauritius, Guaranteed Sr. Notes 10.0% 8/1/2004 2,520,000
-------------
47,135,125
-------------
Pollution Control - 0.3%
4,000,000 Norcal Waste Systems, Inc., Sr. Notes, Series B 13.5% 11/15/2005 4,620,000
-------------
Publishing & Printing - 2.6%
2,700,000 ITT PubliMedia BV, Sr. Subordinated Notes 9.375% 9/15/2007 2,868,480
2,500,000 K-III Communications Corp., Sr. Notes 10.25% 6/1/2004 2,687,500
7,500,000 MDC Communications Corp., Sr. Subordinated Notes 10.5% 12/1/2006 7,968,750
10,800,000 Neodata Services, Inc., Sr. Notes, Series B 12.0% 5/1/2003 11,664,000
4,000,000 News America Holdings, Inc., Convertible Liquid Yield Option Notes Zero Coupon 3/11/2013 1,870,000
750,000 News America Holdings, Inc., Subordinated Notes Zero Coupon 3/31/2002 721,875
5,850,000 Sullivan Graphics, Inc., Sr. Subordinated Notes 12.75% 8/1/2005 5,937,750
-------------
33,718,355
-------------
Retail - 1.6%
3,900,000 County Seat Stores, Inc., Units 12.75% 11/1/2004 4,036,500
2,750,000 F & M Distributors, Inc., Sr. Subordinated Notes 11.5% 4/15/2003 41,250 (c)
6,000,000 Hollywood Entertainment Corp., Sr. Subordinated Notes, Series B 10.625% 8/15/2004 5,910,000
6,000,000 Lifestyle Furnishings International Ltd., Sr. Subordinated Notes 10.875% 8/1/2006 6,675,000
4,800,000 TravelCenters of America, Inc., Sr. Subordinated Notes 10.25% 4/1/2007 5,064,000
-------------
21,726,750
-------------
Retail - Food - 2.6%
6,000,000 Fleming Companies, Inc., Sr. Subordinated Notes 10.625% 7/31/2007 6,360,000
1,800,000 Jitney-Jungle Stores of America, Sr. Subordinated Notes 10.375% 9/15/2007 1,876,500
4,300,000 Jitney-Jungle Stores of America, Sr. Notes 12.0% 3/1/2006 4,902,000
6,100,000 Pueblo Xtra International, Inc., Sr. Notes, Series C 9.5% 8/1/2003 5,825,500
6,100,000 Ralph's Grocery Co., Sr. Notes 10.45% 6/15/2004 6,862,500
7,600,000 Smith's Food & Drug Centers, Pass Through Certificates 8.64% 7/2/2012 8,170,000
-------------
33,996,500
-------------
Services - 1.2%
3,000,000 Discovery Zone, Inc., Units 13.5% 8/1/2002 3,135,000
9,100,000 KinderCare Learning Centers, Inc., Sr. Subordinated Notes 9.5% 2/15/2009 9,100,000
4,200,000 Unicco Service/Finance, Sr. Subordinated Notes 9.875% 10/15/2007 4,205,250
-------------
16,440,250
-------------
Telecommunications - 17.8%
4,800,000 American Communications Services, Inc., Sr. Notes 13.75% 7/15/2007 5,712,000
3,650,000 CenCall Communications Corp., Sr. Redeemable Discount Notes Zero Coupon 1/15/2004 3,294,125
8,400,000 Clearnet Communications, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 6,657,000
6,000,000 Comcast Cellular Holdings, Inc., Sr. Notes 9.5% 5/1/2007 6,285,000
5,450,000 Esprit Telecom Group, plc, Sr. Notes 11.5% 12/15/2007 5,640,750
3,600,000 Globalstar LP/Capital Corp., Sr. Notes 10.75% 11/1/2004 3,528,000
3,000,000 GST Equipment Funding, Inc., Sr. Secured Notes 13.25% 5/1/2007 3,450,000
1,445,000 GST Telecommunications, Inc., Sr. Subordinated Notes Zero Coupon 12/15/2005 1,257,150
6,150,000 GST USA, Inc., Sr. Discount Notes Zero Coupon 12/15/2005 4,735,500
4,250,000 Hermes Europe Railtel B.V., Sr. Notes 11.5% 8/15/2007 4,706,875
300,000 HighwayMaster Communications, Inc., Sr. Notes 13.75% 9/15/2005 306,000
4,300,000 HighwayMaster Communications, Inc., Sr. Notes 13.75% 9/15/2005 4,386,000
2,400,000 Hyperion Telecommunications, Inc., Sr. Secured Notes 12.25% 9/1/2004 2,664,000
6,200,000 Hyperion Telecommunications, Sr. Discount Notes, Series B Zero Coupon 4/15/2003 4,541,500
6,050,000 IntelCom Group (U.S.A.), Inc., Sr. Discount Ntoes Zero Coupon 5/1/2006 4,567,750
3,000,000 Intermedia Communication 8.875% 11/1/2007 3,090,000
4,900,000 Intermedia Communications, Inc., Sr. Notes 8.5% 1/15/2008 4,924,500
10,300,000 Ionica plc, Sr. Notes 13.5% 8/15/2006 8,806,500
1,200,000 Iridium LLC/Capital Corp., Sr. Notes 11.25% 7/15/2005 1,182,000
4,200,000 Iridium LLC/Capital Corp., Sr. Notes, Series A 13.0% 7/15/2005 4,410,000
4,850,000 Iridium LLC/Capital Corp., Sr. Notes, Series B 14.0% 7/15/2005 5,286,500
6,100,000 IXC Communications, Inc., Sr. Notes, Series B 12.5% 10/1/2005 7,060,750
3,000,000 Jordan Telecommunication Products, Sr. Notes 9.875% 8/1/2007 3,082,500
3,600,000 Knology Holdings, Inc., Units Zero Coupon 10/15/2007 1,980,000
10,800,000 McCaw International Ltd., Sr. Discount Notes Zero Coupon 4/15/2007 6,426,000
6,000,000 MGC Communications, Inc., Units 13.0% 10/1/2004 6,060,000
10,200,000 Microcell Telecommunications, Inc., Sr. Discount Notes Zero Coupon 6/1/2006 6,885,000
12,600,000 Millicom International Cellular, Sr. Discount Notes Zero Coupon 6/1/2006 9,292,500
3,600,000 Netia Holdings BV, Sr. Discount Notes Zero Coupon 11/1/2007 2,043,000
5,400,000 Nextel Communications, Inc., Sr. Discount Notes Zero Coupon 9/15/2007 3,429,000
3,000,000 Nextel Communications, Sr. Discount Notes Zero Coupon 10/31/2007 1,845,000
4,800,000 NEXTLINK Communications LLC, Sr. Discount Notes 12.5% 4/15/2006 5,496,000
2,400,000 NEXTLINK Communications, Inc., Sr. Notes 9.625% 10/1/2007 2,496,000
9,000,000 PageMart Nationwide, Inc., Sr. Discount Exchange Notes Zero Coupon 2/1/2005 7,717,500
5,500,000 Phonetel Technologies, Inc., Sr. Notes 12.0% 12/15/2006 5,733,750
3,650,000 Poland Telecom Finance BV 14% 12/1/2007 3,786,875
3,050,000 Price Communications Wireless, Sr. Subordinated Notes 11.75% 7/15/2007 3,324,500
5,400,000 Primus Telecommunications Group, Inc., Sr. Notes 11.75% 8/1/2004 5,832,000
9,650,000 RSL Communications Ltd., Units 12.25% 11/15/2006 10,566,750
4,200,000 Telegroup, Inc., Sr. Discount Notes Zero Coupon 11/1/2004 3,276,000
4,850,000 Teletrac, Inc., Sr. Notes 14% 8/1/2007 4,631,750
4,800,000 Teligent, Inc., Sr. Notes 11.5% 12/1/2007 4,836,000
14,400,000 UNIFI Communications, Inc., Sr. Notes 14.0% 3/1/2004 12,888,000
4,900,000 USA Mobile Communications, Inc., Sr. Notes 14.0% 11/1/2004 5,439,000
6,600,000 USN Communications, Inc., Sr. Discount Notes Zero Coupon 8/15/2004 5,049,000
2,400,000 VIALOG Corp., Units 12.75% 11/15/2001 2,520,000
8,400,000 Viatel, Inc., Sr. Discount Notes Zero Coupon 1/15/2005 6,909,000
4,500,000 WinStar Communications, Inc., Sr. Discount Notes Zero Coupon 10/15/2005 3,577,500
3,000,000 WinStar Communications, Inc., Unsecured Sr. Notes 14.5% 10/15/2005 3,975,000
-------------
235,589,525
-------------
Textiles & Apparel - 1.8%
4,300,000 Anvil Knitwear, Inc., Sr. Notes, Series B 10.875% 3/15/2007 4,439,750
1,900,000 Brazos Sportswear, Inc., Sr. Notes 10.5% 7/1/2007 1,900,000
6,050,000 CMI Industries, Inc., Sr. Subordinated Notes 9.5% 10/1/2003 5,974,375
4,200,000 Delta Mills, Inc., Sr. Notes 9.625% 9/1/2007 4,284,000
4,200,000 Dyersburg Corp., Sr. Subordinated Notes 9.75% 9/1/2007 4,410,000
3,100,000 Pillowtex Corp., Sr. Subordinated Notes 9% 12/15/2007 3,193,000
-------------
24,201,125
-------------
Transportation - 1.5%
4,200,000 Allied Holdings, Inc., Sr. Notes, Series B 8.625% 10/1/2007 4,315,500
8,650,000 Equimar Shipholdings Ltd., First Priority Mortgage Notes 9.875% 7/1/2007 8,131,000
4,200,000 Panoceanic Bulk Carriers, Ltd., 1st Preferred Shipping Notes 12% 12/15/2007 4,158,000
4,500,000 TFM, S.A. de C.V., Sr. Discount Debentures Zero Coupon 6/15/2009 2,868,750
-------------
19,473,250
-------------
Total Corporate Bonds (cost $1,037,836,385) 1,069,194,179
-------------
<CAPTION>
Shares Value
- ----------- -------------
PREFERRED STOCKS - 12.4% (a)
Convertible - 4.2%
59,000 AES Trust II, Convertible Preferred Stock $3,045,875
48,000 Big Flower Trust I, Convertible Preferred Stock 2,418,000
60,000 CalEnergy Capital Trust III, Convertible Preferred Stock 2,602,500
125,000 Echostar Communications Corp., Convertible Preferred Stock, Series C 5,812,500
60,000 Evergreen Media Corp., Convertible Preferred Stock 4,642,500
174,500 Granite Broadcasting Corp., Convertible Preferred Stock 8,463,250
90,000 Host Marriott Financial Trust, Convertible Preferred Stock 5,490,000
50,000 Intermedia Communication 1,418,750
83,800 Network Imaging Corp., Convertible Preferred Stock, Series A 712,300
61,000 Sinclair Broadcast Group, Inc., Convertible Preferred Stock 3,477,000
54,000 TIMET Capital Trust I, Convertible Preferred Stock 2,727,000
150,000 USX Corp. (Marathon Group), Convertible Preferred Stock 2,943,750
115,400 WorldCom, Inc., Convertible Preferred Stock 12,117,000
-------------
55,870,425
-------------
Non-Convertible - 8.2%
3,197 American Communications Services, Payment-In-Kind Preferred Stock 3,236,962
31,000 Benedek Communications Corp., Sr. Exchangeable Preferred Stock 4,030,000
28,417 Cablevision Systems Corp., Preferred Stock 3,289,268
55,963 Cablevision Systems Corp., Redeemable Exchangeable Preferred Stock, Series H 6,645,606
42,000 California Federal Bank, Non-cumulative Preferred Stock 4,756,500
47,137 Chancellor Media Corp., Payment-In-Kind Preferred Stock 5,432,539
105,000 Chevy Chase Capital Corp., Noncumulative Exchangeable Preferred Stock, Series A 5,460,000
46,372 Communications & Power Industries, Inc., Convertible Preferred Stock, Series B 4,880,653
2,162 Echostar Communications Corp., Exchangeable Payment-In-Kind Preferred Stock 2,226,860
49,500 Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 0 (b,d)
396,146 Harvard Industries, Inc., Exchangeable Payment-In-Kind Preferred Stock 693,256
3,102 Hyperion Telecommunications, Inc., Payment-In-Kind Preferred Stock, Series B 3,117,510
6,653 ICG Holdings, Inc., Preferred Stock 7,833,908
3,242 Intermedia Communications, Inc., Preferred Stock 3,971,450
3,089 IXC Communications, Inc., Payment-In-Kind Preferred Stock 3,614,130
1,800 J Crew Group, Preferred Stock 1,620,000
15,000 Jitney-Jungle Stores of America, Sr. Exchangeable Preferred Stock, Class A 2,280,000
97,199 NEXTLINK Communications, Inc., Payment-In-Kind Preferred Stock 6,050,638
6,418 Paxson Communications Corp., Payment-In-Kind Preferred Stock 6,482,180
240,000 Petroleum Heat & Power Co., Inc., Exchangeable Preferred Stock, Series B 4,860,000
50,696 Primedia, Inc., Payment-In-Kind Preferred Stock, Series B 5,475,180
33,000 Primedia, Inc., Preferred Stock 3,308,250
46,000 Primedia, Inc., Preferred Stock, Series D 4,853,000
147,500 River Bank America, Preferred Stock 3,503,125
44,651 SFX Broadcasting, Inc., Payment-In-Kind Preferred Stock 5,101,377
6,000,000 SIG Capital Trust I, Preferred Stock 6,120,000
-------------
108,842,392
-------------
Total Preferred Stocks (cost $161,128,412) 164,712,817
-------------
COMMON STOCKS & STOCK WARRANTS - 2.4% (a,b)
16,800 American Communications Services, Stock Warrants 1,604,400
3,600 American Telecasting, Inc., Stock Warrants 1,800
34,000 American Telecasting, Inc., Stock Warrants 17,000
175,000 Arch Communications Group, Common Stock 896,875
3,600 Australis Holdings Pty Ltd., Stock Warrants 36
17,150 Australis Media Ltd., Stock Warrants 172
156,000 Bell & Howell Co., Common Stock 3,773,250
35,475 Clearnet Communications, Inc., Stock Warrants 212,850
2,310 Communications & Power Industries, Inc., Common Stock 346,500
7,830 Consolidated Hydro, Inc., Stock Warrants 0 (d)
10,989 Consolidated Hydro, Inc., Stock Warrants, Class B 98,901 (d)
7,133 Consolidated Hydro, Inc., Stock Warrants, Class C 49,931 (d)
3,267 CS Wireless Systems, Inc., Common Stock 3
30,000 Echostar Communications Corp., Class A Common Stock 502,500
101,377 Gaylord Container Corp., Class A Common Stock 582,918
127,902 Gaylord Container Corp., Stock Warrants 735,437
18,126 Grand Union Co., Stock Warrants 181 (d)
36,251 Grand Union Co., Stock Warrants 363 (d)
65,000 Harvard Industries, Inc., Class B Common Stock 40,625
4,600 HighwayMaster Communications, Inc., Stock Warrants 55,200
13,800 Hyperion Telecommunications, Stock Warrants 828,000
139,000 IntelCom Group Communications, Inc., Common Stock 3,787,750
68,300 IntelCom Group (U.S.A.), Inc., Stock Warrants 1,212,325
5,900 Intermedia Communications of Florida, Stock Warrants 649,000
14,800 Ionica plc, Stock Warrants 1,184,000
3,000 Iridium World Communications, Stock Warrants 360,000
38,000 JPS Textiles Group, Common Stock, Class A 380 (d)
125,000 Magellan Health Services, Common Stock 2,687,500
10,800 McCaw International Ltd., Stock Warrants 27,000
50,379 Memorex Telex N.V., ADR, Common Stock 254
1,728 Memorex Telex N.V., ADR, Stock Warrants 0 (d)
40,800 Microcell Telecommunications, Inc., Stock Warrants 408
40,800 Microcell Telecommunications, Inc., Stock Warrants 558,144
384,500 MobileMedia Corp., Class A Common Stock 48,063
3,750 NEXTEL Communications, Stock Warrants 3,750
3,086 NEXTEL Communications, Stock Warrants 370
33,250 PageMart Nationwide, Inc., Common Stock 266,000
174,000 Pagemart Wireless, Inc., Class A Common Stock 1,370,250
50,300 Plantronics, Inc., Common Stock 2,012,000
155,000 Powertel, Inc., Common Stock 2,596,250
4,800 Primus Telecommunications Group, Inc., Stock Warrants 60,000
23,840 Protection One Alarm Monitoring, Stock Warrants 332,568
9,000 RSL Communications Ltd., Stock Warrants 765,000
4,850 Teletrac Holdings, Inc., Stock Warrants 266,750
5,000 Triangle Wire & Cable, Inc., Stock Warrants 0 (d)
7,400 UIH Australia/Pacific, Inc., Stock Warrants 5,920
14,400 UNIFI Communications, Inc., Stock Warrants 216,000
118,000 United International Holdings, Inc., Class A Common Stock 1,357,000
27,000 United International Holdings, Inc., Stock Warrants 324,000
66,000 USN Communications, Inc., Stock Warrants 660
240,666 Viatel, Inc., Common Stock 1,203,330
6,363 Wherehouse Entertainment, Inc., Class B Stock Warrants 15,908
6,363 Wherehouse Entertainment, Inc., Class C Stock Warrants 9,545
36,654 Wherehouse Entertainment, Inc., Stock Warrants, Class A 403,194
138,000 Wireless One, Inc., Common Stock 276,000
19,200 Wireless One, Inc., Stock Warrants 192
-------------
Total Common Stocks & Stock Warrants (cost $38,340,141) 31,746,453
-------------
<CAPTION>
Principal Maturity
Amount Rate Date Value
---------- ---------- ---------- ----------
SHORT-TERM SECURITIES - 4.3% (a)
Commercial Paper
$ 1,800,000 American Express Credit Corp. 6.15% 1/7/1998 $1,798,155
8,200,000 American Express Credit Corp. 6.1% 1/7/1998 8,191,663
10,000,000 Centerior Fuel Corp. 6.25% 1/5/1998 9,993,056
1,825,000 Delaware Funding Corp. 5.75% 1/30/1998 1,816,547
29,400,000 Koch Industries, Inc. 6.75% 1/2/1998 29,394,488
5,000,000 Triple-A One Funding Corp. 6.5% 1/9/1998 4,992,778
-------------
Total Short-Term Securities (at amortized cost) 56,186,687
-------------
Total Investments (cost $1,293,491,625) $1,321,840,136 (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, 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 December 31, 1997.
</TABLE>
<TABLE>
<CAPTION>
Acquisition
Security Date Cost
---------------------------------------------------------------- ----------- ---------
<S> <C> <C>
Consolidated Hydro, Inc., Stock Warrants 2/8/1994 $171,277
Consolidated Hydro, Inc., Stock Warrants, Class B 11/18/1997 2,061,665
Consolidated Hydro, Inc., Stock Warrants, Class C 11/18/1997 0
Grand Union Co., Stock Warrants 6/20/1995 7,250
Grand Union Co., Stock Warrants 6/20/1995 3,625
Grand Union Holdings Corp., Cumulative Preferred Stock, Series A 6/14/1993 5,703,525
JPS Textiles Group, Common Stock, Class A 1/13/1994 1,512,500
Memorex Telex N.V., ADR, Stock Warrants 3/25/1994 3,456
Triangle Wire & Cable, Inc., Stock Warrants 1/3/1992 500
</TABLE>
(e) Denotes variable rate obligations for which the current yield and
the next scheduled interest reset dates are shown.
(f) At December 31, 1997, the aggregate cost of securities for federal
tax purposes was $1,294,351,941 and the net unrealized appreciation
of investments based on that cost was $27,488,195 which is comprised
of $86,908,312 aggregate gross unrealized appreciation and
$59,420,117 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
INCOME PORTFOLIO
Portfolio of Investments
December 31, 1997
Principal Maturity
Amount Rate Date Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 50.9% (a)
Aerospace - 0.5%
$4,500,000 United Defense Industries, Inc., Sr. Subordinated Notes 8.75% 11/15/2007 $4,550,625
-------------
4,550,625
-------------
Automotive - 1.1%
5,000,000 Ford Motor Credit Co., Notes 6.375% 10/6/2000 5,024,510
5,000,000 General Motors Acceptance Corp., Unsecured Notes 7.125% 5/1/2003 5,192,270
-------------
10,216,780
-------------
Bank & Finance - 14.0%
6,000,000 Aon Capital A, Capital Securities 8.205% 1/1/2027 6,785,790
5,000,000 Associates Corp. of North America, Sr. Notes 9.125% 4/1/2000 5,305,900
4,500,000 Banc One Corp., Subordinated Debentures 8.0% 4/29/2027 5,137,114
2,000,000 Chase Manhattan Corp., Subordinated Notes 10.375% 3/15/1999 2,097,612
6,000,000 Chase Manhattan Corp., Subordinated Notes 9.375% 7/1/2001 6,602,790
5,000,000 Chemical New York Corp., Debentures 9.75% 6/15/2099 5,255,195
12,000,000 Equitable Life Assurance Society of the United States, Surplus Notes 6.95% 12/1/2005 12,236,592
8,000,000 GenAmerica Capital I, Capital Securities 8.525% 6/30/2002 8,510,776
6,500,000 General Electric Capital Corp., Debentures 8.85% 4/1/2005 7,481,097
6,000,000 Mellon Capital I, Capital Trust Preferred Securities 7.72% 12/1/2026 6,263,892
10,000,000 Metropolitan Life Insurance Co., Surplus Notes 7.7% 11/1/2015 10,620,700
5,000,000 New York Life Insurance Co., Surplus Notes 6.4% 12/15/2003 5,022,865
9,000,000 Prudential Insurance Co. of America, Capital Notes 6.875% 4/15/2003 9,107,514
8,000,000 Prudential Insurance Co., Surplus Notes 8.3% 7/1/2025 8,912,144
7,500,000 Societe Generale Real Estate Investment Trust, LIBOR Bonds, Series A 7.64% 12/29/2049 7,529,265
6,000,000 Societe-Generale- New York, Subordinated Notes 9.875% 7/15/2003 6,959,322
5,000,000 Societe-Generale- New York, Subordinated Notes 7.4% 6/1/2006 5,225,345
7,500,000 Wells Fargo Capital, Capital Trust Preferred Securities 7.73% 12/1/2026 7,656,975
-------------
126,710,888
-------------
Broadcasting - 3.8%
4,000,000 Cablevision Systems Corp., Sr. Notes 7.875% 12/15/2007 4,100,000
3,000,000 Chancellor Media Corp., Sr. Subordinated Notes 8.125% 12/15/2007 2,951,250
3,500,000 Groupo Televisa S.A., Sr. Notes, Series A 11.375% 5/15/2003 3,832,500
5,800,000 Rogers Cablesystems, Inc., Sr. Secured Second Priority Notes 9.625% 8/1/2002 6,206,000
8,000,000 TKR Cable I, Inc., Sr. Debentures 10.5% 10/30/2007 8,893,152
5,000,000 Viacom, Inc., Subordinated Debentures 8.0% 7/7/2006 5,068,750
3,000,000 Westinghouse Electric Corp., Notes 8.875% 6/1/2001 3,170,427
-------------
34,222,079
-------------
Computers & Office Equipment - 1.2%
10,000,000 International Business Machines Corp., Debentures 7.125% 12/1/2096 10,450,980
-------------
Containers & Packaging - 0.5%
4,000,000 Owens-Illinois, Inc., Sr. Notes 7.85% 5/15/2004 4,205,012
-------------
Drugs & Health Care - 1.6%
5,000,000 Allegiance Corp., Debentures 7.8% 10/15/2016 5,453,915
1,500,000 Athena Neurosciences, Inc., Convertible Bonds 4.75% 11/15/2004 1,501,875
5,000,000 McKesson Finance Company of Canada, Sr. Notes 6.55% 11/1/2002 5,071,380
2,000,000 Playtex Products Inc., Unsecured Sr. Notes 8.875% 7/15/2004 2,042,500
1,500,000 Roche Holdings, Inc., Convertible Notes Zero Coupon 4/20/2010 832,500
-------------
14,902,170
-------------
Electric Utilities - 7.3%
2,000,000 AES Corp., Sr. Subordinated Notes 10.25% 7/15/2006 2,185,000
6,000,000 CalEnergy Company, Inc., Sr. Notes 7.63% 10/15/2007 6,107,166
1,500,000 Calpine Corp., Sr. Notes 8.75% 7/15/2007 1,537,500
5,000,000 Cleveland Electric Illumination Co., First Mortgage Bonds 7.625% 8/1/2002 5,169,995
7,000,000 CMS Energy Corp., Sr. Unsecured Notes 8.125% 5/15/2002 7,213,899
5,500,000 Commonwealth Edison Co., Notes 7.625% 1/15/2007 5,794,640
5,000,000 Connecticut Light & Power Co., First Refunding Mortgage Bonds,
Series 97C 7.75% 6/1/2002 5,062,895
5,000,000 Consolidated Edison Co. NY, Inc., Debentures 6.45% 12/1/2007 4,999,620
4,000,000 El Paso Electric Co., First Mortgage Bonds, Series D 8.9% 2/1/2006 4,425,000
6,500,000 Empresa Electrica Pehuienche S.A., Notes 7.3% 5/1/2003 6,688,754
10,000,000 Korea Electric Power Corp., Debentures 6.75% 8/1/2027 7,487,480
4,000,000 NRG Energy, Inc., Sr. Notes 7.5% 6/15/2007 4,147,948
5,000,000 Texas Utilities Electric Company, Debentures 7.17% 8/1/2007 5,204,170
-------------
66,024,067
-------------
Electronics - 0.1%
750,000 Motorola, Inc., Convertible Liquid Yield Option Notes Zero Coupon 9/27/2013 570,937
-------------
Food & Beverage - 1.3%
2,000,000 AmeriServe Food Distribution, Inc., Sr. Notes 8.875% 10/15/2006 2,020,000
10,000,000 Archer Daniels Midland Co., Bonds 6.75% 12/15/2027 10,047,450
-------------
12,067,450
-------------
Hospital Management - 1.3%
3,000,000 Integrated Health Services, Inc., Sr. Subordinated Notes 9.25% 1/15/2008 3,067,500
4,000,000 Quorum Health Group, Inc., Sr. Subordinated Notes 8.75% 11/1/2005 4,145,000
2,500,000 Tenet Healthcare Corp., Sr. Notes 8.625% 12/1/2003 2,653,808
2,000,000 Tenet Healthcare Corp., Sr. Subordinated Notes 10.125% 3/1/2005 2,192,500
-------------
12,058,808
-------------
Household Products - 0.7%
5,000,000 Procter & Gamble, Guaranteed ESOP Debentures 9.36% 1/1/2021 6,442,660
-------------
Leisure & Entertainment - 0.8%
6,000,000 Time Warner, Inc., Debentures 9.125% 1/15/2013 7,110,000
-------------
Oil & Gas - 1.9%
3,000,000 Gulf Canada Resources Ltd., Sr. Subordinated Debentures 9.625% 7/1/2005 3,270,000
4,000,000 Newfield Exploration Company, Sr. Notes 7.45% 10/15/2007 4,051,208
1,000,000 Ocean Energy, Inc., Sr. Notes 8.875% 7/15/2007 1,065,000
9,000,000 Triton Energy Ltd., Sr. Notes 8.75% 4/15/2002 9,119,943
-------------
17,506,151
-------------
Oil & Oil Service - 0.1%
1,000,000 Baker Hughes, Inc., Convertible Liquid Yield Option Notes Zero Coupon 5/5/2008 860,000
350,000 Diamond Offshore Drilling, Inc., Convertible Subordinated Notes 3.75% 2/15/2007 473,375
-------------
1,333,375
-------------
Paper & Forest Products - 0.3%
3,500,000 Indah Kiat Finance Mauritius, Sr. Guaranteed Notes 10.0% 7/1/2007 2,948,750
-------------
Petroleum - 2.7%
3,000,000 Flores & Rucks, Inc., Sr. Subordinated Notes 9.75% 10/1/2006 3,311,250
4,635,150 Mobil Oil Corp., ESOP Sinking Fund Debentures 9.17% 2/29/2000 4,795,619
3,000,000 Oryx Energy Co., Notes 8.375% 7/15/2004 3,243,216
10,500,000 Petroliam Nasional BHD, Notes 7.75% 8/15/2015 9,669,702
3,000,000 United Meridian Corp., Sr. Subordinated Notes 10.375% 10/15/2005 3,330,000
-------------
24,349,787
-------------
Pollution Control - 0.2%
1,500,000 USA Waste Services, Inc., Convertible Subordinated Notes 4.0% 2/1/2002 1,642,500
-------------
Publishing & Printing - 0.6%
3,500,000 Belo (A.H.) Corp., Sr. Notes 7.125% 6/1/2007 3,636,255
1,500,000 Omnicom Group Inc., Convertible Subordinated Debentures 2.25% 1/16/2013 1,571,250
-------------
5,207,505
-------------
Railroads - 1.7%
5,000,000 Norfolk Southern Corp., Bonds 7.8% 5/152027 5,657,960
5,500,000 Norfolk Southern Corp., Notes 6.875% 5/1/2001 5,609,120
4,000,000 Norfolk Southern Corp., Notes 6.95% 5/1/2002 4,102,716
-------------
15,369,796
-------------
Retail - 6.4%
1,250,000 Costco Companies, Inc., Convertible Subordinated Notes Zero Coupon 8/19/2017 745,312
250,000 Costco Companies, Inc., Subordinated Notes Zero Coupon 8/19/2007 149,063
8,500,000 Dayton Hudson Corp., Notes 6.4% 2/15/2003 8,541,880
6,000,000 Federated Department Stores, Inc., Sr. Debentures 6.79% 7/15/2027 6,123,084
4,000,000 Federated Department Stores, Sr. Notes 8.5% 6/15/2003 4,371,172
3,000,000 Fleming Companies, Inc., Sr. Subordinated Notes 10.5% 12/1/2004 3,157,500
6,800,000 Kroger Co. (The), Sr. Notes 8.15% 7/15/2006 7,498,054
8,000,000 Penney (J.C.) Co., Inc., Notes 6.95% 4/1/2000 8,147,456
2,500,000 Rite Aid Corp., Capital Notes 5.25% 9/15/2002 2,700,000
6,000,000 Sears Roebuck Acceptance Corp, Medium Term Notes, Series III 7.03% 6/4/2003 6,197,562
10,000,000 Sears Roebuck Acceptance Corp., Medium Term Notes, Series II 6.86% 7/3/2001 10,196,730
-------------
57,827,813
-------------
Services - 0.8%
750,000 CUC International, Inc., Convertible Subordinated Notes 3.0% 2/15/2002 940,313
6,000,000 Electronic Data Systems Corp., Notes 6.85% 5/15/2000 6,106,236
750,000 Interpublic Group of Companies, Convertible Subordinated Debentures 1.80% 9/16/2004 617,812
-------------
7,664,361
-------------
Telephone - 1.2%
3,000,000 Philippine Long Distance Telephone, Notes 7.85% 3/6/2007 2,647,500
8,000,000 US West Capital Funding, Inc., Notes 6.85% 1/15/2002 8,140,088
-------------
10,787,588
-------------
Textiles & Apparel - 0.8%
7,000,000 Levi Strauss & Co., Notes 6.8% 11/1/2003 7,164,927
-------------
Total Corporate Bonds (cost $451,761,795) 461,335,009
-------------
FOREIGN GOVERNMENT BONDS - 3.3% (a,c)
5,000,000 British Columbia Hydro & Power, Debentures 12.5% 9/1/2013 $5,411,695
7,500,000 Korea Development Bank (The), Bonds 7.25% 5/15/2006 5,909,422
5,000,000 Korea Development Bank, Bonds 7.125% 9/17/2001 4,259,945
3,000,000 Korea Development Bank, Unsecured Bonds 6.625% 11/21/2003 2,415,633
6,000,000 Ontario Province, Canada, Debentures 11.75% 4/25/2013 6,397,020
2,500,000 Ontario Province, Canada, Sr. Bonds 7.375% 1/27/2003 2,627,900
3,000,000 Republic Of Poland, Unsecured Bonds 4.0% 10/27/2014 2,598,750 (b)
-------------
Total Foreign Government Bonds (cost $33,157,871) 29,620,365
-------------
ASSET-BACKED SECURITIES - 14.6% (a)
12,000,000 AESOP Funding II L.L.C., Rental Car Notes, Series 1997-1, Class A-2 6.4% 10/20/2003 12,117,600
11,000,000 Chase Manhattan Credit Card, Series 1996-4, Class A 6.73% 2/15/2002 11,119,130
7,223,736 Chase Manhattan Grantor Trust, Series 1996-B-A 6.61% 9/15/2002 7,282,031
5,000,000 CS First Boston Mortgage Security Corp., 1996-2 Class A4 6.62% 9/25/2009 5,037,400
5,000,000 CS First Boston Mortgage Security Corp., Series 1997-1-A3 6.91% 5/25/2007 5,047,200
5,000,000 CS First Boston Mortgage Security Corp., Series 1997-1-A4 7.15% 5/25/2010 5,115,550
20,000,000 Deutsche Floorplan Receivables Master Trust, Series 1994-1-A 5.6% 2/15/2001 20,052,000 (b)
10,000,000 Discover Card Master Trust I, Series 1996-3-A 6.05% 8/18/2008 9,856,800
10,000,000 Proffitt's Credit Card Master Trust 6.5% 12/15/2005 10,132,900
12,000,000 Standard Credit Master Trust 1, Credit Card Participation 6.55% 10/7/2007 12,190,440
15,000,000 World Financial Network Credit Card Master Trust, Series 1996-B 6.95% 4/15/2006 15,504,285
18,000,000 World Omni Auto Lease Trust 6.9% 6/25/2003 18,285,300
-------------
Total Asset-Backed Securities (cost $130,020,236) 131,740,636
-------------
MORTGAGE-BACKED SECURITIES - 11.3% (a)
32,425,897 Federal Home Loan Mortgage Corp., Participation Certificates 6.0% 2011 - 2012 31,977,727 (d)
32,000,000 Federal National Mortgage Association, Participation Certificates 6.5% 1/15/2028 31,620,000 (d)
38,935,367 Government National Mortgage Association, Modified Pass Through 6.5% 2/15/2027 38,596,240
-------------
Total Mortgage-Backed Securities (cost $100,490,604) 102,193,967
-------------
U.S. GOVERNMENT - 11.0% (a)
50,000,000 U.S. Treasury Bonds 6.375% - 12.0% 8/15/2027 61,428,938
34,500,000 U.S. Treasury Notes 6.25% - 7.875% 2003 - 2004 37,815,347
-------------
Total U.S. Government (cost $95,191,895) 99,244,285
-------------
<CAPTION>
Shares
- -----------
COMMON STOCKS - 0.4% (a)
7,500 Banc One Corp., Common Stock 407,344
10,000 CarrAmerica Realty Corp., Common Stock 316,875
6,000 Cresent Real Estate Equities, Common Stock 236,250
5,000 Federal National Mortgage Association, Common Stock 285,313
10,000 First Industrial Realty Trust, Inc., Common Stock 361,250
15,000 First Union Corp., Common Stock 768,750
5,000 Highwoods Properties, Inc., Common Stock 185,938
10,000 Simon Debartolo Group, Inc., Common Stock 326,875
4,000 Spieker Properties, Inc., Common Stock 171,500
-------------
Total Common Stocks (cost $2,811,774) 3,060,095
-------------
PREFERRED STOCKS - 1.6% (a)
35,000 AES Trust II., Convertible Preferred Stock 1,806,875
15,000 AirTouch Communications, Inc., Convertible Preferred Stock 934,687
20,000 Conseco, Inc., Convertible Preferred Stock 1,025,000
22,500 Houston Industries, Inc., Preferred Stock 1,283,906
10,000 McKesson Financing Trust, Convertible Preferred Stock 717,500
25,000 National Australia Banks, Preferred Stock 710,938
45,000 Newell Financial Trust I., Convertible Preferred Stock 2,351,250
10,000 Primedia Inc., Preferred Stock 1,002,500
20,000 Primedia Inc., Preferred Stock, Series D 2,110,000
17,500 Security Capital Industrial Trust Ltd., Preferred Stock 557,812
17,500 Security Capital Pacific Trust, Preferred Stock 573,125
15,000 Unocal Capital Trust, Preferred Stock 838,125
-------------
Total Preferred Stocks (cost $13,261,559) 13,911,718
-------------
<CAPTION>
Principal Maturity
Amount Rate Date
---------- ---------- ----------
SHORT-TERM SECURITIES - 6.9% (a)
Commercial Paper - 5.7%
$10,000,000 Commercial Credit Co. 5.85% 1/20/1998 9,969,125
24,500,000 Gillette Co. 6.75% 1/2/1998 24,495,406
14,800,000 Merck & Co., Inc. 6.25% 1/5/1998 14,789,722
2,500,000 Met-Life Funding, Inc. 5.72% 1/23/1998 2,491,261
-------------
51,745,514
-------------
U.S. Government Agency - 1.2%
10,769,000 Federal Home Loan Bank, Consolidated Discount Notes 5.69% 1/14/1998 10,746,873
-------------
Total Short-Term Securities (at amortized cost) 62,492,387
-------------
Total Investments (cost $889,188,121) $903,598,462 (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 December 31, 1997, the aggregate cost of securities for federal
income tax purposes was $889,725,087 and the net unrealized
appreciation of investments based on that cost was $13,873,375
which is comprised of $22,741,014 aggregate gross unrealized
appreciation and $8,867,639 aggregate gross unrealized depreciation.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
MONEY MARKET PORTFOLIO
Portfolio of Investments
December 31, 1997
Principal Maturity
Amount Rate Date Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BANK NOTES - 3.3% (a)
$2,000,000 Bank of America, National Trust & Savings Association 5.84% 5/5/1998 $2,000,523
2,000,000 Wachovia Bank North Carolina, N.A. 6.20% 4/6/1998 1,999,504
-------------
4,000,027
-------------
COMMERCIAL PAPER - 86.1% (a)
Banking-Domestic - 4.4%
1,661,000 CommEd Fuel Company, Inc. (First National Bank of Chicago,
Direct Pay Letter of Credit) 5.93% 1/5/1998 1,659,911
3,650,000 Metrocrest Hospital Authority, Series 1989 (Bank of New York,
Direct Pay Letter of Credit) 5.72% 2/3/1998 3,631,138
-------------
5,291,049
-------------
Banking-Foreign - 17.8%
2,000,000 Banco BCN Barclays (Bahamas) (Barclay's Bank, plc,
Direct Pay Letter of Credit 5.94% 1/20/1998 1,993,783
2,000,000 CEMEX, S.A. de C.V. (Credit Suisse, Direct Pay Letter of Credit) 5.67% 1/16/1998 1,995,342
1,500,000 China Merchants (Cayman) Inc. (Credit Suisse,
Direct Pay Letter of Credit) 5.81% 2/23/1998 1,487,368
2,000,000 China Merchants (Cayman) Inc. (Credit Suisse,
Direct Pay Letter of Credit) 5.73% 2/17/1998 1,985,273
2,000,000 Comision Federal De Electricidad (Westdeutsche Landesbank,
Direct Pay Letter of Credit) 5.85% 2/26/1998 1,982,049
2,000,000 Comision Federal De Electricidad (Westdeutsche Landesbank,
Direct Pay Letter of Credit) 5.87% 3/13/1998 1,977,201
1,400,000 Glencore Finance (Bermuda) Ltd (Union Bank of Switzerland,
Direct Pay Letter of Credit) 5.69% 2/4/1998 1,392,648
1,000,000 Glencore Finance (Bermuda) Ltd (Union Bank of Switzerland,
Direct Pay Letter of Credit) 5.71% 2/4/1998 994,739
1,500,000 Indiana Development Board Parish Calcasieu, Series 1996
(ABN AMRO Bank, Direct Pay Letter of Credit) 5.75% 2/18/1998 1,500,000
2,000,000 UBS Finance (Delaware) Inc. (Union Bank of Switzerland) 7.00% 1/2/1998 1,999,611
2,240,000 U.S. Prime Property, Inc. (ABN AMRO, Direct Pay Letter of Credit) 5.65% 3/9/1998 2,216,988
2,000,000 U.S. Prime Property, Inc. (ABN AMRO, Direct Pay Letter of Credit) 5.72% 2/12/1998 1,987,027
-------------
21,512,029
-------------
Computer & Office Equipment - 0.4%
500,000 IBM Credit Corp. 5.73% 3/9/1998 494,817
-------------
Education - 7.4%
2,000,000 Harvard University 6.75% 1/2/98 1,999,625
2,000,000 Leland Stanford Jr. University 5.75% 4/2/98 1,972,043
1,000,000 Leland Stanford Jr. University 5.71% 4/23/98 982,764
1,000,000 Yale University 5.80% 3/2/98 990,467
1,000,000 Yale University 5.86% 3/23/98 987,018
2,000,000 Yale University 5.85% 2/25/98 1,982,339
-------------
8,914,256
-------------
Finance-Automotive - 1.3%
200,000 Ford Motor Credit Co. 6.51% 1/8/1998 199,747
300,000 General Motors Acceptance Corp 6.27% 1/14/1998 299,323
225,000 General Motors Acceptance Corp 5.94% 1/8/1998 224,742
900,000 General Motors Acceptance Corp 6.23% 1/21/1998 896,900
-------------
1,620,712
-------------
Finance-Commercial - 6.9%
310,000 General Electric Capital Corp. 5.69% 2/19/1998 307,654
130,000 General Electric Capital Corp. 5.76% 5/6/1998 127,490
2,000,000 General Electric Credit Capital Services
(GTD General Electric Capital Corp.) 5.85% 3/3/1998 1,980,446
2,000,000 General Electric Credit Capital Services
(GTD General Electric Capital Corp.) 5.73% 3/5/1998 1,980,330
2,000,000 Norwest Financial, Inc. 5.64% 1/29/1998 1,991,382
2,000,000 Norwest Financial, Inc. 5.70% 2/26/1998 1,982,609
-------------
8,369,911
-------------
Finance-Consumer - 9.6%
1,500,000 Associates Corp of North America 5.80% 1/14/1998 1,496,885
1,000,000 Associates Financial Services (GTD Associates Corp of North America) 6.11% 1/7/1998 998,983
1,100,000 Associates Financial Services Co Puerto Rico
(GTD Associates Corp of North America) 5.71% 2/12/1998 1,092,788
2,000,000 Associates Financial Services Co Puerto Rico
(GTD Associates Corp of North America) 5.93% 1/20/1998 1,993,772
2,000,000 AVCO Financial Services Inc. 5.76% 1/23/1998 1,993,021
2,000,000 Penney (J.C.) Funding Corp. 5.77% 2/19/1998 1,984,538
2,000,000 Penney (J.C.) Funding Corp. 5.67% 1/30/1998 1,990,994
-------------
11,550,981
-------------
Finance-Structured - 11.0%
2,000,000 Delaware Funding Corp. 6.03% 1/16/1998 1,995,000
620,000 Delaware Funding Corp. 6.00% 1/20/1998 618,043
1,000,000 Delaware Funding Corp. 5.91% 2/20/1998 991,875
2,000,000 Preferred Receivables Funding 5.88% 1/20/1998 1,993,846
2,000,000 Preferred Receivables Funding 6.03% 1/20/1998 1,993,667
293,000 Triple-A One Funding 6.17% 1/15/1998 292,300
2,000,000 Triple-A One Funding 5.93% 1/14/1998 1,995,739
459,000 Triple-A One Funding 6.19% 1/5/1998 458,685
1,000,000 Triple-A One Funding 6.51% 1/9/1998 998,556
2,000,000 Triple-A One Funding 5.95% 1/9/1998 1,997,369
-------------
13,335,080
-------------
Financial Services - 0.3%
300,000 USAA Capital Corp. 5.80% 2/19/1998 297,652
-------------
Food & Beverage - 0.8%
1,000,000 Heinz (H.J.) Co. 5.79% 2/24/1998 991,390
-------------
Industrial - 14.1%
2,000,000 Chevron Transport Corp. (GTD Chevron Corp.) 5.83% 2/5/1998 1,988,761
2,000,000 Chevron Transport Corp. (GTD Chevron Corp.) 5.73% 2/25/1998 1,982,828
2,000,000 Dupont (E.I.) de Nemours 5.75% 6/2/1998 1,953,387
1,900,000 Dupont (E.I.) de Nemours 6.14% 1/9/1998 1,897,416
5,200,000 Merck and Co, Inc. 6.26% 1/5/1998 5,196,389
2,000,000 Monsanto Co. 5.81% 5/11/1998 1,959,194
2,000,000 Monsanto Co. 5.62% 2/4/1998 1,989,592
-------------
16,967,567
-------------
Insurance - 2.5%
1,000,000 A.I. Credit Corp. 5.67% 1/15/1998 997,849
410,000 Met-Life Funding Inc. 5.84% 3/25/1998 404,565
1,242,000 Met-Life Funding Inc. 5.78% 1/29/1998 1,236,474
385,000 Met-Life Funding Inc. 5.83% 3/17/1998 380,388
-------------
3,019,276
-------------
Sovereign/Foreign Government - 0.4%
500,000 Sweden (Kingdom of) 5.76% 3/16/1998 494,193
-------------
Transportation - 0.2%
272,000 UPS Service of America, Inc. 5.68% 2/13/1998 270,198
-------------
U.S. Municipal - 9.0%
2,000,000 California Pollution Control Finance Authority
(GTD Shell Oil Co.) 5.80% 3/6/1998 2,000,000
4,020,000 Gulf Coast Waste Disposal Authority (GTD Amoco Oil) 5.81% 3/12/1998 4,020,000
3,100,000 City of New York Government Bonds, Fiscal 1995, Series B
(GTD FGIC SPI) 5.94% 2/20/1998 3,100,000
1,800,000 City of Whiting, Indiana Series 1995, Sewage & Waste Disposal
(GTD Amoco Oil Co.) 5.85% 4/9/1998 1,800,000
-------------
10,920,000
-------------
Total Commercial Paper 104,049,111
-------------
CERTIFICATES OF DEPOSIT - 0.8% (a)
Domestic
1,000,000 Bankers Trust Company, New York 6.00% 8/28/1998 999,813
-------------
MEDIUM TERM NOTES - 1.7% (a)
2,000,000 Abbey National Treasury Service PLC 5.72% 4/2/1998 2,000,941
-------------
VARIABLE RATE NOTES - 7.5% (a,b)
2,000,000 Federal Home Loan Bank 5.87% 1/7/1998 1,998,987
5,000,000 IBM Credit Corp. 5.61% 2/16/1998 4,998,361
2,000,000 Illinois Student Assistance Commission 5.92% 1/7/1998 2,000,000
-------------
8,997,348
-------------
OTHER - 0.6% (a,b)
380,000 Federal Home Loan Bank, Discount Notes 5.83% 2/18/1998 377,112
290,000 Federated Master Trust 5.38% 1/2/1998 290,000
-------------
667,112
-------------
Total Investments (at amortized cost) $120,714,352 (c)
=============
Notes to Portfolio of Investments:
(a) The categories of investments are shown as a percentage of total
investments of the Money Market Portfolio.
(b) Denotes variable rate obligations for which the current yield and
the next scheduled interest reset date are shown.
(c) Also represents cost for federal income tax purposes.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
OPPORTUNITY GROWTH PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
December 31, 1997
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $415,816,402) $412,606,261
Cash 128,375
Receivable for investment securities sold 3,080,652
Dividend and interest receivable 384,355
------------
Total assets 416,199,643
------------
LIABILITIES:
Payable for investment securities purchased 24,735,860
------------
NET ASSETS $391,463,783
============
NET ASSETS CONSIST OF:
Paid-in capital (33,897,420 shares of capital
stock outstanding) $393,535,909
Accumulated net realized gain from sale
of investments 1,138,015
Unrealized net depreciation of investments (3,210,141)
------------
NET ASSETS $391,463,783
============
Net asset value and public offering price per share
($391,463,783 divided by 33,897,420 shares
of capital stock outstanding) $11.55
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $ 840,684
Interest income 2,578,577
------------
Total income 3,419,261
------------
Expenses --
Investment advisory fee 1,301,986
------------
Net investment income 2,117,275
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investment transactions 4,242,763
Net realized gain on closed or expired option
contracts written 593,121
------------
Net realized gain on investments 4,835,884
Net change in unrealized depreciation
of investments 1,130,770
------------
Net gain on investments 5,966,654
------------
Net increase in net assets resulting
from operations $ 8,083,929
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Periods Ended December 31, 1997 and 1996
For the period from
January 18, 1996
Year Ended (effective date) to
December 31, 1997 December 31, 1996
----------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 2,117,275 $ 344,855
Net realized gain on investments 4,835,884 4,492,663
Net change in unrealized appreciation or depreciation
of investments 1,130,770 (4,340,911)
------------ ------------
Net increase in net assets resulting from operations 8,083,929 496,607
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income (2,117,275) (344,855)
Net realized gain on investments -- (8,190,532)
------------ ------------
Total distributions (2,117,275) (8,535,387)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 144,261,099 247,867,947
Reinvested dividend distributions 2,117,275 8,535,387
Cost of shares redeemed (7,432,544) (1,813,255)
------------ ------------
Net increase in net assets from capital stock transactions 138,945,830 254,590,079
------------ ------------
Net increase in net assets 144,912,484 246,551,299
NET ASSETS:
Beginning of period 246,551,299 --
------------ ------------
End of period $391,463,783 $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, 1997
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $280,843,781) $291,196,981
Cash (including foreign currency holdings
of $4,351,368) 4,388,680
Dividend and interest receivable 377,982
------------
Total assets 295,963,643
------------
LIABILITIES:
Payable for investment securities purchased 8,745,977
Unrealized depreciation of foreign currency
contracts held 13,919
------------
Total liabilities 8,759,896
------------
NET ASSETS $287,203,747
============
NET ASSETS CONSIST OF:
Paid-in capital (25,826,988 shares of capital
stock outstanding) $276,919,829
Accumulated net realized loss from sale
of investments
and foreign currency transactions (105,500)
Unrealized net appreciation of investments and
on translation of assets
and liabilities in foreign currencies 10,389,418
------------
NET ASSETS $287,203,747
============
Net asset value and public offering price per share
($287,203,747 divided by 25,826,988 shares of
capital stock outstanding) $11.12
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income (net of foreign taxes of $528,766) $ 3,932,945
Interest income 791,942
------------
Total income 4,724,887
------------
Expenses --
Investment advisory fee 2,080,364
------------
Net investment income 2,644,523
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investment transactions 805,176
Net realized loss on foreign currency transactions (38,950)
------------
Net realized gain on investments and foreign
currency transactions 766,226
------------
Net change in unrealized appreciation of investments 20,309
Net change in unrealized appreciation on translation
of assets and liabilities in foreign currencies 27,332
------------
Net change in unrealized appreciation of investments
and on translation of assets and liabilities in
foreign currencies 47,641
------------
Net gain on investments and foreign currency 813,867
------------
Net increase in net assets resulting
from operations $ 3,458,390
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Periods Ended December 31, 1997 and 1996
For the period from
January 18, 1996
Year Ended (effective date) to
December 31, 1997 December 31, 1996
----------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $2,644,523 $1,200,906
Net realized gain on investments
and foreign currency transactions 766,226 128,544
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and liabilities
in foreign currencies 47,641 10,341,776
------------ ------------
Net increase in net assets resulting from operations 3,458,390 11,671,226
------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS --
Net investment income (3,251,752) (1,432,845)
Net realized gain on investments (161,102) --
------------ ------------
Total distributions (3,412,854) (1,432,845)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 112,489,907 163,860,588
Reinvested dividend distributions 3,412,854 1,432,845
Cost of shares redeemed (2,837,098) (1,439,266)
------------ ------------
Net increase in net assets from capital stock transactions 113,065,663 163,854,167
------------ ------------
Net increase in net assets 113,111,199 174,092,548
NET ASSETS:
Beginning of period 174,092,548 --
------------ ------------
End of period $287,203,747 $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, 1997
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $2,190,348,401) $2,449,976,440
Cash 9,259
Receivable for investment securities sold 15,171,183
Dividend and interest receivable 2,457,355
--------------
Total assets 2,467,614,237
--------------
LIABILITIES:
Payable for investment securities purchased 41,476,557
--------------
Total liabilities 41,476,557
--------------
NET ASSETS $2,426,137,680
==============
NET ASSETS CONSIST OF:
Paid-in capital (112,406,211 shares of capital
stock outstanding) $1,792,272,399
Accumulated net realized gain from sale
of investments 374,237,243
Unrealized net appreciation of investments 259,628,038
--------------
NET ASSETS $2,426,137,680
==============
Net asset value and public offering price per share
($2,426,137,680 divided by 112,406,211 shares
of capital stock outstanding) $21.58
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Dividend income $ 22,808,333
Interest income 8,462,581
------------
Total income 31,270,914
------------
Expenses --
Investment advisory fee 8,300,117
------------
Net investment income 22,970,797
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investment transactions 388,493,658
Net realized gain on closed or expired option
contracts written 1,319,749
------------
Net realized gain on investments 389,813,407
Net change in unrealized appreciation
of investments 118,290,444
------------
Net gain on investments 508,103,851
------------
Net increase in net assets resulting
from operations $531,074,648
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1997 and 1996
1997 1996
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 22,970,797 $ 19,859,156
Net realized gain on investments 389,813,407 226,017,880
Net change in unrealized appreciation or depreciation
of investments 118,290,444 40,726,963
-------------- --------------
Net increase in net assets resulting from operations 531,074,648 286,603,999
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (22,970,797) (19,859,156)
Net realized gain on investments (239,942,399) (156,587,523)
-------------- --------------
Total distributions (262,913,196) (176,446,679)
-------------- --------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 268,095,814 226,899,132
Reinvested dividend distributions 262,913,196 176,446,679
Cost of shares redeemed (31,613,719) (28,066,347)
-------------- --------------
Net increase in net assets from capital stock transactions 499,395,291 375,279,464
-------------- --------------
Net increase in net assets 767,556,743 485,436,784
NET ASSETS:
Beginning of period 1,658,580,937 1,173,144,153
-------------- --------------
End of period $2,426,137,680 $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
December 31, 1997
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $1,293,491,625) $1,321,840,136
Cash 57,008
Receivable for investment securities sold 2,161,619
Interest and dividend receivable 22,439,683
--------------
Total assets 1,346,498,446
--------------
LIABILITIES:
Payable for investment securities purchased 1,935,750
--------------
Total liabilities 1,935,750
--------------
NET ASSETS $1,344,562,696
==============
NET ASSETS CONSIST OF:
Paid-in capital (128,831,291 shares of capital
stock outstanding) $1,296,384,079
Undistributed net investment income 852,897
Accumulated net realized gain from sale
of investments 18,977,209
Unrealized net appreciation of investments 28,348,511
--------------
NET ASSETS $1,344,562,696
==============
Net asset value and public offering price per share
($1,344,562,696 divided by 128,831,291 shares of
capital stock outstanding) $10.44
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $106,752,190
Dividend income 11,318,144
------------
Total income 118,070,334
------------
Expenses --
Investment advisory fee 4,734,301
------------
Net investment income 113,336,033
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investment transactions 26,147,702
Net change in unrealized appreciation of investments 18,136,291
------------
Net gain on investments 44,283,993
------------
Net increase in net assets resulting
from operations $157,620,026
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1997 and 1996
1997 1996
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 113,336,033 $ 89,021,168
Net realized gain on investment transactions 26,147,702 19,530,710
Net change in unrealized appreciation or depreciation
of investments 18,136,291 (9,358,262)
-------------- --------------
Net increase in net assets resulting from operations 157,620,026 99,193,616
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (112,483,136) (89,021,168)
-------------- --------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 180,112,872 156,539,510
Reinvested dividend distributions 112,483,136 89,367,857
Cost of shares redeemed (19,906,718) (21,833,105)
-------------- --------------
Net increase in net assets from capital stock transactions 272,689,290 224,074,262
-------------- --------------
Net increase in net assets 317,826,180 234,246,710
NET ASSETS:
Beginning of period 1,026,736,516 792,489,806
-------------- --------------
End of period (including undistributed net investment
income of $852,897 and $0 respectively) $1,344,562,696 $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
December 31, 1997
<S> <C>
ASSETS:
Investments in securities, at value
(cost, $889,188,121) $903,598,462
Cash 77,238
Receivable for investment securities sold 11,930,172
Interest and dividend receivable 12,278,500
------------
Total assets 927,884,372
------------
LIABILITIES:
Payable for investment securities purchased 47,444,804
------------
NET ASSETS $880,439,568
============
NET ASSETS CONSIST OF:
Paid-in capital (88,782,557 shares of capital
stock outstanding) $884,551,031
Accumulated net realized loss from sale
of investments (18,521,803)
Unrealized net appreciation of investments 14,410,340
------------
NET ASSETS $880,439,568
============
Net asset value and public offering price per share
($880,439,568 divided by 88,782,557 shares of
capital stock outstanding) $9.92
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $ 57,412,253
Dividend income 970,682
------------
Total income 58,382,935
------------
Expenses --
Investment advisory fee 3,298,189
------------
Net investment income 55,084,746
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investment transactions 7,274,687
Net realized gain on closed or expired option
contracts written 234,154
Net realized loss on closed futures contracts (164,605)
------------
Net realized gain on investments 7,344,236
Net change in unrealized appreciation
of investments 7,183,565
------------
Net gain on investments 14,527,801
------------
Net increase in net assets resulting
from operations $ 69,612,547
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1997 and 1996
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 55,084,746 $ 50,838,355
Net realized gain (loss) on investment transactions 7,344,236 (3,738,656)
Net change in unrealized appreciation or depreciation
of investments 7,183,565 (21,236,306)
------------ ------------
Net increase in net assets resulting from operations 69,612,547 25,863,393
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (55,084,746) (50,838,355)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 65,602,599 80,241,834
Reinvested dividend distributions 55,084,746 51,093,053
Cost of shares redeemed (55,935,562) (67,256,668)
------------ ------------
Net increase in net assets from capital stock transactions 64,751,783 64,078,219
------------ ------------
Net increase in net assets 79,279,584 39,103,257
NET ASSETS:
Beginning of period 801,159,984 762,056,727
------------ ------------
End of period $880,439,568 $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
December 31, 1997
<S> <C>
ASSETS:
Investments in securities, at amortized cost
and value $120,714,352
Cash 3,429
Interest receivable 449,374
------------
Total assets 121,167,155
------------
NET ASSETS $121,167,155
============
NET ASSETS CONSIST OF:
Paid-in capital (121,167,155 shares of capital
stock outstanding) $121,167,155
============
Net asset value and public offering price per share
($121,167,155 divided by 121,167,155 shares of
capital stock outstanding) $1.00
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1997
<S> <C>
INVESTMENT INCOME:
Income --
Interest income $ 6,411,601
------------
Expenses --
Investment advisory fee 452,465
------------
Net investment income $ 5,959,136
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Years Ended December 31, 1997 and 1996
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 5,959,136 $ 4,132,461
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income (5,959,136) (4,132,461)
------------ ------------
CAPITAL STOCK TRANSACTIONS --
Proceeds from sale of shares 76,690,617 75,776,304
Reinvested dividend distributions 5,959,136 4,152,037
Cost of shares redeemed (65,403,224) (42,157,682)
------------ ------------
Net increase in net assets from capital stock transactions 17,246,529 37,770,659
------------ ------------
Net increase in net assets 17,246,529 37,770,659
NET ASSETS:
Beginning of period 103,920,626 66,149,967
------------ ------------
End of period $121,167,155 $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)
For the period from
January 18, 1996
(effective date) to
OPPORTUNITY GROWTH PORTFOLIO 1997 December 31, 1996
------------------------ ------------------------
<S> <C> <C>
Net asset value, beginning of period $11.50 $10.00
-------- --------
Income From Investment Operations --
Net investment income 0.06 0.02
Net realized and unrealized gain
(loss) on investments 0.05 1.90
-------- --------
Total from investment operations 0.11 1.92
-------- --------
Less Distributions --
Dividends from net investment income (0.06) (0.02)
Distributions from net realized
gain on investments -- (0.40)
-------- --------
Total distributions (0.06) (0.42)
-------- --------
Net asset value, end of period $11.55 $11.50
======== ========
Total investment return at net asset value (b) 0.93% 19.17%
Net assets, end of period ($ millions) $391.5 $246.6
Ratio of expenses to average net assets 0.40% 0.40%(c)
Ratio of net investment income to
average net assets 0.65% 0.27%(c)
Portfolio turnover rate 147% 155%
Average Commission Rate (d) $0.0531 $0.0342
<CAPTION>
For the period from
January 18, 1996
(effective date) to
WORLD GROWTH PORTFOLIO 1997 December 31, 1996
------------------------ ------------------------
<S> <C> <C>
Net asset value, beginning of period $10.95 $10.00
-------- --------
Income From Investment Operations --
Net investment income 0.10 0.08
Net realized and unrealized gain
(loss) on investments 0.21 0.96
-------- --------
Total from investment operations 0.31 1.04
-------- --------
Less Distributions --
Dividends from net investment income (0.13) (0.09)
Distributions from net realized
gain on investments (0.01) --
-------- --------
Total distributions (0.14) (0.09)
-------- --------
Net asset value, end of period $11.12 $10.95
======== ========
Total investment return at net asset value (b) 2.81% 10.41%
Net assets, end of period ($ millions) $287.2 $174.1
Ratio of expenses to average net assets 0.85% 0.85%(c)
Ratio of net investment income to
average net assets 1.08% 1.34%(c)
Portfolio turnover rate 19% 9%
Average Commission Rate (d) $0.0245 $0.0265
See accompanying notes to the Financial Highlights.
</TABLE>
<TABLE>
<CAPTION>
LB SERIES FUND, INC.
Financial Highlights (continued)
GROWTH PORTFOLIO 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $19.32 $18.27 $13.51 $14.76 $13.89
-------- -------- -------- -------- --------
Income From Investment Operations --
Net investment income 0.21 0.24 0.24 0.20 0.29
Net realized and unrealized gain
(loss) on investments 4.97 3.43 4.76 (0.87) 1.08
-------- -------- -------- -------- --------
Total from investment operations 5.18 3.67 5.00 (0.67) 1.37
-------- -------- -------- -------- --------
Less Distributions --
Dividends from net investment income (0.21) (0.24) (0.24) (0.20) (0.29)
Distributions from net realized
gain on investments (2.71) (2.38) -- (0.38) (0.21)
-------- -------- -------- -------- --------
Total distributions (2.92) (2.62) (0.24) (0.58) (0.50)
-------- -------- -------- -------- --------
Net asset value, end of period $21.58 $19.32 $18.27 $13.51 $14.76
======== ======== ======== ======== ========
Total investment return at net asset value (b) 30.18% 22.44% 37.25% -4.66% 10.10%
Net assets, end of period ($ millions) $2,426.1 $1,658.6 $1,173.1 $721.8 $534.5
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 1.11% 1.41% 1.53% 1.52% 2.17%
Portfolio turnover rate 193% 223% 184% 135% 243%
Average Commission Rate (d) $0.0600 $0.0629 n/a n/a n/a
<CAPTION>
HIGH YIELD PORTFOLIO 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.06 $ 9.94 $ 9.18 $10.76 $ 9.62
-------- -------- -------- -------- --------
Income From Investment Operations --
Net investment income 0.98 0.98 0.96 0.97 0.96
Net realized and unrealized gain
(loss) on investments 0.37 0.12 0.76 (1.40) 1.16
-------- -------- -------- -------- --------
Total from investment operations 1.35 1.10 1.72 (0.43) 2.12
-------- -------- -------- -------- --------
Less Distributions --
Dividends from net investment income (0.97) (0.98) (0.96) (0.97) (0.96)
Distributions from net realized
gain on investments -- -- -- (0.18) (0.02)
-------- -------- -------- -------- --------
Total distributions (0.97) (0.98) (0.96) (1.15) (0.98)
-------- -------- -------- -------- --------
Net asset value, end of period $10.44 $10.06 $ 9.94 $ 9.18 $10.76
======== ======== ======== ======== ========
Total investment return at net asset value (b) 14.10% 11.55% 19.62% -4.38% 22.91%
Net assets, end of period ($ millions) $1,344.6 $1,026.7 $792.5 $595.6 $444.5
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 9.58% 9.83% 9.94% 9.75% 9.29%
Portfolio turnover rate 105% 107% 67% 44% 68%
See accompanying notes to the financial highlights.
<CAPTION>
LB SERIES FUND, INC.
Financial Highlights (continued)
INCOME PORTFOLIO 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.75 $10.08 $ 9.04 $10.36 $ 9.87
-------- -------- -------- -------- --------
Income From Investment Operations --
Net investment income 0.65 0.63 0.65 0.64 0.63
Net realized and unrealized gain
(loss) on investments 0.17 (0.33) 1.04 (1.11) 0.49
-------- -------- -------- -------- --------
Total from investment operations 0.82 0.30 1.69 (0.47) 1.12
-------- -------- -------- -------- --------
Less Distributions --
Dividends from net investment income (0.65) (0.63) (0.65) (0.64) (0.63)
Distributions from net realized
gain on investments -- -- -- (0.21) --
-------- -------- -------- -------- --------
Total distributions (0.65) (0.63) (0.65) (0.85) (0.63)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.92 $ 9.75 $10.08 $ 9.04 $10.36
======== ======== ======== ======== ========
Total investment return at net asset value (b) 8.75% 3.21% 19.36% -4.68% 11.66%
Net assets, end of period ($ millions) $880.4 $801.2 $762.1 $608.2 $566.9
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 6.68% 6.54% 6.81% 6.78% 6.23%
Portfolio turnover rate 117% 150% 132% 139% 153%
<CAPTION>
MONEY MARKET PORTFOLIO 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<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 0.05 0.06 0.04 0.03
Less: Dividends from net investment income (0.05) (0.05) (0.06) (0.04) (0.03)
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return (b) 5.43% 5.20% 5.71% 4.00% 2.87%
Net assets, end of period ($ millions) $121.2 $103.9 $66.1 $41.9 $24.9
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 5.27% 5.07% 5.55% 4.03% 2.83%
NOTES TO FINANCIAL HIGHLIGHTS:
(a) All per share amounts have been rounded to the nearest cent.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of a sales charge.
(c) Computed on an annualized basis.
(d) Average commission rate is based on total broker commissions
incurred in connection with execution of portfolio transactions
during the period, divided by the sum of all portfolio shares
purchased and sold during the period that were subject to a
commission. Broker commissions are treated as capital items that
increase the cost basis of securities purchased, or reduce the
proceeds of securities sold.
The accompanying notes are an integral part of the financial statements.
</TABLE>
LB SERIES FUND, INC.
Notes to Financial Statements
December 31, 1997
(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 $1,230,547 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) amy 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.
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, 1997, accumulated net realized gain or loss from the
sale of investments was decreased by $607,229 and undistributed net
investment income was increased by $607,229 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
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 converts 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 year.
(5) DISTRIBUTIONS FROM CAPITAL GAINS
During the year ended December 31, 1997, a distribution from net
realized capital gains of $161,102 and $239,942,399 were paid by the
World Growth Portfolio and the Growth Portfolio, respectively. These
distributions relate to net capital gains realized during the year
ended December 31, 1996.
(6) CAPITAL LOSS CARRYOVER
During the year ended December 31, 1997, the High Yield Portfolio
fully utilized the remaining $5,055,282 of its capital loss
carryover, and the Income Portfolio utilized $7,605,392 of its
capital loss carryover against net realized capital gains. At
December 31, 1997, the Income Portfolio had an accumulated net
realized capital loss carryover of $17,727,812 expiring as follows:
Income
Year Portfolio
-------- -----------
2002 $14,060,792
2003 --
2004 3,667,020
-----------
$17,727,812
-----------
To the extent that the Income Portfolio realizes future net capital
gains, taxable distributions will be reduced by any unused capital
loss carryovers. Temporary timing differences of $4,065,540,
$2,586,307, $8,377,908, $860,316 and $793,991 existed between
accumulated net realized capital gains or losses for financial
statement and tax purposes as of December 31, 1997 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, 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 $ 549,839 $ 418,868
World Growth 157,671 43,564
Growth 3,879,956 3,671,009
High Yield 1,379,617 1,168,435
Income 658,918 603,649
Purchases and sales of U.S. Government securities were:
In thousands
----------------------------------
Portfolio Purchases Sales
- ---------------------------------------------------------------------
Growth $ 21,515 $ 33,414
Income 316,003 301,779
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 $149,756 at December 31,
1997, which represented 0.01% of the 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.
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 year ended December 31, 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 $ 99,196
Opened 4,790 $1,726,050 23,405 3,915,387 3,034 1,022,090
Closed (1,256) (479,278) (15,423) (2,889,305) (2,584) (962,263)
Expired (639) (177,149) (5,441) (595,583) (600) (159,023)
Exercised (2,895) (1,069,623) (3,539) (764,741) -- --
------------ ---------- ---------- ---------- ----------- ----------
Balance at December 31, 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 Income Money
Growth Growth Growth Yield Fund 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 20,829,993 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
Shares sold 12,916,456 9,868,979 13,519,744 17,651,288 6,711,456 76,690,617
Shares issued on reinvestment
of dividends and distributions 183,341 307,190 14,633,525 11,014,219 5,644,954 5,959,136
Shares redeemed (633,116) (249,912) (1,579,866) (1,942,120) (5,749,815) (65,403,224)
------------ ---------- ---------- ---------- ----------- ------------
Shares outstanding at
December 31, 1997 33,897,420 25,826,988 112,406,211 128,831,291 88,782,557 121,167,155
========== ========== =========== =========== ========== ===========
</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.
#18914 version 2
Exhibit 10(c)
LB Series Fund, Inc.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
April 27, 1998
LB Series Fund, Inc.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Gentlemen:
As counsel to LB Series Fund, Inc., a corporation organized under the laws
of the State of Minnesota (the "Fund"), I have been asked to render an
opinion in connection with Post-Effective Amendment No. 22 under the
Securities Act of 1933 to the Registration Statement on Form N-1A
(Securities Act File No. 33-3677) to be filed by the Fund with the
Securities and Exchange Commission (as amended, the "Registration
Statement").
I wish to advise you that I have examined such documents and questions of
law as I have deemed necessary for purposes of this opinion. Based upon the
foregoing, I am of the opinion that:
1. The Fund has been duly organized and is validly existing pursuant to the
laws of the State of Minnesota;
2. In its pre-effective registration statement, the Fund elected to
register an indefinite number of shares pursuant to the provision of Rule
24f-2; and
3. The shares of capital stock of the Fund which are described in the
foregoing Registration Statement will, when sold in accordance with the
terms of the Prospectus and Statement of Additional Information in effect at
the time of the sale, be legally issued, fully paid and non-assessable by
the Fund.
I consent to this opinion being filed as an exhibit to the foregoing
Registration Statement.
Sincerely,
/s/ John C. Bjork
John C. Bjork
Counsel
JCB:jkr\#20752
EXHIBIT 11
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. 22 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated February 11, 1998, relating to
the financial statements and financial highlights appearing in the December
31, 1997 Annual Report to Shareholders of the LB Series Fund, Inc., which is
also incorporated by reference into the Registration Statement. We also
consent to the references to us under the heading "Financial Highlights" in
the Prospectus and under the heading "Independent Accountants" in the
Statement of Additional Information.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
April 27, 1998
#20795
EXHIBIT 1
ARTICLES OF INCORPORATION
OF
LBVIP SERIES FUND, INC.
The undersigned incorporator, being a natural person 18 years of
age or older, in order to form a corporate entity under Minnesota Statutes,
Chapter 302A, hereby adopts the following Articles of Incorporation:
ARTICLE I
The name of this Corporation is LBVIP Series Fund, Inc.
ARTICLE II
The registered office of this Corporation is located at 625
Fourth Avenue South, Minneapolis, Minnesota 55415.
ARTICLE III
The total number of shares of capital stock which this
Corporation shall have authority to issue is $2,000,000,000 shares of the
par value of $.01 per share. One billion six hundred million
(1,600,000,000) shares shall be 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 hereinafter granted to the Board
of Directors:
CLASS NUMBER OF SHARES
----- ----------------
Money Market Portfolio Capital Stock 600,000,000
Income Portfolio Capital Stock 400,000,000
Growth Portfolio Capital Stock 600,000,000
Subject to any then applicable statutory requirements, the balance of
400,000,000 shares of such authorized capital stock may be issued in such
classes, or in any new class or classes each comprising such number of
shares and having such designations, such powers, preferences and rights and
such qualifications, limitations and restrictions as shall be fixed and
determined from time to time by resolution or resolutions providing for the
issuance of such stock adopted by the Board of Directors, to whom authority
so to fix and determine the same is hereby expressly granted. In addition,
and subject to any applicable statutory requirements, the Board of Directors
is hereby expressly granted authority to increase or decrease the number of
shares of any class, but the number of shares of any class shall not be
decreased by the Board of Directors below the number of shares thereof then
outstanding.
The holder of each share of stock of this Corporation 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 this Corporation. On any matter submitted to
a vote of shareholders, all shares of this Corporation then issued and
outstanding and entitled to vote shall be voted in the aggregate and not by
class except that (a) when otherwise expressly required by Minnesota
Statutes, Chapter 302A, or the Investment Company Act of 1940, as amended,
shares shall 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 policies, as specified in the Bylaws of this
Corporation, 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 capital stock of such Portfolio. No
shareholder of this Corporation shall have any cumulative voting rights.
No shareholder of this Corporation shall have any preemptive
rights to subscribe for, purchase or acquire any shares of this Corporation
of any class, whether unissued or now or hereafter authorized, or any
obligations or other securities convertible into or exchangeable for any
such shares.
Each class of stock of this Corporation shall have the following
powers, preferences or other special rights, and the qualifications,
restrictions and limitations thereof shall be as follows:
(a) The shares of each class, when issued, will be fully paid
and nonassessable, have no preference, preemptive, conversion, exchange or
similar rights, except as set forth in (b) below, and will be freely
transferable.
(b) The consideration received by this Corporation for the sale
of capital stock shall become part of the assets of the Portfolio to which
the capital stock of the class relates. Each share of the capital stock of
each class shall have a pro rata interest in the assets of the Portfolio to
which the capital stock of that class relates and shall have no interest in
the assets of any other Portfolio.
(c) Subject to any applicable statutory requirements, 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 of Directors.
(i) Dividends or distributions on shares of any class of stock
shall be paid only out of earned surplus or other lawfully available
assets belonging to such class.
(ii) Inasmuch as one goal of this Corporation is to qualify as
a "regulated investment company" under the Internal Revenue Code of
1954, as amended, or any successor or comparable statute thereto, 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 this
Corporation, the Board of Directors shall have 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 of
Directors to enable this Corporation to qualify as a regulated
investment company and to avoid liability of this Corporation for
Federal income tax in respect of that year. In furtherance and not in
limitation of the foregoing, in the event that a class of shares has a
net capital loss for a fiscal year, and to the extent that a net
capital loss for a fiscal year, and to the extent that a net capital
loss for a fiscal year offsets net capital gains from one or more of
the other classes, the amount to be deemed available for distribution
to the class or classes with the net capital gain may be reduced by
the amount offset.
(d) The assets belonging to any class of stock shall be charged
with the liabilities in respect to such class, and shall also be charged
with their share of the general liabilities of this Corporation in
proportion to the asset values of the respective classes. The determination
of the Board of Directors shall be conclusive as to the amount of
liabilities or the amount of any general assets of this Corporation, as to
whether such liabilities or assets are allocable to one or more classes, and
as to the allocation of such liabilities or assets to a given class or among
several classes.
(e) With the approval of the holders of a majority of the
outstanding shares of each of the affected classes of capital stock, the
Board of Directors may transfer the assets of any Portfolio to any other
Portfolio. Upon such a transfer, this Corporation shall issue shares of
capital stock representing interests in the Portfolio to which the assets
were transferred in exchange for all shares of capital stock representing
interests in the Portfolio from which the assets were transferred. Such
shares shall be exchanged at their respective net asset values.
ARTICLE IV
Each holder of shares of capital stock of this Corporation shall
be entitled to require this Corporation to redeem all or part of the shares
of capital stock of this Corporation standing in the name of such holder on
the books of this Corporation, and this Corporation shall redeem all shares
of such capital stock tendered to it for redemption at the redemption price
of such shares as in effect from time to time as may be determined by the
Board of Directors of this Corporation in accordance with the provisions
hereof, subject to the right of the Board of Directors of this Corporation
to suspend the right of redemption of shares of capital stock of this
Corporation or postpone the date of payment of such redemption price in
accordance with provisions of applicable law. The redemption price of
shares of capital stock of this Corporation shall be the net asset value
thereof as determined by the Board of Directors of this Corporation from
time to time in accordance with the provisions of applicable law, less such
redemption fee or other charge, if any, as may be fixed by resolution of the
Board of Directors of this Corporation. Payment of the redemption price
shall be made in cash by this Corporation at such time and in such manner as
may be determined from time to time by the Board of Directors of this
Corporation, except that capital stock of any class may be redeemed in kind
with the assets of the Portfolio to which the class relates if the Board of
Directors deems such action desirable.
ARTICLE V
The name and address of the incorporator is W. Smith Sharpe,
Jr., 2300 Multifoods Tower, 33 South Sixth Street, Minneapolis, Minnesota
55402.
ARTICLE VI
The names and addresses of the first directors of this
Corporation are as follows:
Clair E. Strommen 625 Fourth Avenue South
Minneapolis, Minnesota 55415
Luther O. Forde 625 Fourth Avenue South
Minneapolis, Minnesota 55415
Rolf F. Bjelland 625 Fourth Avenue South
Minneapolis, Minnesota 55415
ARTICLE VII
Any action required or permitted to be taken at a meeting of the
Board of Directors of this Corporation not needing approval by the
shareholders under Minnesota Statutes, Chapter 302A, may be taken by written
action signed by the number of directors that would be required to take such
action at a meeting of the Board of Directors at which all directors are
present.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day
of February, 1986.
/s/W. Smith Sharpe, Jr.
--------------------------------
W. Smith Sharpe, Jr.
STATE OF MINNESOTA)
) SS.
COUNTY OF HENNEPIN)
The foregoing instrument was acknowledged before me this 24th
day of February, 1986.
/s/Patricia A. Gronquist
---------------------------------
/notary seal/Patricia A. Gronquist
Notary Public - Minnesota
/Minnesota state seal/ HENNEPIN COUNTY
My Commission Expires May 24, 1989
<PAGE>
AMENDMENT TO ARTICLES OF INCORPORATION
LBVIP Series Fund, Inc.
The following amendment to the articles of incorporation of LBVIP Series
Fund, Inc., consisting of an additional article, was approved by a vote of
the holders of a majority of shares of stock on August 13, 1987, at a
regular meeting of shareholders.
ARTICLE VIII
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty by that director as a director; provided, however, that this Article
shall not eliminate or limit the liability of a director to the extent
provided by applicable law: (a) for any breach of the director's duty of
loyalty to the corporation or its shareholders; (b) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing
violation of law; (c) under Minnesota Statutes Section 302A.559 or 80A.23;
(d) for any transaction from which the director derived an improper personal
benefit; (e) for any act for which the director would be liable by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office; or (f) for any act
or omission occurring prior to the date when this Article VIII becomes
effective. No amendment to or repeal of this Article VIII shall apply to or
have any effect on the liability or alleged liability of any director of the
corporation for or with respect to any acts or omissions of such director
occurring prior to that amendment or repeal.
I swear that the foregoing is true and accurate and that I have the
authority to sign this document on behalf of the corporation.
/s/ Otis F. Hilbert
---------------------------------
Otis H. Hilbert, Secretary
STATE OF MINNESOTA )
) ss
County of Hennepin )
The foregoing instrument was acknowledged before me on this 16th day of
September, 1987.
/s/ Audrey P. Hodgson
---------------------------------
Notary Public
<PAGE>
AMENDMENT TO ARTICLES OF INCORPORATION
LBVIP Series Fund, Inc.
The following amendment to the articles of incorporation of LBVIP Series
Fund, Inc., consisting of striking out ARTICLE I and replacing it with the
following new ARTICLE I, was approved by a vote of the holders of a majority
of shares of stock on October 28, 1993, at a regular meeting of
shareholders.
ARTICLE I
The name of this Corporation is LB Series Fund, Inc.
I swear that the foregoing is true and accurate and that I have the
authority to sign this document on behalf of the corporation.
/s/ Randall L. Wetherille
---------------------------------
Randall L. Wetherille
Assistant Secretary
STATE OF MINNESOTA )
) ss
County of Hennepin )
The foregoing instrument was acknowledged before me on this 28th day of
January, 1997.
/s/ Katherine M. Stehr
---------------------------------
Notary Public
#20728
EXHIBIT 2
-----
BYLAWS
OF
LBVIP SERIES FUND, INC.
SHAREHOLDERS
------------
SECTION 1.01 PLACE OF MEETINGS. Each meeting of the shareholders
shall be held at the principal executive office of the Corporation or at
such other place as may be designated by the Board of Directors or the Chief
Executive Officer; provided, however, that any meeting called by or at the
demand of a shareholder or shareholders shall be held in the county where
the principal executive office of the Corporation is located.
SECTION 1.02 REGULAR MEETINGS. Regular meetings of the
shareholders may be held on an annual or other less frequent basis as
determined by the Board of Directors; provided, however, that if a regular
meeting has not been held during the immediately preceding fifteen 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 Corporation. At each regular meeting the shareholders shall
elect qualified successors for directors who serve for an indefinite term or
whose terms have expired or are due to expire within six months after the
date of the meeting and may transact any other business, provided, however,
that no business with respect to which special notice is required by law
shall be transacted unless such notice shall have been given.
SECTION 1.03 SPECIAL MEETINGS. A special meeting of the
shareholders may be called for any purpose or purposes at any time by the
Chief Executive officer; by the Chief Financial Officer; by the Board of
Directors or any two or more members thereof; or by one or more shareholders
holding not less than 10% of the voting power of all shares of the
Corporation entitled to vote, who shall demand such special meeting by
written notice given to the Chief Executive Officer of the Chief Financial
Officer of the Corporation specifying the purposes of such meeting.
SECTION 1.04 MEETINGS HELD UPON SHAREHOLDER DEMAND. Within thirty
days of receipt of a demand by the Chief Executive Officer or the Chief
Financial Officer from any shareholder or shareholders entitled to call a
meeting of the shareholders, it shall be the duty of the Board of Directors
of the Corporation to cause a special or regular meeting of shareholders, as
the case may be, to be duly called and held on notice no later than ninety
days after receipt of such demand. If the Board of Directors fails to cause
such a meeting to be called and held as required by this Section, the
shareholder or shareholders making the demand may call the meeting by giving
notice as provided in Section 1.06 hereof at the expense of the Corporation.
SECTION 1.05 ADJOURNMENTS. Any meeting of the shareholders may be
adjourned from time to time to another date, time and place. If any meeting
of the shareholders is so adjourned, no notice as to such adjourned meeting
need be given if the date, time and place at which the meeting will be
reconvened are announced at the time of adjournment.
SECTION 1.06 NOTICE OF MEETINGS. Except as otherwise specified in
Section 1.05 or required by law, written notice of each meeting of the
shareholders, stating the date, time and place and, in the case of a special
meeting, the purpose or purposes, shall be given at least ten days and not
more than sixty days prior to the meeting to every holder of shares entitled
to vote at such meeting. The business transacted at a special meeting of
shareholders is limited to the purposes stated in the notice of the meeting.
SECTION 1.07 WAIVER OF NOTICE. A shareholder may waive notice of
the date, time, place and purpose or purposes of a meeting of shareholders.
A waiver of notice by a shareholder entitled to notice is effective whether
given before, at or after the meeting, and whether given in writing, orally
or by attendance. Attendance by a shareholder at a meeting is a waiver of
notice of that meeting, unless the shareholder objects at the beginning of
the meeting to the transaction of business because the meeting is not
lawfully called or convened, or objects before a vote on an item of business
because the item may not lawfully be considered at that meeting and does not
participate in the consideration of the item at that meeting.
SECTION 1.08 QUORUM; ACTS OF SHAREHOLDERS. Subdivision 1. Except
as otherwise required by law, the Articles of Incorporation of the
Corporation or these Bylaws, the holders of a majority of the voting power
of the shares entitled to vote at a shareholders meeting are a quorum for
the transaction of business. If a quorum is present when a dully called or
held meeting is convened, the shareholders present may continue to transact
business until adjournment, even though the withdrawal of a number of the
shareholders originally present leaves less than the proportion or number
otherwise required for a quorum. Except as otherwise required by law or
specified in the Articles of Incorporation of the Corporation, the
shareholders shall take action by the affirmative vote of the holders of a
majority of the voting power of the shares present and entitled to vote at a
duly held meeting of shareholders.
Subdivision 2. The absence from any meeting, in person or by proxy,
of holders of the number of shares in excess of a majority thereof which may
be required by the laws of the State of Minnesota, the Investment Company
Act of 1940 or other applicable statute, the Articles of Incorporation of
the Corporation or these Bylaws for action upon any given matter shall not
prevent action at such meeting upon any other matter or matters which may
properly come before the meeting if there shall be present thereat, in
person or by proxy, holders of the number of shares of stock of the
Corporation required for action in respect of such matter or matters.
SECTION 1.09 VOTING RIGHTS. Subdivision 1. A shareholder shall
have the voting rights set forth in the Articles of Incorporation of the
Corporation. Except as otherwise required by law, a holder of shares
entitled to vote may vote any portion of the shares in any way the
shareholder chooses. If a shareholder votes without designating the
proportion or number of shares voted in a particular way, the shareholder is
deemed to have voted all of the shares in that way.
Subdivision 2. The Board may fix a date not more than sixty days
before the date of a meeting of shareholders as the date for the
determination of the holders of shares entitled to notice of and entitled to
vote at the meeting. When a date is so fixed, only shareholders on that
date are entitled to notice of and permitted to vote at that meeting of
shareholders.
SECTION 1.10 PROXIES. A shareholder may cast or authorize the
casting of a vote by filing a written appointment of a proxy with an officer
of the Corporation at or before the meeting at which the appointment is to
be effective.
SECTION 1.11 ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at a meeting of the shareholders of the Corporation
may be taken without a meeting by written action signed by all of the
shareholders entitled to vote on that action. The written action is
effective when it has been signed by all of those shareholders, unless a
different effective time is provided in the written action.
DIRECTORS
---------
SECTION 2.01 NUMBER; QUALIFICATIONS. Except as authorized by the
shareholders pursuant to a shareholder control agreement or unanimous
affirmative vote, the business and affairs of the Corporation shall be
managed by or under the direction of a Board of one or more directors.
Directors shall be natural persons. The shareholders at each regular
meeting shall determine the number of directors to constitute the Board,
provided that thereafter the authorized number of directors may be increased
by the shareholders or the Board and decreased by the shareholders.
Directors need not be shareholders.
SECTION 2.02 TERM. Each director shall serve for an indefinite
term that expires at the next regular meeting of the shareholders. A
director shall hold office until a successor is elected and has qualified or
until the earlier death, resignation, removal or disqualification of the
director. No person shall serve as a Director beyond the earlier of the end
of the month in which he or she attains the age of 70 years, or the end of
the month in which he or she completes 10 continuous years of service as a
Director, except that the limitation on 10 continuous years of service shall
not apply to any person who was originally elected as a Director before
September 6, 1989. ( Footnote Number 1 )
A vacancy on the Board may be declared by a majority of the Board upon the
happening of any of the following events: (1) death, (2) resignation,
or (3) disability of a Director. Disability may involve either physical or
mental disability which seriously affects the ability of a Director to
participate in the meetings of the Board. Such physical or mental
disability shall be certified to after examination by one or more physicians
selected by majority vote of the remaining directors. A Director shall be
deemed to be disabled if he or she is unable to attend three (3) consecutive
regular meetings of the Board of Directors because of such disability.
(Footnote Number 2)
SECTION 2.03 VACANCIES. Vacancies on the Board of Directors
resulting from the death, resignation, removal or disqualification of a
director may be filled by the affirmative vote of a majority of the
remaining members of the Board, though less than a quorum. Vacancies on the
Board resulting from newly created directorships may be filled by the
affirmative vote of a majority of the directors serving at the time such
directorships are created. Each person elected to fill a vacancy shall hold
office until a qualified successor is elected by the shareholders at the
next regular meeting or at any special meeting duly called for that purpose.
SECTION 2.04 PLACE OF MEETINGS. Each meeting of the Board of
Directors shall be held at the principal executive office of the Corporation
or at such other place as may be designated from time to time by a majority
of the members of the Board.
SECTION 2.05 REGULAR MEETINGS. Regular meetings of the Board of
Directors for the election of officers and the transaction of any other
business shall be held without notice at the place of and immediately after
each regular meeting of the shareholders.
SECTION 2.06 SPECIAL MEETINGS. A special meeting of the Board of
Directors may be called for any purpose or purposes at any time by any
member of the Board by giving not less than two nor more than ten days'
notice to all directors of the date, time and place of the meeting. The
notice need not state the purpose of the meeting.
SECTION 2.07 WAIVER OF NOTICE; PREVIOUSLY SCHEDULED MEETINGS.
Subdivision 1. A director of the Corporation may waive notice of the date,
time and place of a meeting of the Board. A waiver of notice by a director
entitled to notice is effective whether given before, at or after the
meeting, and whether given in writing, orally or by attendance. Attendance
by a director at a meeting is a waiver of notice of that meeting, unless the
director objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened and
thereafter does not participate in the meeting.
Subdivision 2. If the day or date, time and place of a Board meeting
have been provided herein or announced at a previous meeting of the Board,
no action is required. Notice of an adjourned meeting need not be given
other than by announcement at the meeting at which adjournment is taken of
the date, time and place at which the meeting will be reconvened.
SECTION 2.08 QUORUM; ACTS OF BOARD. The presence in person of a
majority of the directors currently holding office shall be necessary to
constitute a quorum for the transaction of business. In the absence of a
quorum, a majority of the directors present may adjourn a meeting from time
to time without further notice until a quorum is present. If a quorum is
present when a duly held meeting is convened, the directors present may
continue to transact business until adjournment, even though the withdrawal
of a number of the directors originally present leaves less than the
proportion or number otherwise required for a quorum. Except as otherwise
required by law, the Articles of Incorporation of the Corporation or these
Bylaws, the Board shall take action by the affirmative vote of a majority of
the directors present at a duly held meeting; provided, however, that the
approval of any contract with an investment adviser or principal
underwriter, as such terms are defined in the Investment Company Act of 1940
or any renewal or amendment thereof, the approval of the fidelity bond
required by the Investment Company Act of 1940, and the selection of the
Corporation's independent public accountants shall each require the
affirmative vote of a majority of the directors who are not parties to such
contract or interested persons of such party.
SECTION 2.09 ELECTRONIC COMMUNICATIONS. A conference among
directors by any means of communication through which the directors may
simultaneously hear each other during the conference constitutes a Board
meeting, if the same notice is given of the conference as would be required
for a meeting, and if the number of directors participating in the
conference would be sufficient to constitute a quorum at a meeting. A
director may participate in a Board meeting not described in the immediately
preceding sentence by any means of communication through which the director,
other directors so participating and all directors physically present at the
meeting may simultaneously hear each other during the meeting.
Participation in a meeting by any means referred to in this Section 2.09
constitutes a presence in person at the meeting.
SECTION 2.10 ABSENT DIRECTORS. A director of the Corporation may
give advance written consent or opposition to a proposal to be acted on at a
Board meeting. If the director is not present at the meeting, consent or
opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered
in the minutes or other record of action at the meeting, if the proposal
acted on at the meeting is substantially the same or has substantially the
same effect as the proposal to which the director has consented or objected.
SECTION 2.11 ACTION WITHOUT A MEETING. An action required or
permitted to be taken at a Board meeting may be taken without a meeting by
written action signed by all of the directors. Any action, other than an
action requiring shareholder approval, if the Articles of Incorporation so
provide, may be taken by written action signed by the number of directors
that would be required to take the same action at a meeting of the Board at
which all directors were present. The written action is effective when
signed by the required number of directors, unless a different effective
time is provided in the written action. When written action is permitted to
be taken by less than all directors, all directors shall be notified
immediately of its text and effective date.
SECTION 2.12 COMMITTEES. Subdivision 1. A resolution approved by
the affirmative vote of a majority of the Board may establish committees
having the authority of the Board in the management of the business of the
Corporation only to the extent provided in the resolution. Committees shall
be subject at all times to the direction and control of the Board, except as
provided in Section 2.13.
Subdivision 2. A committee shall consist of one or more natural
persons, who need not be directors, appointed by affirmative vote of a
majority of the directors present at a duly held Board meeting.
Subdivision 3. Section 2.04 and Sections 2.06 to 2.11 hereof shall
apply to committees and members of committees to the same extent as those
sections apply to the Board and directors.
Subdivision 4. Minutes, if any, of committee meetings shall be made
available upon request to members of the committee and to any director.
SECTION 2.13 COMMITTEE OF DISINTERESTED PERSONS. Pursuant to the
procedure set forth in Section 2.12, the Board may establish a committee
composed of two or more disinterested directors or other disinterested
persons to determine whether it is in the best interests of the Corporation
to pursue a particular legal right or remedy of the Corporation and whether
to cause the dismissal or discontinuance of a particular proceeding that
seeks to assert a right or remedy on behalf of the Corporation. The
committee, once established, is not subject to the direction or control of,
or termination by, the Board. A vacancy on the committee may be filled by a
majority vote of the remaining committee members. The good faith
determinations of the committee are binding upon the Corporation and its
directors, officers and shareholders. The committee terminates when it
issues a written report of its determinations to the Board.
SECTION 2.14 COMPENSATION. The Board may fix the compensation, if
any, of directors.
OFFICERS
--------
SECTION 3.01 NUMBER AND DESIGNATION. The Corporation shall have
one or more natural persons exercising the functions of the offices of Chief
Executive Officer and Chief Financial Officer. The Board of Directors may
elect or appoint such other officers or agents as it deems necessary for the
operation and management of the Corporation, with such powers, rights,
duties and responsibilities as may be determined by the Board, including,
without limitation, a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, each of whom shall have the powers,
rights, duties and responsibilities set forth in these Bylaws unless
otherwise determined by the Board. Any of the offices or functions of those
offices may be held by the same person.
SECTION 3.02 CHAIRMAN OF THE BOARD. Unless otherwise determined by
the Board of Directors, the Chairman of the Board shall be the Chief
Executive Officer of the Corporation. The Chairman of the Board shall
perform such executive and other duties as the Board of Directors may, from
time to time, prescribe.
SECTION 3.03 CHIEF EXECUTIVE OFFICER. Unless provided otherwise by
a resolution adopted by the Board of Directors, the Chief Executive
officer (a) shall have general active management of the business of
the Corporation; (b) shall, when present, preside at all meetings of the
shareholders and Board of Directors; (c) shall see that all orders and
resolutions of the Board are carried into effect; (d) may maintain
records of and certify proceedings of the Board and shareholders;
and (e) shall perform such other duties as may from time to time be
assigned by the Board.
SECTION 3.04 CHIEF FINANCIAL OFFICER. Unless provided otherwise by
a resolution adopted by the Board of Directors, the Chief Financial
officer (a) shall keep accurate financial records for the
Corporation; (b) shall deposit all monies, drafts and checks in the name
of and to the credit of the Corporation in such banks and depositories as
the Board of Directors shall designate from time to time; (c) shall
endorse for deposit all notes, checks and drafts received by the Corporation
as ordered by the Board, making proper vouchers therefor; (d) shall
disburse corporate funds and issue checks and drafts in the name of the
Corporation, as ordered by the Board; (e) shall render to the Chief
Executive Officer and the Board of Directors, whenever requested, an account
of all of his transactions as Chief Financial Officer and of the financial
condition of the Corporation; and (f) shall perform such other duties as
may be prescribed by the Board of Directors or the Chief Executive officer
from time to time.
SECTION 3.05 PRESIDENT. The President shall perform such duties as
may from time to time be assigned by the Board of Directors.
SECTION 3.06 VICE PRESIDENTS. Any one or more Vice Presidents, if
any, may be designated by the Board of Directors as Executive Vice
Presidents or Senior Vice Presidents. During the absence or disability of
the President, it shall be the duty of the highest ranking Executive Vice
President, and, in the absence of any such Vice President, it shall be the
duty of the highest ranking Senior Vice President or other Vice President,
who shall be present at the time and able to act, to perform the duties of
the President. The determination of who is the highest ranking of two or
more persons holding the same office shall, in the absence of specific
designation of order of rank by the Board of Directors, be made on the basis
of the earliest date of appointment or election, or, in the event of
simultaneous appointment or election, on the basis of the longest continuous
employment by the Corporation.
SECTION 3.07 SECRETARY. The Secretary, unless otherwise determined
by the Board, shall attend all meetings of the shareholders and all meetings
of the Board of Directors, shall record or cause to be recorded all
proceedings thereof in a book to be kept for that purpose, and may certify
such proceedings. Except as otherwise required or permitted by law or by
these Bylaws, the Secretary shall give or cause to be given notice of all
meetings of the shareholders and all meetings of the Board of Directors.
SECTION 3.08 TREASURER. Unless otherwise determined by the Board,
the Treasurer shall be the Chief Financial Officer of the Corporation. If
an officer other than the Treasurer is designated Chief Financial Officer,
the Treasurer shall perform such duties as may from time to time be assigned
to him by the Board.
SECTION 3.09 AUTHORITY AND DUTIES. In addition to the foregoing
authority and duties, all officers of the Corporation shall respectively
have such authority and perform such duties in the management of the
business of the Corporation as may be designated from time to time by the
Board of Directors. Unless prohibited by a resolution approved by the
affirmative vote of a majority of the directors present, an officer elected
or appointed by the Board may, without the approval of the Board, delegate
some or all of the duties and powers of an office to other persons.
SECTION 3.10 TERM. Subdivision 1. All officers of the Corporation
shall hold office until their respective successors are chosen and have
qualified or until their earlier death, resignation or removal.
Subdivision 2. An officer may resign at any time by giving written
notice to the Corporation. The resignation is effective without acceptance
when the notice is given to the Corporation, unless a later effective date
is specified in the notice.
Subdivision 3. An officer may be removed at any time, with or without
cause, by a resolution approved by the affirmative vote of a majority of the
directors present at a duly held Board meeting.
Subdivision 4. A vacancy in an office because of death, resignation,
removal, disqualification or other cause may, or in the case of a vacancy in
the office of Chief Executive Officer or Chief Financial Officer shall, be
filled for the unexpired portion of the term by the Board.
SECTION 3.11 SALARIES. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors or by the Chief
Executive Officer if authorized by the Board.
INDEMNIFICATION
---------------
SECTION 4.01 INDEMNIFICATION. The Corporation shall indemnify such
persons, for such expenses and liabilities, in such manner, under such
circumstances, and to such extent, as required or permitted by Minnesota
Statutes, Section 302A.521, as amended from time to time, or as required or
permitted by other provisions of law.
SECTION 4.02 INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person in such person's official capacity against
any liability asserted against and incurred by such person in or arising
from that capacity, whether or not the Corporation would otherwise be
required to indemnify the person against the liability.
SHARES
------
SECTION 5.01 CERTIFICATED AND UNCERTIFICATED SHARES.
Subdivision 1. The shares of the Corporation shall be either certificated
shares or uncertificated shares. Each holder of duly issued certificated
shares is entitled to a certificate of shares.
Subdivision 2. Each certificate of shares of the Corporation shall
bear the corporate seal, if any, and shall be signed by the Chief Executive
Officer, or the President or any Vice President, and the Chief Financial
Officer, or the Secretary or any Assistant Secretary, but when a certificate
is signed by a transfer agent or a registrar, the signature of any such
officer and the corporate seal upon such certificate may be facsimiles,
engraved or printed. If a person signs or has a facsimile signature placed
upon a certificate while an officer, transfer agent or registrar of the
Corporation, the certificate may be issued by the Corporation, even if the
person has ceased to serve in that capacity before the certificate is
issued, with the same effect as if the person had that capacity at the date
of its issue.
Subdivision 3. A certificate representing shares issued by the
Corporation shall, if the Corporation is authorized to issue shares of more
than one class or series, set forth upon the face or back of the
certificate, or shall state that the Corporation will furnish to any
shareholder upon request and without charge, a full statement of the
designations, preferences, limitations and relative rights of the shares of
each class or series authorized to be issued, so far as they have been
determined, and the authority of the Board to determine the relative rights
and preferences of subsequent classes or series.
Subdivision 4. A resolution approved by the affirmative vote of a
majority of the directors present at a duly held meeting of the Board may
provide that some or all of any or all classes and series of the shares of
the Corporation will be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until the certificate is
surrendered to the Corporation.
SECTION 5.02 DECLARATION OF DIVIDENDS AND OTHER DISTRIBUTIONS. The
Board of Directors shall have the authority to declare dividends and other
distributions upon the shares of the Corporation to the extent permitted by
the Articles of Incorporation of the Corporation and by law.
SECTION 5.03 TRANSFER OF SHARES. Shares of the Corporation may be
transferred only on the books of the Corporation by the holder thereof, in
person or by his attorney. In the case of certificated shares, shares shall
be transferred only upon surrender and cancellation of certificates for a
like number of shares. The Board of Directors, however, may appoint one or
more transfer agents and registrars to maintain the share records of the
Corporation and to effect transfers of shares.
SECTION 5.04 RECORD DATE. The Board of Directors may fix a time,
not exceeding sixty days preceding the date fixed for the payment of any
dividend or other distribution, as a record date for the determination of
the shareholders entitled to receive payment of such dividend or other
distribution, and in such case only shareholders of record on the date so
fixed shall be entitled to receive payment of such dividend or other
distribution, notwithstanding any transfer of any shares on the books of the
Corporation after any record date so fixed.
INVESTMENT OBJECTIVES AND RESTRICTIONS
--------------------------------------
SECTION 6.01 INVESTMENT OBJECTIVES. The investment objectives of
each Portfolio of the Corporation 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
investment objectives of the Portfolios of the Corporation are as follows:
MONEY MARKET PORTFOLIO. The objective of this Portfolio is 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.
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.
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.
SECTION 6.02 INVESTMENT RESTRICTIONS. The investment restrictions
set forth below are fundamental and may not be changed without the approval
of the holders of a majority of the outstanding shares of the Portfolio or
Portfolios affected (as defined in Section 6.01 hereof).
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.
2. Buy or sell the securities of other investment companies, except
by purchases in the open market involving only customary brokerage
commissions and as a result of which not more than 5% of the Corporation's
total assets (taken at current value) would be invested in such securities,
or except as part of a merger, consolidation or other acquisition.
3. Acquire securities for the purpose of exercising control or
management of any company except in connection with a merger, consolidation,
acquisition or reorganization.
4. Make short sales.
5. 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 current Prospectus of the Corporation filed
with the Securities and Exchange Commission under the Securities Act of
1933. The Corporation 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 the
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.
6. 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).
7. 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 5 above, and that a
Portfolio may enter into reverse repurchase agreements in accordance with
paragraph 6 above.
8. 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.
9. Underwrite the securities of other issuers, except where the
Corporation 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 8
above.
10. 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 Corporation as a whole.
11. 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.
12. 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.
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.
MISCELLANEOUS
-------------
SECTION 7.01 EXECUTION OF INSTRUMENTS. Subdivision 1. All deeds,
mortgages, bond, checks, contracts and other instruments pertaining to the
business and affairs of the Corporation shall be signed on behalf of the
Corporation by the Chief Executive Officer, the President or any Vice
President, or by such other person or persons as may be designated from time
to time by the Board of Directors.
Subdivision 2. If a document must be executed by persons holding
different offices or functions and one person holds such offices or
exercises such functions, that person may execute the document in more than
one capacity if the document indicates each such capacity.
Section 7.02 ADVANCES. The Corporation may, without a vote of the
directors, advance money to its directors, officers or employees to cover
expenses that can reasonably be anticipated to be incurred by them in the
performance of their duties and for which they would be entitled to
reimbursement in the absence of an advance.
SECTION 7.03 CORPORATE SEAL. The seal of the Corporation, if any,
shall be a circular embossed seal having inscribed thereon the name of the
Corporation and the following words:
"Corporate Seal Minnesota".
SECTION 7.04 FISCAL YEAR. The fiscal year of the Corporation shall
be determined by the Board of Directors.
SECTION 7.05 AMENDMENTS. The Board of Directors shall have the
power to adopt, amend or repeal the Bylaws of the Corporation, subject to
the power of the shareholders to change or repeal the same, provided,
however, that the Board shall not adopt, amend or repeal any Bylaw fixing a
quorum for meetings of shareholders, prescribing procedures for removing
directors or filling vacancies in the Board, or fixing the number of
directors or their classifications, qualifications or terms of office, but
may adopt or amend a Bylaw that increases the number of directors, and
provided further, however, that the investment objectives contained in
Section 6.01 hereof and the investment restrictions in Section 6.02 hereof
may be changed only with the approval of the holders of a majority of the
outstanding shares of the Portfolio or Portfolios affected (as defined in
Section 6.01 hereof).
<PAGE>
NOTES TO BY-LAWS
OF
LBVIP SERIES FUND, INC.
------------------
1. As amended by action of Board of Directors on December 5, 1989.
2. Entire paragraph added as amendment by action of Board of Directors
on December 5, 1989.
#20742
EXHIBIT 5(a)
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT made this _____ day of _______________, 1986 by
and between LBVIP Series Fund, Inc., a Minnesota corporation (the "Fund"),
and Lutheran Brotherhood Research Corp., a Pennsylvania corporation (the
"Adviser").
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"); and
WHEREAS, the Adviser is willing to provide business management
services to the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant
and agree as follows:
ARTICLE 1: DUTIES OF THE ADVISER. The adviser shall provide
the Fund with such investment advise and supervision as the Fund may from
time to time consider necessary for the proper supervision of its assets.
The Adviser shall act as adviser to the Fund and as such shall furnish
continuously an investment program and shall determine from time to time
what securities shall be purchased, sold or exchanged and what portion of
the assets of the Fund shall be held uninvested, subject always to the
restrictions of the Fund's Articles of Incorporation and Bylaws, as amended
from time to time, to the provisions of the 1940 Act and to the Fund's then
current Prospectus. The Adviser shall also make recommendations as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Fund's portfolio securities shall be
exercised. Should the Directors of the Fund at any time, however, make any
definite determination as to investment policy and notify the Adviser
thereof in writing, the Adviser shall be bound by such determination for the
period, if any, specified in such notice or until similarly notified that
such determination has been revoked. The Adviser shall take, on behalf of
the Fund, all actions which it deems necessary to implement the investment
policies determined as provided above, and in particular to place all orders
for the purchase, sale or exchange of portfolio securities for the Fund's
account with brokers, dealers or bankers selected by it, and to that end the
Adviser is authorized as the agent of the Fund to give instructions to the
custodian of the Fund (the "Custodian") or to any sub-custodian of the Fund
as to deliveries of securities and payments of cash for the account of the
Fund. In connection with the selection of such brokers, dealers or bankers
and the placing of such orders, the Adviser is directed at all times to
obtain for the Fund the most favorable prices at reasonably competitive
commission rates. In fulfilling this requirement the Adviser shall not be
deemed to have acted unlawfully or to have breached any duty, created by
this Agreement or otherwise, solely by reason of its having caused the Fund
to pay a broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction, if the Adviser or any
sub-adviser employed by the Adviser determined in good faith that such
amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Adviser's overall
responsibilities with respect to the Fund and to other clients of the
Adviser as to which the Adviser exercises investment discretion.
ARTICLE 2: ALLOCATION OF CHARGES AND EXPENSES. The Adviser
shall furnish at its own expense investment advisory and portfolio
administrative and management services necessary for servicing the
investments of the Fund, and investment advisory facilities and executive
and supervisory personnel for managing the investments and effecting the
portfolio transactions of the Fund. The Adviser shall arrange, if desired
by the Fund, for officers and employees of the Adviser to serve as
Directors, Officers or agents of the Fund if duly elected or appointed to
such positions and subject to their individual consent and to any
limitations imposed by law. It is understood that the Fund will pay, or
provide for the payment of, all of its own expenses including, without
limitation, compensation of Directors not affiliated with the Adviser,
Lutheran Brotherhood or Lutheran Brotherhood Variable Insurance Products
Company, governmental fees, interest charges, taxes, membership dues in the
Investment Company Institute allocable to the Fund, fees and expenses of
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 Custodian for all
services to the Fund, including safekeeping of funds and securities and
keeping of books and calculating the net asset value of shares of the Fund,
expenses of shareholders' meetings, and expenses relating to the issuance,
registration and qualification of share of the Fund.
The Adviser may enter into a sub-investment advisory agreement
or agreements with another party or parties providing that such party or
parties shall furnish certain advisory and other services to the Fund and
the Adviser and also providing that on the terms and conditions of such
sub-investment advisory agreement such party or parties may determine from
time to time what securities shall be purchased, sold or exchanged by the
Fund and what portion of the assets of the Fund shall be held uninvested.
ARTICLE 3: COMPENSATION OF THE ADVISER. For the services to be
rendered hereunder, the Fund shall pay to the Adviser an investment advisory
fee which shall be a daily charge equal to an annual rate of .40% of the
aggregate average daily net assets of the Fund. If the Adviser shall serve
for less than the whole of any period specified in this ARTICLE 3, the
compensation to the Adviser shall be prorated.
ARTICLE 4: COVENANTS OF THE ADVISER. The adviser agrees that
it will not deal with itself, or with the Directors of the Fund or the
Fund's principal underwriter, if any, as principal, broker or dealer in
making purchases or sales of securities or other property for the account of
the Fund except as permitted by the 1940 Act and the rules, regulations or
orders thereunder, will not take a long or short position in the shares of
the Fund, and will comply with all other provisions of the Fund's Articles
of Incorporation and Bylaws as then in effect and current Prospectus of the
Fund relative to the Adviser, its directors, officers, employees and
affiliates.
ARTICLE 5: LIMITATION OF LIABILITY OF THE ADVISER. The adviser
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 carrying
out its duties under this Agreement 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
hereunder. As used in this ARTICLE 5, the term "Adviser" shall include
directors, officers and employees of the Adviser as well as the Adviser
itself.
ARTICLE 6: ACTIVITIES OF THE ADVISER. The services of the
Adviser to the Fund are not to be deemed to be exclusive, the Adviser and
its affiliates being free to render services to others. It is understood
that Directors, Officers, employees and shareholders of the Fund may be or
become interested in the Adviser as shareholders, directors, officers,
employees or otherwise, and that directors, officers, employees and
shareholders of the Adviser may be or become similarly interested in the
Fund, and that the Adviser may be or become interested in the Fund as a
shareholder or otherwise.
ARTICLE 7: DURATION, TERMINATION AND AMENDMENTS OF THIS
AGREEMENT. This Agreement shall become effective on the date of its
execution and shall govern the relations between the parties hereto
thereafter, and shall remain in force until _______________, 198__ on which
date it will terminate unless its continuance after such date is
specifically approved at least annually (i) by the vote of a majority of
the Directors of the Fund who are not interested persons of the Fund or of
the Adviser at a meeting specifically called for the purpose of voting on
such approval, and (ii) by the Directors of the Fund, or by vote of a
majority of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically approved at
least annually" shall be construed in a manner consistent with the 1940 Act
and the rules and regulations thereunder.
This Agreement may be terminated at any time without the payment
of any penalty by the Directors of the Fund or by vote of a majority of the
outstanding voting securities of the Fund, or by the Adviser, in each case
on not more than sixty days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment.
This Agreement may be amended only if such amendment is approved
by vote of a majority of the outstanding voting securities of the Fund and
by the Adviser.
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested person", when
used in this Agreement, shall have the respective meanings specified in the
1940 Act and the rules and regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
the 1940 Act.
ARTICLE 8: MISCELLANEOUS. This Agreement shall be construed in
accordance with the laws of the State of Minnesota, contains the entire
understanding among the parties with respect to the matters covered hereby,
and may be executed in several counterparts, each of which shall be deemed
to be an original and one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered in their names and on their behalf by
the undersigned, thereunto duly authorized, all as of the day and year first
above written.
LBVIP SERIES FUND, INC.
By
------------------------------------
Its
----------------------------
LUTHERAN BROTHERHOOD RESEARCH CORP.
By
------------------------------------
Its
----------------------------
#20730
EXHIBIT 5(b)
LB SERIES FUND, INC.
INVESTMENT ADVISORY AGREEMENT
This Agreement made this 31st day of January, 1994 by and between LB
SERIES FUND, INC., a Minnesota corporation (the "Fund"), and LUTHERAN
BROTHERHOOD, a Minnesota fraternal benefit society (the "Adviser").
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Adviser is willing to provide business management services
to the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
ARTICLE 1: Duties of the Adviser. The Adviser shall provide the Fund
with such investment advice and supervision as the Fund may from time to
time consider necessary for the proper supervision of its assets. The
Adviser shall act as adviser to the Fund and as such shall furnish
continuously an investment program and shall determine from time to time
what securities shall be purchased, sold or exchanged and what portion of
the assets of the Fund shall be held uninvested, subject always to the
restrictions of the Fund's Articles of Incorporation and Bylaws, as amended
from time to time, to the provisions of the 1940 Act and to the Fund's then
current Prospectus. The Adviser shall also make recommendations as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Fund's portfolio securities shall be
exercised. Should the Directors of the Fund at any time, however, make any
definite determination as to investment policy and notify the Adviser
thereof in writing, the Adviser shall be bound by such determination for the
period, if any, specified in such notice or until similarly notified that
such determination has been revoked. The Adviser shall take, on behalf of
the Fund, all actions which it deems necessary to implement the investment
policies determined as provided above, and in particular to place all orders
for the purchase, sale or exchange of portfolio securities for the Fund's
account with brokers, dealers or bankers selected by it, and to that end the
Adviser is authorized as the agent of the Fund to give instructions to the
custodian of the Fund (the "Custodian") or to any sub-custodian of the Fund
as to deliveries of securities and payments of cash for the account of the
Fund. In connection with the selection of such brokers, dealers or bankers
and the placing of such orders, the Adviser is directed at all times to
obtain for the Fund the most favorable prices at reasonably competitive
commission rates. In fulfilling this requirement the Adviser shall not be
deemed to have acted unlawfully or to have breached any duty, created by
this Agreement or otherwise, solely by reason of its having caused the Fund
to pay a broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction, if the Adviser or any
sub-adviser employed by the Adviser determined in good faith that such
amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Adviser's overall
responsibilities with respect to the Fund and to other clients of the
Adviser as to which the Adviser exercises investment discretion.
ARTICLE 2: Allocation of Charges and Expenses. The Adviser shall
furnish at its own expense investment advisory and portfolio administrative
and management services necessary for servicing the investments of the Fund,
and investment advisory facilities and executive and supervisory personnel
for managing the investments and effecting the portfolio transactions of the
Fund. The Adviser shall arrange, if desired by the Fund, for officers and
employees of the Adviser to serve as Directors, Officers or agents of the
Fund if duly elected or appointed to such positions and subject to their
individual consent and to any limitations imposed by law. It is understood
that the Fund will pay, or provide for the payment of, all of its own
expenses including, without limitation, compensation of Directors not
affiliated with the Adviser, Lutheran Brotherhood or Lutheran Brotherhood
Variable Insurance Products Company, governmental fees, interest charges,
taxes, membership dues in the Investment Company Institute allocable to the
Fund, fees and expenses of 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 Custodian for all services to the Fund, including safekeeping of funds
and securities and keeping of books and calculating the net asset value of
shares of the Fund, expenses of shareholders' meetings, and expenses
relating to the issuance, registration and qualification of shares of the
Fund.
The Adviser may enter into a sub-investment advisory agreement or
agreements with another party or parties providing that such party or
parties shall furnish certain advisory and other services to the Fund and
the Adviser and also providing that on the terms and conditions of such sub-
investment advisory agreement such party or parties may determine from time
to time what securities shall be purchased, sold or exchanged by the Fund
and what portion of the assets of the Fund shall be held uninvested.
ARTICLE 3: Compensation of the Adviser. For the services to be
rendered hereunder, the Fund shall pay to the Adviser an investment advisory
fee which shall be a daily charge equal to an annual rate of .40% of the
aggregate average daily net assets of the Fund. If the Adviser shall serve
for less than the whole of any period specified in this ARTICLE 3, the
compensation to the Adviser shall be prorated.
ARTICLE 4: Covenants of the Adviser. The Adviser agrees that it will
not deal with itself, or with the Directors of the Fund or the Fund's
principal underwriter, if any, as principal, broker or dealer in making
purchases or sales of securities or other property for the account of the
Fund except as permitted by the 1940 Act and the rules, regulations or
orders thereunder, will not take a long or short position in the shares of
the Fund, and will comply with all other provisions of the Fund's Articles
of Incorporation and Bylaws as then in effect and current Prospectus of the
Fund relative to the Adviser, its directors, officers, employees and
affiliates.
ARTICLE 5: Limitation of Liability of the Adviser. The Adviser 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 carrying out its
duties under this Agreement 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 hereunder.
As used in this ARTICLE 5, the term "Adviser" shall include directors,
officers and employees of the Adviser as well as the Adviser itself.
ARTICLE 6: Activities of the Adviser. The services of the Adviser to
the Fund are not to be deemed to be exclusive, the Adviser and its
affiliates being free to render services to others. It is understood that
Directors, Officers, employees and shareholders of the Fund may be or become
interested in the Adviser as shareholders, directors, officers, employees or
otherwise, and that directors, officers, employees and shareholders of the
Adviser may be or become similarly interested in the Fund, and that the
Adviser may be or become interested in the Fund as a shareholder or
otherwise.
ARTICLE 7: Duration, Termination and Amendments of this Agreement.
This Agreement shall become effective on the date of its execution and shall
govern the relations between the parties hereto thereafter, and shall remain
in force until December 1, 1988 on which date it will terminate unless its
continuance after such date is specifically approved at least annually (i)
by the vote of a majority of the Directors of the Fund who are not
interested persons of the Fund or of the Adviser at a meeting specifically
called for the purpose of voting on such approval, and (ii) by the Directors
of the Fund, or by vote of a majority of the outstanding voting securities
of the Fund. The aforesaid requirement that continuance of this Agreement
be "specifically approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder.
This Agreement may be terminated at any time without the payment of any
penalty by the Directors of the Fund or by vote of a majority of the
outstanding voting securities of the Fund, or by the Adviser, in each case
on not more than sixty (60) days written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment.
This Agreement may be amended only if such amendment is approved by
vote of a majority of the outstanding voting securities of the Fund and by
the Adviser.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the 1940 Act and
the rules and regulations thereunder, subject, however, to such exemptions
as may be granted by the Securities and Exchange Commission under the 1940
Act.
ARTICLE 8: Miscellaneous. This Agreement shall be construed in
accordance with the laws of the State of Minnesota, contains the entire
understanding among the parties with respect to the matters covered hereby,
and may be executed in several counterparts, each of which shall be deemed
to be an original and one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the
undersigned, thereunto duly authorized, all as of the day and year first
above written.
LB SERIES FUND, INC.
By /s/ Rolf F. Bjelland
-----------------------------------
Rolf F. Bjelland
Its President
LUTHERAN BROTHERHOOD
By /s/ Robert P. Gandrud
-----------------------------------
Robert P. Gandrud
Its President
#11873
EXHIBIT 8(a)
CUSTODIAN CONTRACT
Between
LBVIP SERIES FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
SC1 06/86
<PAGE>
TABLE OF CONTENTS
-----------------
1. Employment of Custodian and Property to be Held By It
2. Duties of the Custodian with Respect to Property of the Fund Held
by the Custodian
2.1 Holding Securities
2.2 Delivery of Securities
2.3 Registration of Securities
2.4 Bank Accounts
2.5 Payments for Shares
2.6 Investment and Availability of Federal Funds
2.7 Collection of Income
2.8 Payment of Fund Moneys
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased
2.10 Payments for Repurchases or Redemptions of Shares of the
Fund
2.11 Appointment of Agents
2.12 Deposit of Fund Assets in Securities System
2.13 Segregated Account
2.14 Ownership Certificates for Tax Purposes
2.15 Proxies
2.16 Communications Relating to Fund Portfolio Securities
2.17 Proper Instructions
2.18 Actions Permitted Without Express Authority
2.19 Evidence of Authority
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
4. Records
5. Opinion of Fund's Independent Accountants
6. Reports to Fund by Independent Public Accountants
7. Compensation of Custodian
8. Responsibility of Custodian
9. Effective Period, Termination and Amendment
10. Successor Custodian
11. Interpretive and Additional Provisions
12. Additional Funds
13. Massachusetts Law to Apply
14. Prior Contracts
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between LBVIP Series Fund, Inc., a corporation
organized and existing under the laws of Minnesota, having its principal
place of business at 625 Fourth Avenue, South, Minneapolis, Minnesota 55415
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts corporation, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate
series, with each such series representing interests in a separate portfolio
of securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in three
series, the Growth Portfolio, the Income Portfolio, and the Money Markety
Portfolio (such series together will all other series subsequently
established by the Fund and made subject to this Contract in accordance with
paragraph 12, being herein referred to as the "Fund(s)");
NOW THEREFOR, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its
assets pursuant to the provisions of the Articles of Incorporation. The
Fund agrees to deliver to the Custodian all securities and cash owned by it,
and all payments of income, payments of principal or capital distributions
received by it with respect to all securities owned by the Fund from time to
time, and the cash consideration received by it for such new or treasury
shares of capital stock ("Shares") of the Fund as may be issued or sold from
time to time. The Custodian shall not be responsible for any property of
the Fund held or received by the Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of
Section 2.17), the Custodian shall from time to time employ one or more sub-
custodians, but only in accordance with an applicable vote by the Board of
Directors of the Fund, and provided that the Custodian shall have no more or
less responsibility or liability to the Fund on account of any actions or
omissions of any sub-custodian so employed than any such sub-custodian has
to the Custodian.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND
HELD BY THE CUSTODIAN
2.1 HOLDING SECURITIES. The Custodian shall hold and physically
segregate for the account of the Fund all non-cash property,
including all securities owned by the Fund, other than
securities which are maintained pursuant to Section 2.12 in a
clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the
Treasury, collectively referred to herein as a "Securities
System".
2.2 DELIVERY OF SECURITIES. The Custodian shall release and
deliver securities owned by the Fund held by the Custodian or in
Securities System account of the Custodian only upon receipt of
Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, and only in the following
cases:
1) Upon sale of such securities for the account of the
Fund and receipt of payment therefor;
2) Upon receipt of payment in connection with any
repurchase agreement related to such securities
entered into by the Fund;
3) In the case of a sale effected through a Securities
System, in accordance with the provisions of
Section 2.12 hereof;
4) To the depository agent in connection with tender or
other similar offers for portfolio securities of the
Fund;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or
otherwise become payable; provided that, in any such
case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer
into the name of the Fund or into the name of any
nominee or nominees of the Custodian or into the
name or nominee name of any agent appointed pursuant
to Section 2.11 or into the name or nominee name of
any sub-custodian appointed pursuant to Article 1;
or for exchange for a different number of bonds,
certificates or other evidence representing the same
aggregate face amount or number of units; PROVIDED
that, in any such case, the new securities are to be
delivered to the Custodian;
7) To the broker selling the same for examination in
accordance with the "Street delivery" custom;
8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization,
reorganization or readjustment of the securities of
the issuer of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities
and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar
securities, the surrender thereof in the exercise of
such warrants, rights or similar securities or the
surrender of interim receipts or temporary
securities for definitive securities; provided that,
in any such case, the new securities and cash, if
any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of
securities made by the Fund, BUT ONLY against
receipt of adequate collateral as agreed upon from
time to time by the Custodian and the Fund, which
may be in the form of cash or obligations issued by
the United States government, its agencies or
instrumentalities, except that in connection with
any loans for which collateral is to be credited to
the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury,
the Custodian will not be held liable or responsible
for the delivery of securities owned by the Fund
prior to the receipt of such collateral;
11) For delivery as security in connection with any
borrowings by the Fund requiring a pledge of assets
by the Fund, BUT ONLY against receipt of amounts
borrowed;
12) For delivery in accordance with the provisions of
any agreement among the Fund, the Custodian and a
broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities
Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of
any similar organization or organizations, regarding
escrow or other arrangements in connection with
transactions by the Fund;
13) For delivery in accordance with the provisions of
any agreement among the Fund, the Custodian, and a
Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with
the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any
similar organization or organizations, regarding
account deposits in connection with transactions by
the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to
such Transfer Agent or to the holders of shares in
connection with distributions in kind, as may be
described from time to time the Fund's currently
effective prospectus and statement of additional
information ("prospectus"), in satisfaction of
requests by holders of Shares for repurchase or
redemption; and
15) For any other proper corporate purpose, BUT ONLY
upon receipt of, in addition to Proper Instructions,
a certified copy of a resolution of the Board of
Directors or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary
or an Assistant Secretary, specifying the securities
to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose
to be a proper corporate purpose, and naming the
person or persons to whom delivery of such
securities shall be made.
2.3 REGISTRATION OF SECURITIES. Securities held by the Custodian
(other than bearer securities) shall be registered in the name
of the Fund or in the name of any nominee of the Fund or of any
nominee of the Custodian which nominee shall be assigned
exclusively to the Fund, UNLESS the Fund has authorized in
writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment
adviser as the Fund, or in the name or nominee name of any agent
appointed pursuant to Section 2.11 or in the name or nominee
name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian on behalf of the Fund under
the terms of this Contract shall be in "street name" or other
good delivery form.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a
separate bank account or accounts in the name of the Fund,
subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by
it from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of
1940. Funds held by the Custodian for the Fund may be deposited
by it to its credit as Custodian in the Banking Department of
the Custodian or in such other banks or trust companies as it
may in its discretion deem necessary or desirable; PROVIDED,
however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act
of 1940 and that each such bank or trust company and the funds
to be deposited with each such bank or trust company shall be
approved by vote of a majority of the Board of Directors of the
Fund. Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be withdrawable by the Custodian
only in that capacity.
2.5 PAYMENTS FOR SHARES. The Custodian shall receive from the
distributor for the Fund's Shares or from the Transfer Agent of
the Fund and deposit into the Fund's account such payments as
are received for Shares of the Fund issued or sold from time to
time by the Fund. The Custodian will provide timely
notification to the Fund and the Transfer Agent of any receipt
by it of payments for Shares of the Fund.
2.6 INVESTMENT AND AVAILABILITY OF FEDERAL FUNDS. Upon mutual
agreement between the Fund and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions, make federal
funds available to the Fund as of specified times agreed upon
from time to time by the Fund and the Custodian in the amount of
checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
2.7 COLLECTION OF INCOME. The Custodian shall collect on a timely
basis all income and other payments with respect to registered
securities held hereunder to which the Fund shall be entitled
either by law or pursuant to custom in the securities business
and shall collect on a timely basis all income and other
payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held by the Custodian
or its agent thereof and shall credit such income, as collected,
to the Fund's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect
interest when due on securities held hereunder. Income due the
Fund on securities loaned pursuant to the provisions of
Section 2.2(10) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information
or data as may be necessary to assist the Fund in arranging for
the timely delivery to the Custodian of the income to which the
Fund is properly entitled.
2.8 PAYMENT OF FUND MONEYS. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out moneys of the Fund in
the following cases only:
1) Upon the purchase of securities, futures contracts
or options on futures contracts for the account of
the Fund but only (a) against the delivery of
such securities, or evidence of title to futures
contracts or options on futures contracts, to the
Custodian (or any bank, banking firm or trust
company doing business in the United States or
abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian
as its agent for this purpose) registered in the
name of the Fund or in the name of a nominee of the
Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in
accordance with the conditions set forth in
Section 2.12 hereof or (c) in the case of
repurchase agreements entered into between the Fund
and the Custodian, or another bank, or a
broker-dealer which is a member of NASD,
(i) against delivery of the securities either in
certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with
such securities or (ii) against delivery of the
receipt evidencing purchase by the Fund of
securities owned by the Custodian along with written
evidence of the agreement by the Custodian to
repurchase such securities from the Fund;
2) In connection with conversion, exchange or surrender
of securities owned by the Fund as set forth in
Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by
the Fund as set forth in Section 2.10 hereof;
4) For the payment of any expense or liability incurred
by the Fund, including but not limited to the
following payments for the account of the Fund:
interest, taxes, management, accounting, transfer
agent and legal fees, and operating expenses of the
Fund whether or not such expenses are to be in whole
or part capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant
to the governing documents of the Fund;
6) For payment of the amount of dividends received in
respect of securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt
of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors or of
the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary
or an Assistant Secretary, specifying the amount
of such payment, setting forth the purpose for which
such payment is to be made, declaring such purpose
to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.9 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES
PURCHASED. In any and every case where payment for purchase of
securities for the account of the Fund is made by the Custodian
in advance of receipt of the securities purchased in the absence
of specific written instructions from the Fund to so pay in
advance, the Custodian shall be absolutely liable to the Fund
for such securities to the same extent as if the securities had
been received by the Custodian.
2.10 PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND.
From such funds as may be available for the purpose but subject
to the limitations of the Articles of Incorporation and any
applicable votes of the Board of Directors of the Fund pursuant
thereto, the Custodian shall, upon receipt of instructions from
the Transfer Agent, make funds available for payment to holders
of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with
the redemption or repurchase of Shares of the Fund, the
Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank
designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a holder
of Shares, which checks have been furnished by the Fund to the
holder of Shares, when presented to the Custodian in accordance
with such procedures and controls as are mutually agreed upon
from time to time between the Fund and the Custodian.
2.11 APPOINTMENT OF AGENTS. The Custodian may at any time or times
in its discretion appoint (and may at any time remove) any other
bank or trust company which is itself qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct;
PROVIDED, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities
hereunder.
2.12 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The Custodian
may deposit and/or maintain securities owned by the Fund in a
clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act
of 1934, which acts as a securities depository, or in the
book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to
herein as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Fund in a
Securities System provided that such securities are
represented in an account ("Account") of the
Custodian in the Securities System which shall not
include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise
for customers;
2) The records of the Custodian with respect to
securities of the Fund which are maintained in a
Securities System shall identify by book-entry
those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for
the account of the Fund upon (i) receipt of
advice from the Securities System that such
securities have been transferred to the Account,
and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer
for the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund
upon (i) receipt of advice from the Securities
System that payment for such securities has been
transferred to the Account, and (ii) the making
of an entry on the records of the Custodian to
reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities
System of transfers of securities for the account
of the Fund shall identify the Fund, be maintained
for the Fund by the Custodian and be provided to the
Fund at its request. Upon request, the Custodian
shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a
written advice or notice and shall furnish to the
Fund copies of daily transaction sheets reflecting
each day's transactions in the Securities System for
the account of the Fund.
4) The Custodian shall provide the Fund with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in
the Securities System;
5) The Custodian shall have received the initial or
annual certificate, as the case may be, required by
Article 9 hereof;
6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable to
the Fund for any loss or damage to the Fund
resulting from use of the Securities System by
reason of any negligence, misfeasance or misconduct
of the Custodian or any of its agents or of any of
its or their employees or from failure of the
Custodian or any such agent to enforce effectively
such rights as it may have against the Securities
System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the
Custodian with respect to any claim against the
Securities System or any other person which the
Custodian may have as a consequence of any such loss
or damage if and to the extent that the Fund has not
been made whole for any such loss or damage.
2.13 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or
accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities, including
securities maintained in a account by the Custodian pursuant to
Section 2.12 hereof, (i) in accordance with the provisions of
any agreement among the Fund, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or
any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission
or any registered contract market), or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written
by the Fund or commodity futures contracts or options thereon
purchased or sold by the Fund, (iii) for the purpose of
compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate
purposes, BUT ONLY, in the case of clause (iv), upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive
Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose
or purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
2.14 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to securities of the Fund
held by it and in connection with transfers of securities.
2.15 PROXIES. The Custodian shall, with respect to the securities
held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered
otherwise than in the name of the Fund or a nominee of the Fund,
all proxies, without indication of the manner in which such
proxies are to be voted, and shall promptly deliver to the Fund
such proxies, all proxy soliciting materials and all notices
relating to such securities.
2.16 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. The
Custodian shall transmit promptly to the Fund all written
information (including, without limitation, pendency of calls
and maturities of securities and expirations of rights in
connection therewith and notices of exercise of call and put
options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the
Custodian from issuers of the securities being held for the
Fund. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the Fund all written information
received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Fund desires to
take action with respect to any tender offer, exchange offer or
any other similar transaction, the Fund shall notify the
Custodian at least three business days prior to the date on
which the Custodian is to take such action.
2.17 PROPER INSTRUCTIONS. Proper Instructions as used throughout
this Article 2 means a writing signed or initialled by one or
more person or persons as the Board of Directors shall have from
time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including
a specific statement of the purpose for which such action is
requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all
oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Directors of the Fund accompanied
by a detailed description of procedures approved by the Board of
Directors, Proper Instructions may include communications
effected directly between electro-mechanical or electronic
devices provided that the Board of Directors and the Custodian
are satisfied that such procedures afford adequate safeguards
for the Fund's assets.
2.18 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Custodian may
in its discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses
of handling securities or other similar items
relating to its duties under this Contract, PROVIDED
that all such payments shall be accounted for to the
Fund;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details
in connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the
securities and property of the Fund except as
otherwise directed by the Board of Directors of the
Fund.
2.19 EVIDENCE OF AUTHORITY. The Custodian shall be protected in
acting upon any instructions, notice, request, consent,
certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of
the Fund. The Custodian may receive and accept a certified copy
of a vote of the Board of Directors of the Fund as conclusive
evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of
any action by the Board of Directors pursuant to the Articles of
Incorporation as described in such vote, and such vote may be
considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
3. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME.
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of Directors of
the Fund to keep the books of account of the Fund and/or compute the net
asset value per share of the outstanding shares of the Fund or, if directed
in writing to do so by the Fund, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Fund as described
in the Fund's currently effective prospectus and shall advise the Fund and
the Transfer Agent daily of the total amounts of such net income and, if
instructed in writing by an officer of the Fund to do so, shall advise the
Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and
the daily income of the Fund shall be made at the time or times described
from time to time in the Fund's currently effective prospectus.
4. RECORDS
The Custodian shall create and maintain all records relating to
its activities and obligations under this Contract in such manner as will
meet the obligations of the Fund under the Investment Company Act of 1940,
with particular attention to Section 31 thereof and Rules31a-1 and 31a-2
thereunder, applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Fund. All
such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and
agents of the Securities and Exchange Commission. The Custodian shall, at
the Fund's request, supply the Fund with a tabulation of securities owned by
the Fund and held by the Custodian and shall, when requested to do so by the
Fund and for such compensation as shall be agreed upon between the Fund and
the Custodian, include certificate numbers in such tabulations.
5. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund may
from time to time request, to obtain from year to year favorable opinions
from the Fund's independent accountants with respect to its activities
hereunder in connection with the preparation of the Fund's Form N-1A, and
Form N-SAR or other annual reports to the Securities and Exchange Commission
and with respect to any other requirements of such Commission.
6. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, at such times as the Fund
may reasonably require, with reports by independent public accountants on
the accounting system, internal accounting control and procedures for
safeguarding securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities System,
relating to the services provided by the Custodian under this Contract; such
reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there
are no such inadequacies, the reports shall so state.
7. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for
its services and expenses as Custodian, as agreed upon from time to time
between the Fund and the Custodian.
8. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of
reasonable care, the Custodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Contract and shall be
held harmless in acting upon any notice, request, consent, certificate or
other instrument reasonably believed by it to be genuine and to be signed by
the proper party or parties. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall
be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel
for the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. Notwithstanding the
foregoing, the responsibility of the Custodian with respect to redemptions
effected by check shall be in accordance with a separate Agreement entered
into between the Custodian and the Fund.
If the Fund requires the Custodian to take any action with
respect to securities, which action involves the payment of money or which
action may, in the opinion of the Custodian, result in the Custodian or its
nominee assigned to the Fund being liable for the payment of money or
incurring liability of some other form, the Fund, as a prerequisite to
requiring the Custodian to take such action, shall provide indemnity to the
Custodian in an amount and form satisfactory to it.
If the Fund requires the Custodian to advance cash or securities
for any purpose or in the event that the Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except such
as may arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held for the
account of the Fund shall be security therefor and should the Fund fail to
repay the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of Fund assets to the extent necessary to
obtain reimbursement.
9. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided,
may be amended at any time by mutual agreement of the parties hereto and may
be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect
not sooner than thirty (30) days after the date of such delivery or mailing;
PROVIDED, however that the Custodian shall not act under Section 2.12 hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors of the Fund have approved
the initial use of a particular Securities System and the receipt of an
annual certificate of the Secretary or an Assistant Secretary that the Board
of Directors have reviewed the use by the Fund of such Securities System, as
required in each case by Rule 17f-4 under the Investment Company Act of
1940, as amended; PROVIDED FURTHER, however, that the Fund shall not amend
or terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Articles of Incorporation, and
further provided, that the fund may at any time by action of its Board of
Directors (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately
terminate this Contract in the event of the appointment of a conservator or
receiver for the Custodian by the Comptroller of the Currency or upon the
happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the
Custodian such compensation as may be due as of the date of such termination
and shall likewise reimburse the Custodian for its costs, expenses and
disbursements.
10. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of
Directors of the Fund, the Custodian shall, upon termination, deliver to
such successor custodian at the office of the Custodian, duly endorsed and
in the form for transfer, all securities then held by it hereunder and shall
transfer to an account of the successor custodian all of the Fund's
securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the
Board of Directors of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with such
vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Directors shall have
been delivered to the Custodian on or before the date when such termination
shall become effective, then the Custodian shall have the right to deliver
to a bank or trust company, which is a "bank" as defined in the Investment
Company Act of 1940, doing business in Boston, Massachusetts, of its own
selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian and all
instruments held by the Custodian relative thereto and all other property
held by it under this Contract and to transfer to an account of such
successor custodian all of the Fund's securities held in any Securities
System. Thereafter, such bank or trust company shall be the successor of
the Custodian under this Contract.
In the event that securities, funds and other properties remain
in the possession of the Custodian after the date of termination hereof
owing to failure of the Fund to procure the certified copy of the vote
referred to or of the Board of Directors to appoint a successor custodian,
the Custodian shall be entitled to fair compensation for its services during
such period as the Custodian retains possession of such securities, funds
and other properties and the provisions of this Contract relating to the
duties and obligations of the Custodian shall remain in full force and
effect.
11. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian
and the Fund may from time to time agree on such provisions interpretive of
or in addition to the provisions of this Contract as may in their joint
opinion be consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, PROVIDED that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Articles of Incorporation of the Fund.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
12. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of
Shares in addition to the Growth Portfolio, the Income Portfolio, and the
Money Markety Portfolio with respect to which it desires to have the
Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Fund hereunder.
13. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
14. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof,
all prior contracts between the Fund and the Custodian relating to the
custody of the Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and its seal to be hereunder affixed as
of the day of December, 1986.
ATTEST LBVIP SERIES FUND, INC.
By
- ----------------------------- -----------------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ By /s/
- ----------------------------- ----------------------------------------
Assistant Secretary Vice President
#20722
EXHIBIT 8(b)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
LBVIP SERIES FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
SA2 5/86
<PAGE>
TABLE OF CONTENTS
-----------------
Article 1 Terms of Appointment; Duties of the Bank
Article 2 Fees and Expenses
Article 3 Representations and Warranties of the Bank
Article 4 Representations and Warranties of the Fund
Article 5 Indemnification
Article 6 Covenants of the Fund and the Bank
Article 7 Termination of Agreement
Article 8 Additional Funds
Article 9 Assignment
Article 10 Amendment
Article 11 Massachusetts Law to Apply
Article 12 Merger of Agreement
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the day of December, 1986, by and
between LBVIP SERIES FUND, INC. a Minnesota company, having its principal
office and place of business at 625 Fourth Avenue South, Minneapolis,
Minnesota, 55415 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts corporation having its principal office and place of business
at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its transfer
agent, dividend disbursing agent and agent in connection with certain other
activities, and the Bank desires to accept such appointment;
WHEREAS, the Fund is authorized to issue shares in separate
series, with each such series representing interests in a separate portfolio
of securities and other assets; and
WHEREAS, the Fund intends to initially offer Shares in three
series, the Growth Portfolio, the Income Portfolio and the Money Market
Portfolio (such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance
with Article 8, being herein referred to as the "Fund(s)");
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT; DUTIES OF THE BANK
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints the Bank to act as, and the
Bank agrees to act as its transfer agent for the Fund's authorized and
issued shares of its capital stock, $.01 par value ("Shares"), dividend
disbursing agent and agent in connection with any accumulation, open-account
or similar plans provided to the shareholders of the Fund ("Shareholders")
and set out in the currently effective prospectus and statement of
additional information ("prospectus") of the Fund, including without
limitation any periodic investment plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the
following services:
(a) In accordance with the procedures established from
time to time by agreement between the Fund and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation therefor to the Custodian of the Fund
authorized pursuant to the Articles of Incorporation
of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over in
the appropriate manner such monies as instructed by
the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund; and
(vii) Maintain records of account for and advise the Fund
and its shareholders as to the foregoing; and
(viii) Record the issuance of shares of the Fund and
maintain pursuant to SEC Rule 17Ad-10(e) a record of
the total number of shares of the Fund which are
authorized, based upon data provided to it by the
Fund, and issued and outstanding. Bank shall also
provide the Fund on a regular basis with the total
number of shares which are authorized and issued and
outstanding and shall have no obligation, when
recording the issuance of shares, to monitor the
issuance of such shares or to take cognizance of any
laws relating to the issue or sale of such shares,
which functions shall be the sole responsibility of
the Fund.
(b) In addition to and not in lieu of the services set
forth in the above paragraph (a), the Bank shall: (i) perform all of the
customary services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open-account or similar
plans (including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
receiving and tabulating proxies, mailing Shareholder reports and
prospectuses to current Shareholders, withholding taxes on non-resident
alien accounts, preparing and filing U.S. Treasury Department Forms 1099 and
other appropriate forms required with respect to dividends and distributions
by federal authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information and (ii)
provide a system which will enable the Fund to monitor the total number of
Shares sold in each State. The Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and thereafter
monitor the daily activity for each State. The responsibility of the Bank
for the Fund's blue sky State registration status is solely limited to the
initial establishment of transactions subject to blue sky compliance by the
Fund and the reporting of such transactions to the Fund as provided above.
Procedures applicable to certain of these services may be
established from time to time by agreement between the Fund and the Bank.
Article 2 FEES AND EXPENSES
2.01 For performance by the Bank pursuant to this
Agreement, the Fund agrees to pay the Bank an annual maintenance fee for
each Shareholder account as set out in the initial fee schedule attached
hereto. Such fees and out-of-pocket expenses and advances identified under
Section 2.02 below may be changed from time to time subject to mutual
written agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above,
the Fund agrees to reimburse the Bank for out-of-pocket expenses or advances
incurred by the Bank for the items set out in the fee schedule attached
hereto. In addition, any other expenses incurred by the Bank at the request
or with the consent of the Fund, will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable
expenses within five days following the mailing of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all shareholder accounts shall be advanced to the Bank by the
Fund at least seven (7) days prior to the mailing date of such materials.
Article 3 REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and
in good standing under the laws of The Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in The
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its
charter and by-laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken
to authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Bank that;
4.01 It is a company duly organized and existing and in
good standing under the laws of Minnesota.
4.02 It is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and perform this
Agreement.
4.03 All corporate proceedings required by said Articles
of Incorporation and By-Laws have been taken to authorize it to enter into
and perform this Agreement.
4.04 It is an open-end and diversified management
investment company registered under the Investment Company Act of 1940.
4.05 A registration statement under the Securities Act of
1933 is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
Article 5 INDEMNIFICATION
5.01 The Bank shall not be responsible for, and the Fund
shall indemnify and hold the Bank harmless from and against, any and all
losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to:
(a) All actions of the Bank or its agent or
subcontractors required to be taken pursuant to this Agreement, provided
that such actions are taken in good faith and without negligence or willful
misconduct.
(b) The Fund's refusal or failure to comply with the
terms of this Agreement, or which arise out of the Fund's lack of good
faith, negligence or willful misconduct or which arise out of the breach of
any representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records and documents which (i) are
received by the Bank or its agents or subcontractors and furnished to it by
or on behalf of the Fund, and (ii) have been prepared and/or maintained
by the Fund or any other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by the Bank or
its agents or subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares be registered
in such state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the offer or sale
of such Shares in such state.
5.02 The Bank shall indemnify and hold the Fund harmless
from and against any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to any
action or failure or omission to act by the Bank as a result of the Bank's
lack of good faith, negligence or willful misconduct.
5.03 At any time the Bank may apply to any officer of the
Fund for instructions, and may consult with legal counsel with respect to
any matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or subcontractors
shall not be liable and shall be indemnified by the Fund for any action
taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by
or on behalf of the Fund, reasonably believed to be genuine and to have been
signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. The Bank, its agents and subcontractors shall also
be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of the
officers of the Fund, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond its
control, or other causes reasonably beyond its control, such party shall not
be liable for damages to the other for any damages resulting from such
failure to perform or otherwise from such causes.
5.05 Neither party to this Agreement shall be liable to
the other party for consequential damages under any provision of this
Agreement or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions
contained in this Article 5 shall apply, upon the assertion of a claim for
which either party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion, and
shall keep the other party advised with respect to all developments
concerning such claim. The party who may be required to indemnify shall
have the option to participate with the party seeking indemnification in the
defense of such claim. The party seeking indemnification shall in no case
confess any claim or make any compromise in any case in which the other
party may be required to indemnify it except with the other party's prior
written consent.
Article 6 COVENANTS OF THE FUND AND THE BANK
6.01 The Fund shall promptly furnish to the bank the
following:
(a) A certified copy of the resolution of the Board of
Directors of the Fund authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws
of the Fund and all amendments thereto.
6.02 The Bank hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Fund for safekeeping
of stock certificates, check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
6.03 The Bank shall keep records relating to the services
to be performed hereunder, in the form and manner as it may deem advisable.
To the extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, the Bank agrees that all such records
prepared or maintained by the Bank relating to the services to be performed
by the Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules, and
will be surrendered promptly to the Fund on and in accordance with its
request.
6.04 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of
this Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection
of the Shareholder records of the Fund, the Bank will endeavor to notify the
Fund and to secure instructions from an authorized officer of the Fund as to
such inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel that
it may be held liable for the failure to exhibit the Shareholder records to
such person.
Article 7 TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon
one hundred twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material
will be borne by the Fund. Additionally, the Bank reserves the right to
charge for any other reasonable expenses associated with such termination
and/or a charge equivalent to the average of three (3) months' fees.
Article 8 ADDITIONAL FUNDS
8.01 In the event that the Fund establishes one or more
series of Shares in addition to the Growth Portfolio, the Income Portfolio
and the Money Market Portfolio with respect to which it desires to have
State Street render services as transfer agent under the terms hereof, it
shall so notify State Street in writing, and if State Street agrees in
writing to provide such services, such series of Shares shall become a Fund
hereunder.
Article 9 ASSIGNMENT
9.01 Except as provided in Section 9.03 below, neither
this Agreement nor any rights or obligations hereunder may be assigned by
either party without the written consent of the other party.
9.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and
assigns.
9.03 The Bank may, without further consent on the part of
the Fund, subcontract for the performance hereof with (i) Boston
Financial Data Services, Inc., a Massachusetts corporation ("BFDS") which is
duly registered as a transfer agent pursuant to Section 17A(c)(1) of the
Securities Exchange Act of 1934 ("Section 17A(c)(1)"), or (ii) a BFDS
subsidiary duly registered as a transfer agent pursuant to Section
17A(c)(1); provided, however, that the Bank shall be as fully responsible to
the Fund for the acts and omissions of any subcontractor as it is for its
own acts and omissions.
Article 10 AMENDMENT
10.01 This Agreement may be amended or modified by a
written agreement executed by both parties and authorized or approved by a
resolution of the Board of Directors of the Fund.
Article 11 MASSACHUSETTS LAW TO APPLY
11.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The
Commonwealth of Massachusetts.
Article 12 MERGER OF AGREEMENT
12.01 This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with respect
to the subject matter hereof whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf under the seals
by and through their duly authorized officers, as of the day and year first
above written.
LBVIP SERIES FUND, INC.
BY:
--------------------------------
ATTEST:
- ---------------------------------
STATE STREET BANK AND TRUST COMPANY
BY: /S/
--------------------------------
Vice President
ATTEST:
/S/
- ---------------------------------
Assistant Secretary
#20723
EXHIBIT 13(a)
SUBSCRIPTION AGREEMENT
February __, 1986
LBVIP Series Fund, Inc.
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Gentlemen:
The undersigned hereby subscribes for 2,000,000 shares of Money Market
Portfolio Capital Stock, 50,000 shares of Income Portfolio Capital Stock and
50,000 shares of Growth Portfolio Capital Stock (collectively the "Shares")
of LBVIP Series Fund, Inc., a Minnesota corporation (the "Company"), at a
cash price of $1 per share (with respect to the Income Portfolio and Growth
Portfolio shares), for an aggregate purchase price of $3,000,000.
In connection with the purchase of the Shares, the undersigned hereby
represents, warrants and agrees as follows:
1. The undersigned understands that the Shares have not been registered
under the Securities Act of 1933, as amended, or under any state securities
laws, in reliance on the exemptions from registration under all such laws for
transactions not involving any public offering, and that, accordingly, the
Shares may not be resold by the undersigned unless they are registered under
both the Securities Act of 1933 and any applicable state securities laws or
are sold in transactions which are exempt from registration under all of such
laws.
2. The undersigned understands that, even though the Shares constitute
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act of 1933 (which Rule defines the circumstances under which the
exemption from registration contained in 4(1) of the Securities Act of 1933
is available for the resale of restricted securities), you are not now
obligated, nor do you now or at any future date intend, unless obligated, to
make available to the public the information required by Rule 144, and that
therefore Rule 144 may not be available to the undersigned for the resale of
the Shares.
3. The undersigned has had access to information about the Company, the
offering of the Shares, and the use of any proceeds therefrom.
4. The undersigned has such knowledge and experience in financial and
business matters that it is capable of utilizing the information furnished to
it by you and evaluating the risks involving in the purchase of the Shares.
5. The undersigned has such income and such assets that it is able to
bear the economic risks of the purchase of the Shares.
6. The undersigned is familiar with the risks involved in the business
to be conducted by the Company.
7. The undersigned is acquiring the Shares for investment for its own
account and without any view to the distribution thereof and it has no
present intention of selling, redeeming or otherwise disposing of the Shares
or any portion thereof.
8. The undersigned therefore agrees not to sell, assign, transfer or
otherwise dispose of the Shares unless a registration statement relating
thereto has been duly filed and become effective under both the Securities
Act of 1933, and any applicable state securities laws, or unless in the
opinion of counsel satisfactory to you no such registration is required under
the circumstances.
Very truly yours,
LUTHERAN BROTHERHOOD VARIABLE
INSURANCE PRODUCTS COMPANY
By_______________________________________
Its__________________________________
The foregoing subscription is
hereby accepted as of this
____ day of February, 1986.
LBVIP SERIES FUND, INC.
By_______________________
Its__________________
#20677
EXHIBIT 16(i)
-------
LBVIP SERIES FUND - GROWTH PORTFOLIO
HYPOTHETICAL FUND PERFORMANCE ILLUSTRATION
------------------------------------------------------
This is a Hypothetical Illustration of an Investment
of a $1,000 Made On 31-Dec-88 with a 0% Sales Load
For the Period: 31-Dec-88 thru 31-Dec-89
The table below indicates the number of shares that would have accumulated
had all dividends been reinvested on the record date and their value as of
12/31/89.
ENDING
SHARES ENDING REDEEMABLE
DESCRIPTION OWNED NAV VALUE
- ------------------------------ -------- -------- ------------
Shares initially
acquired..........................106.045 $11.70 $1,240.73
Shares acquired
from reinvested
income dividends....................2.137 $11.70 25.00
Shares acquired from
reinvested capital
gain distributions..................0.000 $11.70 0.00
--------- -------- ------------
TOTAL.............................108.182 $1,265.73
========= ============
TOTAL RETURN FOR THE 1 YEAR PERIOD
(Based on an investment of $1,000.00
with a 0% sales load).................................26.57%
===========
AVERAGE ANNUAL TOTAL RETURN FOR THE 1 YEAR PERIOD
(Based on an investment of $1,000.00
with a 0% sales load).................................26.57%(b)
===========
FOOTNOTES
- ----------
(a) The following formula is used to calculate total return:
(Ending Redeemable Value - Initial $1,000 Investment)
-----------------------------------------------------
Initial $1,000 Investment
(b) The following formula is used to calculate average annual total return:
1/n
[(Total Return + 1) -1}
Where n equals the one year period ended December 31, 1989.
<PAGE>
<TABLE>
<CAPTION>
LBVIP SERIES FUND, INC. - GROWTH PORTFOLIO
CALCULATION OF SHARE ACQUIRED FROM REINVESTMENT
OF INCOME DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Dividends Declared on a Per Share Basis Income Dividends Capital Gain Dist.
- --------------------------------------------- -------------------- -----------------------
Cumulative
Dividend Reinvest Investment Capital Income Shares Income Shares Share
Date Price Income Gains Earned(a) Created(b) Earned(a) Created(b) Balance
(B*H) (D/A) (C*H) (F/A)
- ---------- ---------- ------------ ---------- ----------- ----------- ----------- ------------ --------
A B C D E F G H
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial $1,000 investment at a public offering price of $9.43................................................106.045
03/31/89 10.04 0.051487 - $5.46 0.544 $0 0.000 106.589
06/30/89 10.71 0.051679 5.51 0.514 0 0.000 107.103
09/29/89 12.09 0.054108 5.80 0.480 0 0.000 107.583
12/31/89 11.70 0.065190 7.01 0.599 0 0.000 108.182
------------ ------------
Total shares acquired through reinvestment of
income dividends and capital gain distribution......................2.137 0.000
============ ============
</TABLE>
Assumptions:
- -----------
(a) Income earned is determined by multiplying the declared dividend
(on a per share basis) by the beginning cumulative share balance.
(b) The number of shares created through divided reinvestment is
determined by dividing income earned by the reinvestment price.
#20738
EXHIBIT 16 (ii)
---------
LBVIP Series Fund, Inc. - Income Portfolio
Standardized Yield Calculation
As of 31-Mar-90
Gross Income Earned During Base Period: Amount
- -------------------------------------- -------------
From Corporate Obligations:
Computed on a yield to Maturity or
Yield to Call Basis (Schedule 1)................... $163,348
From Mortgage-Backed Obligations:
Book Income for Past 30 Days (Schedule 2)............. 27,178
Gain/Loss on Paydowns (Schedule 3).................... (15)
From Short-Term Securities:
Book Income earned during base period (Schedule 4).... 18,290
-------------
Total Gross Income......................................... $208,802
=============
Fund expenses accrued during base period (Schedule 4)...... $8,228
=============
Average daily number of shares outstanding
during the base period (Schedule 5)................... 2,746,368
=============
Maximum public offering price per share
on the last day of the base period.................... $9.09
=============
Standardized Yield......................................... 9.84%(a)
=============
Footnotes:
- ---------
(a) Current yield is computed using the following formula:
6
(Gross Income - Fund Expenses)
2 +1 -1 X 100
-------------------------------------------------
(Average Daily shares x Maximum Offering Price)
<PAGE>
<TABLE>
SCHEDULE 1
LBVIP Series Fund, Inc. - Income Portfolio Standard Yield Calculation
INPUT AREA
======================================================================================================================
PORTFOLIO HOLDINGS AS OF 2/28/90 (ADJUSTED FOR UNSETTLED TRADES)
===============================================================
MATURITY VALUATION ACCRUED INT PAY CALL CALL
ROW CUSIP NO. ISSUER PAR COUPON PRICE DATE DATE INTEREST DATE DATE PRICE
- ------ ---------- --------------- ------- -------- -------- --------- ----------- --------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 029717AD7 AMERICAN STD INC 750,000 12.875 94.250 06/30/2000 02/28/90 16,362 06/30/90
1 066747AB2 BANQUE NATIONALE
DE PARIS 500,000 9.875 102.420 05/25/98 02/28/90 13,167 05/25/90
2 125569BZ5 C I T GROUP HLDGS INC 500,000 8.875 98.128 06/15/96 02/28/90 9,368 06/15/90
3 171196AK4 CHRYSLER CORP 500,000 12.000 100.375 11/15/2015 02/28/90 17,667 05/15/90
4 173034FG9 CITICORP 500,000 8.700 98.140 10/15/94 02/28/90 16,192 04/15/90
5 211177AC4 CONTINENTAL
CABLEVISION INC 300,000 12.875 99.125 11/01/2004 02/28/90 12,875 05/01/90
6 26633JAA6 DURACELL HLDGS CORP 750,000 60.000 09/15/98 02/28/90 03/15/90
7 277461AS8 EASTMAN KODAK CO 500,000 9.750 97.940 10/01/2004 02/28/90 20,854 04/01/90
8 283681AF1 EL PASO FNDG 500,000 10.375 85.097 01/02/2011 02/28/90 8,502 07/02/90
9 337358AJ4 FIRST ON CORP 750,000 9.450 96.232 06/15/99 02/28/90 14,963 06/15/90
10 345397DY6 FORD MTR CR CORP 500,000 8.250 95.706 05/15/96 02/28/90 12,146 05/15/90
11 347460AF4 FORT HOWARD CORP 500,000 45,250 11/01/2004 02/28/90 05/01/90
12 370424CK7 GENERAL MTRS
ACCEP CORP 500,000 5.500 72.794 12/15/2001 02/28/90 5,806 06/15/90
13 370442AD7 GENERAL MOTORS CORP 500,000 8.125 85.447 04/15/2016 02/28/90 15,347 04/15/90
14 448814BT9 HYDRO-QUEBEC 500,000 16.625 112.876 01/15/92 02/28/90 10,622 07/15/90
15 499040AD5 KNIGHT RIDDER INC 500,000 9.875 102.811 04/15/2009 02/28/90 18,653 04/15/90
16 501044AT8 KROGER CO 500,000 13.125 101.750 01/15/2001 02/28/90 8,385 07/15/90
17 590910AB1 MESA CAP CORP 500,000 13.500 100.000 05/01/99 02/28/90 22,500 05/01/90
18 639054AB1 NATWEST CAP CORP 500,000 9.375 99.481 11/15/2003 02/28/90 13,802 05/15/90
19 654624AC9 NIPPON TELEG
& TEL CORP 1,000,000 9.500 102.352 07/27/98 02/28/90 8,972 07/27/90
20 674599AQ8 OCCIDENTAL PETE CORP 750,000 8.950 94.875 04/15/94 02/28/90 25,358 04/15/90
21 690768AH9 OWENS ILLINOIS INC 750,000 12.250 93.000 06/01/96 02/28/90 22,969 06/01/90
22 749275AA1 RBSG CAP CORP 500,000 10.125 104.384 03/01/2004 02/28/90 25,313 03/01/90
23 761157AA4 RESOLUTION FDG CORP 1,000,000 8.125 92.816 10/15/2019 02/28/90 30,580 04/15/90
24 81371FAA5 SECURED FINANCE DELS 500,000 9.050 96.058 12/15/2004 02/28/90 9,553 06/15/90
25 83364WAA3 SOCIETE-GENERALE 500,000 9.875 103.010 07/15/2003 02/28/90 6,309 07/15/90
26 880591BC5 TENNNESSEE VALLEY
AUTH 500,000 8.250 96.657 11/15/96 02/28/90 10,427 05/15/90
27 880591BD3 TENNESSEE VALLEY
AUTH 400,000 8.625 93.013 11/15/2029 02/28/90 8,721 05/15/90
28 882850AY6 TEXAS UTILS ELEC CO 500,000 9.875 95.880 11/01/2019 02/28/90 16,458 05/01/90
29 912827XK3 UNITED STATES
TREAS NTS 1,100,000 9.375 103.875 04/15/96 02/28/90 38,814 04/15/90
30 912827YG1 UNITED STATES
TREAS NOTE 250,000 7.750 97.437 02/15/95 02/28/90 4,751 08/15/90
31 928869AA4 VONS COS INC 500,000 94.000 07/15/99 02/28/90 07/15/90
------------ -----------
18,300,000 445,433
============ ===========
SEE OUTPUT COLUMN(S) FOR FURTHER TOTALS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1 (CONTINUED)
LBVIP Series Fund, Inc. - Income Portfolio Standard Yield Calculation
OUTPUT
=====================================================================================================================
PORTFOLIO HOLDINGS AS OF 2/28/90 (ADJUSTED FOR UNSETTLED TRADES)
====================================================================
DAILY MARKET VALUE GROSS
YIELD AND NO. OF DAYS INCOME
(360 DAY ACCRUED DAILY IN BASE FOR BASE
ROW CUSIP NO. ISSUER YIELD YEAR) INCOME INCOME PERIOD PERIOD
- ------ ---------- ----------------------- ----------- ------------- --------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 029717AD7 AMERICAN STD INC 13.9024% 0.038618% 723,236.98 279.30 30 8,379.00
1 066747AB2 BANQUE NATIONALE
DE PARIS 9.4216% 0.026171% 525,268.67 137.47 30 4,124.10
2 125569BZ5 C I T GROUP HLDGS INC 9.2478% 0.025688% 500,006.05 128.44 30 3,853.20
3 171196AK4 CHRYSLER CORP 11.9296% 0.033138% 519,541.67 172.16 30 5,164.80
4 173034FG9 CITICORP 9.1851% 0.025514% 506,892.67 129.33 30 3,879.90
5 211177AC4 CONTINENTAL
CABLEVISION INC 12.9790% 0.036053% 310,250.00 111.85 30 3,355.50
6 26633JAA6 DURACELL HLDGS CORP 13.9915% 0.038865% 450,000.00 174.89 30 5,246.70
7 277461AS8 EASTMAN KODAK CO 9.9915% 0.027754% 510,554.18 141.70 30 4,251.00
8 283681AF1 EL PASO FNDG 12.3613% 0.034337% 433,986.24 149.02 30 4,470.60
9 337358AJ4 FIRST ON CORP 10.0606% 0.027946% 736,704.00 205.88 30 6,176.40
10 345397DY6 FORD MTR CR CORP 9.1465% 0.025407% 490,673.33 124.67 30 3,740.10
11 347460AF4 FORT HOWARD CORP 15.7458% 0.043738% 226,250.00 98.96 30 2,968.80
12 370424CK7 GENERAL MTRS
ACCEP CORP 9.3433% 0.025954% 369,773.06 95.97 30 2,879.10
13 370442AD7 GENERAL MOTORS CORP 9.6489% 0.026802% 442,584.22 118.62 30 3,558.60
14 448814BT9 HYDRO-QUEBEC 8.9234% 0.024787% 575,003.02 142.53 30 4,275.90
15 499040AD5 KNIGHT RIDDER INC 9.5381% 0.026495% 532,708.78 141.14 30 4,234.20
16 501044AT8 KROGER CO 12.7913% 0.035531% 517,135.42 183.75 30 5,512.50
17 590910AB1 MESA CAP CORP 13.4588% 0.037386% 522,500.00 195.34 30 5,860.20
18 639054AB1 NATWEST CAP CORP 9.4260% 0.026183% 511,205.08 133.85 30 4,015.50
19 654624AC9 NIPPON TELEG
& TEL CORP 9.0755% 0.025210% 1,032,496.22 260.29 30 7,808.70
20 674599AQ8 OCCIDENTAL PETE CORP 10.4731% 0.029092% 736,920.83 214.39 30 6,431.70
21 690768AH9 OWENS ILLINOIS INC 13.9106% 0.038640% 720,468.75 278.39 30 8,351.70
22 749275AA1 RBSG CAP CORP 9.5398% 0.026499% 547,230.00 145.01 30 4,350.30
23 761157AA4 RESOLUTION FDG CORP 8.8022% 0.024450% 958,736.36 234.42 30 7,032.60
24 81371FAA5 SECURED FINANCE DELS 9.5365% 0.026490% 489,841.78 129.76 30 3,892.80
25 83364WAA3 SOCIETE-GENERALE 9.4574% 0.026271% 521,360.53 136.96 30 4,108.80
26 880591BC5 TENNNESSEE VALLEY
AUTH 8.9698% 0.024916% 493,713.58 123.01 30 3,690.30
27 880591BD3 TENNESSEE VALLEY
AUTH 9.3168% 0.025880% 380,774.43 98.54 30 2,956.20
28 882850AY6 TEXAS UTILS ELEC CO 10.3072% 0.028631% 495,857.83 141.97 30 4,259.10
29 912827XK3 UNITED STATES
TREAS NTS 8.5285% 0.023690% 1,181,438.52 279.89 30 8,396.70
30 912827YG1 UNITED STATES
TREAS NOTE 7.9812% 0.022170% 248,342.92 55.06 30 1,651.80
31 928869AA4 VONS COS INC 13.0082% 0.036134% 470,000.00 169.83 30 5,094.90
----------------
153,971.70
----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
LBVIP Series Fund, Inc. - Income Portfolio Standard Yield Calculation
PURCHASES SETTLING IN MARCH
==============================
PURCHASE MATURITY SETTLEMENT ACCRUED INT PAY CALL CALL
ROW CUSIP NO. ISSUER PAR COUPON PRICE DATE DATE INTEREST DATE DATE PRICE
- ------ ---------- --------------- ------- -------- -------- --------- ----------- --------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
42 459200AG6 INTERNATIONAL BUSINE 750,000 8.375 92.277 11/01/2019 03/05/90 21,635 05/01/90
43 912827XW7 UNITED STATES TREASU 500,000 8.000 96.031 08/15/99 03/06/90 2,099 08/15/90
44 928869AA4 VONS COS INC 250,000 94.000 07/15/99 03/06/90 07/15/90
45 761157AA4 RESOLUTION FDG CORP 250,000 8.125 90.656 10/15/2019 03/14/90 8,371 04/15/90
46 761157AA4 RESOLUTION FDG CORP 250,000 8.125 90.625 10/15/2019 03/14/90 8,371 04/15/90
47 459200AG6 INTERNATIONAL BUSINE 250,000 8.375 91.172 11/01/2019 03/16/90 7,852 05/01/90
48 880591BD3 TENNESSEE VALLEY AUT 350,000 8.625 90.438 11/15/2029 03/16/90 8,889 05/15/90
49 161241AK0 CHARTER MED CORP 250,000 14.000 70.000 08/15/2000 03/23/90 3,694 08/15/90
50 881685AN1 TEXACO CAP INC 500,000 9.750 101.263 03/15/2020 03/27/90 1,625 09/15/90
51 369856AF6 GENERAL FOODS CORP 500,000 7.000 77.191 06/15/2011 03/29/90 10,111 06/15/90
52 74955EAA7 RGS I & M FDG 500,000 9.810 100.689 12/07/2022 03/29/90 6,949 06/07/90
53
54
55
56
</TABLE>
<TABLE>
<CAPTION>
SALES SETTLING IN MARCH
=============================
MATURITY SETTLEMENT ACCRUED INT PAY CALL CALL
ROW CUSIP NO. ISSUER PAR COUPON PRICE DATE DATE INTEREST DATE DATE PRICE
- ------ ---------- -------------------- ------- -------- -------- --------- ----------- --------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
62 761157AA4 RESOLUTION FDG CORP 500,000 8.125 92.816 10/15/2019 03/05/90 22,712 04/15/90
63 029717AD7 AMERICAN STD INC 250,000 12.875 94.250 06/30/2000 03/06/90 12,428 06/30/90
64 761157AA4 RESOLUTION FDG CORP 500,000 8.125 92.816 10/15/2019 03/23/90 22,712 04/15/90
SEE OUTPUT COLUMN(S) FOR FURTHER TOTALS
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE 2 (CONTINUED)
LBVIP Series Fund, Inc. - Income Portfolio Standard Yield Calculation
PURCHASES SETTLING IN MARCH
=================================
DAILY MARKET VALUE GROSS
YIELD AND NO. OF DAYS INCOME
(360 DAY ACCRUED DAILY IN BASE FOR BASE
ROW CUSIP NO. ISSUER YIELD YEAR) INCOME INCOME PERIOD PERIOD
- ------ ---------- ----------------------- ----------- ------------- --------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
42 459200AG6 INTERNATIONAL BUSINE 9.1299% 0.025361% 713,712.92 181.00 26 4,706.00
43 912827XW7 UNITED STATES TREASU 8.6277% 0.023966% 482,255.45 115.58 25 2,889.50
44 928869AA4 VONS COS INC 13.0577% 0.036271% 235,000.00 85.24 25 2,131.00
45 761157AA4 RESOLUTION FDG CORP 9.0348% 0.025097% 235,011.04 58.98 17 1,002.66
46 761157AA4 RESOLUTION FDG CORP 9.0381% 0.025106% 234,933.04 58.98 17 1,002.66
47 459200AG6 INTERNATIONAL BUSINE 9.2480% 0.025689% 235,781.56 60.57 15 908.55
48 880591BD3 TENNESSEE VALLEY AUT 9.5964% 0.026657% 325,419.79 86.75 15 1,301.25
49 161241AK0 CHARTER MED CORP 21.2327% 0.058980% 178,694.44 105.39 8 843.12
50 881685AN1 TEXACO CAP INC 9.6193% 0.026720% 507,940.00 135.72 4 542.88
51 369856AF6 GENERAL FOODS CORP 9.5172% 0.026437% 396,066.11 104.71 2 209.42
52 74955EAA7 RGS I & M FDG 9.9049% 0.027514% 510,393.75 140.43 2 280.86
53
54
55
56
--------------
15,817.90
--------------
</TABLE>
<TABLE>
<CAPTION>
SALES SETTLING IN MARCH
=================================
DAILY MARKET VALUE GROSS
YIELD AND NO. OF DAYS INCOME
(360 DAY ACCRUED DAILY IN BASE FOR BASE
ROW CUSIP NO. ISSUER YIELD YEAR) INCOME INCOME PERIOD PERIOD
- ------ ---------- ----------------------- ----------- ------------- --------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
62 761157AA4 RESOLUTION FDG CORP 8.8022% 0.024450% 486,790.06 119.02 -26 (3,094.52)
63 029717AD7 AMERICAN STD INC 13.9024% 0.038618% 248,052.95 95.79 -25 (2,394.75)
64 761157AA4 RESOLUTION FDG CORP 8.8022% 0.024450% 486,790.06 119.02 -8 (952.16)
---------------
(6,441.43)
---------------
Total Gross Income Earned from Corporate Obligations
Computed on a Yield to Maturity or Yield to Call Basis... 163,348.17
===============
</TABLE>
<PAGE>
Schedule 1 - LBVIP Series Fund - Income Portfolio
FOOTNOTES:
- ----------
The purpose of schedule 1 is to show how yield is computed for securities
held throughout the 30 day base period as well as for securities that were
acquired or disposed of during the base period.
Page 1 of Schedule 1 summarizes the Fund's portfolio position and market
values as of the last business day of the previous bas period. Based on
this information, a yield is calculated for each security by equating its
future discounted cash flows to its current market value (including accrued
income). For those securities that are currently expected to be called
prior to maturity, a yield is calculated to an earlier call date. Once a
yield is calculated, gross income for the base period for each security is
arrived at by dividing yield by 360, the resulting quotient is multiplied by
the security's market value (including accrued income), and then multiplied
by 30.
Part 2 of schedule 1 summarizes securities that were acquired or disposed of
during the base period.
For securities acquired during the base period, yield is calculated assuming
purchase price plus accrued income. Gross income for the period is based on
the holding period from settlement date to the end of the base period.
For securities that are disposed of during the base period, a reduction to
gross income is made to reflect the actual holding period. This reduction
is necessary to avoid overstating gross income since gross income for these
securities shown on page 1 assumed they were held for the entire base
period.
<PAGE>
SCHEDULE 2 - SCHEDULE OF BOOK INCOME ON MORTGAGE-BACKED SECURITIES FOR
MARCH, 1990
BOOK INCOME
EARNED
CUSIP MATURITY DURING
NO. ISSUER PAR COUPON DATE MARCH
- --------- ------------------- ---------- --------- ---------- -----------
36219KX76 GNMA POOL # 251902 489338.94 10 20191115 4,078
362195Q36 GNMA POOL # 267874 508179.54 10 20180215 4,235
-----------
SUBTOTAL FOR GNMA MORTAGE-BACKED SECURITIES...................... 8,313
-----------
31354CSV3 FED HM
LN PC # 545932 1744282.8 8.5 20200201 12,355
0
-----------
SUBTOTAL FOR FHLMC MORTGAGE-BACKED SECURITIES.................... 12,355
-----------
SUBTOTAL FOR FHLMC & GNMA SECURITIES............................. 20,668
-----------
063844AA2 BANK NEW ENGLAND 882720 8.85 19941215 6,510
-----------
TOTAL BOOK INCOME FROM MORTGAGE-BACKED
SECURITIES FOR MARCH, 1990....................................... 27,178
-----------
-----------
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 3 Gain/Loss from Paydowns on Mortgage-backed Securities
LBVIP SERIES FUND - INCOME PORTFOLIO
PORTFOLIO SECURITY TRANSACTION JOURNAL
03/01/90 - 03/31/90
TRAN ENTRY TRADE SETTLE
TERM CODE PAR VALUE NAME DATE DATE DATE PRICE
- ---- ----- ----------- -------- ----- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
L-T SALE 717 FED HM LN PC # 54593 8.500000% 20200201 900327 900301 900415 100.000
SALE 206 GNMA POOL # 251902 10.000000% 20191115 900319 900301 900315 100.000
SALE 2,097 GNMA POOL # 267874 10.000000% 20180215 900319 900301 900315 100.000
</TABLE>
*TOTAL
TERM L-T
3,019
*TOTAL
TRANSACTION
SALE
3,019
TOTAL 3,019
<TABLE>
<CAPTION>
SCHEDULE 3 (CONTINUED) Gain/Loss from Paydowns on Mortgage-backed Securities
LBVIP SERIES FUND - INCOME PORTFOLIO
PORTFOLIO SECURITY TRANSACTION JOURNAL
03/01/90 - 03/31/90
TRAN TOTAL IDENTIFIED S-T L-T
TERM CODE NAME PROCEEDS INTEREST COST GAINS/LOSS GAINS/LOSS BROKER
- ---- ----- ---- -------- -------- -------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L-T SALE FED HM LN PC # 54593 13,077.62 12360.42 669.91 47.29 .00 PRINCIPAL PAYMENTS-MTG BACK
SALE GNMA POOL # 251902 4,285.08 4079.54 211.03 -5.49 .00 PRINCIPAL PAYMENTS-MTG BACK
SALE GNMA POOL # 267874 6,348.97 4252.30 2,153.02 -56.35 .00 PRINCIPAL PAYMENTS-MTG BACK
*TOTAL TERM L-T
23,711.67 20692.26 3,033.96 -14.55 .00
*TOTAL TRANSACTION SALE
23,711.67 20692.26 3,033.96 -14.55 .00
TOTAL 23,711.67 20692.26 3,033.96 -14.55 .00
----------
----------
</TABLE>
<PAGE>
<TABLE>
SCHEDULE 4
LBVIP INCOME PORTFOLIO
BOOK INCOME AND EXPENSES BY MONTH
FOR FISCAL YEAR ENDING 12/31/90
MONTHLY INCOME
----------------------------
AMORT. AMORT. TOTAL
L-T S-T DIVIDEND OF OF OTHER GROSS
MONTH INTEREST INTEREST INCOME DISCOUNT PREMIUM INCOME INCOME
- ---------- ------------ ------------ ----------- ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
JAN-90 142,662 13,529 0 8,130 3,604 1,469 162,186
FEB-90 156,862 17,028 0 21,698 4,185 677 192,080
MAR-90 166,561 18,290 0 16,575 4,452 335 197,310
------------
------------
APR-90 0 0 0 0 0 0 0
MAY-90 0 0 0 0 0 0 0
JUN-90 0 0 0 0 0 0 0
JUL-90 0 0 0 0 0 0 0
AUG-90 0 0 0 0 0 0 0
SEP-90 0 0 0 0 0 0 0
OCT-90 0 0 0 0 0 0 0
NOV-90 0 0 0 0 0 0 0
DEC-90 0 0 0 0 0 0 0
- ---------- ------------- ------------ ----------- ----------- ------------ ----------- --------------
(Y-T-D)
TOTALS 466,085 48,847 0 46,403 12,240 2,481 551,576
- ---------- ------------ ------------ ---------- ----------- ------------- ----------- --------------
- ---------- ------------ ------------ ---------- ----------- ------------- ----------- --------------
</TABLE>
<PAGE>
<TABLE>
SCHEDULE 4 (CONTINUED)
LBVIP INCOME PORTFOLIO
BOOK INCOME AND EXPENSES BY MONTH
FOR FISCAL YEAR ENDING 12/31/90
MONTHLY EXPENSES
----------------------------
ADVISORY NET OTHER TOTAL TOTAL NET
FEE FEE ADVISORY ACCRUED NET INVESTMENT
MONTH EXPENSE WAIVER FEE TAXES EXPENSES EXPENSES INCOME
- ---------- ---------- -------- -------- --------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
JAN-90 7,108 0 7,108 0 0 7,108 155,078
FEB-90 7,053 0 7,053 0 0 7,053 185,027
MAR-90 8,228 0 8,228 0 0 8,228 189,082
---------
---------
APR-90 0 0 0 0 0 0 0
MAY-90 0 0 0 0 0 0 0
JUN-90 0 0 0 0 0 0 0
JUL-90 0 0 0 0 0 0 0
AUG-90 0 0 0 0 0 0 0
SEP-90 0 0 0 0 0 0 0
OCT-90 0 0 0 0 0 0 0
NOV-90 0 0 0 0 0 0 0
DEC-90 0 0 0 0 0 0 0
- ---------- ------------ ------- --------- -------- ------------- ------------- ------------
(Y-T-D)
TOTALS 22,389 0 22,389 0 0 22,389 529,187
- -------- ------------ ------- --------- -------- ------------- ------------- ------------
- -------- ------------ ------- --------- -------- ------------- ------------- ------------
</TABLE>
<PAGE>
SCHEDULE 5 - Average Daily Number of Shares Outstanding
LBVIP - INCOME PORTFOLIO (MARCH 1990)
- ----------------------------------------------------------------
DAILY CUMULATIVE
O/S O/S
DATE DAY SHARES SHARES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
MAR 1 THU 2,621,286 2,621,286
2 FRI 2,629,286 5,250,572
3 SAT 2,632,578 7,883,150
4 SUN 2,632,578 10,515,728
5 MON 2,632,578 13,148,306
6 TUE 2,635,516 15,783,822
7 WED 2,662,029 18,445,851
8 THU 2,662,923 21,108,774
9 FRI 2,661,054 23,769,828
10 SAT 2,667,940 26,437,768
11 SUN 2,667,940 29,105,708
12 MON 2,667,940 31,773,648
13 TUE 2,670,317 34,443,965
14 WED 2,728,291 37,172,256
15 THU 2,751,763 39,924,019
16 FRI 2,770,432 42,694,451
17 SAT 2,773,802 45,468,253
18 SUN 2,773,802 48,242,055
19 MON 2,773,802 51,015,857
20 TUE 2,775,570 53,791,427
21 WED 2,791,250 56,582,677
22 THU 2,815,620 59,398,297
23 FRI 2,823,228 62,221,525
24 SAT 2,828,633 65,050,158
25 SUN 2,828,633 67,878,791
26 MON 2,828,633 70,707,424
27 TUE 2,834,143 73,541,567
28 WED 2,875,104 76,416,671
29 THU 2,880,448 79,297,119
30 FRI 2,918,656 82,215,775
MAR 31 SAT 2,921,618 85,137,393
AVERAGE OUTSTANDING 2,746,368
---------
---------
#20739
EXHIBIT 16(iii)
-----------
LBVIP SERIES FUND, INC.
MONEY MARKET PORTFOLIO
CALCULATION OF YIELD QUOTATIONS AS OF MARCH 30, 1990
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 the end of the seven-day period.......................... 1.001502544
-------------
Net change in account value.................................$0.001502544
=============
Base Period Return:
Net change in account value divided by
beginning account value ($0.001502544/$1.000000000) 0.001502544
=============
Annualized Current Net Yield................................. 7.83% (a)
=============
Effective Yield.............................................. 8.14% (b)
Footnotes:
- ---------------------------------------------------------------
(a) Annualized Current Net Yield = (0.001502544 x (365/7))
365/7
(b) Effective Yield = ((0.001502544 + 1) -1)
#20741
EXHIBIT 18(a)
REIMBURSEMENT AGREEMENT
-----------------------
THIS AGREEMENT made this _____ day of ______________, 1986, by
and between LBVIP Series Fund, Inc., a Minnesota corporation (the "Fund"),
and Lutheran Brotherhood Variable Insurance Products Company, a Minnesota
corporation ("LBVIP").
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"); and
WHEREAS, LBVIP has established and maintains the LBVIP Variable
Insurance Account, a separate account (the "Variable Account"), pursuant to
the laws of Minnesota for the purpose of selling flexible premium variable
life insurance contracts ("Contracts") to commence after the effectiveness
of the Registration Statement relating thereto filed with the Securities and
Exchange Commission on Form S-6 pursuant to the Securities Act of 1933, as
amended (the "1933 Act"); and
WHEREAS, the Variable Account will be registered as a unit
investment trust under the 1940 Act upon the effectiveness of the pending
Form N-8B-2 Registration Statement under the 1940 Act, and of the
Notification of Registration, Form N-8A; and
WHEREAS, each Subaccount of the LBVIP Variable Account will
invest in the shares of a corresponding portfolio of the Fund; and
WHEREAS, pursuant to an Investment Advisory Agreement
dated ____________________, between the Fund and Lutheran Brotherhood
Research Corp., a registered investment adviser (the "Adviser"), the Fund
agreed to pay, or provide for the payment of, all of its own expenses; and
WHEREAS, LBVIP is willing to pay, or to reimburse the Fund for
the payment of, all expenses except the advisory fee associated with
operating the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant
and agree as follows:
ARTICLE 1: DUTIES OF LBVIP. LBVIP shall pay or provide for payment of all
of the expenses of the Fund except the advisory fee, including, without
limitation, compensation of Directors not affiliated with the Adviser,
Lutheran Brotherhood or governmental fees, interest charges, taxes,
membership dues in the Investment Company Institute allocable to the Fund,
fees and expenses of 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 Custodian for all services to the Fund, including safekeeping of funds
and securities and keeping of books and calculating the net asset value of
shares of the Fund, expenses of shareholders' meetings, and expenses
relating to the issuance, registration and qualification of shares of the
Fund. LBVIP agrees to pay or to provide for such payment in such a manner
so that the net asset value of the Fund will not be reduced as a result of
the payment of any expenses.
ARTICLE 2: COVENANTS OF THE FUND. The Fund may, in the future, sell
shares to other separate accounts supporting variable insurance products
(including variable annuity products) issued by LBVIP or an affiliated
company. If the Fund does sell such shares to other separate accounts,
LBVIP shall have the right to seek reimbursement from sources other than the
Fund for Fund expenses incurred on behalf of such other separate accounts.
The Fund agrees not to sell to other separate accounts unless arrangements
have been made between and among the Fund, LBVIP and the sponsors of such
other separate accounts for an equitable allocation of Fund expenses payable
by LBVIP under this Agreement.
ARTICLE 3: ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS. LBVIP
reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Variable Account or that the Variable Account may purchase. If the shares
of a Portfolio of the Fund are no longer available for investment or if in
LBVIP's judgment further investment in any Portfolio should become
inappropriate in view of the purposes of the Variable Account, LBVIP may
redeem the shares, if any, of that Portfolio and substitute shares of
another registered open-end management company. LBVIP will not substitute
any shares attributable to LBVIP insurance Contract interests in a
Subaccount of the Variable Account without notice and prior approval of the
SEC and state insurance authorities, to the extent required by the 1940 Act
or other applicable law.
LBVIP also reserves the right to establish additional Subaccounts of the
Variable Account, each of which would invest in shares corresponding to a
new Portfolio of the Fund or in shares of another investment company having
a specified investment objective. Subject to applicable law and any
required SEC approval, LBVIP may, in its sole discretion, establish new
Subaccounts or eliminate one or more Subaccounts if marketing needs, tax
considerations or investment conditions warrant.
ARTICLE 4: DURATION, TERMINATION AND AMENDMENTS OF THIS AGREEMENT. This
Agreement shall become effective on the date of its execution and shall
govern the relations between the parties hereto thereafter. This Agreement
may be amended only by a written agreement signed by the parties hereto.
ARTICLE 5: MISCELLANEOUS. This Agreement shall be construed in accordance
with the laws of the State of Minnesota, contains the entire understanding
among the parties with respect to the matters covered hereby, and may be
executed in several counterparts, each of which shall be deemed to be an
original and one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered in their names and on their behalf by
the undersigned, thereunto duly authorized, all as of the day and year first
above written.
LBVIP SERIES FUND, INC.
By
----------------------------------------
Its
------------------------------------
LUTHERAN BROTHERHOOD VARIABLE
INSURANCE PRODUCTS COMPANY
By
----------------------------------------
Its
------------------------------------
#20726
EXHIBIT 18(b)
LBVIP SERIES FUND, INC.
Power of Attorney
of Directors and Officers
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors
and/or officers of LBVIP SERIES FUND, INC., a Minnesota corporation, does
hereby make, constitute and appoint Randall L. Wetherille, James M. Odland
and Otis F. Hilbert, and each or any of them, the undersigneds' true and
lawful attorneys-in-fact, with power of substitution, for the undersigneds
and in the undersigneds' name, place and stead, to sign and affix the
undersigned names as such directors and/or officers of such Company to a
Registration Statement or Registration Statements, on Form N-1A or other
applicable form, and all amendments, including post-effective amendments,
thereto, to be filed by such Company with the Securities and Exchange
Commission, Washington, D.C., in connection with the registration under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, of shares of such Company, and to file the same, with all
exhibits thereto and other supporting documents, with such Commission,
granting unto such attorneys-in-fact, and each of them, full power and
authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his
or her hand this 4th day of May, 1990.
/s/Rolf F. Bjelland
- -------------------------- President, (Chief Executive Officer)
Rolf F. Bjelland Chairman and Director
/s/Stanley C. Townswick
- -------------------------- Treasurer (Principal Financial Officer
Stanley C. Townswick and Principal Accounting Officer)
/s/Charles W. Arnason
- -------------------------- Director
Charles W. Arnason
/s/Herbert F. Eggerding, Jr.
- -------------------------- Director
Herbert F. Eggerding, Jr.
/s/Luther O. Forde
- -------------------------- Director
Luther O. Forde
/s/Bobby I. Griffin
- -------------------------- Director
Bobby I. Griffin
/s/Albert H. Quie
- -------------------------- Director
Albert H. Quie
/s/Ruth E. Randall
- -------------------------- Director
Ruth E. Randall
#20743
EXHIBIT 18(c)
LBVIP SERIES FUND, INC.
Power of Attorney
of Directors and Officers
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer of
LBVIP SERIES FUND, INC., a Minnesota corporation, does hereby make,
constitute and appoint Randall L. Wetherille, James M. Odland and Otis F.
Hilbert, and each or any of them, the undersigned's, true and lawful
attorneys-in-fact, with power of substitution, for the undersigned and in
the undersigned's name, place and stead, to sign and affix the undersigned
name as such officer of such Company to a Registration Statement or
Registration Statements, on Form N-1A or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by
such Company with the Securities and Exchange Commission, Washington, D.C.,
in connection with the registration under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, of shares of
such Company, and to file the same, with all exhibits thereto and other
supporting documents, with such Commission, granting unto such
attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 28th day of April, 1992.
/s/Wade M. Voigt
- -------------------------- Treasurer (Principal Financial Officer
Wade M. Voigt and Principal Accounting Officer)
#20744
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1997
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> LB SERIES FUND, INC. - GROWTH PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2,190,348
<INVESTMENTS-AT-VALUE> 2,449,976
<RECEIVABLES> 17,629
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,467,614
<PAYABLE-FOR-SECURITIES> 41,477
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 41,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,792,272
<SHARES-COMMON-STOCK> 112,406
<SHARES-COMMON-PRIOR> 85,833
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 374,238
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 259,628
<NET-ASSETS> 2,426,138
<DIVIDEND-INCOME> 22,808
<INTEREST-INCOME> 8,463
<OTHER-INCOME> 0
<EXPENSES-NET> 8,300
<NET-INVESTMENT-INCOME> 22,971
<REALIZED-GAINS-CURRENT> 389,813
<APPREC-INCREASE-CURRENT> 118,291
<NET-CHANGE-FROM-OPS> 531,075
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 22,971
<DISTRIBUTIONS-OF-GAINS> 239,942
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,520
<NUMBER-OF-SHARES-REDEEMED> 1,580
<SHARES-REINVESTED> 14,634
<NET-CHANGE-IN-ASSETS> 767,557
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 224,366
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,300
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,300
<AVERAGE-NET-ASSETS> 2,075,029
<PER-SHARE-NAV-BEGIN> 19.32
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 4.97
<PER-SHARE-DIVIDEND> 0.21
<PER-SHARE-DISTRIBUTIONS> 2.71
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.58
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1997
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> LB SERIES FUND, INC. - INCOME PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 889,188
<INVESTMENTS-AT-VALUE> 903,598
<RECEIVABLES> 24,209
<ASSETS-OTHER> 78
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 927,885
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47,445
<TOTAL-LIABILITIES> 47,445
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 884,551
<SHARES-COMMON-STOCK> 88,783
<SHARES-COMMON-PRIOR> 82,176
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (18,522)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,411
<NET-ASSETS> 880,440
<DIVIDEND-INCOME> 971
<INTEREST-INCOME> 57,142
<OTHER-INCOME> 0
<EXPENSES-NET> 3,298
<NET-INVESTMENT-INCOME> 55,085
<REALIZED-GAINS-CURRENT> 7,344
<APPREC-INCREASE-CURRENT> 7,184
<NET-CHANGE-FROM-OPS> 69,613
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 55,085
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,711
<NUMBER-OF-SHARES-REDEEMED> 5,750
<SHARES-REINVESTED> 5,645
<NET-CHANGE-IN-ASSETS> 79,280
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (25,866)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,298
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,298
<AVERAGE-NET-ASSETS> 824,547
<PER-SHARE-NAV-BEGIN> 9.75
<PER-SHARE-NII> 0.65
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> 0.65
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.92
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1997
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> LB SERIES FUND, INC. - MONEY MARKET PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 120,714
<INVESTMENTS-AT-VALUE> 120,714
<RECEIVABLES> 450
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 121,167
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121,167
<SHARES-COMMON-STOCK> 121,167
<SHARES-COMMON-PRIOR> 103,921
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 121,167
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,411
<OTHER-INCOME> 0
<EXPENSES-NET> 452
<NET-INVESTMENT-INCOME> 5,959
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,959
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 76,691
<NUMBER-OF-SHARES-REDEEMED> 65,403
<SHARES-REINVESTED> 5,959
<NET-CHANGE-IN-ASSETS> 17,247
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 452
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 452
<AVERAGE-NET-ASSETS> 113,116
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1997
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> LB SERIES FUND, INC. - HIGH YIELD PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,293,492
<INVESTMENTS-AT-VALUE> 1,321,840
<RECEIVABLES> 24,601
<ASSETS-OTHER> 57
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,346,498
<PAYABLE-FOR-SECURITIES> 1,936
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 1,936
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,296,384
<SHARES-COMMON-STOCK> 128,831
<SHARES-COMMON-PRIOR> 102,108
<ACCUMULATED-NII-CURRENT> 853
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18,977
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28,349
<NET-ASSETS> 1,344,563
<DIVIDEND-INCOME> 11,318
<INTEREST-INCOME> 106,752
<OTHER-INCOME> 0
<EXPENSES-NET> 4,734
<NET-INVESTMENT-INCOME> 113,336
<REALIZED-GAINS-CURRENT> 26,148
<APPREC-INCREASE-CURRENT> 18,136
<NET-CHANGE-FROM-OPS> 157,620
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 112,483
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,651
<NUMBER-OF-SHARES-REDEEMED> 1,942
<SHARES-REINVESTED> 11,014
<NET-CHANGE-IN-ASSETS> 317,826
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (7,170)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,734
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,734
<AVERAGE-NET-ASSETS> 1,183,575
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> 0.98
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> 0.97
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.44
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1997
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> LB SERIES FUND, INC. - OPPORTUNITY GROWTH PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 415,816
<INVESTMENTS-AT-VALUE> 412,606
<RECEIVABLES> 3,465
<ASSETS-OTHER> 129
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 416,200
<PAYABLE-FOR-SECURITIES> 24,736
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 24,736
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 393,536
<SHARES-COMMON-STOCK> 33,897
<SHARES-COMMON-PRIOR> 21,431
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,138
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,210)
<NET-ASSETS> 391,464
<DIVIDEND-INCOME> 841
<INTEREST-INCOME> 2,578
<OTHER-INCOME> 0
<EXPENSES-NET> 1,302
<NET-INVESTMENT-INCOME> 2,117
<REALIZED-GAINS-CURRENT> 4,836
<APPREC-INCREASE-CURRENT> 1,131
<NET-CHANGE-FROM-OPS> 8,084
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,117
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,916
<NUMBER-OF-SHARES-REDEEMED> 633
<SHARES-REINVESTED> 183
<NET-CHANGE-IN-ASSETS> 144,912
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,698)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,302
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,302
<AVERAGE-NET-ASSETS> 325,496
<PER-SHARE-NAV-BEGIN> 11.5
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> 0.06
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.55
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the LB
Series Fund, Inc. Annual Report to Shareholders dated December 31, 1997
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> LB SERIES FUND, INC. - WORLD GROWTH PORTFOLIO
</SERIES>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 280,844
<INVESTMENTS-AT-VALUE> 291,197
<RECEIVABLES> 378
<ASSETS-OTHER> 4,389
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 295,964
<PAYABLE-FOR-SECURITIES> 8,746
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14
<TOTAL-LIABILITIES> 8,760
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 276,920
<SHARES-COMMON-STOCK> 25,827
<SHARES-COMMON-PRIOR> 15,901
<ACCUMULATED-NII-CURRENT> (0)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (105)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,389
<NET-ASSETS> 287,204
<DIVIDEND-INCOME> 3,933
<INTEREST-INCOME> 792
<OTHER-INCOME> 0
<EXPENSES-NET> 2,080
<NET-INVESTMENT-INCOME> 2,645
<REALIZED-GAINS-CURRENT> 766
<APPREC-INCREASE-CURRENT> 47
<NET-CHANGE-FROM-OPS> 3,458
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,252
<DISTRIBUTIONS-OF-GAINS> 161
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,869
<NUMBER-OF-SHARES-REDEEMED> 250
<SHARES-REINVESTED> 307
<NET-CHANGE-IN-ASSETS> 113,111
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (103)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,080
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,080
<AVERAGE-NET-ASSETS> 244,749
<PER-SHARE-NAV-BEGIN> 10.95
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 0.21
<PER-SHARE-DIVIDEND> 0.13
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.12
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
